3. Your Brain on Purpose
Psychology teaches us that humans are irrational, adaptable, constantly changing beings with cognitive abilities greater than any other animal. Economics would have us think we are rational, unchanging, robots devoid of empathy or feelings towards anyone else. So what happens when these two branches of the social science tree meet: welcome to behavioral economics.
This is the third post in a short series on purpose. If you missed the first one, you should start here. Everyone is encouraged to highlight, note and respond to all posts in the interest of learning. Sign up to get updates on when all posts are published.
Last week we talked a lot about how capitalism, as we know it today, is a bit off track towards its original purpose. This week I want to go a bit deeper and touch on one of the most important reasons why that it is.
Capitalism was built on false pretenses. There are two principles that we now know are not true (and never were): (1) that humans are rational, (2) that we are motivated by financial rewards above everything else. Behavioral economics or good economics or new economics, is trying to take this new knowledge and apply it to update old theories on economics. Psychology and the field of social sciences more broadly are providing the evidence we need to do this… so let’s dig deeper there.
One of the best books I’ve read this decade (and there are a lot) is Daniel Khaneman’s Thinking Fast and Slow. It is the latest in a growing movement of books that blend psychology, economics, and the other social sciences to create a more authentic theory of human behavior and decision making. Khaneman quotes behavioral economist Richard Thaler throughout and uses the terms ‘Econs’ and ‘Humans’ for the different species that traditional economists and traditional psychologists have been studying.
Econs are ‘rational, selfish and his tastes do not change.’ Humans are the irrational, sharing, adaptable species we all love and know (in reality). Luckily for society there are more Humans than Econs in this world, but I think it’s safe to say that within the sub-species of corporations there are many more Econs than Humans, and therein lies the problem. But let’s focus on people for a bit, or more particularly… humans.
Humans are not rational (all the time)
Dan Airely famously declared that humans regularly and predictably act in ways traditional economists would declare irrational in his aptly titled book Predictably Irrational. Airley is a professor of both Psychology and Behavioral Economics and combined with Thaller’s best-seller, Nudge, was a part of my introduction to the world of behavioral economics.
The basic overview is that psychologists have been studying what they call cognitive biases and heuristics for years, and recently (as early as the 1970s, but not widely until the 1990s/2000s), they have been applying the science of decision making with theories laid out in classical economics. What they’re finding is that humans do not normally act like Econs. There are a number of instances where we favor fairness and relationships over profit, and default to laziness over cognitive effort, all of which debunks the truths held in classical economics.
An example of laziness… most Americans under-save for retirement. If we were all Econs we would calculate how much we need for retirement, work backwards to figure out how much we need to save every month and then put that money aside (in whatever low-tax, high return option worked out best). But few people do that. At best, we opt-in to our employers’ 401k account and hopefully enjoy matched savings (aka, free money). But even that is too much for some people. The simple act of ‘opting-in’ to these plans is more effort than many of us can make. We are not rationally aware of the benefits of such plans and are literally leaving free money on the table. We do this because we are human.
There is an easy solution for this particular problem. As a company, offer automatic enrollment to such plans with an opt-out for those who don’t want to join. A 2001 study by Brigitte Madrian and Dennis Shea found that with the opt-in clause the company they studied had a 20% adoption rate of employees choosing to sign up to the company-sponsored 401k plan from the time of hiring which slowly rose to 65% after 3 years working for the company. When they switched their policy to an opt-out clause the immediate adoption rate was 90% rising to 98% after 3 years. In a land of Econs it wouldn’t matter whether the clause was opt-in or opt-out, but it clearly does.
My favorite example of choosing fairness over profit comes from what behavioral economist call the ‘Ultimatum Game.’ A basic description from wikipedia:
The first player (the proposer) receives a sum of money and proposes how to divide the sum between himself and another player. The second player (the responder) chooses to either accept or reject this proposal. If the second player accepts, the money is split according to the proposal. If the second player rejects, neither player receives any money. The game is typically played only once so that reciprocation is not an issue.
Let’s say we start with $100 and choose only Econs to play. In this scenario the proposer would always offer $1 to the responder and keep $99. The responder would rationally understand that it is better to have $1 than $0 and accept the offer, but this rarely happens. In reality, the responder views the $1 offer as ‘unfair’ and rejects the offer with no one receiving anything. Humans’ sense of fairness trumps our economic rationality.
In the real world, with Humans playing instead of Econs, subjects usually split the pie pretty evenly. Those who propose too little, get rejected and neither party gets anything. Culturally, this split changes from country to country, but Americans value fairness more than most. In fact Jonathan Haidt claims in his book, The Righteous Mind: why good people are divided by religion and politics, that the value of ‘fairness’ is one of the universal values that both democrats and republicans can agree on (of course they have different definitions for what fairness means, but that’s for another post).
So what does this have to do with purpose? If we know we can’t reliably make decisions based off of sound reason, logic, and rationality, than what are we left with? Purpose. By having a clear sense for what you’re trying to achieve and where you want to go, it will always be easier to make decisions. You can escape some of the mind traps and create shortcuts that will allow you to make easier, more decisive decisions.
As a bonus, purpose also helps provide you with a more realistic, long term perspective (good for retirement savings), and encourages you to treat all people (investors, employees, suppliers, neighbors, etc.) fairly which is apparently what we all want anyway.
Humans are more motivated by purpose, not profit
Having a strong purpose works because it motivates people. It motivates people because it reaches a deeper level, something more inspiring, then just making money. Studies show that contrary to economic theory, employees are motivated more by having a strong sense of commitment to a greater power, than they are by monetary rewards. This is why some teachers, nurses, clergy and soldiers happily work for less than they deserve. They’re not doing it for the money. They are doing it out of a sense of duty, to serve others, a noble calling.
‘‘The highest levels of motive — which can be truly extraordinary — arise when people understand that they are serving a genuinely good purpose.’’
- The Book of Life
Motive is very important in economics, it dictates human behavior towards achieving goals. Understanding what motivates employees has been a key source of knowledge for companies for generations. Where traditional companies still predominately ‘motivate’ with financial means, a growing number of purpose driven organizations are motivating with non traditional means.
Yes, Google employees are widely known for the amazing perks they get, but by now the rest of Silicon Valley has caught up and all of the top tech companies offer free meals, shuttles, and child care. What allows Google to continually rake the top tier developers is future employees’ desire to solve the big, complex problems that only Google can solve. To work towards its purpose ‘to organize the world’s information and make it accessible to all.’ That is a big mission, and there are a lot of hungry, intelligent, motivated developers that want to work towards that.
And what about our first example, Tesla and Ford? How many engineers are interested in ‘delivering profitable growth for all’ vs ‘to accelerate the world’s transition to sustainable transport.’? I know where I’d want to work.
We’ve been studying our brain, the way we think, dream and behave, for centuries. There are certainly still many mysteries, but the good news is that we understand modern wo/man much better than ever before. And that science tells us that having a greater sense of purpose aides in decision making and is the greatest driver of motivation. Management at all organizations should realize these key potential advantages and leverage them in ways to attract and retain the best talent and make their day to day decision making all that much easier.
Next week I want to get back to a question thats been plaguing me for years. As a society we have opened our arms to corporations and through our government we have even given them the legal power of ‘personhood.’ But can corporations really live up to that ideal? Are they humane enough to be human? And if so, can a corporation have a soul? Stay tuned…
Hello, I’m Kim Soko Schaefer, the founder of Ways & Meaning, a curated collection of resources for mindful entrepreneurs.
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