Dan the don in real life

I want people to become more like social scientists in their own lives," declares Dan Ariely.

His first book, Predictably Irrational: The Hidden Forces that Shape Our Decisions (2008), became a best-seller. The sequel, The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home, serves as a brisk and provocative introduction to behavioural economics, a comparatively new discipline (or subdiscipline) that uses experimental methods to unravel the complex social and emotional factors that underlie much of our decision-making.

The new book offers an excellent overview of some fascinating research that suggests, for example, why huge bonuses don't really motivate employees, why poor "customer care" can cost millions of dollars, how online dating sites could be improved and where charities get their marketing strategies wrong. Yet it also includes many strikingly intimate, painful and embarrassing stories from the author's own life.

While this certainly makes the book very readable, Ariely hopes it will also "help people realise how important social science is - and how personal it can be".

It all began, he says, when he was 18 years old and about to embark on his military service in Israel. A magnesium flare of the kind used to light up battlefields exploded next to him. With his face charred and distorted, and third-degree burns to 70 per cent of his body, he was forced to spend nearly three years in hospital.

At first, he recalls, "I was cut off from everything. I couldn't move, I couldn't go to the bathroom and I didn't eat. When I could start walking a little bit, about a year later, I had pressure bandages covering me from head to toe, with just holes for my eyes, ears and mouth. I would go out to a movie or a show - people couldn't see my scars, which was comforting, but they saw this brownish exterior, which was very strange as well, so I walked around to some degree invisible."

Although his closest friends remained loyal, he says he lost some of his more distant social network and found it virtually impossible to interact with anyone new. Even today, he notes, "When people see me, they see my scars. They don't know whether to shake my hand or not. I don't really feel an integral part of what's going on around me - I'm more of an outside observer."

Most academic writers would shy away from discussing the impact of a disfiguring accident on their love life. But not Ariely. A chapter in The Upside of Irrationality called "Hot or Not?" examines the theory of "assortative mating", which posits that beautiful people tend to end up with beautiful partners, while the rest of us learn to adapt to our own position in the hierarchy of attractiveness.

In his own case, he writes, he was determined to "not let pain rule my life and not allow my body to dictate my decisions. I would learn to ignore the calls from my body, and I would live in the mental world where I was still the old me." In particular, he adds, he hoped "to evade the problem of my declining value in the dating market" by refusing to "submit to any romantic needs".

This worked reasonably well until the day an attractive young nurse gave him a sponge bath in bed and Ariely was "mortified" to discover he had an erection. The body, as many a monk has learned, is not so easily tamed.

After taking a bachelor's degree at Tel Aviv University, Ariely went to graduate school at the University of North Carolina to study cognitive psychology. When he got close to finishing his thesis, he remembers, "Nobel laureate Daniel Kahneman - one of the fathers of our field - invited me to New York to chat with him. He insisted that I leave psychology and get a PhD at a business school, because he felt that decision-making was not sufficiently appreciated in psychology."

So, Ariely acquired a second doctorate, in business administration, from Duke University in Durham, North Carolina, and, after 10 years at the Massachusetts Institute of Technology, has returned to Duke as James B. Duke professor of behavioural economics. Some of his research - on how humans learn to cope with pain and "settle" for the best partners they think they can get - arises from his own experience. Furthermore, although he has no formal training in economics, his work in behavioural economics is largely designed to needle mainstream economists - a perfect position for an outsider uninterested in the cosy security of remaining within his own discipline.

Yet Ariely insists that his combative approach is not merely a result of bloody-mindedness. "I think economics is a beautiful field of study," he concedes. "It offers elegant models that explain some aspects of human behaviour. The problem is that it has moved from being a descriptive study to being a prescriptive study. We build institutions, banks, financial markets, regulations and taxes on the assumption that it is 100 per cent correct."

So, given that he accepts that standard economic theory has some validity, does Ariely believe it explains, say, 10 or 90 per cent of how humans behave? His gut reaction, he answers cheerfully, is about 30 per cent.

By exposing all the ways in which economists misunderstand human motivation, he hopes we can develop more effective tools for dealing with important real-world challenges - from promoting healthy eating to reforming financial markets.

Asked for examples, Ariely mentions the many ways that conflicts of interest box us into limited ways of thinking. "When you're watching the World Cup," he asks, "can you see the referee's decision against your team in an objective light? Of course not!"

This may sound trivial, but similar issues can make long-standing political conflicts almost intractable. "I'm an Israeli; I'm a left-wing Israeli; I'm pro-peace. But I probably can't see the situation through the eyes of a Palestinian. No matter how left-wing I am, we're unlikely to see things in the same way. It's difficult to get Israelis and Palestinians to agree on the facts, never mind come up with a solution. That's one of the reasons why we need a third party to intervene."

When it comes to high finance, conflicts of interest can make people equally myopic. "Imagine I give you £5 million a year to view mortgage-backed securities as a good product," Ariely suggests. "Don't you think you'd be able to do it?"

Although he is a popular speaker in business and government circles, he was long greeted with scepticism when he offered evidence that even supposed experts make irrational decisions and that big bonuses are often counterproductive.

"When we did experiments," he observes, "people would say, 'Those are very cute, nice experiments - but they can't possibly apply to the real world where professionals are making decisions for lots and lots of money.'

"Two things have encouraged them to listen more. One is having a book that got on The New York Times best-seller list - although that's a funny certification process. But what really helped not just me, but the whole field, was the recession. If we were thinking about creating a marketing plan for behavioural economics, we couldn't have hoped for anything better than the financial crisis."

In addition to the feedback he has received from policymakers, Ariely has been delighted by the intense response he has had from "ordinary" readers. "Since Predictably Irrational came out, many people have told me how it has impacted on them. A diabetic woman I met on a flight said it had made her decide to install an insulin pump, though I don't even mention insulin pumps. But she had me in mind and decided I would have convinced her it was good to wear an insulin pump, so she went ahead and installed one."

It's partly because his readers have responded so personally that Ariely decided he should also "open up a bit more" in The Upside of Irrationality. Those who want to continue the conversation, or discover whether he ever found true love, need only go out and buy the book.