Science shows why business is stupid

Another excellent talk from TED.com about behavioural economics (to add to those already covered on this blog). Dan Pink, a former speech writer for Al Gore, explains how a lot of business practice still relies on extrinsic motivation which is known scientifically to be counter-productive (explained previously on this blog). He echoes Phil Rozenweig’s charge that the business world is lacking in scientific critical thinking, and offers Wikipedia versus Encarta as an example of how intrinsic motivation wins out. It’s not only an engaging talk, but another nail in the coffin of the concept of incentives which is core to rational-choice economics.

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  1. #1 by michaelwebster on September 7, 2009 - 9:42 pm

    Martin;

    Rational choice is a formal theory of choice with no particular allegiance to the empirical form an incentive takes. That is what makes it a formal theory; various instaniations of the models may however be wrong.

    But, Kohn’s Punishment by Rewards is completely consistent with a rational choice model, http://www.alfiekohn.org/teaching/cheating.htm

  2. #2 by bananasandramen on November 10, 2009 - 6:02 am

    Here we have the fundamental problem with economics as a discipline – the formal system (rational choice theory in this case) is created first and assumed a priori to be true.

    In science you don’t create an abstract model first then look for instantiations that match reality, you look at reality then develop a model with predictive power.

    No instantiation of Rational Choice Theory has been demonstrated to have predictive power, which tends to indicate that the formal theory is worthless, even if it is internally consistent.

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