Why We’re Terrible at Decisions (And How to Fix It)

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Wow.

That's mind blowing.

Mind blowing, right?

What I understand you've went deep on is irrational behaviors.

People are taking less and less risk. I don't want to take risk. I don't want to take risk. I don't want to take risk. My goodness. I don't want to live a riskless life.

You mentioned Covid.

What happened around Covid?

My guess is that somebody misbehaved. We were home, we were stressed, kids were home. So we can create a style work environment.

Wow.

When people work from home, the question of intrinsic motivation becomes more important.

What else do we need to know about motivation?

Companies, when they buy a warehouse, it's an investment. When they invest in their people, it's a cost. I think in many cases we don't think about the opportunity cost.

That's ridiculous. Absolutely. Like nonsensical.

So I have these very strange asset results and the question is, why do I have this happen? Many years ago I was badly hurt, so most of my body is covered with scars. People would ask questions, kids would point, people would laugh. Not a good day.

When we go through any form of pain or rejection, it's very hard to.

Get to a point where we accept it.

For the last eight years I have been studying the following question.

Welcome to Lead On Purpose. I'm James Laughlin, former seven time world champion and now international keynote speaker and high performance leadership trainer. Each week I bring you an inspiring leader or expert to help you lead your life and business on purpose. Thanks for helping us be a consistently number one ranked show on Apple Podcasts and Spotify. I hope you enjoy today's show.

NZ Mortgages is the proud sponsor of the Lead on Purpose podcast. You can check them out at nzmortgages.co Nz Dan Hourly, a professor and researcher from MIT and Duke University, is a behavioral economist and provocative thinker. His groundbreaking work has exposed the flaws in human decision making, though not without controversy, as he has faced scrutiny for errors and ethical lapses in some of his own Research. Through both his insights and missteps, he challenges us to question the instincts, systems and even the experts we trust. If you go into any good bookstore on the planet, you will see his books featured. He is one of the most incredible authors on the planet. In this episode we explore decision making with Dan, who likens the human mind to a Swiss army knife. Versatile but limited in handling today's complexities, he argues that our ancient mental tools are often inadequate for modern challenges and stresses the need to design environments that account for these limitations. Using car safety features and financial markets as examples, we discussed how intrinsic motivation fuels productivity with fairness and appreciation playing key roles. Dan also critiques the demotivating effects of bureaucracy and advocates for a holistic approach to decision making that prioritizes trust and considers long term impacts. Like me, he's a long game thinker. Let's jump in and I know you're going to love today's episode, Dan, a.

Huge welcome to the Lead on Purpose podcast.

Thank you very much. Lovely to be here.

Oh, it's such a pleasure to have you here. And just, you know, for the listeners and the viewers, just going to let them know that you're coming in from Tel Aviv and you and I have had a little chat pre, pre recording just about the stuff that you're going through, your country's going through, the region's going through. And so my thoughts go out to you and everyone down there. I hope that we see some stability and some peace for you all.

Yeah, I very much share that feeling. Something is, I think it felt that the world is very much out of whack for me since COVID and it's what we're experiencing now is just very hard to understand and comprehend. And yes, I'm hoping that things would stabilize soon and I hope the world would understand that it's not just in Israel, Gaza, Hezbollah, Hamas situation that we, you know, we need to get united and resolve terrorism for the, for the benefit of the world.

100% agree with you and it's interesting, you know, we'll talk a little bit about where life began for you and where you've ended up. But a large part of what I understand you've went deep on is irrational behaviors and irrationality. So the responses I'm seeing to what's going on there seem quite irrational at times. So I'd love to actually just get the ball rolling there. What is irrationality and where did your interest in it stem from?

Okay, so maybe I'll start with how do I view the human mind So I view the human mind as a Swiss army knife. Now if you think about it, the Swiss army knife is not particularly good at anything. There's not like a task that you would say, I need a screwdriver, let me find a Swiss army knife, I need tweezers.

It's kind of a compromise. It's an incredible tool because it has a lot of things in it, but it's not particularly good at anything. And the human mind is to a large degree that when it comes to decision making, we're very good at vision. I mean there's all kinds of things, we're very good. But when it comes to decision making, it's a sort of okay tool for lots and lots of things. Actually the amazing thing is how many things we could do, but we're not particularly good at any one of them. And the other problem with that Swiss army knife is our Swiss army knife has lots of old tools. If you think about evolution, our tools are designed for a very different world. A world without social media, without cryptocurrency, without money, without really complex decisions about health, without old age. I mean our, our tools are so it's a, it was always the Swiss army, not, it was never that good, but now it's not that good and very much outdated, but that's what we carry with us. And now we have to deal with all kinds of decisions. So that's kind of my model of the human mind in general. Now in economics we think that people are perfectly rational. People always, always make the right decision. We basically assume that our brain is designed to make the right decisions in this very complex environment. And the reality is just not that. So.

For me, the real question is we have these ancient tools, they're not perfect fit. What do we do with it? And the thing to do is to try and make the world more compliant to our abilities. It's not about telling people oh change, it's about making the world more compliant with our skills. And just to give another metaphor, think about cars. Cars have changed a lot over the years. Mostly they have come to compensate what lousy drivers we are. If you think about is engines got better and so on. But mostly the advance with driving has been to realize that we're shitty drivers and to compensate for that. So we have lanes and we have lights and we have antilock brakes and we have seat belts and we have rear view mirror and side mirrors and we have lights that beep and tell the distance and we still have car accidents. But the whole development is to say humanity should not be driving, but we're driving. We're terrible at this. Let's try to make the environment better. Now. There are other things that we don't do the same thing. I think we're just as bad as using our money to maximize our happiness as we are as drivers. I think we're just as bad as motivating the people around us as we are. It's not as if we're terrible drivers, but everything else, we're great. No driving it just tells us like the thing about driving is that we see the accident. If you're a terrible manager, you don't see the accident. If you're a terrible person in terms of thinking about making health decisions, you don't see the outcomes. So we have lots of help when it comes to driving and these other things, we don't have so much. And the real question is how do we understand our limitations and how do we design the world.

To do better? And maybe if you allow me, I'll give one more little introduction. So I have this very strange half a beard.

And the question is, why do I have this half a beard And I have this half a beard for multiple reasons. The first one is that many years ago I was badly burned. So most of my body is covered with scars, including the right side of my face. All of this is just scar tissue, so there's no hair growing. But of course I could shave and if I shaved I would look less non symmetric.

If I shaved, you would see that something is strange, but you wouldn't know exactly what it is. And for many years I shaved. And then about seven years ago I went on a month long hike and I didn't shave for a month. And when that month was over, I looked in the mirror and I looked sort of like this. A little bigger, a little bit less white. And I didn't like the image of myself with half a beard. It was very jarring and unpleasant. And I thought to myself that I'll shave in a couple of weeks, but I'll keep the hafe beard for a couple of weeks as a memory from the hike. Took me a month to grow it. I'll keep it for a bit longer. And then two strange things happened. The first one was that a few people reached out to me and thanked me for the hafibield. Actually one of the people was, she worked. I have a youth center across the street from my apartment. She worked in this youth center and she left me a note in my mailbox thanking me for the hafe. Now why did people thank me for the hafibia? Those were people who were struggling with their own injuries and they felt that they were hiding their injuries. And they said, you know, now I'm going to try and be less concerned with hiding it. For example, there was a woman in her 50s who told me that she had a car accident when she was 17 and didn't wear a dress or a skirt since she's going to try. So I felt, okay, if some people are like, you know, I didn't grow this to show look how much I don't care. But if some people are using this as an input, I said, okay, I'll, I'll keep it, I'll keep it for a bit longer. So I kept this half a beard for a bit longer. And then the real strange thing happened about four months down the line where all of a sudden I felt that I came to a higher level of acceptance of my injury, disability, deformity and so on. And here is what happened. Imagine somebody like me shaves, I wake up in the morning, smooth on this cheek, stubble on this cheek. And the act of half shaving is also the act of hiding my lack of symmetry, right? More non symmetrical before shaving, less non symmetrical after shaving. I, I was doing exactly what those people told me that they were stopping to do and.

Stopping shaving and accepting my lack of symmetry and saying, look, this is me, I'm just non symmetrical. This is one example, but I have others. How my hands look and so on was very healing. Was very healing. And here is the last point. I know we did not plan to speak so much about facial hair. This is good. But the last point I would say is that here I am a social scientist, I'm supposed to understand human motivations. And if you ask me, is having a half a beard a good idea? I would say no. I mean, if you ask me in the past, because I would think of day one with half a beard and I would say, day one is not going to be good. People would ask questions, kids would point, people would laugh. Not a good day. But the thing about it, we're kind of good in predicting some things, like the reaction of other people on day one. But there are many things that we're not that good at. Intuitive. For example, I would not have intuited this long term effect of self acceptance, which ended up being incredibly important. I mean, in retrospect, I wish I went on that hike 10 years earlier, but. But there's some things in life that we're just not that Good. We're good at predicting day one. We're not predicting long term effects. And for me, this is the goal of social science and that's the goal of what I try to do, is to try and uncover some truths about our mind that are not as evident from our daily behavior and kind of can be used to improve what we do. So whether we talk about motivation or health, how to use our money and so on, what is our intuition telling us and what is the reality? And if they don't match, maybe we can try new things that we haven't thought about before.

Hey, James here. I wanted to take a quick moment to let you know about something. Look, I get asked to deliver keynotes I and workshops for teams and companies all over the world, from London to Antarctica, from America to Australasia, from armies to small businesses to large corporates to sports teams. But I go in and deliver keynotes around the mindset of high performers, around the habits of high performers, about how we navigate change. If you would like me to come and speak to your team or speak at your conference or deliver a bespoke workshop, please get in touch with my team. Carolinejlochlan.com will be able to help. I'll also make sure that we put that in the show notes.

Thank you so much for taking the time to share that. And yeah, for the people that are just listening, they won't see your half a beard, but I hope that they jump on and watch the video and see it. It's beautiful. And I love that you talk about acceptance because I think when we go through any form of pain or rejection, it's very hard to get to a point where we accept it and we look for justifications and we try to hide it. Is there a motivating factor that could help us get towards acceptance quicker?

So I think depends in what area.

But one of the things that troubled me greatly in recent years, and I don't know how it is in New Zealand, is cancel culture in our fear of admitting mistakes. And.

I'll tell you the following kind of story about mistakes or about risk.

Samuelson, the first famous economist, told the following story. He went to one of his colleagues, the MIT Economics department, and he said, look, I'm going to offer you a gamble. I'll toss a coin. I'm using different numbers than what he used. But he said, if it falls on head, I'll give you $120. If it falls on tail, you give me a hundred dollars. So you'll get 120. I'll get 100. Do you want to play that game? And his friend said, no. He said, I understand that the expected value is positive.

But he said, if I'll win $120, I'll be slightly happy, but if I lose the hundred dollars, I'll be really miserable and for longer. That's what's called loss aversion. So I understand it's a good decision, but no, I don't want to do it. And then Samuelson said, and what if we played that game a thousand times? And the guy said, of course I'll take it with both hands a thousand times. Of course I'll play it. And then Samuelson said, look, look what you're telling me. You're telling me that if I came to you every day, and every day I said, would you like to play this gamble? Every day you will think just about the gamble you're facing. And every day you would say no. And at the end of the three years, you would say, I had a thousand, more than a thousand. But let's say it's a thousand days I had a thousand times to play this game. Why didn't I play it? And for me, the metaphor is that life gives us gambles all the time. We can make decisions that can turn out well, they can turn out badly. And if we focus on every decision one at a time, we say, I don't want to take risk. I don't want to take risk. I don't want to take risk. But if we look at our life as a portfolio, say, my goodness, I don't want to live a riskless life. Now, if you think about it, this is what VCs are doing, right? VCs come to entrepreneurs and say, we know you're not going to take enough risk, so use our money, not your money, and take more risk. By the way, I think this is what parents should do for their kids. I think that parents should be the VCs for their kids. Love that go. Kids take risk. By the way, one more thing about risk. You know, resilience is one of the most important attributes we have. How much resilience we have. And there are two types of resilience. Imagine life, kind of an access of time. Life gets slightly better, slightly worse, slightly better, slightly worse. At some point, some people have a tragedy. In my case, it was an accident. I got badly burned, three years in hospital. And usually we think about resilience, about whether people jump back. Do they jump back above where they were, below where they were? How long does it Take them. Usually we think about the resilience is about the ability to bounce back from a tragedy. But the reality is that resilience is also about when nothing bad happens. It's about our appetite for risk. And the example for this is what is called secure attachment.

So imagine you're a parent to a kid, 4 years old. You take the kid to the park and you say, kid, go to the swings. The kid goes to the swings and comes back an hour later. If that happens, you have a kid with secure attachment. On the other hand, if you say, kid, go to the swings and they go. But every 90 seconds, they look behind your shoulder to see if you're still waiting. Not so much. Not so much secure attachment. So secure attachment for me is the part of resilience where nothing bad happened. But you either walk in life feeling that if something bad will happen, somebody will catch you, or you walk in life worried. It's kind of like a total insurance policy that I don't need to worry. I can take risk, I can try new things and just think about what a wonderful way it is to walk around life thinking that if something bad will happen, somebody will catch us. We can try more things, we can dare, we can experiment, we do lots of things.

And of course the insurance policy comes from our friends, comes from our family, and hopefully comes from the government.

Yeah.

As well.

Freeing.

Yeah, very freeing. And.

Two more things about risk. If one of your friends came and said, look, James, I really want to open a restaurant, what do you think you should say? Don't. Right. It's a terrible decision. Most restaurants fail. It's very expensive. How much would you like to live in a country or city that has no restaurants or no new restaurants? Not so much.

We as a society want individuals to take risk. We benefit from that risk. But the individuals are taking risk on behalf of society. Society should encourage risk taking. Society should encourage people to study strange things and to start strange startups and to DARE and so on.

And now if the individual fail, they fail. But if they succeed, all of us could benefit in principle. Now, it's a long answer to the question of what is happening in society. I think people are taking less and less risk. People are taking less and less risk. People are afraid that somebody will point a finger at them and say, oh, you should have thought differently.

Later. And it's not good for us as individuals. We're living a life that is way too timid and it's not good for us as a society. And you know, I'm in Israel Now I told you, and.

I teach at an American university. And of course when October 7th happened, there were lots of demonstrations in, in American universities. And you know, I'm perfectly fine with demonstrations. But you know what I would have expected from. Let's just take Harvard as an example. What would I have expected from one of the best universities in the world with some of the smartest students and smartest faculty. Jewish, Muslim, Israeli, Palestinian, Arabs. I would have expected the administration to say, let's come up with the Harvard solution for the Middle East. We have this like amazing, unbelievable people here. Let's put our minds together and we have people from all over, from all over. Let's sit together and think, what would be the Harvard approach to a new Middle east and to a new world? What would we recommend? What would we, what would we do?

You know, you're from Ireland, you know, Ireland had an amazing experience with citizen committees. You remember that story, right?

I remember.

Ireland basically kind of went back to ancient Greece and said, we have two major issues. One is with abortion rights and one is gay rights. Let's take a random group of 250 people and let them discuss it among themselves and invite experts and at the end of the day submit a report for the country for a vote. What an amazing thing, right? This is kind of like democracy should not be about politicians fighting, it should be about what's the will of the people. Let's take 250 randomly selected people and get them to truly study what is going on, debate until themselves understand each other, Catholic, Protestants and so on. And amazing, by the way, unbelievable, unbelievable. I'm hoping that that beginning part by Ireland will change the. It will take a while, but it's. I think more and more democracies are looking at it as a, as a guiding light.

But anyway, I would have expected Harvard to do the same thing. Let's sit and come up with a solution, come up with something uniting rather than, you know, having fights 3,000 miles away from Gaza. But the reality is that no university president in the US is taking any risk. Nobody wants news coverage, nobody wants to talk to reporter, nobody wants to do anything gutsy like, you know, if you do something like this, it could fail. But on the other hand, if you just try and do nothing, there's no chance for progress.

Do you feel that ego is a big factor in this? Like, you know, being self absorbed and worried about oneself and one's job like that? This is the biggest driver in people kind of sitting back?

I think so. I think. Well, I also think Bureaucracy contributes a lot. But yeah, I think. Well, I mean, there's also some leftovers from COVID We can talk about other things, but yes, in general I think that.

Our attitude toward risk.

Has gone down. We still, I think respect risk in startups, but I think we don't respect other risk as well. Maybe Elon Musk is the exception when the guy takes amazing risk. By the way, his approach was amazing, right. He said, I'm going to take satellites and I'm going to assume that some of them will explode. I'm not going to go for 100% safety. And yes, from time to time it will cost money because we'll fail, but overall the missions will be much more cost effective. And he was absolutely right. Right. If you look at Boeing, they said we never want anything to fail.

Very, very different approach like the. Anyway, so I think that's one of the drivers is I don't want to tell any jokes by the way. There's another interesting thing that is happening is that especially in the U.S. tell me what's happening in New Zealand.

After. Me too. We got lots of instructions about what we can talk about and what we can't.

Of course.

Sexual. There were lots of undesirable sexual things that happened and it became a real question about what can we talk about?

What level is speech? For example, if I tell you about.

A challenge I'm having with my girlfriend.

Is it bordering on that? And the easy decision was to say don't talk about anything that has to do with romantic life.

Don't share anything.

For example, they even said that if your significant other that you're married to come to visit you at work, don't kiss them when other people can see because.

It can create a hostile work environment.

Wow.

So, and now with the political polarization, people are saying also don't talk about politics.

So what's happening is that, you know, we spend lots of time at work, but we can't have work friends or you know what, work friends change is different because, you know, you, you can't talk about romantic life, things that trouble us. We can't talk about politics, you know, so now work friends are just work friends. They're not friends that also you work with.

But it has changed. So I think that has a huge implication on motivation, on team spirit, on caring about other people, on pitching in for all kinds of activities. So I think between.

Not taking risk and cancel culture and not having friends at work, there's some very.

The spirit at the workplace has changed and not in a Good way. And I think it's very hard for big companies to bring it back. I think small organizations have a much higher chance of establishing new, new rules. And it's not easy. You know, creating culture is not easy. It's not as if you kind of have a module for let's have a good culture. And then it will. It would continue. You have to work it. Everybody who's married know that you have to work at marriage. It's not just, okay, we did our vows, now everything is fine. The same thing is true about culture. Continue adjustment and changes and fixes and discussion and so on. But. But there are lots of benefits of good culture, 100%.

And when we think about culture, you know, we have a leader within that culture or multiple leaders at multiple levels. I imagine their ability to motivate and inspire others is going to impact the future outcomes for that culture. So when we think of motivation, you know, very basic idea for me is we've got extrinsic motivation and we've got intrinsic motivation. Now, of course, that's very black and white and very basic, but what else do we need to know about motivation?

Okay, so first of all, let's talk about extrinsic and intrinsic. And you're right, that's the most basic distinction. So for the last eight years, I have been studying the following question. How do companies. I started with the Fortune 500 in the U.S. then I moved to the Fortune 1000. How do companies treat their employees? How the employees feel about the company, and what are the implications of that in the stock market for stock market return? Right now, stock market return is not everything, but it's a good start. And I had data going back to 2006, so I could take the 2006 data, predicted 2007 stock market, take the. And so on. And I had lots of dimensions. Think of a dimension. How good is the quality of coffee in your organization? How good are the chairs, table, your salary, and so on? And I basically played the following game. I said, imagine, let's take the coffee quality as an example. Imagine I had coffee quality for 500 companies, Fortune 500. And I sorted them from the company who treats their employees best on coffee quality to the company who treat the employees worst. And I bought the top 20% companies who treat their employees best on coffee quality in 2006. And I carried those top 2007 in 2007. I have new data. Maybe one company went up to the 20%, one company got down. But I have a portfolio from 2006 until Covid. I'll tell you about COVID in a minute. About the companies who treat their employees best on coffee quality chairs. Table Salary, health benefit, and so on. So now we have these many, many portfolios. I mean, you would never invest just based on this one question, but it's a good way to start thinking about how good is this data? Well, it turns out that even though those are stupid portfolios, almost all of them are as good or beats the s and P500.

Wow, that's mind blowing.

Mind blowing, right. Because then I would say, as a social scientist, I would say it's really easy to beat the S&P 500. All you need to know is to know anything, almost anything about how people feel about the company. But then, of course, some things are just like the S&P 500. And some things, some things are better.

What are the things that don't matter so much and what are the things that matter? Well, it turns out that everything that has to do with extrinsic motivation doesn't matter that much. Health benefits don't matter so much. Retirement benefits don't matter so much. TABLE Chairs don't matter so much. The number one thing that matters is do you feel appreciated?

Connection with your direct manager, connection with the goals of the company, psychological safety, low bureaucracy, all of those things matter a great, a great deal. And when you put them together, the things that matter, it's a big difference. It's a big difference. So by the way, we have an index now, an ETF that.

Follows those companies.

That's fascinating. And how is it tracking?

Check it out. It's quite good. It's a company that is doing it. We're just giving them the data. But it's a company called Harbor Capital and they have an index hapi.

I'll make sure that our team puts this in the show notes as well.

So that people can check it out.

That's so good.

So check it out. But you know, my goal in this.

My goal in this was to basically say.

You know, I think that the fact that people don't look at human capital is an accounting mistake. Now if you think about it, companies, when they buy a warehouse, it's an investment. When they invest in their people, it's a cost. It's kind of crazy, right? You would say, why don't companies have an asset sheet for their workforce, for the human capital?

I think the discussion about human capital should involve not just hr, but it should involve the cfo. And the goal to go after stock market return is to Basically say this CFO should be really caring about investment in human capital. They should. It's HR is not just about doing the, you know, whatever module it is. They should be the keepers of human motivation and we should, we should help them anyway. So I think it's an unbelievably important topic. And for a company, it's almost impossible to experiment with human capital. If a company wants to change branding or ad or pricing, very easy to do. You do NB testing on your website, fine. And companies can learn. If a company wants to learn, whether they are in a subculture right now, the culture is not good enough, they can't do it. Lawyers will never let you treat half your people one way and half the people the other way. It's like so, so the advantage is that we look across.

Large number of companies.

Incredible.

Almost. But, but there's, I don't, I don't fault CEOs for not doing it because it's really hard. Like if you say I think that we're not appreciating our people, how would you test it? Like you would start just appreciating a sub part of the organization. When you're in one company, it's very, very hard to study. So that's why this is so useful is you can learn lessons across.

I can't wait to track that and learn from that. Because it sounds so vast that the data points that you've been collecting. But it's quite interesting what's happening with you tracking that, that index. Now you mentioned Covid, what happened around Covid?

Okay. By the way, JP Morgan, their quant group wrote four papers on my data. You can check those out as well. And they show that it's a new investment factor, that it's not part of momentum or something else. So what happened during COVID So we looked at the human capital of companies going into Covid. So think about the human capital companies have pre Covid, how it influenced Covid, the financial result during COVID and the result was even more dramatic than in non Covid time. Now why is it imagine you have a kid in seventh grade, if the kid is in school, the teacher can say, sit straight, put your phone down, don't talk to Johnny when the kid is at home. During COVID on Zoom, the kid can turn off the teacher.

Now we like to think that we're adults, but when you ask people.

During COVID have you ever pretended that your Internet connection was too weak and you have to turn off.

Most people say yes, admit that they've Done that. So, you know, we're not exactly like kids, but when people work from home, the question of intrinsic motivation becomes more important.

We were home, we were stressed, kids were home. So. But. But even now with. With remote work here to stay, at some level, the importance of.

Intrinsic motivation are much higher.

So, by the way, when I go and present these results to financial investors, they often like hard measurements. They say, what does it mean, how appreciated you feel? For example, I'll tell you. So I told you that salary doesn't matter, right? Salary doesn't have a big impact on alpha, on stock market return. Perception of fairness of salary matters a lot.

There we go.

And the Wall street people say, what's the perception of fairness of salary qualify for me? Give me the delta. And I basically say, you're wrong. I know it feels bad to measure something subjective, perception of fairness, but I said, but that's really what you want. Say if I wanted to know how much in love you are with your significant other, Yes, I can measure how many love icons you send them during the day or how many times. But that's not a good measure. The best measure I have is to ask you, how much are you in love with your significant other? And the same thing is true for pain. There's no good neurological measurement of how much pain you're feeling. Eventually those are whether it's love or pain. Those are the feelings that we have, is the real thing. It's not as if I would want to measure your emoticons of love, and I can't. So I'm asking you this, but I really want this. When I ask you the question of do you feel appreciated? It's not about how many times somebody is saying thank you in an email. Even if I could quantify, it's truly how appreciated you feel. And I think this is like a transition that we really need to have, that there are some things that objective measures are great, but there are some things that are truly about the internal state.

I totally resonate with that.

How you feel about it is incredibly important. Okay, so I've avoided your questions, and I'm getting to it. You said extrinsic and intrinsic, and we just kept on talking about extrinsic and intrinsic. But within intrinsic.

I think of it as two factors. The first factor I call goodwill. And goodwill is basically how much energy do you have toward the goal that you have? Like how fast do you run, how energized you are, and to think about it, imagine that your current performance at work. We'll call it 100, not 100% 100. And the first thing to ask is how much lower you can get from 100 in terms of your work and still not be at the risk of losing your job. And most people say quite a lot. In fact, I'm doing a lot of voluntary work, I work a lot extra. And then I say and how much more you can go above 100 if you are truly excited about what you were doing. Most people say quite a lot as well. So that's goodwill, the gap between the minimum we have to do not to lose our job and the max we can do if we're truly excited. And for most people that's a big gap, especially for knowledge workers. And you say, my goodness, a lot of it is under my discretion. Yes, the company can demand I sit next to the computer for eight hours, but they can't demand if I work fully and fully engage or if I think about the party tonight or something. So that's the first, it's goal directed, how hard we're working. The second part I call utility embracing.

And think about the janitor in hospital. The janitor has a job description. Water, soap, cleaning and so on. One day our janitor walks by and he hears a patient crying. Should the janitor stop by and talk to the patient, see what's going on and call for help? The answer is of course yes.

One day our janitor sees a family lost in the corridors of hospital as they look for their loved one. Should the janitor drop what they're doing and walk with them to show them they're going? The answer is of course yes. Now if you think about it, there are many, many cases in which we want people to stop doing their job and do something else that is for the good of the organization. So we each have our job description. But what you really want people is from time to time to step up, look around, look at the good of the company, not just at what they are supposed to do. Because that janitor made their life harder. They now took the family, they have to go back, they have to do their job.

But we want people to do lots of those things. We want people to mentor, we want people to notice things, we want people to suggest improvement. I mean, there's lots of innovation. Improvement comes from people not doing their job, of course, but for that you need the person to basically say, I'm not just here for the job, I'm here for the company and I'm going to do things that are good for the company, even if they're not good for me right now. Mentoring is a great example.

If you're an expert in what you're doing, the easiest thing for you to do is to say, I just want to be the best in what I do. I don't care about other people. In fact, if other people are worse, I would look better. Relatively speaking. That's of course not what we want. But the moment people are not connected to the big mission of the company, they will not do that. The moment they don't have autonomy, they would not do it.

By the way, I mentioned before that one of the biggest way to. No, not one. The biggest way to demotivate people is bureaucracy.

And the reason that bureaucracy is so bad is that it tells people we don't trust you. Yes, you can go for lunch with somebody, but I want 16 receipts and a video documenting the whole thing. I don't respect your time. You want to do this. Here is a.

I'll give you an example. At my university now, if I travel for university business.

And I.

To a different country and I submit expense reports, they want to see two different reports of exchange rate at the time that this expense happened.

That's ridiculous. Absolute, like nonsensical.

By the way, just an example. There are many things like that. Wow. You know, like just think about the amount of work that takes. Okay, so. So I bought coffee.

And now here are two separate reports of the exchange rate of the. Of the, you know, whatever currency it is to dollars. And they don't accept the credit card anyway, you know, anyway. But we all have examples of this. So we don't trust you. We don't care about your time. And please, please, please don't do anything different. Right. Bureaucracy basically paves a path, sometimes in a good way, for how to do things in an easier way. But the more you pave it in one way, it's harder and harder to do it in a. In a different way.

So it's something I've never considered, Dan.

Never.

I've never. My thinking has not went that deep on that specific concept, but you're absolutely right. And for that to happen, someone to say, for example, I need to. I need two currency exchange reports for every transaction you make overseas. That was a decision, Right? And I look at the word decide. Someone made a decision, they decided. C I, D, E is how we finish the word decide. Lots of other words that end with C I, D, E. Pesticide, homicide, genocide, suicide. They all mean to kill. So when I think of decide, it simply means in my mind to kill off other Options to say we're doing this and everything else doesn't matter. So how can we improve our decision making skills to make for a better life?

Yeah. So first of all, you're absolutely right that people decide that the thing with deciding bureaucracy is that people don't consider the opportunity cost. So my guess is that nobody woke up in the morning and said let's demand that people show two different exchange rates. My guess is that somebody misbehaved, somebody used an exchange rate from somewhere that wasn't exactly right. Right. And you know, they got an extra.

Payment for this. And somebody saw that and said, I never want this bad behavior to repeat again.

So let me make a rule that will make it impossible for people to make this bad behavior again. But what they did was they did not consider the cost of that rule. Imagine that there was 0.001 people who were misbehaving and you certainly don't want that again. But now you're creating a rule that is affecting the almost 100 people who are behaving well.

And this goes back to our question earlier about how do we live with mistakes. And you know, it's really interesting that with driving we basically have learned to live with mistakes. I mean, we don't, don't embrace it, we want to avoid it.

But we don't say, oh my goodness, there was an accident, let's stop all cars.

Or so on. We basically say, look, this is a trade off. People have to get from place to place. I can't stop cars. Let's get them better and better over time. Maybe autonomous car, maybe we'll see what will happen. But we're not going to stop everything. We're not going to create such a barrier that we're not going to be able to move.

I think when it comes to bureaucracy, we don't have that opportunity cost. We see the bad behavior.

We say we never, never, never want to see that again. But we don't see the cost that we're incurring on everybody else because it's not as observable like the effect on human motivation. Imagine that we took an organization, let's say the un, and we said, let's look at the bureaucracy in the UN and let's think about how much it's decreasing motivation. It's not as easy to measure. When a lawyer comes up with a new rule, let's say about our twice this, they're not really counting how long it will take me. They're not thinking about what it will do to my trust to the organization, it will not. They don't think about commitment. They don't. They're just focused on a part of the organization. But I think we can do that. So.

Going back to your question, I think in many cases we don't think about opportunity cost. We don't think about repetitive. So when we spend money, we usually don't think what else we could do with that money. Again.

When we have an activity, we don't think holistically.

What this is creating.

If you ask me for other kind of general rules about making better decisions.

One other thing that we usually don't do is we usually don't think about decisions in a broader context. What else is happening? And I'll give you an example.

In my first book, Predictably Rational, I wrote about one of the things that motivated me down the path of social science in the Berne department. The nurses, they have to take my bandages off every day. Very, very painful, as you can imagine. And the question was, do you reap bandages off quickly or do you take them off slowly? And the nurses started the right approaches quickly. I thought, the right approaches slowly. My first experiment ever was to test that. Turns out that slowly is better. But.

A woman called me and told me that she had brain cancer. And she asked me how to tell her kids. She took the metaphor from removing the bandages quickly versus slowly. And she said, should she tell her kids all at once or should she do it slowly over time? And we talked about it, and then we realized that part of the equation also has to do with trust. And we said, what if your kids found out that you hid something from them? Would they trust you again? And she said no. And eventually the decision was not because of the quick versus slow. It was because of trust.

And I think that's another thing we don't do sufficiently well. We don't expand the speed scope of the decision to think about all the ramification.

Anyway, there's lots of. I mean, you know, it's a big. It's a big field. What, what we're doing.

Right now, one of my biggest project is to think about end of life.

So I'm thinking about the last chapter of people's lives. TR. From the moment of terminal illness diagnosis until the end of life, it's usually about five years, little longer. In the Western world, thanks to medical science, very few people die quickly. Most people take a long time. And the thing I'm trying to do is I'm trying to analyze all the mistakes people are making in this chapter and to think about what we could do to improve those.

That's incredible.

And I'll tell you kind of one, maybe one main lesson. So in one of the pieces of research I talked to end of life doulas, you know this profession?

I do, yeah.

Death doula, yeah. So you know, doulas usually bring life in, end of life doula and help people and do the parting. By the way, I've talked to over a hundred of those, these fantastic people and next month I'm doing the training myself. It's, it has been so, wow, so fascinating. But.

So one of the studies we asked them what's a good end of life.

From your experience? And they said no pain.

Kind of doable with modern pain medications. No loss of dignity in the body, not perfectly doable, but we can make steps toward it. Surrounded by love and having a sense of legacy.

You know, kind of possible. Kind of possible. Maybe not perfectly, but we can easily make progress toward it. So, you know, for me that's kind of the objective is to figure out where we go wrong and what can we do to fix things.

Dan, I can't wait for that book to come out. It'll be another best selling book, I have no doubt. And the reason I can't wait is because every one of us, me, you, every single person that's listening to this, we're all going to get there. We're all going to get to the end of life and we're going to get a chapter hopefully where we do have a year, two, three or five years to make some decisions. And I'm really glad you're doing that work. It's difficult work, it's very laborious, I imagine, but it's going to be incredible for humanity. And your books, everyone that you've put out has been incredible bestsellers. I'm going to put a link actually in the show notes. People can go and check out your phenomenal books and I know we want to be mindful of your time. I've got one last question I want to ask you just before we wrap up. If we were to fast forward many years into the future, you're highly aware that it's your very last day here on earth and someone very young comes into the room, someone you love, and they say, Dan, how can I go about leading my life on purpose? What would you say to them?

I would say set up long term goals, big ambitious thing that you want to achieve, set up a path to get there and.

And don't beat yourself on whether you're successful or not. Only on whether you try.

The moment.

You feel that you try in the right direction, you should feel good about yourself.

That's beautiful. There's someone listening right now that needed to hear that, so thank you. And, Dan, I want to get you on the show again. I want to go deep on so many topics with you. You're phenomenal.

Next time, invite me to come to New Zealand in person.

Done. Let's make that happen. There'll be an audience waiting for you.

Very good.

Awesome. Hey, Dan, thank you so much.

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