Dan Ariely: The goal is to impact the world, not academia

European Business: Mr. Ariely, you enjoy a worldwide reputation that goes way beyond the academic circles. How did you manage to leave the ivory tower behind?

Dan Ariely: So, first of all, I haven't left the ivory tower. I still have one foot in the door. I currently work for Duke University and run a research lab called the Center For Advanced Hindsight. We're about 45 people and we do mostly research on financial decision making and healthcare. And our research is very applied. So, when me and my colleagues do projects in our research lab, we don't ask which journal we want to publish in this quarter. We ask how many people it will potentially impact and to what extend. And we multiply those two numbers and that gives us a guideline of whether this is a good project or not. We aim for impact on the world rather than impact on academia.

European Business: What triggered this hands-on approach?

Dan Ariely: That´s partially because of my impatient nature [laughs]. So rather than to study for 30 years how to create the ultimate electronic wallet, I want to start improving things. When I think about what got me to be like this there is one decisive moment. After I got my first faculty position at MIT business school, I was invited by the Head of the Media Lab Nicholas Negroponte. He told me that he liked my research, but he asked me in what way my research will impact the world in 10 years? And, you know, for non-academics, it might sound like a reasonable question. But as an academic, nobody ever asked me this question. The question is, what are you working on? Where is it going to be published? But this idea of how it will impact the world kind of gave me pause. I had an answer, but it wasn't very good. And then I started thinking about this.

There is another important moment for me. I was badly burned in an accident when I was a teenager. When I left the hospital and I joined university, my first study was on how to remove bandages from burned patient. You know, the nurses used to rip the bandages off quickly. I didn't like it. I used to argue with them and at university I started studying and learned that the nurses were wrong. I wrote about it a lot. They had the wrong intuition. You might call this experience my first entry into social science.

European Business: Many companies and organizations approach you with different challenges. Why do they choose Dan Ariely and not someone else?

Dan Ariely: We usually think about academia as you accumulate data base by reading papers and get knowledge and so on. I decided to walk a different path. Anyone who wants an hour or two of my time, I give it to them without charge. And that came with some unintended consequences: By being open to people from all over the world and hear about their start-ups and what they're working on I gained a lot working knowledge. Therefore, I can make better applied suggestions because I understand the environment that the people are living in. So, this adventure turned out to be incredibly fulfilling.

European Business: Do you have an example to illustrate your point?

Dan Ariely: I did a study on voice assistants offered by Google, Amazon and others. I was approached by representatives for a big company and they asked why people don’t ask for anything other than jokes and the weather. I told them because their assistants offer everything and to verify my statement, we set up a study using a more limited assistant. The latter only responded to questions on entertainment. Suddenly people asked very specific questions about showtimes, reviews and the like. Now, with a restricted mindset the assistant really has an impact and is going to be more relevant. If I understand the environment, I can make a suggestion that is more likely to be effective.

European Business: How easy is it to apply the suggestions you make within a business?

Dan Ariely: Sometimes it’s not easy at all. One of the topics I’ve been studying was conflicts of interest and I learned that conflicts of interest are very corrosive. I think they are the reason why the financial crisis of 2007/2008 happened. So, I had this idea that we should start a financial institution with no conflicts of interest. I went around and talked to many people about that. And people where amused or curious, but no one really wanted to do it. It's a very tough battle. People don't understand conflicts of interest. They don't want to eliminate them.

Eventually I met two entrepreneurs that wanted to start a digital insurance company. And I said, look, I would join you, but only if your insurance company had no conflicts of interest. A regular insurance company has a tremendous conflict of interest. Imagine this as a two-party game and it's a system that is built on conflicts of interest and distrust. We decided to turn it into a three-party game: We have consumers. We have the insurance company and we have a charity. And when people join our insurance company, we will ask them to pick a charity that they love. We, as the insurance company, will only take a fixed amount of 20%. And at the end of the year, if there's money left over in the pool of all the people who joined under a specific charity, the money goes to the charity. We don't make more money. Two things happened this way. One: We don't have a conflict of interest. We always get 20% if we pay less, it'll go to charity. It's not our pockets. Now, if the customer is lying, who are they cheating? Their favourite charity. We called this company lemonade relating to the expression in English: If life gives you lemons, make lemonade.

Interview: Markus Büssecker | Pictures: Dan Ariely