Stop Expecting People To Act Rationally! Here’s Why:

For decades, economists have been obsessed with the idea of “enlightened self-interest,” building elaborate models based on the assumption that people make rational choices. Business and political leaders have used these models to shape competitive strategies, compensation, tax policies and social services among other things.

It’s clear that the real world is far more complex than that. Consider the prisoner’s dilemma, a famous thought experiment in which individuals acting in their self-interest make everyone worse off. In a wide array of real world and experimental contexts, people will cooperate for the greater good rather than pursue pure self-interest.

We are wired to cooperate as well as to compete. Identity and dignity will guide our actions even more than the prospect for loss or gain. While business schools have trained generations of managers to assume that they can optimize results by designing incentives, the truth is that leaders that can forge a sense of shared identity and purpose have the advantage.

Overcoming The Prisoner’s Dilemma

John von Neumann was a frustrated poker player. Despite having one of the best mathematical minds in history that could probably calculate the odds better than anyone on earth, he couldn’t tell whether other players were bluffing or not. It was his failure at poker that led him to create game theory, which calculates the strategies of other players.

As the field developed, it was expanded to include cooperative games in which players could choose to collaborate and even form coalitions with each other. That led researchers at RAND to create the prisoner’s dilemma, in which two suspects are being interrogated separately and each offered a reduced sentence to confess.

Here’s how it works: If both prisoners cooperate with each other and neither confesses, they each get one year in prison on a lesser charge. If one confesses, he gets off scot-free, while his partner gets 5 years.  If they both rat each other out, then they get three years each—collectively the worst outcome of all.

Notice how from a rational viewpoint, the best strategy is to defect. No matter what one guy does, the other one is better off ratting him out. If both pursue self-interest, they are made worse off. It’s a frustrating problem. Game theorists call it a Nash equilibrium—one in which nobody can improve their position by unilateral move. In theory, you’re basically stuck.

Yet in a wide variety of real-world contexts, ranging from the survival strategies of guppies to military alliances, cooperation is credibly maintained. In fact, there are a number of strategies that have proved successful in overcoming the prisoner’s dilemma. One, called tit-for-tat, relies on credible punishments for defections. Even more effective, however, is building a culture of shared purpose and trust.

Kin Selection And Identity

Evolutionary psychology is a field very similar to game theory. It employs mathematical models to explain what types of behaviors provide the best evolutionary outcomes. At first, this may seem like the utilitarian approach that economists have long-employed, but when you combine genetics with natural selection, you get some surprising answers.

Consider the concept of kin selection. From a purely selfish point of view, there is no reason for a mother to sacrifice herself for her child. However, from an evolutionary point of view, it makes perfect sense for parents to put their kids first. Groups who favor children are more likely to grow and outperform groups who don’t.

This is what Richard Dawkins meant when he called genes selfish. If we look at things from our genes’ point of view, it makes perfect sense for them to want us to sacrifice ourselves for children, who are more likely to be able to propagate our genes than we are. The effect would logically also apply to others, such as cousins, that likely carry our genes.

Researchers have also applied the concept of kin selection to other forms of identity that don’t involve genes, but ideas (also known as memes) in examples such as patriotism. When it comes to people or ideas we see as an important part of our identity, we tend to take a much more expansive view of our interests than traditional economic models would predict.

Cultures of Dignity

It’s not just identity that figures into our decisions, but dignity as well. Consider the ultimatum game. One player is given a dollar and needs to propose how to split it with another player. If the offer is accepted, both players get the agreed upon shares. If it is not accepted, neither player gets anything.

If people acted purely rationally, offers as low as a penny would be routinely accepted. After all, a penny is better than nothing. Yet decades of experiments across different cultures show that most people do not accept a penny. In fact, offers of less than 30 cents are routinely rejected as unfair because they offend people’s dignity and sense of self.

Results from ultimatum game are not uniform, but vary in different cultures and more recent research suggests why. In a study in which a similar public goods game was played it was found that cooperative—as well as punitive—behavior is contagious, spreading through three degrees of interactions, even between people who haven’t had any direct contact.

Whether we know it or not, we are constantly building ecosystems of norms that reward and punish behavior according to expectations. If we see the culture we are operating in as trusting and generous, we are much more likely to act collaboratively. However, if we see our environment as cutthroat and greedy, we’ll tend to model that behavior in the same way.

Forging Shared Identity And Shared Purpose

In an earlier age, organizations were far more hierarchical. Power rested at the top. Information flowed up, orders went down, work got done and people got paid. Incentives seemed to work. You could pay more and get more. Yet in today’s marketplace, that’s no longer tenable because the work we need done is increasingly non-routine.

That means we need people to do more than merely carry out tasks, they need to put all of their passion and creativity into their work to perform at a high-level. They need to collaborate effectively in teams and take pride in the impact their efforts produce. To achieve that at an organizational level, leaders need to shift their mindsets.

As David Burkus explained in his TED Talk, humans are prosocial. They are vastly more likely to perform when they understand and identify with who their work benefits than when they are given financial incentives or fed some grandiose vision. Evolutionary psychologists have long established that altruism is deeply embedded in our sense of tribe.

The simple truth is that we can no longer coerce people to do what we want with Rube Goldberg-like structures of carrots and sticks, but must inspire people to want what we want. Humans are not purely rational beings, responding to stimuli as if they were vending machines that spit out desired behaviors when the right buttons are pushed, but are motivated by identity and dignity more than anything else.

Leadership is not an algorithm, but a practice of creating meaning through relationships of trust in the context of a shared purpose.

Greg Satell is a transformation & change expert, international keynote speaker, and bestselling author of Cascades: How to Create a Movement that Drives Transformational Change. His previous effort, Mapping Innovation, was selected as one of the best business books of 2017. You can learn more about Greg on his website, GregSatell.com and follow him on Twitter @DigitalTonto

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Photo by christian buehner on Unsplash