Motley Fool Hidden Gems Investing - Motley Fool Money: 08.13.2010

Episode Date: August 13, 2010

On this week's Motley Fool Money, we share some of our favorite interviews. Jonah Lehrer talks about How We Decide.  Dan Ariely talks about the Upside of Irrationality.  And Christopher Chabris talks Invisible Gorillas.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Chris Hill. You know, each week here on Motley Fool Money, we dig into the numbers of business as we analyze the latest headlines and the stocks that are on our radar. But Warren Buffett, the greatest investor in modern times, has said the most difficult thing he had to master as an investor

was not numbers or analysis. It was his temperament. So this week, we've got a special edition of Motley Fool Money on Tap, three of our favorite interviews, all dealing with investment behavior. We've got Christopher Chabris, author of The Invisible Gorilla, Dan Ariely on the upside of irrationality. But we begin with best-selling writer Jonah Lehrer, the author of How We Decide. So the book is organized around two questions.

How does the human mind make decisions, and how can we make those decisions better? Let's just start with the first one. How do we decide? Well, it turns out the brain has two basic ways to make decisions. On the one hand, we all know we can be rational sometimes. We can be deliberate. We can crunch the numbers. We can read the Wall Street Journal.

We can, you know, make long lists of pros and cons. So that's one way to make a decision. And that turns out to rely on a part of the brain called the prefrontal cortex. It's that nub of flesh just behind your forehead. But we also know that we can use our emotions. We can trust our instincts. We can not think at all and still make decisions, just go with what feels best. And that relies on a whole different system in the brain.

So those are the two basic ways we make decisions. And it turns out when you look at the brain and look at all these experiments in recent decades, you see that each of these two systems comes with distinct advantages and disadvantages so that how you think should really depend on what you're thinking about, whether or not you're deliberate or trust your instincts. And how do we make decisions better? Because I think the average person in a given week is probably making decisions that they regret, whether it's in their personal life or their professional life. Yeah, well, the key to, I think, making better decisions gets back to that whole strength and weakness element of decision-making, that we've got these two ways of making decisions, and each is very well suited to a particular task. One of my favorite metaphors for the mind is that it's a bit like a Swiss army knife.

It's got all these different tools stuffed in. That's partly what makes it such a useful organ, those three pounds of meat. And the key to using a Swiss Army knife and the key to using your brain is to make sure you're using the right tool at the right time. So, you know, if you're an NFL quarterback and you've got to make a quick decision in three and a half seconds and you've prepared for the game, chances are you don't want to be too rational. If you think too much, you're going to get sacked. But if you're, you know, taking out a mortgage, you probably don't want to trust your emotions. You probably want to read the fine print. So there's, I think, a lot of scientific evidence that outlines which particular situations benefit from a more emotional thought process or a more rational thought process.

And that's what the book tries to distill. Now, you've said that there are two broad categories of decisions. There are math problems and there are mysteries. So because we're investors at The Motley Fool, which camp would you put investing in? Is investing a math problem or a mystery? I think it's mostly a mystery, unfortunately. There are people I know who will claim it's a math problem, and they're probably trying to sell you something.

But I think for the most part, investing is really a mystery. And the larger reason for, I think, selling the world into math problems and mysteries is that math problems, of course, really benefit from a very rational process. If you're doing a math problem that's like taking out a mortgage, you actually want to see what your interest rate is going to be, and you want to see if, you know, that's why subprime mortgages are,

if you treat it like a math problem, you never take out a subprime mortgage because the math makes it clear that paying a higher rate for the last 20 years of your mortgage is a terrible idea. So that's when you want to be rational. I think mysteries come when simply crunching the numbers rarely will get you the perfect answer or the best answer or make the decision any more clear. And I think that's almost always true of the stock market.

That's why the best mutual fund managers, the ones who beat the market one year, rarely beat it the next year. There are so few outliers in the game of investing. And in general, when you're dealing with mysteries, that suggests that the much better approach is to trust your emotions. And this gets back to the ultimate virtue of the emotional brain is that it can take far more information into account, that it can deal with variables that our rational brain, which we're aware of, really just can't even comprehend. More with Jonah Lehrer coming up. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. We're continuing our conversation with best-selling writer Jonah Lehrer, the author of How We Decide. How do you handle your own investments? Do you do that on your own or do you work with someone? You know, I just got a low-cost index fund. I'm just in it for the long haul. It's a mystery that I don't want to devote the necessary mental resources to.

So I just let time do its thing and just trust in the gradual upward slope of the market. But one experiment I often think about when I'm investing in the market is the study done by German psychologists. And they had people watch basically a version of CNBC. So they're watching from Talking Heads, and at the bottom of it is a stock ticker. And they'd carefully rigged their stock ticker,

so there were 20 different stocks. And over the course of this half an hour of video people are watching, the stock ticker contains these 20 stocks, and the stocks go up or down in value. And so the scientists tell the subjects in the study to watch the ticker. And then when the video is done, they ask the subjects, so which stocks did best? Which of these 20 stocks went up the most and which of these 20 stocks went down the most? And, of course, the subjects said, gosh, I have no idea.

I couldn't keep track of everything. There was way too much information on the screen, and these talking heads were so distracting. I was just completely overwhelmed. I have no idea how the stocks did. And so the scientist said, okay, fair enough. Well, here's a list of the 20 stocks. Just tell us which stocks feel the best to you, you know, which stocks are associated with most positive emotions. And now all of a sudden these subjects who were convinced they had no idea which stocks did best could actually pick out the best stocks very, very reliably.

that even though they weren't aware of all the information on the screen, their emotional brain was, in some very real sense, tracking the information over time. And so the stocks that did the best were associated with the most positive emotions. So, I mean, that's another example of how sometimes our emotional brain really does know more than we know. And why, when you're dealing with a mystery or something that just seems so inherently mysterious, I have no idea how these stocks did, trying to tap into your emotions, into the wisdom of your emotions, can actually let you in on an important secret. See, that's interesting because so much has been written about the negative role of emotion in investing.

And tomes are written in honor of people who take a very clinical approach to the way that they manage their money. But it sounds like you're saying it's probably a good thing to let a little bit more emotion into your investing decisions. Well, at the very least, I think you want to take your emotions into account. There are, of course, all sorts of emotional biases, and I talk about a lot of them in the book, things like loss aversion, which I think are very, very important consequences for investors. So there are all sorts of biases and heuristics and flaws you have to know about or else you're going to be vulnerable to them, and all sorts of studies showing that mutual fund managers, for instance,

are also vulnerable to loss aversion. So these aren't just emotional mistakes that amateurs make. These are emotional mistakes that everybody makes. So I think it's really important to take those flaws that have been identified into account. But I think once you do that, I think it is very important to also take into account these positive emotions, these emotions that are based on experience and all the information that we can consciously comprehend. Simply, when you look at the way the brain is built, you quickly realize that the rational brain, And while it can do many very, very important things, it's a really limited processor of information.

It's a very tiny and feeble computer. And so when you ask it to make decisions that involve lots and lots of information, and investing decisions certainly involve an astonishing amount of information, chances are you're going to overwhelm it. You're going to short-circuit your prefrontal cortex, so to speak. And you're also going to be blocking yourself off, shutting out all this information that your emotional brain is taking into account. So I think the thing we've been aspiring to for so long is the idea of making decisions,

especially financial decisions, from a purely rational perspective. While it's a noble quest, I think the anatomy of the brain shows us that it's also a little bit misguided. We're talking with Joan Allaire, author of How We Decide. One of the things in the book, you talked about willpower, and you had this great example, a study involving chocolate cake, fruit salad, and seven-digit numbers. Could I get you to share that story? Sure. This is a very clever experiment done by Babashev, a behavioral economist at Stanford University. And he had two groups of undergrads come into his office. He gave one group a two-digit random number to remember to, and the other group he gave a seven-digit random number to remember to.

And he told them this was a test of long-term memory, but he was lying through his teeth. He then walked them down the hall and said, Wait, wait, wait. Hold on, hold on, hold on. Hold on. An economist was lying through his teeth? Well, you know, most of these behavioral economic experiments require, when you actually look at them in detail, they require the scientists to lie to their subjects. They require them to be mischievous. So that's what he had to do, unfortunately. And then so he marches all these students down the hall and tells them it's snack time.

He gives everyone a choice between a nice, responsible snack of fruit salad or a gooey, rich, decadent slice of chocolate cake. And to his surprise, and he ended up running this experiment numerous times because he couldn't quite believe the data, people given seven digits to remember were nearly twice as likely to choose the chocolate cake. And the reason, Shiv argues, is that because the rational brain is so feeble, that those five extra numbers, that's all it took, overwhelmed our ability to also exert self-control. So the same brain area has to memorize those numbers and also resist the urge to eat chocolate cake. And all it took was five extra numbers to obliterate our ability to resist a high-caloric treat we really wanted. So that, I think, gives us some insight into just how limited the resources of the rational brain are.

All it takes is five extra numbers to obliterate it. What can investors do? What are a couple of things investors can do to make better decisions? Well, the first thing I think is to really be aware of all these flaws and biases that psychologists have identified, things like loss aversion, things we've been talking about. There's a long list of these biases that have been identified, and I think it's really important to know about them and to be conscious of them, to think about thinking when you're making investment decisions. because if you're not thinking about loss aversion, then chances are you're not going to sell stocks that have gone down in value because you want to avoid that loss, and that will lead to more losses over time. So know about these biases, be aware of them, and try to apply them to your own decisions.

So this is, I think, a very important first step. That will get you pretty far just in terms of applying all this new research and all this new science. You know, I think another really important thing is just something else we've just been talking about, which is the dangers of information overload, of trying to take too much information into account. And this gets back to, I think, just an inherent weakness of the rational brain. I think we assume that more information is always better, that, you know, just one more Google search is all it's going to take. But at a certain point, information starts to have negative returns that can actually interfere with our decision making. It can lead us to eat that chocolate cake. So be aware of the danger of trying to stuff five extra numbers into your brain all the time.

And I think the third thing is when you've got experience making these decisions, if you're a really experienced investor, if you've made lots of mistakes and learned from your mistakes, I think it's wrong to aspire to some condition of pure reason. I think you should act like every other expert out there and at the very least take your emotions into account. You know, when you study NFL quarterbacks or chess grandmasters or really any successful expert, you know, what you find is that these experts tend to be profoundly intuitive,

that they're less conscious of why they're making a decision than a novice, than a beginner. And I think it's really just in the realm of investing in large part because it's been so influenced by economics that we still see investors assume that we should always try to be rational. We should always, you know, analyze the decision and then analyze it again. But I think when you look at, you know, someone like Warren Buffett to refer to, you know, the most obvious example, he is not shy of following.

He's not afraid of following his intuition, of doing the numbers, thinking about it for 10 minutes, and then making a decision, trusting his emotions. Because I think, you know, when you look at the brain, you realize that our emotions often know more than we know. The book is How We Decide. It is on the New York Times bestseller list for paperbacks. Jonah Lehrer, thanks so much for joining us on Motley Fool Money. Thanks so much for having me. And now we talk invisible gorillas with Christopher Chabris.

So what do smart chess players and stupid criminals have in common? Should you be more like a weather forecaster or a hedge fund manager? Is it always better for investors to have more information? Chris Chabris is a professor of psychology and neurology. He's a chess master, and he's the author of the just-released book, The Invisible Gorilla and Other Ways Our Intuitions Deceive Us. Chris, welcome to Motley Fool Money. Thanks for having me.

Let's start by talking about invisible gorillas. For those who aren't familiar with the famed experiment, can you give us a quick overview and what is the main takeaway? way? Sure. The title of our book refers to an experiment that Dan Simons and I did at Harvard University about 12 years ago. It was a very simple experiment. We created a video which showed two groups of three people passing basketballs back and forth. One of the groups was wearing white shirts and the other was wearing black shirts. And the white-shirted people passed the ball among themselves and the black-shirted people passed the ball among themselves. About halfway through

this 60-second long video, a person in a gorilla suit saunters into the game, turns to face the camera, thumps its chest, and walks off at a leisurely pace, remaining on the screen for about nine seconds. We showed this videotape to people, and we asked them to count the number of passes that the white players were making. And then at the end, we asked them how many passes they had counted, and we said, did you see the gorilla? And the surprising result was that about half the people who saw this video did not see the gorilla at all. And they accused us of switching the tape and of making it up and all kinds of things. But in reality, there was a gorilla there and about half the people didn't notice the gorilla. So it shows really two things. One, we're missing a lot

of stuff in our world around us. If we can be missing a gorilla walking through a basketball game, what else are we missing? But two, we're not really aware of how much we're missing. We're surprised to find out that we don't pay attention to as much as we think we do and we don't notice as much as we think we do, and it seems that we have a lot of other ideas about how our own minds work, which are similar to this one. They're sort of predictably wrong in surprising ways. Should you be more like a weather forecaster or a hedge fund manager? Which is it? Well, it really depends, of course. If you're trying to forecast the weather, you probably want to be more like a weather forecaster. The question is really meant to

get at the idea that there are some areas of knowledge where it is really possible to know how much you know and how much you don't know. People complain about weather forecasters all the time because sometimes they get it wrong. But when you actually look at their track record, when they say there's a 75% chance of rain, if you look at all those days when they said 75% chance of rain, it actually rained 75% of those days. So they're not perfect. They don't say 100% all the time and 0% all the time. But they're actually very well aware of how much they know. And if they say 75%, that's pretty much correct. On the other hand, there are many famous cases of hedge fund managers who made tremendously large bets on particular ideas about the direction

of markets. We tell the story in the book of Brian Hunter, who was a trader in energy futures, and he bet billions of dollars on directional movements in natural gas prices, did well for quite a while, and then blew up his fund completely. And that's the kind of thing that someone with an awareness of how little they really know about the system they're trying to model would probably not do. We've got more with Chris Chabris as we discuss mutual funds, poker, and snap judgments. Stay right here.

You're listening to Motley Fool Money. I got my youth and health. What do I want with wealth? Money is the root of all evil. Welcome back to Motley Fool Money. I'm Chris Hill. We're talking to Christopher Chabris, the author of The Invisible Gorilla. One of the other questions in the book that you get at that's mentioned right at the top,

what do smart chess players and stupid criminals have in common? Well, that's another funny one, I think. Chess players and criminals usually don't seem that much alike, but there's one way in which they're quite alike and in which they're, in fact, like all of us. They are overconfident in their own abilities. So let's take the criminals first because they're a bit funnier. um there are many examples of stupid crimes um for example uh a um a guy named macarthur wheeler tried to rob some banks in pittsburgh without a disguise in broad daylight and the reason why he

thought he could get away with this was that he rubbed lemon juice on his face thinking that that would render him invisible to security cameras much like i guess children writing and writing in lemon juice think they're you know writing an invisible ink and invisible messages and so on Of course, they broadcast the security footage of him, and he was caught an hour later, and he seemed incredulous when he told the police that his method didn't work. He was very incompetent as a bank robber, but at the same time woefully overconfident of his abilities as a bank robber. And what research has actually showed with cleverly designed experiments is that the people who are the least able at something are often the most overconfident or the most confident in their abilities. chess players have a rating system that tells them exactly how good they are. You know, if you're a bank robber, you don't really have, like, a numerical rating system

that tells you how good a bank robber you are. Right. I think Morningstar is working on something like that, like a five-star rating for bank robbers. Right. Well, if they could get it right for mutual funds, that would be a start. The fact is that in almost all fields, we don't have perfect feedback about how good we are. In chess, we do. There is a rating system in chess which is very well calibrated, and it tells you exactly how likely you are to beat somebody else based on your two ratings.

We surveyed chess players at large chess tournaments and found out that despite having this really high-quality information available to them, and they all know it, they still thought they were much better than they actually were. So there's this sort of innate tendency to think that our skills, our knowledge, our abilities are better than they actually are, and that can obviously get us into trouble when we're making investing decisions or managing other people's money. One of the things you write about is an experiment involving two mutual funds, and the subject has a choice. They can receive feedback and be able to change their allocation every month, every year, or every five years. As investors, how often should we want that information?

Well, we posed this sort of as a thought experiment. If you were an investor, how often would you want to get the information about how your funds were performing and the chance to change the allocation? And I think the answer that most people would give is as often as possible. And in fact, we can do that every day. Right now is generally the way things are set up. But in this experiment, which is done by behavioral economist Richard Thaler and some of his colleagues, it turned out that subjects who are randomly assigned to get feedback only once every five years had the best track record over about a 30-year period of performance than people who got feedback every month. Of course, this was not a 30-year long experiment. This was simulated time

and simulated time periods, but the result was the same. Actually having less information about your performance and about how the market was doing resulted in better performance. The reason for that is that the two mutual funds in this experiment, simulated mutual funds, one was a bond fund, so it had a very low return, but also very low volatility, and one was meant to be like a stock fund, so it had high return but also high volatility. So people who allocated money to the stock fund found that sometimes

they suffered large losses month to month, as the stock market is wont to do, and that made them move out of the stock fund into the bond fund. But over the 30-year period, it was a bad idea to have all your money in bonds, so those people didn't wind up making that much money. They got a lot of sort of short-term information about volatility, and that obscured them from understanding the long-running trend in the market. You're listening to Motley Fool Money. We're talking with Chris Chabris about his new book,

The Invisible Gorilla and Other Ways Our Intuitions Deceive Us. Now, in addition to writing the book and all of your work, You're also a chess master. What game do you think investing most approximates? Well, the obvious answer is something that has a little bit more gambling in it. If I had to choose, though, I think the right game I would pick is something more like poker. And a lot of people sort of analogize investing to a casino and so on. And to the extent that it has those characteristics, that's probably bad.

But a game like poker involves both skill and chance. You know, you can have the edge. if you study, and if you practice, and especially if you know yourself. And one of the big ways to have an edge in poker is to get control over your own emotions and to understand when you're acting impulsively and when you're not thinking things through and you're not thinking long-term. And, of course, those are the same characteristics that I would think investors would want to have also. You don't want to be making decisions based on intuition, gut instinct, and so on.

You want to be making them on a long-term plan that you can stick with and sort of use to ride out emotional swings. All right, before we let you get away, we've got to end with a quick round of buy, sell, or hold. Let's start with, well, you know, Malcolm Gladwell wrote a bestseller entitled Blink based on this concept. Buy, sell, or hold, snap judgments. I'm going to say sell, snap judgments. I wouldn't hold on to them right now. I think they're quite overrated, and it's not necessarily Malcolm Gladwell's fault.

I actually enjoy his book very much, but I think people have somehow taken the lesson from his book and from a few things that he says in that book, kind of isolated sentences, that the world would be a better place if we all trusted our guts more. And, you know, one, I was reading a fascinating book that I'm sure a lot of others have read, Too Big to Fail, and it talked about what happened with Lehman Brothers. And it turned out the president of Lehman Brothers, as they were sort of circling the drain, 2007, 2008, was a big devotee and, you know, had exhorted all of his, you know, all of his friends to go with their guts and so on. And I think there are some situations where it is good to

trust your intuition, your gut instincts, you know, deciding what kind of ice cream you like and what you want to eat and so on. But investment decisions and really weighty matters might be a good time to step back and go for a little more rational analysis. So I'm going to sell those right now? One of the big topics in your book is confidence. This guy epitomizes confidence. Buy, sell, or hold Donald Trump. That's a good one. I don't know. You have to admire his confidence. And Donald Trump really does. I don't know the man. I do like some of his appearances on TV, but he really does illustrate one thing we call the illusion of confidence, which is that if you act confidently, other people are going to believe what you're saying and believe that you

have the skills and the knowledge and the ability, and that can actually carry you a long way. And I think, you know, you're right that that's one of his attributes. I think I'd put a hold on him right now, though, because I think, you know, there could be too much of a good thing there. And finally, your book is, well, your book is on sale everywhere, including Amazon.com. Another book that I found on Amazon.com is entitled Practical Intuition in Love, Let Your Intuition Guide You to the Love of Your Life. Now, you and your co-author are both married. So buy, sell, or hold the role of intuition when dealing with one's spouse?

Well, I thought you were going to say when finding a spouse. And in that case, I was going to put a buy on that one because I think attraction is one of those areas where a lot of rational analysis is not going to tell you who you should be attracted to and who you shouldn't be attracted to. So I would go with intuition there. Now, as far as dealing with your spouse, that's a different question. So now I'm going to actually answer the question you posed. And I would, on that one, I'd put a hold because here you've got two sides of intuition involved. One is you want to be sensitive to how someone's feeling. You want to be sensitive to your own emotions and all that kind of stuff.

And I'm not really that kind of psychologist, but I can appreciate that. But two, you want to be aware of when you're making assumptions about things like who remembers what and who said what when. and what people know and what they don't know. And a lot of arguments I've noticed after I wrote this book, the more I started to look at my own behavior and my own life, a lot of the things we argue about are based on people thinking they have perfect memory of what happened in the past. You said that two weeks ago.

That's exactly what you said. I remember exactly what you said. And you can get into too many ridiculous arguments with your spouse, other people in your life, and so on, if you really believe that you are perfectly aware of what's going on and you have perfect memory and your knowledge is better than everyone else and so on. So I would really watch out for those kinds of intuitions, the kinds of intuitions about how your mind works and how good you are, which are the ones we're really sort of warning about in this book. So on balance, I'd have to give it a hold because that's a half a buy and half a sell.

The book is The Invisible Gorilla and Other Ways Our Intuitions Deceive Us. It is available everywhere. Chris Chabris, thanks so much for being here on Motley Fool Money. Thank you. Coming up, a look at irrationality and investing with bestselling author Dan Ariely. This is Motley Fool Money. As always, people on the program may have interests in the stocks they talk about. Don't buy or sell stocks based solely on what you hear.

Welcome back to Motley Fool Money. I'm Chris Hill, and we wrap up this week with bestselling author and behavioral economist Dan Ariely. And we begin the conversation by talking about how investors should behave. Dan, the market is up from its lows in 2009. A lot of investors have seen their stocks regain some of that lost ground. How do you invest your own money, and how do you find yourself reacting when your investments go up? Yeah, so I try not to react.

And I mean it seriously. So people do lots of mistakes when they invest. And one of the mistakes, of course, is to let emotion rule us. So here's kind of a way to invest badly. You start in the morning, and you get to the office, and you open your portfolio. And if you're up, you're a little happy, and if you're down, you're really miserable. And now you make your decision based on this particular emotion that was evoked by the randomness of the stock market. And I try to think about this strategy without looking at my portfolio.

So I don't look at specific things that I gained or lost because, you know, that's kind of water under the bridge. It's not very helpful, and I don't want to be emotional, but I can look at it and say, what do I think about the future? Where do I think things are going up? Where do I think things are going down? And let me take an action of those, independent of how much money I've lost in the past.

It's kind of irrelevant. That's the first thing. And the second thing is that I try to avoid the status quo bias. So what happened is that you create a portfolio and you open it, and now the question is, what do you change? Like, what do you sell? What do you buy? How do you change your portfolio to a slightly different portfolio? And that means that whatever decisions you made in the past,

rational, irrational, thoughtful, not so thoughtful, is going to keep on escorting you through life. And what I try to do is try to imagine once in a while that somebody went at night and somehow sold everything I have. So I'm at just cash. And now I sit and I say, okay, assuming I just have cash, what would I get now? And that basically helps you alleviate some of the problems.

Imagine you bought a stock for $100 and it's now $80. It's very painful to sell it, even if you think it's going to go down. So people often hold on to losing stock for too long. So from time to time, it's good to start from scratch. And imagine you just have cash, say, what would you do now, and then move on on this strategy. The subtitle of your book is The Unexpected Benefits of Defying Logic at Work and at Home. I want to ask you, in general, how do we act irrationally at work? So big bonuses is one example, where we pay people tremendous bonuses.

We think they will work better. And in fact, big bonuses really work very well for physical tasks. So if I wanted to jump many times, you will jump more if I gave you high bonuses, but they backfire for cognitive tasks. Other ways in which these things work is that people fall in love with their own ideas. They fall in love with the things that they make. They don't see the downside of anything that is connected to us. We are wonderful people.

We're exceptional, and therefore everything we touch, all the ideas we come up with are exceptional as well. And I talk a little bit about revenge as well. And there's actually one chapter that I think is particularly interesting and kind of starts, I start in the book from a story about the financial industry, which is a chapter about the meaning of work. And the story is that one of my students, ex-students, came back to visit me and he told me that he worked for three weeks on the PowerPoint presentation for some big merger. And he sent it to a boss the day before the merger and the boss said, nice work, but the

merger is canceled. And that guy was completely devastated. He was completely unmotivated in the next task he was going to do. And he said everything functioned was just perfectly fine. Everything functioned. His boss appreciated it. He worked hard on it. He enjoyed it while he was doing it.

He was sure he would get the raise. Everything seems perfectly functional. But at the same time, he was completely demotivated. So we created the following experiment to kind of capture this. In one condition, you build robots from Lego. And you get paid for them less and less and less the more you build. So you get $3 for the first one. And when you finish, I say, Chris, do you want to build another one?

You'll get $2.70 for that one. You say, yes, I'll give you the next one. I say, hey, do you want another one? You'll get $2.40 for the next one, and so on, until you decide, at this price, I don't want to build them. This is one condition. And I tell you that when you finish building all of them, when you finish the experiment, I'll unassemble them, put them back in the boxes for the next participant. For the second group of participants, you build the first one.

I said you want the second one. As you build the second one, I already take the first one to pieces. I break it up to pieces already and put the pieces back in the box. And if you want to build the third one, I give you the first one back, the one that you built and I unassembled and you can assemble it again. So what happened? Two things happened. The first thing is that in this condition, which we call the specific condition,

People stopped working much, much faster. And the second thing is for everybody, we measured how much they liked Legos and how long they persisted in the task. And what we found was in the first condition, when we didn't kind of crush the meaning of labor, there was a high correlation between how long people persisted in a task and how much in general they liked Legos. But in the specific task, the correlation was basically zero, which tells me that we were able, with this very simple manipulation, to squish the joy that people were having from these tasks. People are capable of creating lots of intrinsic value and motivation from tasks,

even tasks that are not so meaningful, like building robots from Lego for a few minutes. But we, as job places, can easily squish the joy out of those things. And I think the challenge for the workplace is to say, how do we, one, help people get more value out of their work? How do we explain to them the value of what they're doing, the connection to other things, the meaning in their work? And, of course, how do we not make it worse? How do we not kind of crush the feeling of meaning that people can naturally create in their labor? You're listening to Motley Fool Money. We're talking with Dan Ariely, author of the new book, The Upside of Irrationality.

Dan, time to close thing out with a round of buy, sell, or hold. Let's start with something that a lot of businesses use, buy, sell, or hold focus groups. Sell, sell, sell. Why? Because it turns out that focus groups give people lots of confidence that they'll learn something and they know what they're doing. But the actual value in terms of information is really, really low. It's kind of the same value as you get from listening to people who analyze at the end of the day what happened in the stock market and tell you exactly a story about why they can predict what happened in the past.

People are really good in telling stories about what happened, even when they have no idea about what is reality. All right. You write about the biological imperative for variety. So buy, sell, or hold monogamy. Are you trying to put me into a tough spot here? If I had to bet, I would sell. Tell me why.

So monogamy is an incredibly hard thing to maintain. And it turns out that one of the interesting things that controls monogamy is a drug called oxytocin. And so if you give people oxytocin, they become more trusting and more monogamous. But we don't have that much oxytocin. Some animals have more, some animals have less. We don't have a lot of it. And I think that despite the fact that we get upset with Tiger Woods and other politicians when we discover that they've not been monogamous, the reality is that most people are not.

So we have kind of this double standard. When this thing happens in society all the time, we just don't seem to admit it to ourselves that this is incredibly much more common than it is. And, you know, the reality is that, you know, people do other things from time to time. That's just how things are. And finally, you're a married man.

I'm a married man. Buy, sell, or hold telling your spouse they're not being rational. Oh, that's definitely, you never, never, never want to do that. Never, never, never. So you've never gone there with your lovely bride, Sumi? With my lovely wife, let me say it again, my lovely, lovely wife, who's incredibly generous and forgiving on a daily basis, no. Telling her it's irrational is not the right thing.

First of all, she's always rational, always making the right decision, but no. So this is not the right standard to have a discussion with your significance. The book is The Upside of Irrationality, The Unexpected Benefits of Defying Logic at Work and at Home. It's available everywhere. It is a fascinating read, so pick it up. Dan Ariely, thanks so much for being here. My pleasure as always.

That's it for this week. If you missed any part of the show, you can find it at our website, motleyfoolmoney.com. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill thanks for listening we'll see you next week