What do turn of the century lab rats, clutch NBA players like Michael Jordan, and Wall Street's highest-paid executives have in common? Dan Ariely has some ideas.
"We study the irrationality of people and markets. 2008 was a very good year for us," the behavioral economist noted wryly at the Poptech conference on Thursday.
As pay czar Kenneth Feinberg prepares his plan to slash bonuses at bailed-out banks and automakers, perhaps it's time to question one of the central assumptions of the exec comp status quo: Does more compensation always make people more motivated and better at their jobs?
Ariely's research suggests that past a certain level, it can have the exact opposite effect. "People have the tendency to villainize Wall Street," Ariely said, "but the real enemy is human nature."
Rewind the clock to 1909, when economists Robert Yerkes and John Dillingham Dodson put some rats in a maze. Parts of it were electrified. The question: Would higher levels of electricity (and hence pain, avoidance of which is a powerful incentive) make the rats learn the maze any faster?