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5.0 out of 5 stars More Behavioural Economics From Dan Ariely, 12 Feb 2011
This review is from: The Upside of Irrationality (Hardcover)
Dan Ariely is a top rate economist -- one who tests the bedrock assumptions of the field!

The first chapter examines whether incentive-based pay really does lead to higher performance. Many people take this assumption for granted, but is it true?

Obviously this is a complex issue, but Ariely details some results of an experiment he ran in rural India. Participants were paid per their performance in some simple problem solving tasks. Due to the lower living standards there, Ariely was able to offer some participants the chance of winning up to three months' wages at a time.

As it happened, high rewards actually led to lower performance than low- or middle-rewards. Ariely hypothesises that thoughts of the high pay crowd out participants' attention to the problem at hand.

This finding is at best fragmentary, but it does interestingly run counter to conventional wisdom. More research could be used to show whether bankers' and executives' claims that high pay is absolutely mandatory to attract and motivate top talent are justified. (A similar book is Daniel Pink - Drive.)

Each chapter tackles a similar issue; my favourite is probably the chapter on hedonic adaptation (how we quickly adapt to new things).

I'm not sure how some of the issues really showcase the "upside" of irrationality (such as the pay-for-performance chapter). Seems like a marketing/branding decision, although it didn't make me enjoy the book any less.
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