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We overvalue what we make
This document summarizes key points from a book about decision making and human behavior. Chapter 1 discusses how incentives do not always linearly increase performance, and extra stress can decrease it. Performance is also affected by whether a task is done privately or publicly. Chapter 2 explains that meaning and purpose in work increase effort and performance more than monetary rewards alone. Taking meaning out of work demotivates people. Chapter 3 finds that the more effort people put into something, the more they become attached to and value it. This applies to tasks, creations, and relationships. Greater labor leads to greater love and satisfaction. Chapter 4 discusses how people become attached to ideas based on how well they fit with pre
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We overvalue what we make
- 1. Review of Commentsby DanAirely By AHaller
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- 3. Prudence –a negative immediate effect for sake of a positive long term effect Sadly most of us prefer immediate gratification on the short term over our long term objectives. Rationally we should chose the long term best solution. Instead we opt out for a short term reason to do instead. The book addresses decisions at work and later personal decisions. Why do we procrastinate?
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- 5. Studies withrats one would think the greater the punishment the greater the incentive to perform better. Wrong!There is a tipping point where more and more punishment results in poorer performance. One gets not a linear result but a “inverse U” shape result. Performance vs Incentives is not necessarily linear Paying people high bonuses result in high performance for simple mechanical tasks but the opposite for complex mental activities. Doing work in private had far better results than doing in public. Conclusion stress does not necessarily lead to better performance. Example of bug did task much faster when not observed by fellow bug. When observed the bug did a poorer job. Pay people more small bonuses frequently Avoid one large bonus based on performance To restrain large corporate salaries Congress mandated the publishing of CEO pay. It did not restraint it. Instead it created greater demand as CEO’s now compared each others pay.
- 6. Performance vs Incentivesis not necessarily linear Extra stress ended up with lesser performance Under torture one’s performance becomes the worse Torture!
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- 8. Working andseeing one’s effort disregarded or destroyed before their eyes.This will dampen one’s efforts Lab animals would rather work for a reward than be given one Sisyphus:Would labor and rock would roll back. If you take someone who loves something and place them in a meaningful work condition, the joy they derive from the effort will be the key in affecting their effort. If in a meaningless work condition their internal joy is suffocated. Taking meaning out of work is easy. Ignore a worker and their efforts. Opposite results if recognize worker and their effort.
- 9. Avoid assigningemployee division of labor smaller and smaller part of the total effort without giving the employee big picture, purpose, and completion Meaning can be more than just monetary reward. It might be a chance to do something new such as travel.
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- 11. Taking thetime out to make an Ikea toy box Why pie crust mixes sold in the 1940’s but cake mixes did not until the “egg effect”. Betty CROKER “You can baked someone happy!” Sandra Lee’s 70/30 recipes for success Investment = attachment There is a and overvalue their creation process where labor begets love Creators come to love and overvalue their own creations
- 12. Converse.com designyour own tennis shoe Design own kitchen If customers spend too much effort they can be driven away Ask them too few options for customization, personalization, and attachment they will be driven away Building it creates a greater sense of ownership than creating it but both have relevance Parents as a rule overvalue their kids compared to those of others
- 13. Example oflearning to use the sewing machine. The finished product was rough but he took great pride in it. The projects left undone he had no sentimental attachment to Those who complete a project value it more so than those who gave up
- 14. The effortthat we put into something does not change the object or person. It changes us and the way we value the object or person. Greater labor leads to greater love Our overvaluation of the things we make or have runs so deep that we assume that others share our biased perception. When we cannot complete something into which we have put great effort, we do not feel so attached to it.
- 15. At firstwe assume we would prefer relaxation to effort. Effort means moving out of our comfort zone, frustration, stresses, surprises, etc. Examples of lab rats rather than go to a effortless free feeding bin instead prefer going to one that requires some effort to hit a button that turns on a light and delivers a pellet of food In fact it is often effort that ultimately creates long term satisfaction
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- 17. What ofnon tangible items? If I or we did not invent the idea, then it is not worth much How do we get attached to ideas? Idiosyncratic fit it fits with our underlying beliefs and preferences rather than an external objective criteria Toothbrush theory everyone needs one, everyone has one, but no one wants to use anyone else’s
- 18. Sometimes peopleembrace an outdated idea too long. Example - Edison’s refusal to acceptAC as far better than DC current. What is true of people is true of corporations A way to help a person embrace an idea is to ask questions. And if we did this “then what?What are the perceived threats, opportunities, strengths, and weaknesses?” Child will eagerly eat a salad of vegetables grown by them rather than a salad set before them.
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- 20. Revenge isone of the most deep seated instincts we have. In one way the unknown prospect of it being unleashed with unforeseen consequences creates social order.Why risk it? Studies show the decision to punish was related to a feeling of pleasure There exists an inherent sense of justice and that revenge at personal expense can play a role Revenge and trust are two sides of the same coin.Trusting societies have tremendous benefits over non trusting societies Look at the bank bailout of 2007.The public was outraged when the trust in their financial firms was shown to be misplaced
- 21. Even simpletransgressions can ignite the instinct for revenge We often do not distinguish between the person who made us angry and whoever suffers the consequences of our retaliation The word sorry completely counteracts the effect of annoyance Apologies work temporarily When revenge appeared to work – an exampleWhen ousted from a high position certain people feel very agitated. A constructive form of revenge is when Katzenberg gets dismissed from Disney and found DreamWorks
- 22. Doctors canadmit their mistakes or deny them In one way to admit them comes the fear of legal reprisal in the form of a lawsuit. In another an apology might placate the patient and reduce the chance of a legal attack Given the above two strategies to humbly apologize has better results
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- 24. Just likeadapting to a brighter or darker room it takes time to adjust. Hedonic adaptation – how do we respond to pleasure or pain We adapt quicker than we think Pain tolerance less in people who have not suffered We get accustomed to where we live. Delights and annoyances diminish in intensity.True of injuries, smells, victories, etc.
- 25. HedonicTreadmill –we escalate our purchases hoping it increases our pleasure. Such thrills are short lived as a rule. Wherever you go, there you are Overcoming hedonic adaptation – A break while doing an irritating or boring experience will decrease our ability to adapt. Moral stick with it until you are done A break while doing a pleasurable activity will increase our ability to enjoy. Slow down pleasure. A buyer is happier if she limits her purchases, takes breaks, and slows down the adaptation process. Buy when the thrill of your last purchase wears off Going through economic pain initially will be larger but total agony time will be lower Shift from investing in products which are a stream of experiences to ones that are transient.We adapt to a new stereo but a 4 day vacation is transient Put more spontaneity in your life Real progress and real pleasure comes from taking risks and trying very different things. People adapt at different rates
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- 27. Assortive mating:the cool date the cool; the beautiful the beautiful and the ugly the ugly We tend to scorn or not pursue that which we cannot have Speed dating is safer than clubbing, blind dating, set up by friends, etc.
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- 29. Moving forcareer, lack of time, and frowning on interoffice dating prevent young people from meeting one another Too much emphasis exists on quantitative aspects not qualitative ones Online dating really is online searching and blurb writing Process is difficult, time consuming, unintuitive, and slightly informative Dating is about experiencing something with another persons Virtual dating has better results. Bring a photo to discuss it.
- 30. Engage thecontact in conversations of what you like to do Point to web sites of interest and both experience it Play a game online Online dating is a failure of product design.
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- 32. Human naturevery sensitive to the suffering of one person yet apathetic to the suffering of the many Once we have a face and details about a person we feel for them.When the information is not individualized we do not feel as much and thus do not act. Closeness, vividness, and the “drop in the bucket” effect – are we close to the person in need?, do we vividly see the plight or it is vague?, do you feel like you really can make a difference?
- 33. Rationally weshould help the greatest number of people and act accordingly Difficult to calculate, process stats, and feel emotions at the same time Cold calculations suppress our response. People give for emotional reasons not just to the facts at hand As the number of suffers increase the amount of money donated decreased Individualized the suffering.
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- 35. Herding –following other people we do not know Self herding we follow ourselves.We act in a way we always have. Our internal script “handle this the way you did before”. Prior behavior and emotive temperature hot, cold, or warm presets future expectations of others. Short term emotions cascade into long term effects Before committing long term two should do something together that is new to each and check on the chemistry. Cooloff prior to making a decision
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- 37. Endowment Effectand Loss Aversion – we overvalue what we have.To give it up we consider a loss. Losses are painful.A lot of emotional energy is needed to end matters. Status Quo Bias –We are in a comfort zone and resist change. Change is threatening. Irreversibility of a Decision – House to buy, who to marry, - fear of things that could go wrong.We overstate our fears and understate what “newness” brings Human tendency to over rationalize reason to not change Teliophobia: the fear of commitment
- 38. Sunken CostFallacy –We assume because a lot of time, money, and effort of the past were made we justify continuing something when its future benefit is questionable. There is an importance to testing – answers are not necessarily clear “It is common sense take a method and try it. If it fails admit frankly and try another. But above all try something!”. FDR Continue to ask Socratic questions -What did you learn from this? And then what?”