by Rolf Dobelli
Another example is children’s day care centers. Day care workers face the same issue the world over: parents collecting their children after closing time. The staff has no choice but to wait. They can hardly put the last remaining children in taxis or leave them on the curb. To discourage parental tardiness, many nurseries introduced fees for lateness. Ironically, studies show that tardiness actually increased. Of course, they could have instituted a draconian penalty of, say, $500 for each hour—as they could have offered $1 million to each citizen of the small Swiss village. But that’s beside the point. The point is: Small—surprisingly small—monetary incentives crowd out other types of incentives.
The three stories illustrate one thing: Money does not always motivate. Indeed, in many cases, it does just the opposite. When my friend slipped me that fifty, he undermined my good deed—and also tainted our friendship. The offer of compensation for the nuclear repository was perceived as a bribe and cheapened the community and patriotic spirit. The nursery’s late fees transformed its relationship with parents from interpersonal to monetary, and essentially legitimized their lateness.
Science has a name for this phenomenon: motivation crowding. When people do something for well-meaning, nonmonetary reasons—out of the goodness of their hearts, so to speak—payments throw a wrench into the works. Financial reward erodes any other motivations.
Suppose you run a nonprofit organization. Logically, the wages you pay are quite modest. Nevertheless, your employees are highly motivated because they believe they are making a difference. If you suddenly introduce a bonus system—let’s say a small salary increase for every donation secured—motivation crowding will commence. Your team will begin to snub tasks that bring no extra reward. Creativity, company reputation, knowledge transfer—none of this will matter anymore. Soon, all efforts will zoom in on attracting donations.
So who is safe from motivation crowding? This tip should help: Do you know any private bankers, insurance agents, or financial auditors who do their jobs out of passion or who believe in a higher mission? I don’t. Financial incentives and performance bonuses work well in industries with generally uninspiring jobs—industries where employees aren’t proud of the products or the companies and do the work simply because they get a paycheck. On the other hand, if you create a start-up, you would be wise to enlist employee enthusiasm to promote the company’s endeavor rather than try to entice employees with juicy bonuses, which you couldn’t pay anyway.
One final tip for those of you who have children: Experience shows that young people are not for sale. If you want your kids to do their homework, practice musical instruments, or even mow the lawn once in a while, do not reach for your wallet. Instead, give them a fixed amount of pocket money each week. Otherwise, they will exploit the system and soon refuse to go to bed without recompense.
57
If You Have Nothing to Say, Say Nothing
Twaddle Tendency
When asked why a fifth of Americans were unable to locate their country on a world map, Miss Teen South Carolina, a high school graduate, gave this answer in front of rolling cameras: “I personally believe that U.S. Americans are unable to do so because some people out there in our nation don’t have maps, and I believe that our education like such as South Africa and the Iraq everywhere like such as and I believe that they should our education over here in the U.S. should help the U.S., should help South Africa, and should help the Iraq and the Asian countries, so we will be able to build up our future.” The video went viral.
Catastrophic, you agree, but you don’t waste too much time listening to beauty queens. Okay, how about the following sentence? “There is certainly no necessity that this increasingly reflexive transmission of cultural traditions be associated with subject-centered reason and future-oriented historical consciousness. To the extent that we become aware of the intersubjective constitution of freedom, the possessive-individualist illusion of autonomy as self-ownership disintegrates.” Ring any bells? Top German philosopher and sociologist Jürgen Habermas in Between Facts and Norms.
Both of these are manifestations of the same phenomenon, the twaddle tendency. Here, reams of words are used to disguise intellectual laziness, stupidity, or underdeveloped ideas. Sometimes it works, sometimes not. For the beauty queen, the smoke screen strategy failed spectacularly. For Habermas, it has worked so far. The more eloquent the haze of words, the more easily we fall for them. If used in conjunction with the authority bias, such drivel can be especially dangerous.
I myself have fallen for the twaddle tendency on many occasions. When I was younger, French philosopher Jacques Derrida fascinated me. I devoured his books, but even after intense reflection I still couldn’t understand much. Subsequently his writings took on a mysterious aura, and the whole experience drove me to write my dissertation on philosophy. In retrospect, both were tomes of useless chatter—Derrida and my dissertation. In my ignorance, I had turned myself into a walking, talking smoke machine.
The twaddle tendency is especially rife in sport. Breathless interviewers push equally breathless football players to break down the components of the game, when all they want to say is: “We lost the game—it’s really that simple.” But the presenter has to fill airtime somehow—and seemingly the best method is by jabbering away, and by compelling the athletes and coaches to join in. Jabber disguises ignorance.
This phenomenon has also taken root in the academic spheres. The fewer results a branch of science publishes, the more babble is necessary. Particularly exposed are economists, which we can see in their comments and economic forecasts. The same is true for commerce on a smaller scale: The worse off a company is, the greater the talk of the CEO. The extra chatter extends to not just a lot of talking, but to hyperactivity also designed to mask the hardship. A laudable exception is the former CEO of General Electric Jack Welch. He once said in an interview: “You would not believe how difficult it is to be simple and clear. People are afraid that they may be seen as a simpleton. In reality, just the opposite is true.”
In conclusion: Verbal expression is the mirror of the mind. Clear thoughts become clear statements, whereas ambiguous ideas transform into vacant ramblings. The trouble is that, in many cases, we lack very lucid thoughts. The world is complicated, and it takes a great deal of mental effort to understand even one facet of the whole. Until you experience such an epiphany, it’s better to heed Mark Twain: “If you have nothing to say, say nothing.” Simplicity is the zenith of a long, arduous journey, not the starting point.
58
How to Increase the Average IQ of Two States
Will Rogers Phenomenon
Let’s say you run a small private bank. The bank manages the money of wealthy and mostly retired individuals. Two money managers—A and B—report to you. Money Manager A manages the money of a few ultra-high-net-worth individuals. Money Manager B has rich, but not extravagantly rich, clients to deal with. The board asks you to increase the average pool of money of both A and B—within six months. If you succeed, you receive a handsome bonus. If not, they’ll find someone else to do it. Where do you start?
It’s quite simple, actually: You take a client with a sizable but not a huge pool of money from A and give it to B instead. In one fell swoop, this brings up A’s average managed wealth as well as B’s without you having to find a single new client. The only remaining question is: How will you spend your bonus?
Suppose you switch careers and are now in charge of three hedge funds that invest primarily in privately held companies. Fund A has sensational returns, fund B’s are mediocre, and fund C’s are miserable. You want to prove yourself to the world, so what’s your master plan? You know how it works now: You move a few of A’s shares to B and C—picking exactly those investments that have been pulling down A’s average returns, but which are still profitable enough to fortify B and C. In no time, all three funds look much healthier. And, because the transformation happ
ened in-house, you don’t incur a single fee. Of course, the combined value of the trio hasn’t risen by a single cent, but people will still pat you on the back.
This effect is called “stage migration” or the Will Rogers phenomenon, named after an American comedian from Oklahoma. He is said to have joked that Oklahomans who pack up and move to California raise both states’ average IQ. Since we rarely recognize such scenarios, let’s drill the Will Rogers phenomenon to anchor it in your memory.
One good example is an auto franchise. Let’s say you take charge of two small branches in the same town with a total of six salesmen: numbers 1, 2, and 3 in branch A, and numbers 4, 5, and 6 in branch B. On average, salesman number 1 sells one car per week, salesman number 2 sells two cars per week, and so on up to top salesman number 6, who shifts six cars each week. With a little calculation, you know that branch A sells two cars per salesman, whereas branch B is far ahead with an average of five cars per salesman per week. You decide to transfer salesman number 4 to branch A. What happens? Its average sales increase to 2.5 units per person. And branch B? It now consists of only two salesmen, numbers 5 and 6. Its average sales increase to 5.5 per person. Such switcheroo strategies don’t change anything overall, but they create an impressive illusion. For this reason, journalists, investors, and board members should be on special alert when they hear of rising averages in countries, companies, departments, cost centers, or product lines.
A particularly deceitful case of the Will Rogers phenomenon is found in medicine. Tumors are usually broken down into four stages: The smallest and most treatable ones are classified as stage one; the worst are rated stage four. Their progression gives us the term “stage migration.” The survival rate is highest for stage one patients and lowest for stage four patients. Now, every year new procedures are released onto the market and allow for more accurate diagnosis. These new screening techniques reveal minuscule tumors that no doctor had ever noticed before. The result: Patients who were erroneously diagnosed as healthy before are now counted as stage one patients. The addition of relatively healthy people into the stage one group increases the group’s average life expectancy. A great medical success? Unfortunately not: mere stage migration.
59
If You Have an Enemy, Give Him Information
Information Bias
In his short story “Del rigor en la ciencia,” which consists of just a single paragraph, Jorge Luis Borges describes a special country. In this country, the science of cartography is so sophisticated that only the most detailed of maps will do—that is, a map with a scale of 1:1, as large as the country itself. Their citizens soon realize that such a map does not provide any insight, since it merely duplicates what they already know. Borges’s map is the extreme case of the information bias, the delusion that more information guarantees better decisions.
Searching for a hotel in Miami a little while ago, I drew up a short list of five good offers. Right away, one jumped out at me, but I wanted to make sure I had found the best deal and decided to keep researching. I plowed my way through dozens of customer reviews and blog posts and clicked through countless photos and videos. Two hours later, I could say for sure which the best hotel was: the one I had liked at the start. The mountain of additional information did not lead to a better decision. On the contrary, if time is money, then I might as well have taken up residence at the Four Seasons.
Jonathan Baron from the University of Pennsylvania asked physicians the following question: A patient presents symptoms that indicate with a probability of 80 percent that he is suffering from disease A. If this is not the case, the patient has either disease X or Y. Each of these diseases is equally bad, and each treatment results in similar side effects. As a doctor, what treatment would you suggest? Logically, you would opt for disease A and recommend the relevant therapy. Now suppose there is a diagnostic test that flashes “positive” when disease X is present and “negative” when disease Y is detected. However, if the patient really does have disease A, the test results will be positive in 50 percent of the cases and negative in the other 50 percent. Would you recommend conducting the test? Most doctors said yes, even though the results would be irrelevant. Assuming that the test result is positive, the probability of disease A is still much greater than that of disease X. The additional information contributes nothing of value to the decision.
Doctors are not the only professionals with a penchant for surplus information. Managers and investors are almost addicted to it. How often are studies commissioned one after the other, even though the critical facts are readily available? Additional information not only wastes time and money, it can also put you at a disadvantage. Consider this question: Which city has more inhabitants, San Diego or San Antonio? Gerd Gigerenzer of the Max Planck Institute in Germany put this question to students in the University of Chicago and the University of Munich. Sixty-two percent of Chicago students guessed right: San Diego has more. But, astonishingly, every single German student answered correctly. The reason: All of them had heard of San Diego but not necessarily of San Antonio, so they opted for the more familiar city. For the Chicagoans, however, both cities were household names. They had more information, and it misled them.
Or consider the hundreds of thousands of economists—in service of banks, think tanks, hedge funds, and governments—and all the white papers they have published from 2005 to 2007: The vast library of research reports and mathematical models. The formidable reams of comments. The polished PowerPoint presentations. The terabytes of information on Bloomberg and Reuters news services. The bacchanal dance to worship the god of information. It was all hot air. The financial crisis touched down and upended global markets, rendering the countless forecasts and comments worthless.
Forget trying to amass all the data. Do your best to get by with the bare facts. It will help you make better decisions. Superfluous knowledge is worthless, whether you know it or not. The historian Daniel J. Boorstin put it right: “The greatest obstacle to discovery is not ignorance—it is the illusion of knowledge.” And next time you are confronted by a rival, consider killing him—not with kindness but with reams of data and analysis.
60
Hurts So Good
Effort Justification
John, a soldier in the U.S. Army, has just completed his paratrooper course. He waits patiently in line to receive the coveted parachute pin. At last, his superior officer stands in front of him, lines the pin up against his chest, and pounds it in so hard that it pierces John’s flesh. Ever since, he opens his top shirt button at every opportunity to showcase the small scar. Decades later, he has thrown away all the memorabilia from his time in the army, except for the tiny pin, which hangs in a specially made frame on his living-room wall.
Mark single-handedly restored a rusty Harley-Davidson. Every weekend and holiday went into getting it up and running; all the while his marriage was approaching breakdown. It was a struggle, but finally Mark’s prized possession was road-ready and gleamed in the sunshine. Two years later, Mark desperately needs money. He sells all his possessions—the TV, the car, even his house—but not the bike. Even when a prospect offers double the actual value, Mark does not sell it.
John and Mark are victims of effort justification. When you put a lot of energy into a task, you tend to overvalue the result. Because John had to endure physical pain for the parachute pin, it outshines all his other awards. And since Mark’s Harley cost him so many hours—and also nearly his wife—he prizes the bike so highly that he will never sell it.
Effort justification is a special case of “cognitive dissonance.” To have a hole punched in your chest for a simple merit badge borders on the absurd. John’s brain compensates for this imbalance by overvaluing the pin, hyping it up from something mundane to something semisacred. All of this happens unconsciously and is difficult to prevent.
Groups use effort justification to bind members to them—for example, through initiation
rites. Gangs and fraternities initiate new members by forcing them to withstand nauseating or vicious tests. Research proves that the harder the “entrance exam” is to pass, the greater the subsequent pride and the value they attach to their membership. MBA schools play with effort justification in this way: They work their students day and night without respite, often to the point of exhaustion. Regardless of whether the course work proves useful later on, once the students have the MBAs in the bag, they’ll deem the qualification essential for their careers simply because it demanded so much of them.
A mild form of effort justification is the so-called IKEA effect. Furniture that we assemble ourselves seems more valuable than any expensive designer piece. The same goes for hand-knitted socks. To throw away a handcrafted pair, even if they are tatty and outdated, is hard to do. Managers who put weeks of hard work into a strategy proposal will be incapable of appraising it objectively. Designers, copywriters, product developers, or any other professionals who brood over their creations are similarly guilty of this.
In the ’50s, instant cake mixes were introduced to the market. A surefire hit, thought the manufacturers. Far from it: Housewives took an instant disliking to them—because they made things too easy. The firms reacted and made the preparation slightly more difficult (beating in an egg yourself). The added effort raised the ladies’ sense of achievement and, with it, their appreciation for convenience food.