- Reviewed by David M. Kinchen
After I read and reviewed “Freakonomics by Steven D. Levitt and Stephen J. Dubner eight years ago I never looked at the “Dismal Science” in the same way. Dry as dust economics suddenly became something alive and fresh and relevant to everyday life.
In my review of “Freakonomics” (http://archives.huntingtonnews.net/columns/051013-kinchen-freakonomics.html) –which was followed “SuperFreakonomics” by the same authors in 2009 — I noted that University of Chicago economist Levitt and his co-author compared “the Ku Klux Klan to real estate brokers; cheating sumo wrestlers to school teachers who ‘improve’ on their students’ test results; and explores why drug dealers live with their moms”.
Gneezy and List look at traditional ways of doing things and say “this isn’t good enough”, asking “where’s the truth behind saying ‘it’s always been done this way and it works'”.
They are renowned in their field for their practice of embedding themselves in the factories, schools, communities, and offices where people live, work, and play. By conducting large-scale field experiments “in the wild,” they are able to observe people behaving in their natural environments when they’re not aware they are being observed.
In “The Why Axis”, Gneezy and List apply their revolutionary approach to answer the question central to business, politics, education, and philanthropy: what motivates people and why? Their goal: to use the answers they uncover to solve some of the most vexing questions of our time, including:
· Why, in most modern economies, do women still earn less than men for equal work, and occupy fewer on the top management positions?
· Why are some people charged more than others for products and services? Why do people discriminate against one another, and how can we get them to stop—and avoid it ourselves?
· Despite the fact that the United States spends far more on public education than most other developed countries, the high school dropout rate is higher than 50 percent in some places. Do expensive, faddish educational programs make any difference at all? How can we close the education gap between rich and poor students in a cost-effective manner?
· How can businesses innovate more creatively, improve productivity, and create more value, opportunities, and jobs in an increasingly global, competitive world?
· How can non-profit organizations encourage more people to give back to society, and how can you make your favorite charity more effective?
· When are incentives valuable and when do they damage outcomes? What kinds of incentives cause people to do the “right” things? When it comes to incentives, is cash always king? When do incentives just plain not work?
All of the above bullet points are important in real life, as opposed to theoretical answers to imaginary situations — which is what I’ve found in all too many economic treatises. You won’t fall asleep reading “The Why Axis” — unless you’re already sleepy — and you may find answers that explain puzzling situations.
To find answers, Gneezy and List boarded planes, helicopters, trains, and automobiles and embarked on a journey from the foothills of Kilimanjaro in Kenya to California wineries, from the burning heat of northern India to the chilly streets of Chicago, from the playgrounds of schools in Israel to the boardrooms of some of the largest corporations in the world.
List and Gneezy take readers along for the journey and— through engaging narration and colorful anecdotes—present their revelatory, at times startling, and urgent discoveries about how incentives work, including:
· Who would have guessed that by including an “opt-out from future campaigns” option in its direct mailer flyers, one charity was able to increase their donation levels?
· In one experiment, kids responded better to behavioral manipulations; so if you give them $20 to perform well on a test and threaten to take it away if their performance isn’t up to par, they do better than if you simply bribe them with the same reward.
· Women are more inclined to apply for a job if the job-listing states that the salary is “negotiable.” In fact, the gender gap in job applications shrank by approximately 45% in one experiment that used this tactic.
· A healthcare insurer found that by actively helping senior citizens with their prescriptions and self-care, they could help those customers stay out of the hospital and their company could save millions in the process.
· In one experiment, Gneezy and List found that in matrilineal societies where women are in charge of the household income, they are not less competitive than men. Thus, the authors argue, a large part of the gender gap is due to culture.
· The best strategy to getting people to live more eco-friendly or “green” lifestyles is not to appeal to their sense of environmental stewardship, but rather to invoke peer pressure. When Gneezy and List told individuals that the majority of households in their area used CFL light bulbs, the results/rate of adoption were the same as if they had dropped the price of the light bulbs by 70%.
· A big technology company learned that offering employees a bonus and threatening to take it away raised productivity dramatically.
· A small vintner in California discovered that doubling the price of its Cabernet Sauvignon actually increased the demand for the wine.
· Disney learned that letting people pay what they wanted for a photo taken at the end of a ride worked especially well when half of their donations went to a charity.
· Racism is on the decline but that doesn’t mean everyone is treated fairly. The access companies have to the “big data” about their potential consumers has created a new kind of discrimination. Gneezy and List discovered the seven simple words that people can use to offset such treatment.
Who should read “The Why Axis”? Since it will probably change the way we both think about and take action on big and little problems, it should be required reading for those in business, philanthropy, politics, healthcare, and education—as well as for anyone interested in understanding the complex reasons why we do what we do. It’s a worthy companion to “Freakonomics” and “SuperFreakonomics” as well as books and articles by Gary Becker, who was awarded the 1992 Nobel Memorial Prize in economic sciences (http://home.uchicago.edu/gbecker/Nobel/nobel.html).
About the Authors
Uri Gneezy was born and raised in Israel, where he learned applied game theory firsthand in the streets of Tel Aviv. Dr. Gneezy is the Epstein/Atkinson Endowed Chair in Behavioral Economics and professor of economics and strategy at the Rady School of Management at the University of California, San Diego.