How Facebook can rethink success, according to behavioural economist Dan Ariely
Dan Ariely spoke at the Sohn Hearts & Minds Investment Leaders Conference in Melbourne. (Event Photos Australia: Elleni Toumpas)
Facebook founder Mark Zuckerberg may benefit from some advice from behavioural economist Dan Ariely.
The US-based Duke University psychology and behavioural economics professor won’t publicly reveal the Fortune 500 companies he advises, but is reportedly often called upon by high-profile business executives for his insights.
In the wake of the Cambridge Analytica scandal and general concerns about how Facebook handles its users’ private information, the social media giant is struggling internally.
Earlier this month, The Wall Street Journal reported the results of a Facebook internal survey of employee attitudes.
It found that staff morale has plummeted over the last year: only 52 per cent of employees are optimistic about Facebook’s future (down from 84 per cent) last year.
“Facebook is making tons of money — as capitalistic system it is really good,” says Ariely, in an interview with ABC News.
He was in Melbourne recently, speaking at the Sohn Hearts and Minds Investment Leaders Conference, which attracts the who’s who of business to share ideas and raise funds for medical research.
At the time of writing, Facebook’s share price — while taking a bettering in recent months — was still hovering around $133 and its market capitalisation was $383 billion.
“But people [working at Facebook] are less and less happy because they’re realising that the role of that organisation in contributing to fake news and … the opinion bubble that people have.”
A new investment strategy
Ariely examines how irrational behaviours affect decision-making, in the hope we can all be a bit more rational.
Many of Ariely’s books, several of which have become New York Times bestsellers, explore how financial incentives and rewards are not necessarily the best motivators.
He is not against people getting paid a good wage, but does question the big pay packets of chief executives.
“We let CEOs decide on their own salaries and then they pick a very high salary,” he observes. “And then they come up with stories about what it’s justified. But it is not.”
The same applies to workers. In one study he found that compliments and pizza can motivate staff behaviour in a better way than pay bonuses.
Ariely’s recently been testing a new investment strategy which he hopes will “put back attention on how important it is to treat employees well”.
It is to invest in companies that treat their employees well on measures such autonomy, forgiveness and a sense of belonging, and to short stocks that don’t.
Dan Ariely often discusses the idea of “predictable irrationality” – how people’s intuitions fool them and this may lead to mistakes in decision making. (Elleni Toumpas/Event Photos Australia
“It turns out that strategy from 2006 to 2017 does [result in gains of] 12 per cent over the S&P 500 [index],” he says.
“We are moving into a world in which our relationships with good organisations are much more like romantic relationships where we give and get.”
In this sense, it is not about rejecting capitalism per se, but questioning its excessiveness.
“We have these accounting systems for companies that treat any investment in people as a cost, and any investment in physical things as an investment.,” he said.
“It’s kind of crazy to think about it this way.”
Staff rewarded with experiences, not money
That’s why at the Duke University research centre — where Ariely oversees about 40 staff — he rewards them with ‘experiences’ rather than cash.
Last year he asked his employees to nominate something they wanted to learn, in any location, that would help them grow as a human. He would then send them to that place.
“People wanted to learn things like yoga, and mediation and drawing, and writing,” he says. “Somebody wanted to watch some tribes.”
This year his idea is to reward staff with various special experiences throughout the year.
“We have these accounting systems for companies that treat any investment in people as a cost, and any investment in physical things as an investment,” says behavioural economist Dan Ariely. (Elleni Toumpas/Event Photos Australia)
“A lot of them have to do with spending time better,” Ariely adds.
“I created 32 scratch cards for each person. And every scratch card has a task, and everybody is going to do the same task — every other week do a different task.
“One task could be for example, ‘take a bottle of wine, take a good book, go somewhere in the afternoon and read’. Or, ‘go home, invite two people for dinner and cook something’.”
He says rewarding staff in this way, is more valuable than a $3,000 bonus at year’s end.
“That’s the way that you get true buy-in.”
Delving into human suffering
Ariely came to the field of behavioural economics after a personal ordeal.
He was born in New York but raised in Israel from age three.
In his senior year of high school, as part of a youth movement he was involved in and while was mixing flammable materials for a fire inscription, an explosion occurred.
He suffered third-degree burns over 70 per cent of his body (it is also why Ariely has half a beard — he says it’s because he cannot grow a beard on one side of his face due to the burns he received).
When he was young, Dan Ariely suffered third-degree burns over 70 per cent of his body in an accident. He says that is why he can only grow half a beard. (Elleni Toumpas/Event Photos Australia)
Ariely had to spend three years in hospital recovering.
“I used to have a daily debate with the nurses about what’s the right way to remove bandages,” he remembers.
“They thought the right approach is to rip the bandage off quickly, I thought the right approach is not. They kept on doing what they thought was right, and I kept on complaining.”
When he left hospital, he started doing experiments about what’s the right way to deliver pain to people.
“It turns out that I was right and the nurses were wrong,” Ariely adds.
Explaining Trump, rethinking capitalism
From there Ariely’s research grew. He explored the idea that humans repeatedly and predictably make the wrong decisions in many aspects of their lives.
In one of his TED talks he discusses the idea of “predictable irrationality” — how people’s intuitions fool them and this may lead to mistakes in decision making.
I ask him whether it applies to US President Donald Trump, who some argue is a master at creating illusions and having the masses believe that it is the very truth.
Ariely says, “it’s really hard to understand his individual incentives”.
He feels Trump is not so predictable.
Trump has “pushed our understanding of the boundaries” of what is real and what is not.
“We understand to a much larger degree, how you can create a new reality just by saying something,” Ariely observes.
In the end for Ariely, despite its flaws, the best system, he thinks, is still capitalism — just one that also draws on some socialist ideals.
“It’s a little bit going back to Karl Marx’s notion of getting to feel connected,” Ariely argues.
“It can’t be ruthless capitalism because a sense of meaning is very important.”