Episode 19: Dan Ariely - Professor of Behavioral Economics and Psychology at Duke University

0:00This week in an episode different than most, I had the chance to sit down with none other than Don Ariely, one of the world's leading voices in behavioral economics and a best-selling author whose work has transformed how we think about decision-making, incentives, and human behavior. While my podcast usually spotlights leaders within the world of finance, this conversation with Don was different because it explored the psychology behind decisions that all of us make. Understanding behavior, not just markets, is key to succeeding within finance. As the James B. Duke Professor of Behavioral Economics at Duke University, Don is known for blending rigorous research with real-world application to help people and organizations make better decisions.

0:42Growing up in Israel, Don's life was forever changed after a severe accident as a teenager, an experience that sparked his fascination with pain, perception, and the irrational behaviors that define so much of daily life. Through best-selling books like Predictably Irrational and The Honest Truth About Dishonesty, he's helped bring behavioral science into boardrooms, hospital, governments, and households around the world. In this conversation, we explored how those early experiences continue to shape his work, what he's focused on today, including how to better understand motivation, and what it really takes to design environments where people thrive.

1:16I really enjoy this conversation, and I hope you guys do too. Thank you, Don, for joining me. I really appreciate it. Welcome to the podcast. my pleasure very nice to meet you

1:30I want to start off a lot of people might be wondering why does Don Aureli have half a beard okay so this half a beard has multiple reasons and the first one is that I was badly burnt many years ago how old are you now 15 15 so I was almost 18. So all of the side of my face is burned, so there's no hair. By the way, burns, the skin is a very complex organ. Scars means I don't perspire, I don't have hair, all kinds of, the skin is not soft. Anyway, so that's reason number one. I was badly burned, most of my body is covered with scars. But of course I could shave. And when I shaved, I looked less strange.

2:21It's not as stark. And for most of my life, I shaved. And then a few years ago, I went on a month-long hike. And during that month, I didn't shave. And the month ended, and I looked in the mirror, and I looked sort of like this. And I didn't like it. It's a strange look. It was strange for me, and I really didn't like it. I remember the feeling of kind of looking at it in the mirror, staring at it and saying, what is this? What is this really, really strange look? And I was 100 % sure I would cut it off and shave and go back to my old self. But I said, you know, it took me a month to grow it. I don't think I'll ever do it again.

3:03So let me carry this half a beard for a bit longer because it will never happen again that I will have this half a beard. So I went ahead with the half a beard and two surprising things happened. The first one was notes from people who thanked me for the half a beard. Now, why did they thank me for the half a beard? For example, the woman who works across the street from my apartment left a note in my mailbox telling me that she also was a burn victim. Her arm was burned, and she said she never wore a short sleeve T-shirt. And she said that now that she sees me so out with this thing, she's going to try.

3:41And I got lots of notes like this. by the way I still do I still get multiple notes a month about people who are saying that they'll do this be a bit more courageous about not hiding their injury that was strange thing number one I said okay if I'm helping people be less conscious and more out there with their injuries maybe I'll keep it for a bit longer but the really strange thing happened about four months down the line where all of a sudden I feel better about my injury and you know I've always felt it was me and my injury we're not one person we're fighting each other and burns have lots of characteristics one of them is the skin is tough so you need to stretch your arm it's like you know the kids do Indian burns it's like this is how it feels to anyway it feels very much like I'm fighting my body is fighting me and all of a sudden I felt the pain is the same but I felt I wasn't in this tag of war between my injury and me and I thought to myself, what happened?

4:45I was 50 at the time. I got injured when I was almost 18. You know, why now? And I thought back to the notes I was getting from people. And I thought, you know, what does half-shaving really mean? So imagine somebody like me. I wake up in the morning, smooth on this side, stubble on this side, and the act of half-shaving is also an act of hiding. and I actually remember that I had a doctor once who sent me home to shave, got me back to come back and he said he would tattoo the right side of my face to match the left one. The whole thought was about hiding the lack of symmetry blending in but in fact letting go of that was incredibly helpful There was a real journey of self-acceptance in that, that extend way beyond this particular scar and this particular lack of symmetry.

5:48It went to many more of my defects and peculiarities. So anyway, that's the story with the half a beard. But here's what I think is important about this. How come I didn't know that half a beard would be a good idea? You know, I actively shaved for most of my adult life. I actively did something that was slowing down my process of self-acceptance. Why? And of course, it's because I could really well predict how day one with half a beard would feel like. People would ask questions. Kids would laugh. People would point. Right? It's very easy to predict that. But a journey of self-acceptance is not something we have good intuition about.

6:39And that's what I think social science is all about. We have lots of things in life that we have good intuition about. Day one with half a beard. Will I enjoy the present of this person on the first hour? Would I enjoy this drink? And so on. but what we're not good is predicting long-term effects what would i really fall in love with what what would make me fulfilled like okay i can i can predict day number one what job would make me excited but can i really predict what what would fulfill me 10 20 years down the line i think we're not so good at that and the goal of social science I think is to bring up this half a beard sort of things where you say, here are some things you might want to consider, but not before everybody, nothing is ever, so everybody should do that.

7:39But here's some things you should consider about a recipe for improving your life. What are these things that your intuition say, don't do it, but in fact are very good. So long answer, but that's the story. You grew up, if I understand correctly, in Ramat Hasharon, right outside Tel Aviv. How was that childhood growing up there unique? And what did you learn about human behavior from growing up right outside Tel Aviv? So, you know, people always reminisce about, oh, you know, when I was a kid and so on. I grew up in a neighborhood that was still a dusty road. It wasn't even paved. we had a few homes in the neighborhood lots of strawberry fields lots of orchards lots of freedom and that time it was very easy to hitchhike people did not believe in homework schools did not believe in homework parents did not believe in homework kids certainly did not believe in homework it was a very special time Lots of autonomy, lots of control, lots of time to play.

8:59School was very short. Elementary school was 8 a.m. to noon. That was it. We have become much more industrial since then. How many hours? I mean, you're in high school now, but elementary school, what were your hours in elementary school? I think eight or nine to about three. Yeah. And extracurricular activities? Probably one or two hours a day. Yeah. And homework? Homework in elementary school, very little, but now more. Yeah, now I'm sure it is. Yeah. and I actually think that you know we have this really interesting pursuit of progress and we see very much the things that we're gaining oh kids are reading earlier kids know math a little earlier already on third grade you know something about programming all those things but we're not so good at is understanding what we're giving up yeah we're not so good at that So I don't know exactly what it is, but when I look at my kids, who are slightly older than you are, they had a very different childhood.

10:21childhood. Much more controlled, more requirements, less time with friends, more driven to succeed on external measurements. So anyway, I think there's lots of ways to have a good life, but I have a very strong feeling that in some developed countries, we are depriving kids of childhood.

11:03I agree. I've seen that a lot. I'll tell you, when my son was in first grade, I went to teacher-parents' meeting, and the teachers complained that he was not doing his homework or something like that. And I said, when was the last time that a really interesting human being emerged after always doing his homework? And of course, I was not allowed to come to teacher parents' conference after that. But, you know, very, very interesting challenge. Very interesting challenge to say, you know, what is a good picture of childhood? what is a good mix between school and free spirit and experimenting and failing and building social relationships I don't know the answer and I also know we're not really looking even into it, we're kind of accepting the notion of progress

12:07yeah I think successful people come out of many different kinds of childhood and I don't think many people have looked into the common themes among them that stands out.

12:19What I would love for you to do is you've done research on a lot of things, workplace environments, dishonesty, irrationality, and much more. What research or work are you the most proud of in terms of its impact it's had so far? so let me not answer your question exactly but I'll tell you what I'm working on now which I hope I'll be the most proud of it I didn't do enough on this area but I hope to so I'm very very interested the way I think about problems is I think about the gap between where we are now and where I think we could be So think about different activities and say, where do you think this gap is big?

13:08How we use our money? I think we're here, we could do better. How we misuse the environment? I think we're here, we could be here. How we treat our health? Hate. I mean, lots of things like that. You could identify a gap and you could say, I can see how we could be here, but we're here. So I start by thinking about this gap, like how much room is there for growth? If there's not much room for growth, you know, not interested. If there's a big room for improvement, I'm interested. And then my second criteria, is this within the hands of social science? There are some problems that are outside of my hands.

13:49Some problems are medical, some problems about policy. I don't think I can figure out the war in Ukraine. I think it's not a social science issue. So what's a big gap that is within the realm of social science? And my current big project is about that, and it's about the last chapter of people's lives. So my definition of the last chapter is is the time between when people get a terminal illness diagnosis and between the time that they pass away. And in the Western world, it's slightly longer than five years on average. Of course, there's long variations, but very few people die quickly. Most people have a long time.

14:40And I'm thinking about all the mistakes that people do in that process. I haven't analyzed all of them, but I'm starting to categorize all the mistakes that people do in that process and can we reduce or eliminate some of them and and the reason why i think it's a good project for social science is because we have created the system that gets people to make bad choices we have created the medical complexity or the medical complex that gets people to be diagnosed and think of themselves as patient rather than people. And to make, you're not a person with an illness, you're an illness first, and that's the first thing.

15:25Now, I've done quite a few projects within that, but I'll tell you about one of them. I interview about a hundred end-of-life doulas. Do you know this profession? You can imagine what it is, right? Doulas are usually, doulas are known as women who help bring life in. They help women who are giving birth to bring life in. But end-of-life doulas help with the last part of life. So it's not with the five years. It's maybe with the last two weeks, two days, and so on. So it's just about that part. And I asked about a hundred of them. I said, what's a good end-of-life? And what emerged from it are four things.

16:10No pain, which is, medically we're getting close to them. yeah they said no loss of dignity in the body we can't solve it completely but we can make some progress they said surrounded by love and feeling a sense of legacy and those two are social problems right surrounded by love um so so for example one of the things i'm realizing now is that when people get a diagnosis of terminal illness we do need to help them think about social lives? Do they have somebody they haven't talked to in a long time? Do they have issues that they want to solve? Have they not expressed love, caring, not felt? Love and caring.

16:57What about legacy? Legacy is solvable. If we have five years, we can solve it. And then another thing that is very interesting is that about 80 % of Americans say that they want to die at home. and I think they're correct right dying in hospital I was in hospital for about three years I completely don't mind dying I don't want to die in hospital like like hospitals are I mean I'm very very thankful for modern medicine but but hospitals are very very tough places so 80 % of the people say that they want to die at home right in the hospital only 20 % slightly more get to do that why somebody says I don't want to go to hospital I want to die at home and then they faint and somebody calls an ambulance and the ambulance comes and they take them away and now they're connected to all kinds of machines and nobody's going to disconnect them to take them home it's really really tough so we make all kinds of mistakes lots of people regret doing extra treatment to please the doctor, to please their families, and not taking quality of life into account, not managing to find the time to do the things that really matter to them.

18:25I also did the training to become an end-of-life doula, and I recently helped one guy, and it was quite amazing he was in the middle of his chemotherapy and it was clear that you know he's not going to get healthy it was this chemotherapy forever very tough and so on and and the first thing he wanted was to go back to Vermont to make maple syrup with his wife, which is how they met. And, you know, that was a great discovery. And he moved to a different hospital and got them to transfer his treatment. But then he was just after chemotherapy one day. And we talked, you know, do you want to continue like this?

19:28And he said, the truth is not. And I said, you know, you don't have to. You started this chemotherapy. This is not like you've not, you don't have to end this because it's a course. It's your decision. What do you really want? And he stopped. And he stopped. And I think he saved himself and his family a tremendous amount of suffering. so anyway so i i think that one of the things we really mismanage is this large chapter of life i think it creates lots of misery for the people who are dying lots of misery for the family incredibly expensive and everybody loses everybody loses but i i can and see how we can fix it.

20:23So if you ask me in 10 years from now, what do I think the most important body of work that I'll produce will be? I hope it will be about that.

20:36I want to move on a little. I've listened to a lot of podcasts you've done, read some of your research, and you've used the metaphor Swiss army knife a couple of times when describing the human brain. I thought that was really interesting. Can you break that down for me and my listeners, the Swiss Army Knife metaphor? Yeah. So the metaphor is a vintage Swiss Army Knife. Vintage Swiss Army Knife. Vintage. So two parts, vintage and Swiss Army Knife. So let's start with Swiss Army Knife. The Swiss Army Knife is not particularly good at anything. There's not a single task. You say, I need tool X, let me get the Swiss Army Knife.

21:18I need a screwdriver, let me get the Swiss Army knife. I need a can open. No, no, no. It's not because it's good. The Swiss Army knife's greatness is because it does lots of things kind of okay in a compact way. And our brain is kind of like that. We're not great in anything. We're quite good in lots of things, and it's compact, and we can carry it with us. That's the first metaphor. We have lots of tools. we have a tool to deal with fear we have a tool to deal with hunger we have a tool to deal with sexual arousal we have a tool to deal with jealousy we have we have lots of tools none of them is perfect lots of them are quite good compact and we can carry with them but what's the vintage the vintage idea is that our swiss army knife was owned in was honed in a very very different time than now there was no cryptocurrency and there were no choices of school to go to we didn't live to age 80 we didn't have food that we had to choose what what ingredients to buy um so so we we are still carrying with us our vintage swiss army knife that was designed for a very different period.

22:42It was never that good to start with, but now it's not that good and a lot of the tools are irrelevant. So think, for example,

22:54about gossip. Gossip is a very good tool if we live in a small community and I want to make sure that everybody behaves well. Like if you and I live together in a small community and you know that I gossiped, you would not mistreat me. Because the consequences would be that every mistreatment of me would be amplified. The cost would be amazing, not worth your time. So gossip is a really good mechanism. Like if you have a society with no police force and no judicial system, gossip in a small community is very useful. So we're tuned to people doing badly and we're tuned to gossiping. now you create social media we still have the gossip tool, we're still attuned to bad news, we're still spreading negative information around only now it doesn't do any good because the people that we're gossiping around we can't change their behavior we're not living with them they don't care about us, it's not the same mechanism so we have all of these tools that are that used to be there for a reason.

24:09Only now, not so much. Not so much. Now they can create, now they create openings to allow people to take advantage of us. Like we used to love sugar, salt, and fat. And if we found sugar, salt, and fat, we would stop and eat as much of it as we could. Now we have donuts. a strategy that used to be very good in a play in a time when the food was scarce all of a sudden it's very unproductive so so that's the that's the basic metaphor and here is the important thing what are we going to do with the world are we going to build a world that takes us with our vintage swiss army knife and allow us to overcome our limitations or are we going to create a world that takes our weak points and attacks them?

25:06And I think that cars, for example, try to help us not to kill ourselves and other people. The engineers in cars try every year to get people to make less mistakes. That's their goal. Let's get people to slow down, pay more attention, have bleeping lights, all kinds of things like that. Let's make people make less mistakes. let's understand where people make mistakes and let's try to protect them from making those mistakes on the other hand we have social media or information technology where they start with the same thing they say let's analyze the mistakes people make but then they say let's push them to make more of these mistakes right so i think that once we recognize the vintage swiss army knife then we need to decide where do we want to go as a society do we want to understand our weak points to take advantage of it?

26:01I hope not. Or do we want to understand our weak points and create a society that doesn't make us fail because of them? Do we want to create a society where we have donuts everywhere and we tempt ourselves to fail multiple times? Or do we want to create a society that has lots of things that help us protect and overcome some of our nature. And that I think is a huge junction. If you think, for example, my last book was on misinformation. You know, misinformation attacks us in all the wrong ways. What society do we want to build? We want to build a society where we break people down and get them to believe that QAnon, the earth is flat, all kinds of things, or do we want to build a society where the tools are helping us be better?

27:07I love all those points you've made.

27:13We can see both sides a lot in our society. I have one more question before we get to kind of a couple rapid-fire questions that I ask. a lot of our guests, but I've interviewed a lot of CEOs of financial institutions on this podcast. And I think a lot of the big financial institutions, like the investment banks and stuff like that, are probably some of the highest forms of bureaucracy. And you've done a lot of work on workplace environments. So my question to you is, what can financial institutions learn from behavioral economics about shaping utility-embracing employees? Because you've used the phrase utility-embracing a lot.

27:46I don't know. Have you seen our happy index, AJPI? I have, I'm aware of it, yeah. So we are actually tracking how companies treat their employees and how the employees feel about the company and the consequences in the stock market. And I think that companies need to start quantifying human capital. I think when companies invest in a warehouse, it's an investment. When they invest in human capital, it's a cost. It shouldn't be so. People should really think about human capital. You should think about your own human capital. What are you learning? What are you improving? How are you building? Companies should think about their human capital.

28:28I think everybody should start thinking about human capital. And the thing about bureaucracy is that it kills human capital. Basically kill people's creativity, motivation, and so on. And these are, you can answer them in one sentence or less. What still surprises you about human behavior? Evil. who have been your role models or mentors throughout your career? You can list off a couple of names. I would say George Loewenstein and Al Roth. Two last questions. How can we make more rational decisions? First of all, we don't always want to make more rational decisions. Poetry is wonderful. Falling in love is wonderful.

29:22Rationality and good is not always the same. Sometimes you want to make an irrational decision. But one way to make a more rational decision is to think about what we call the outside perspective. What would I advise somebody else? The moment you think about advising somebody, you're disconnected from the emotion and we see things a bit more rationally, at least less emotionally. So what advice would I give somebody else? Give it and then turn around and take it. I love that. And last question, we ask every single one of our guests, what is one piece of advice you'd give to a 15-year-old today, whether it be life, career, or anything else?

30:10I think we live a life that is too timid. I think life eventually is a portfolio of decisions. and if you think about every decision at a time, you would live a life that is too timid. And you need to think about life as a portfolio and take more risk, fail more and accept it as part of the price of success. Failure is the entry ticket. It's the stub for success. I think we don't experiment enough. We don't dare enough. So we need to do more of that. Thank you, Don, for coming on. I'm going to be aware of your time. I appreciate it. I enjoyed this conversation and I hope you did too. Very much.

30:59Very, very nice to meet you.