At the end of the first year of the Peloponnesian war the great Athenian statesman Pericles was confronted with an angry revolt by the citizenry. Tiring of casualties and a devastating plague the tide of Athenian sentiment turned against Pericles, blaming him for the war against Sparta. Pericles’ “last speech” momentarily restored public confidence, but in the end not even he was able to persuade the Athenians to hold firm to his moderating principles.

As Thucydides reports, “…[the Athenians] did the opposite on all points, and in other things that seemed not to concern the war they managed the state for their private ambition and private gain, to the detriment of themselves and their allies. Whatever succeeded brought honor and profit mostly to private individuals, while whatever went wrong damaged the city in the war.”

Motivating Employees

Why do people not do what you want them to do? Classical management theory doesn’t begin with this question but another one. How can you get people to do what you want them to do? The two questions are similar but subtly different. The distinction it turns out provides clues for understanding human motivation and satisfaction and for designing more meaningful and fulfilling workplaces.

Scores of books and articles in the management literature address the second question. The answers are all variations of the standard model of management and it goes something like this: “People act rationally. The manager should set clear goals and establish the right balance between risk and reward. Sprinkle some ‘inspiration’ for good measure and you are well on the way to a productive workplace that advances the interest of both the company and the worker .” The standard model in management borrows the same premise from rational choice theory that underlies traditional economics: humans are rational agents who make decisions to maximize well-being or “expected utility”.

The standard model of management is flat wrong. As a manager you can do everything “right” and people will still not do what you want them to do. This will be the case even when it is demonstrably in the employee’s rational interest to do so. What’s going on?

A partial answer comes from research in behavioral economics, an exciting new discipline that combines insights from economics and psychology to explain how individuals and organizations actually make decisions. In Part I, I turn to behavioral economics to examine the standard model of management and its assumptions. In Part II, I suggest that “fairness” is not only a deeply held human emotion but fundamental in the workplace. Workers will never whole heartedly do what you want them to do, even if it’s in their rational interest to do so, if they perceive an unfair workplace.

Bounded Rationality and Heuristic Brain

In a seminal paper published in the 1940s, Herbert Simon (1916-2001) of Carnegie Mellon University introduced the concept of “bounded rationality” to highlight decisions which are made under uncertainty and imperfect knowledge.
(In 1978 Simon was awarded the Nobel Prize in Economics and his pioneering approach is only now being assimilated into mainstream economics.)

That we are not omniscient and there is always a halo of uncertainty surrounding decisions is in itself not a new idea. Simon’s originality consists in postulating that in such situations we resort to heuristics, partial stratagems and cognitive shortcuts. According to Simon, since an initial set of stable preferences is not always available we cannot come up with an “optimal” solution but resort to “satisfactory” or imperfect solutions.

It’s almost as if we have two brains. The computational brain comes into play to devise an optimal solution in situations where we know exactly what we want, can clearly define the available options, and can assign the associated rankings and probabilities. The heuristic brain kicks in when uncertainty reigns. We know we need to act but don’t know exactly what we want, can’t specify the range of options, and are unable to easily determine probability of success or failure.

Behavioral Economics and the Ultimatum Game

Behavioral economics accepts Simon’s work and takes it a step further by seeking to demonstrate empirically that cognitive shortcuts, though necessary, can lead predictably to faulty decisions. In the words of Daniel Ariely, one of the pioneers in the field of behavioral economics, we are predictably irrational creatures. Current research seems to suggest that bounded rationality is a deep fact about human agency and decision making, with profound consequences for everything from how markets work, how we organize ourselves socially, and how we act in the political realm. (The quarrel between traditional economics and behavioral economics also revives a perennial philosophical question though in a new form. Which brain is at the driver’s seat of human agency? Is it the computational brain or the heuristic brain? And if it’s the heuristic brain is it susceptible to distortion and manipulation by internal passions and external influences?)

Let’s consider a case of predictably irrational behavior and trace its possible implications for the workplace. The ultimatum game is an experiment in which two players decide how to divide a sum of money. The first player proposes the amount to be divided and the second player accepts or rejects the offer. If the responder accepts the offer, the money is divided as proposed. If she rejects the offer, both parties walk away empty handed. For example, suppose the first player is given $100 and decides to offer $40 to the second player while keeping $60 for himself. If the second player accepts the offer, the first player walks away with $60 and the second player with $40. If the second player rejects the offer, both players receive nothing.

The standard model of rationality predicts that no matter how low the offer, the second player should always accept it. After all, even $1 is better than nothing. (In 1982 Ariel Rubenstein, who developed the ultimatum game, showed formally that according to game theory there exists a unique Nash equilibrium solution to this problem.) But experiments show a gap between reality and theory. In some situations we tend to disavow the “rational” solution, being bound instead by an operating notion of “fairness”. We consistently reject “low ball” offers even if it is against our interest to do so.

Irrationality and Fairness in the Workplace

The ultimatum game suggests that appraisals of “fairness” not only enter into human judgment and decision but sometimes predictably over-ride our self-interest. In Part II I will examine the implications of this dynamic for understanding motivation and behavior in the workplace.

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