The Weird, Irrational, and Wonderful Ways Humans Navigate the Workplace with Matthias Sutter

Economics has often been accused of making inferences about human behaviour without any real understanding of how we actually make decisions, choose between options or act against our stated interests. Behavioural economics combining economics and psychology started to accelerate its development in the 1980s, but its roots can be traced back to the 18th century economist Adam Smith. In this episode of The Evolving Leader podcast, co-hosts Jean Gomes and Scott Allender talk to Matthias Sutter, one of the world’s leading behavioural economists about his (often) counter-intuitive findings, and how they can help leaders create fairer, more inclusive organisations.

Behavioral Economics for Leaders (Matthias Sutter, 2023)
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3.10 Give us a summary of your journey as an economist and the areas that you are most intrigued and excited about
5.11 How do you approach this work and how is this field evolving?
7.05 In your book your write about how economic outcomes are shaped by hidden biases. Can you unpack what's going on there?
11.13 Can you share some of your findings around the value of these social skills and how they translate into financial benefits for organisations?
14.24 What's the missing convincing component that we need to tap into?
17.03 You have said that when you are trying to find a job, it's the weaker connections in your social network that are most important. Why is that?
18.37 Something else you point out is that having more women in a start-up is a predictor of longevity. Tell us about this
21.32 What happens when companies become more transparent with salaries?
25.34 There are parts of the world that require transparency. What are some insights that will help leaders manage that double edged sword?
27.36 You said that employees who don't support company mission statements are 50% less productive. Can you unpack that?
31.18 Moving to the need for quotas to encourage more gender equality. Why do we need quotas?
34.54 The underlying assumption is that being competitive is a core part of being a good leader, but you're saying that there is more to it than that
37.01 Your research suggests that women leaders can earn more revenue per employee when they are on the board. Can you elaborate?
39.57 What have you learnt about trust?
44.43 Do you have any other insights or advice on how leaders might build or accelerate a sense of trust in their teams?
47.14 Can we talk about decision making and money?
50.55 Can we talk about your research into teenager's and children's decision making? What are you doing in that area?
53.33 What's the most powerful that helps children and teenagers to build that muscle of differed gratification?
55.09 What have you learnt on what encompases or inhibits ethical behaviour amongst individuals and teams?

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The Evolving Leader is researched, written and presented by Jean Gomes and Scott Allender with production by Phil Kerby. It is an Outside production.

After more than 5 years of hosting The Evolving Leader, Jean Gomes and Scott Allender are launching their new show The Mindset Economy in January 2026. The new show will explore how to live better, work smarter and be connected in a more uncertain world where machines can think. 

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Transcript

Introduction

SPEAKER_01 0:02

Economics was long accused of making inferences about human behavior without any real understanding of how we actually make decisions, choose between options, or often act against our stated interests. Behavioral economics, which combines economics and psychology, started to accelerate its development in the 1980s, but its roots can be traced back to the 18th-century economist Adam Smith. In this show, we talked to Matthias Suter, one of the world's leading behavioral economists, about his often counterintuitive findings and how they can help leaders create fairer, more inclusive organizations. I am feeling um let me think now to zone into this. I am feeling a mixture of um gratitude because I'm really enjoying um these conversations and I've really enjoyed our guest's book which I finished reading a couple of weeks ago. And uh I'm looking forward to the weekend because I am quite tired. So Scott, how are you feeling?

SPEAKER_03 1:50

I'm feeling quite tired as well. My my kids who are middle schoolers uh first week back, um, and that bus comes at 6 30 in the morning, and so there's been a lot of drill sergeant moments in the in the house with me trying to get them out the door. So I'm glad it's Friday. Um and I'm feeling a mix of energy with that though as well, because I've been really looking forward to our conversation today, as I always do. And today we are joined by the economics researcher, Professor Matthias Sutter. He's been the director at the Max Planck Institute of Research on Collective Goods for the past six years. He holds professorships at the universities of Cologne and Innsbruck, and he's a research affiliate of the Reinhard Selton Institute. He's one of the world's leading economists specializing in decision making. And he's just published a book, Behavioral Economics for Leaders, which looks at the often counterintuitive ways that people react to incentives, uh, work together, and how they behave in groups. So, Matthias, thank you for being here. Welcome to the Evolving Leader.

SPEAKER_02 2:53

Thank you very much for inviting me.

SPEAKER_01 2:55

Matthias, welcome to the show. How are you feeling today?

SPEAKER_02 2:59

Oh well, I think I'm a good feed into what you uh two were saying. Uh, I'm going on vacation on Sunday morning and I look very much forward to it.

SPEAKER_03 3:08

Nice.

SPEAKER_01 3:09

I'm jealous.

Give us a summary of your journey as an economist and the areas that you are most intrigued and excited about

SPEAKER_01 3:10

I've had I've had my holidays done. Um but before we discuss your book, um, can you give us a summary of your journey as an economist and the areas that you are most intrigued and excited about?

SPEAKER_02 3:23

Yes, so uh it started all about 20 five years ago when I did my PhD on European Monetary Union, in fact, and I did a game theoretic calculation of the distribution of voting power in the excessive deficit procedure, which sounds very macro, yeah, not at all what we are talking about today. And then my supervisor came to me and said, Look, you know, I trust your math, but actually, I would be much more intrigued to find out whether people really behave the way you calculate, they should optimally behave. So there is this new evolving uh field of experimental and behavioral economics. Do you want to run kind of experimental work to find out whether humans really, under those incentives, behave the way you believe they behave? And that uh started my journey in experimental and behavioral economics, and I never regret it. It is super exciting to watch, to analyze, to check how humans behave, what kind of counterintuitive ways of motivation sometimes makes them do things which were unexpected, and that's how I came to it. And so I specialized in this, uh, did most of my career on in this area. And in the recent years, I've mainly tried to focus more on two things. First of all, not related to the evolving leaders' worker, which is about future leaders, which I'm I'm doing work on behavioral economics of children and teenagers, how the economic decision making evolves. And the other thing is actually at the core of what we are talking about today, which is behavioral economics and its application to management, leadership questions, kind of productivity of companies, fairness concerns within uh business teams, all of those things which uh most people of us are affected with uh in their daily business life.

SPEAKER_03 5:03

If you can help me understand the behavior of teenagers, then we're gonna need to sit down for for an extensive period of time. I need to know that. Um,

How do you approach this work and how is this field evolving?

SPEAKER_03 5:12

for our listeners and for my benefit, quite honestly, uh, I'd like to hear more about how you approach this work, how you start to make sense and analyze and look at this, and and how maybe even the field is currently evolving from when you started in it.

SPEAKER_02 5:28

Yeah, so I would say when I started it, mainly this type of work was done in labs, uh inviting university students, usually around age 20, 25, let them play some simple games with abstract rules, and they were rewarded according to what they were actually doing. Kind of this is pay contingent on behavior, actually. And so we wanted to the community wanted to understand how people react under very controlled conditions to those incentives. Now I would say over the past 10 years or so, the field and the interest has shifted outside of the lab into the field, kind of really understanding what motivates people in companies in particular, or does team leaders' gender matter for workplace satisfaction of team members? And this is done with uh both with kind of observational data but also with experimental, field experimental data in a sense that you, for instance, would manipulate. So we have one study where we where we investigated fairness concerns and their impact on productivity, where we randomized different people to different conditions in the sense that once they were facing uh very unfair uh ways of firing people, actually, once understandable ways of firing people and once no firings at all, and check whether those those different conditions then make a difference for productivity. So that's kind of the modern state of art, I would say, in this area of work that you go into the field and try to understand in real-life context what matters.

SPEAKER_01 7:04

So

In your book your write about how economic outcomes are shaped by hidden biases. Can you unpack what's going on there?

SPEAKER_01 7:05

Matthias, your latest book, which I really enjoyed, is a series of short chapters where you you take a look at how economic outcomes are shaped by hidden biases and unspoken motivations that we have. And you know, you start with the fact that and then probably we we're probably quite familiar with this one, but it's interesting all the nonetheless, that the the fact that the taller you are, the more likely you are to earn more, um, to get promoted and and so on. Can you unpack what's really going on in that? Because it's not just that we assume taller people are more attractive or commanding, is it?

SPEAKER_02 7:40

No, not at all, not at all. I I believe this is a this is a prime example of how behavioral economics like uh economists like to do their work. Basically, it's about first finding uh here I must say a correlation between tallness and actually what people earn. And then you want to unpack this, right? You really want to understand what's going on. It cannot simply be that taller people are just just more attractive for employees to get uh better wages. Uh, and it's not the case, actually. So, and and this this is this is fantastic in my opinion because it's so exciting to really see. Oh no, it's not this, it's actually it's something else. And and here there were two layers of the onions, if if if I can use this uh this example here. And the first layer was it's not your height in adulthood, but your height in adolescence. And that's that's the first interesting thing. So because no employer would ever know how tall I was when I was 15, right? I mean, this is not on my CV, nobody will ever ask for it because it seems to be completely irrelevant. Uh, and again, this this first layer only tells us a little bit, okay, it's not the obvious thing how tall you are in the devil. Now, it there must be something more than that. So, the second layer is now the following: it it seems to be, and this is what the empirical data tell us, it seems to be the case that taller people and adolescents have larger social networks, are more engaged in voluntary activities like uh in the fire brigades, in the local football club, in the choir, whatsoever, have larger friendship networks, and here tallness might indeed have a little bit of an impact, kind of say that that say taller guys are more attractive to be friends with, uh, and now and now you discover all of a sudden what's going on here, actually. It's a social networks and in combination with training very important skills that you later on need in professional life, like being reliable, being a good friend, being someone who can you can count on, being someone who is able to delegate things, being someone who is able to coordinate others well. So, for instance, if you're the captain in your local football team, for example. So, and and these skills, actually, these skills, they pay off later on because that's kind of that's kind of where what employees really uh value, I would say, because this is this is uh what we need nowadays. We have such a complex uh business life that you need to be able to coordinate people together, solve conflicts, uh, align their interests, motivate them, and these are the skills that you train if you're a bit taller. I should stress here for our readers and for our listeners, uh this is this is statistical evidence. So it's not it's not black and white. So it's not that uh a guy like Olaf Scholz, the German chancellor currently, who is a fairly small person, uh, would never be able to rise up the ranks. So it's it's more statistical relationships. So it makes it more likely that later on you have higher earnings.

SPEAKER_03 10:33

See, John, you can take the uh you can take the lifts out of your shoes now. You don't we don't need them. You're not gonna earn anymore.

SPEAKER_01 10:40

Well, uh no, it's interesting because uh we do have quite uh a number of uh you know, I don't want to be heatist about this, but a number of really modest modest uh leaders with um Sunek and Macron and and a few others that aren't in this uh category. So it's obviously as you say, it's um it's not black and white.

SPEAKER_03 11:01

It's really fascinating too, like going back to adolescence and what that meant, what that led to, the social skills. Um and I'm supremely interested in the social dynamics of teams and how that all works.

Can you share some of your findings around the value of these social skills and how they translate into financial benefits for organisations?

SPEAKER_03 11:13

Can you um share some about your findings of the the value of these social skills and how they translate into actual financial benefits for organizations?

SPEAKER_02 11:26

Yes, uh let me start with with I mean there are different dimensions in the book that I that are touched upon. Let me the one uh let me start with the one that I like most, which is about basically the social skills of leaders and how that how that matters for companies. Um because nowadays uh companies not only suffer from the challenge of getting the right people but also retaining the right people. And for this, one of the major secrets is actually good leadership. Now that means having skills of being of treating your team members in a way that is good for them. And and let me mention the most important ones. So, first of all, you should be able to give regular feedback to those people. You should be able to tell them how they can improve, you should promote their career, which is a challenge because you don't want to write superstars next to you, right? But nevertheless, for a company that's super valuable, uh you should you should talk to them and listen to them when you make important decisions. This is not to be misunderstood as a kind of basis democratic, just counting numbers and votes who who is for for or against a particular measure or change, but just really integrating them in getting their perspective and their ideas and needs uh in a particular situation that needs to be decided. Fifth, you need to be someone you can trust on. So it cannot be, for example, that the leader says A today and tomorrow doesn't remember, or says B, something like that. Uh and and those things. So the evidence is is really great, showing that if leaders have those social skills, the their team members are much happier with their workplace climate. But more, and this is actually I I I tell you, if I'm if I'm presenting my book to the public, many leaders, uh sorry, many entrepreneurs and and leaders of businesses would agree to this, but ultimately in the breaks they would say, Look, I don't care. Because the only thing that I do care is about the balance sheet at the end of the day. And then I can only convince them by saying, Look, but if people feel happy at the workplace, we do know that they are longer in your company. And that basically means the turnover is reduced by the skills of the leaders, and this is super important nowadays because it's so important that you keep the good guys. And the most important insight from this from this research is the following: those skillful leaders prevent that you lose the good people that you don't want to lose and make it actually more likely that you lose the people that you don't want to lose. This is something which which most companies actually don't do, they don't have those exit surveys, kind of when someone departs from a company, what's what was the reason? Uh how could we improve in the future? I mean, this person is gone, but nevertheless, there is an opportunity to learn from someone who wants to leave the company. And and this is uh systematically, you could show that skillful leaders, social skills, those who are really able to coordinate people and get them in a good team spirit are the ones who make it more likely that you keep the good ones, and this is super valuable for companies.

What's the missing convincing component that we need to tap into?

SPEAKER_03 14:24

So because this you know, there's there's studies all over the place for years now pointing to exactly what you're talking about. And and yet, like you say, so many leaders sidebar and they're like, I don't, it doesn't really matter to me. How how do we start to change the believability where where they can they can actually translate this and accept it as valuable researched data, this is what you will get, this will actually help your bottom line. What's the what's the missing convince convincing component that we need to tap into?

SPEAKER_02 15:01

Well, if I had the solution, potentially we would have been one step further already. Let me let me let me be humble and honest here. So so I I do I I'm really engaged in promoting this idea. One of the reasons was writing this book actually, because in my perception, it's often felt as if this was a trade-off, right? Either being nice to people, treating them properly, or being successful with your with your balance sheet. Actually, it's just that they're aligned together, in my opinion. Uh, and and because humans are the way that they appreciate uh that they reciprocate nice behavior, fair behavior, uh cooperative behavior. And that's what actually companies can exploit, quote unquote. It's not it's not that they do something wrong here. If if I'm treated nicely by my employer, of course I'm motivated to give something back, and that that's what they can really ultimately use here. And I still don't understand why so many company leaders don't see that this is not the trade-off but an aligned interest. Um now when working together with companies, uh actually doing field experimental stuff and work in the companies, I experienced the following. So, first, when we tell them, look, so for instance, we have a recent study in Turkish companies where we tried to promote better workplace climate. And to get into them, into those companies, they first were reluctant, okay, for workplace climate. I'm not sure what's in for me then, basically. Uh, and then we told them, but I believe we believe that this is good for you, reducing turnover, improving motivation of people. And then all of a sudden they said, Oh, yeah, that might be something for us, so we're happy at least to look at it and let's see how it goes. And afterwards, actually, after concluding the project, they they changed their mind. So it seems to me that experiencing the benefits of having this good climate and really realizing it goes together with your HR data that they can from the administration that they can collect and just look into it, that that might be the right way to change their minds.

You have said that when you are trying to find a job, it's the weaker connections in your social network that are most important. Why is that?

SPEAKER_01 17:03

One of the uh counterintuitive conclusions that you have in the book is that when you're trying to find a job, it's the weak connections in your social network rather than the strong ones that are more important. Why is that?

SPEAKER_02 17:16

Yeah, this is this is uh again a nice example of just kind of a result where you just start, oh, oh, what's going on here? Uh because you would believe that the strong ties, those are the ones that feed you with the most important and relevant information. But actually, social networks are more or less structured in a sense that hardly anybody of us have a lot of really strong and close connections, but but many loose ones. And those loose ones seem to be the driving force behind the fact that you find a better, uh quicker job for the simple reason because it broadens the scope of jobs that you're actually screening. Because you your close ties, to cut it short, your close ties would they would basically say, Look, Matthias, I've seen something for you, this is over there. While a weaker tie would give me a recommendation which is much further away from what I'm currently exactly doing, but thereby opening up kind of the window of opportunity that I'm trying to screen, what's out there for me, not only my narrow scope and bracket that I've been saying working on for the past 20 years or so. Uh, and and this is the first reason because it it gives you kind of much broader information. The second one is simply statistically speaking, you have much more of those those further remote links uh usually, and and that adds up in a sense. So it's good to have many of those remote links.

SPEAKER_03 18:36

That's super

Something else you point out is that having more women in a start-up is a predictor of longevity. Tell us about this

SPEAKER_03 18:37

interesting. Something else you pointed out that having more women in uh a startup is a predictor of the likelihood of longevity. Tell us about this.

SPEAKER_02 18:50

Yeah, this is uh I mean, this is in particular in in in in in our times a hot topic, actually, uh gender equality and all of those stuff. Um and this study was done with Austrian data looking at uh kind of newly founded companies and having access to the composition of the workforce, and from that they could, for specific branches, kind of normalize. Is this a company that has far below average female share of employees or above or say on average? Uh and what they found out is that those companies which have really significantly lower shares of women compared to their branch, right? To their industry, to their sector of business, uh they they exit the market much earlier, by one and a half years, roughly speaking. Now, uh the authors uh tried to explain this uh at first sight, I would say, surprising result by the fact that how likely is it that the company just by chance uh has a very, very low share of female workers in its workforce? Well, that can happen by chance, that's true. But it's much more likely, in fact, statistically speaking, that this is something which is deliberate. And deliberate must then be driven by HR practices, meaning that there is a certain stereotype or prejudice that you should hire more men relative to the business standard. Now, if that is the case, then it's pretty straightforward to see that this would rule out very many good and well-qualified women. Because if you assume that talent is roughly equally distributed to the cross-gender, there's no reason why that should not be the case actually. Interest might be different, but qualification well, talent should not. So that then basically means that you rule out a particular part of the workforce that you should have brought into your company. Now, evidence in favor of this is the following: that the study also shows that those companies that started with a very low share of women, but then increased it towards the business average, they did much better than those who stayed below. And that basically means bringing in more talented, relatively more talented women is the key of really making them live longer in the market. So ultimately, it's again it's about uh John was mentioning biases, hidden biases in a sense, it can be hidden or unhidden in this case. Uh kind of it might be simple discrimination against women, which also makes that these companies pay a price, which I found very interesting.

SPEAKER_01 21:31

I'd

What happens when companies become more transparent with salaries?

SPEAKER_01 21:32

like to know um about your insights into what happens when companies become more transparent with salaries.

SPEAKER_02 21:40

This is this is a very double-edged sword, right? As I I would say as a regular citizen, it's good that things are transparent. We we appreciate this for our democratic processes and all of this, and and currently there is there is a strong, strong movement towards making everything transparent. Uh now, transparency. Transparency is nice, but it has its downsides, and this is due to human behavior. And let me try to be very short here. So, transparency in wages always makes it super easy to compare yourself to a colleague. Now, most of us, probably you excluded, but I'm I would include myself, I must say, here. Most of us would think that if they see someone else earning less than oneself, well, this is of course merit-based, clear, because I work better, I'm more qualified, I'm more talented, I'm hard working, and so on and so forth. Oh, so so far, so good. This is this is fair, right? But if you see someone who has more than you, well, this is unjustified, right? Because this guy is not really better than I am. So this transparency leads to this kind of envious reactions, and this is bad for motivation, and this can be fairly easily shown because people feel kind of trapped in the sense, right? I'm not fairly valued in this company, and this is this is super bad. So, this is the one thing that fairness concerns do matter, and transparency has these downside effects, actually. There is another one uh also which I'm reporting in the book in more detail, uh, when California had uh some news reports about outrageously higher salaries for public uh administrators, uh kind of the good those guys responsible for industrial policy decisions, for instance. They found out that after making everything public, uh, everybody could look up those salaries of the whole administration, actually, uh, those high-level managers were more likely to quit, and it became much more difficult to replace them, and it took much more time. Again, basically, there are different ways of doing this. There might be scandals and people might get overpaid sometimes. That's all fine. But transparency actually is something which in this in these cases, when you feel unjustly treated, is something you look for alternatives, and then you go into the private sector where nothing is disclosed. And in it turned out that kind of also filling those positions became much, much harder, and company actually cities with those administrators paid a large price uh in not filling those positions because they are super important for getting industry into the into the in into the cities, for instance, for for generating taxes, of course. Uh, so transparency has has really a few downside effects which are often overlooked. So, my agenda here is make it clear this is a double-edged sword. So there is no good, there is no bad on one side or the other side. It's just it's both, and then you need to deliberate what you want to have.

SPEAKER_01 24:43

Uh it's interesting because I've attracted um half a dozen startups and scale-ups who went down the route of making um salaries completely transparent. And I think in all cases, they abandoned it quite quickly because it they found that it it completely distracted their business. What started off as a sort of very honorable intention became the source of a lot of rancor in the organization. They found that they lost large numbers of people as a result of doing it and had lots and lots of unnecessary arguments about it. So I hear exactly what you're saying.

SPEAKER_02 25:17

Yeah. I'm very glad that you have the same impression because many people don't believe me here. They say, no, no, no, come on, come on. Transparency is such a high good, we need to promote this and we need to do it. And and I believe this is very dangerous. And and I'm happy to hear that you have the same impression, actually.

There are parts of the world that require transparency. What are some insights that will help leaders manage that double edged sword?

SPEAKER_03 25:34

So there are a growing number of states in the US that are requiring more and more transparency. And I know in other parts of the world there's similar, right? Not not to say that you have to publish individual salaries, but the you know, salary ranges, for example, are becoming something that when you when you post a job, and that makes that's a level of transparency that organizations have to deal with. So in that context, what are some insights you might have for leaders listening on on how to really manage that double-edged sword?

SPEAKER_02 26:08

Well, that's a good question, actually. Uh, and it's a good question because I don't have a ready answer from the books now. Uh so does this let me try to give a reasonable response. So transparency can mean that you publish all of the wages in the company, but transparency there is a smaller version of it. And this I would prefer a lot, which is basically really be very frank with a particular employee why you put this person into that bracket or the other bracket or somewhere else, and for which reason and with which prospects for future development and things like that. So this this is this is not the transparency that the public is talking about. Uh I'm talking now about you were asking about what should leaders do, and this this is what I have in mind here. Really don't hide behind yourself, oh well, I had to do this for some strange external reason. Uh, but I thought about it carefully, and this is why I did it, and I'm ready to defend this. So that's super important because actually, if you're ready to defend this, then it's very unlikely that it's plain discrimination, right? Because how would you ever be able to defend this? Uh and and for that reason, I believe that being transparent in in kind of putting people into particular wage brackets uh is something which helps to get their understanding where they are without becoming envious and looking around whether someone earned uh someone else earned 50 pounds more, which is by the way, is just peanuts.

SPEAKER_03 27:34

Thank you for that. Um

You said that employees who don't support company mission statements are 50% less productive. Can you unpack that?

SPEAKER_03 27:36

can we turn let's turn to to the your observation around uh or your research around company mission statements, because you point out that employees who don't support the mission statement are fifty percent less productive, which makes some intuitive sense to me, but can you unpack that for us?

SPEAKER_02 27:53

Yes, so that was that was uh a congenial study of of Jeff Carpenter, uh which I liked a lot. So what he did is the following. So uh before the the presidential election in in 2012 in the US, uh he invited a few students to do some service for them and and then also ask about their political inclination basically for the candidates, Obama or Mitt Romney, I think, was at that time uh the competitor. And uh so they collected all of this information, and and that was the end of part one, and then a few weeks later, they were invited without the link to this first survey, they were invited to do some jobs uh for kind of staffing envelopes uh with a specific task I'm going to explain in a second. And uh those people accepted those jobs, and then uh what they did is the following. So, say say, uh, for example, I I would have been an Obama supporter at that time. So, and then with 50-50 probability, I was either assigned to the task of uh staffing letters for writing to voters who would support Obama, and and in Ohio in particular, where it was a contended state, or with 50% probability I would have been assigned to doing this for the competitor, actually. Now, for someone who the researchers did know that I'm not in favor of this candidate. But that was again, people were paid the same thing for the work that they did, it was the same work, it was just a different kind of different uh candidate that they were kind of making um advertisement advertisement for. So, in principle, if you only think about okay, this is my job, this is my pay, everybody should work independently of whether I'm supporting now the candidate that really leaned to or the other candidate. And that's exactly not what happened, and that's uh that's a prime example of why motivation and the for the mission of the thing that you're doing is so important. Because, as you were already saying, what they found is actually if I, as in the example, as an Obama supporter, would have to work for the competitor, my productivity would just dump down by about 50% or so. Um, and that's that's uh can be partly compensated by paying more money. So now you could imagine say someone doesn't like the mission of the company, how could I nevertheless get this person to work productively? And the economist's response is always pay more money. Okay, well, let's pay more money. Uh, and so they did Obama supporters working for the competitor, getting more money, but still they didn't reach the level of those Obama supporters who were simply working for the Obama campaign. Uh, and that I think is is of a more general uh insight. The general insight is that it's so much easier to get people work productively and persistently if they really feel they're doing something which makes sense to them. And also for the society, I would say, right? It's not only personally which is important for them, but also what they believe is the right thing to do for all around us. And that, in a sense, is useful news for companies because it basically means they don't need to pay that much because those people like to do this. And again, I'm not I'm not advocating exploiting people, I'm advocating if you like working for something, I think you stay healthier, you stay motivated, life is better, and that's what I'm saying.

SPEAKER_03 31:15

When it connects to your purpose.

Moving to the need for quotas to encourage more gender equality. Why do we need quotas?

SPEAKER_01 31:18

So let's let's um pick up another controversial one, which I know um creates a degree of polarization debate in organizations, which is the need for quotas to encourage more gender equality. Why why do we need quotas?

SPEAKER_02 31:35

So let me start about 20 years ago, the behavioral economics community found out with many, many and well-replicated studies, that there is a difference between men and women in their willingness to expose themselves to competitive situations, like applying for high-level jobs, uh whatever, kind of applying for promotions, uh, all of those things where you need to compete with others in order to get something. So if this is true and the evidence says it is true, then that naturally will be kind of a natural mechanism with which less women will move up the ranks. Because if you don't like those situations and you shy away from them, there is less opportunity for you to get into the pool of candidates and less opportunity to win, actually. Now, this is from a big societal point of view a waste of talent, actually, because those would be great people, also, in particular great women, that deliberately would not want to compete for those great positions because they simply let's say this way, like competition less than men do. So now this has led to some deliberations. How could you change this and get, in particular, the best qualified women and make it more attractive for them to compete? And interestingly, and I have contributed myself with some work on this and many others as well, those quota rules do help in the sense if you say among a certain number of winners there should be a specific fraction of female winners for sure, and these positions will naturally be given to the best women. So the experimental evidence has told us that it's in particular encouraging the great, the well-qualified women to then start competing and not withdrawing from the competition. And this is something which we ultimately like because we want to have the best people for jobs, for public administration, for whatever. And in this respect, I felt this was a fairly actually a very surprising result. I start, I should, I should admit, I started this research project with the presumption that it's not going to work. It will be bad and it will not have any positive effects. It did. It did in the sense that it encouraged those highly qualified women to compete. And it also, what we also found is that it did not destroy corporative attitudes after the competition among teams when this kind of promotion was involved. So for that reason, for about 10 years or so, I was kind of happy to say, well, those quotas can be useful for us. Now, honestly, if you ask me today, uh my attitude has a little bit uh got more reservations on this because the political discussion, in particular in the German-speaking area, is kind of, for instance, really overshooting in the sense that if some quotas are not fulfilled, make a stop in hiring men and only hire women from now on. This is basically like trying to uh correct injustice by the next injustice. Uh, and I believe this is this is a bad idea. So I'm I'm still struggling, what is the proper way to do it? I'm still subscribing to my own finding. Quotas are good, promoting good women uh and encouraging them, but we should be careful in not overdoing this.

The underlying assumption is that being competitive is a core part of being a good leader, but you're saying that there is more to it than that

SPEAKER_01 34:54

So the nuance around quotas is very important, but you one of the things that you're talking about here, which I think is key, is that the underlying assumption is that being competitive is a core part of being a good leader. Um and again you're saying and there's more to it than that.

SPEAKER_02 35:13

Yes. So actually, I'm not sure whether being competitive is a very good uh condition for being a leader or say a prerequisite, this is what I meant actually. Uh it's more because leaders have so much indirect effects like setting examples, like acting as role models. For that reason, we do need also good female leaders, naturally, full stop. Now, if women are less likely to compete for those leadership positions to get them, then the quota rules might help us to get more into in more of them into those positions to have those indirect effects of which I was speaking about. And for that reason it can be a useful thing. But the competitive itself is not necessarily uh relevant and a very important thing. When I was talking uh when I was responding to Scott's earlier question about social skills, I was I was not at all using the word competitiveness when I was talking about the good leader. Uh so in this respect, it's more about getting into those positions where you really can have an influence.

SPEAKER_01 36:18

Yeah, no, I understand that. I think uh uh what what's interesting is that the reason why quotas are seem to be unfair in a respect is that you are dialing out some of the criteria in men's minds about why women are not motivated or not feel not driving themselves into that situation, and so it's a kind of redefinition of what good leaders look like needs to go alongside this process, otherwise, you know, it does feel with that mindset um that competitiveness is a key trait of leadership. It maybe isn't some you know, like you're a sales you know director or something, it might be very important, but um yeah, so I just wanted to bring that kind of other aspect into this.

SPEAKER_03 37:00

So

Your research suggests that women leaders can earn more revenue per employee when they are on the board. Can you elaborate?

SPEAKER_03 37:01

speaking of women leaders, I'm I'm particularly interested in your research suggesting that women leaders can earn more revenue per employee when they are on the board. Can you talk to us about that?

SPEAKER_02 37:14

This is Italian data, which basically was trying to exploit that there is a variation, of course, in in board membership of men and women, and what they basically found out in the in the production industry of Italy, of more than 1,000 companies, is that that having women on the board makes makes uh the company slightly uh more productive. Uh it's not super large, it's about three percentage points, something like that. Uh, but still, I mean, this is ultimately this is good for your bottom line, uh, naturally speaking. So uh this is this is what they what they found. They didn't explain it very much, so I believe it's related again to motivation and role models. But but one thing they were really very addressing in a very detailed way, which is that women on the board do have an impact on the salary distribution in particular below the board. Uh, and this is I found this very interesting, and it might be related to the productivity. It's a bit unclear from the paper itself. But it it goes the following way. So once you have women in the board, those women slightly in the in the managerial hierarchies slightly below the board level, uh then women there in those on those levels earn more money and men slightly less. That does still mean that we men on earth on average earn more than those women, but the the difference between male and female wages in these upper managerial levels uh becomes smaller with women on the board, which basically means that it can be interpreted as female board members having a better eye on on who are the very good women and what's their worst for the company actually. Now, if that is true, so that could, and now I'm now I'm speculating a little bit because it's open in the research. If that is true, that could ultimately lead to motivate those women in the managerial level slightly below the board level better in and kind of also doing a better job, and that might ultimately be the reason for the uh better productivity numbers that they have. Again, I I should be here a bit cautious. I believe it's interesting to see that the composition of the board, the gender composition of the board matters for wage distributions and for productivity. I believe there is more research to be done. I'm sorry here to say this because we still don't know exactly what's the causal mechanism.

SPEAKER_00 39:36

Hi everyone. We hope you're enjoying this audio-only version of the Evolving Leader Podcast. If you prefer to watch the episode, then head over to our YouTube channel where you'll also find a host of other visual goodies. Use the URL youtube.com forward slash at evolving leader.

SPEAKER_01 39:53

And I'll also put that link in the show notes

What have you learnt about trust?

SPEAKER_01 39:57

so a big, big issue uh around uh your work is uh is trust and uh you know what you've learned about that. I've been really excited to dive into a little bit about the the key takeaways that you've gained from your research into this uh dimension of human behavior.

SPEAKER_02 40:14

Yeah. So there has been this astonishing uh scientific paper in the 1990s showing that if you do a representative survey among the general population in many dozens of countries, uh, and ask them, just generally speaking, how much do you think you can trust others? Strangers basically, uh, from not at all to very much so, uh, then the responses to though to this simple question were uh surprisingly related to the GDP growth in those nations. So basically meaning that uh countries where the large majority of people say, well, on average I believe people can be trusted, right? I go out in the street, ask someone to do to give me some information. This person, although I will never meet him or her again, will not lie to me, but just tell me the plain truth. And this is related to to higher growth in economic uh productivity and and economic production. So that raises the question why is trust so important? Why is that such an issue?

SPEAKER_01 41:16

Sorry, can can I before you you move on, can just clarify it it does it does it get better with more growth?

SPEAKER_02 41:24

Oh yes, sorry, I I was unclear on on this. I'm I'm very sorry. Perhaps I was uh blind to to the research uh because I I I I've I've talked about it so often. So, yes, actually. So if the population says yes, people can be trusted, they grow to a larger extent in their economy, which is great. So that basically means general trust in strangers in your country is something which seems to go hand in hand, I'm not saying causal here, but seems to go hand in hand with better prosperity and wealth. So, what's going on here? Now, the key insight, I believe, is the following. When you think about business life, almost all of our contracts are contracts that economists would call incomplete contracts. An incomplete contract does specify, of course, which company you work for, which position you have, what how much you earn and how many hours you're supposed to work. But actually, it's surprisingly scarce that in such contracts it's really stated how you should do it, how exactly, how motivated you should do it, whom how how what kind of example you should give to your team members, for instance, if you have if you have responsibility. Whether you're willing to work five minutes more after the clock or not is also not regulated because by law you could just simply can stop at the full hour. So these incomplete contracts basically are in the sense that the employer gives you something and you can give something back. But it's not one-to-one matched, so what that really is. Now, for that reason, there's been plenty of work over the past 30 years that basically advancing trust towards an employee is something which most people, I'm not saying everybody, but most people are happy to reciprocate. In a sense that I give you freedom to to work, I give you good conditions, and now you want to give something back. This is basically trusting someone that he or she will do the job in a good way. But it's extremely difficult to monitor this. Because of course, I could monitor each single step that you do, each single action that you take, but that would be super costly. And in particular, it would be super demotivating, right? Because if I look over your shoulder, every time you do something, you feel controlled. And we do know that people feeling controlled, oh that's not a good idea. They're not motivated, they need freedom to have own responsibility, the own ability to make their decisions in the area where they are allowed to do so. And for that reason, trust is giving this extra freedom that people need. To really make their choices, and that means theirs, where they really invest efforts and brain into okay, this is the right thing to do. And for that reason, this trust is really super, super valuable, and and I try to really live like that. So my my saying is uh I trust everybody in my team as long as this person doesn't prove me I'm completely wrong. So that basically means you would really first need to break this trust and super dis very strongly disappointed. And this is again human behavior, it's about reciprocation, being about kind of tit for tat in a sense, right? You're kind to me, you give me freedom, I I pay something back.

SPEAKER_03 44:42

It's

Do you have any other insights or advice on how leaders might build or accelerate a sense of trust in their teams?

SPEAKER_03 44:43

such an important piece of work. I feel like I I work with teams and we kind of look at different things that actually help create a sense of trust based on somebody's own needs or preferences or personality or what have you. I was just wondering if you have any other insights or advice on how leaders listening right now might build or accelerate a sense of trust in their teams.

SPEAKER_02 45:14

Well, okay, that's a good question. Um so first I believe that having experience that trust is not exploited, but really paid back is something which helps you become a more trusting leader in the future. Now, because basically it's like a reinforcement learning story from psychology, right? In a sense, you trust, someone pays back you think, okay, good, it works. I don't need to manage, control, monitor this guy all of the time. It's just a person who really wants the best for all of us, right? So I'm not exploited in this. And that will certainly make it easier for you, reciprocity uh uh uh reinforcement learning, that will certainly make it easier for you with the next hire again to do it in the same way, basically. So and I believe this is super important. Now, now here comes the link to my other work actually. We're we are we're interested in when does this form trust? Uh does it depend on parents' parenting styles, for instance, kind of just just giving freedom to children guide them? Yes, but not in narrow ways, but more in broad ways, which basically uh leads you to trusting that you can kind of like have a self-determination possibility, that it's not someone else deciding for you, but you yourself have it in your hands. And that seems to that seems to originate fairly early on in life. Uh, I do have some early work where we were showing that the level of trust in very simple experimental games is very strongly increasing from seven, eight-year-olds to sixteen, seventeen-year-olds, where we're where really young humans learn that trust pays off. Just just people other people are not exploiting you. They're going to reciprocate, most of them are going to reciprocate and be trustworthy. And and this is this is something which well gives you an advantage if you have raised, have been raised in this way, and later on as a leader, you can uh you have a much easier time of of applying this also in your team.

Can we talk about decision making and money?

SPEAKER_01 47:14

Can we um talk about because this is very important, at least in the UK, um, with lots of people going on strike at the moment because of the cost of living crisis and salaries. Can we talk about decision making and money? Decision making and salaries and bonuses, what you've learned about that.

SPEAKER_02 47:34

Uh yeah, actually, uh there are many angles. I'm not sure which one you want to pick particularly. You just you just let me know when I go astray in the wrong direction. Uh so first of all, there's a there is one chapter where where we basically show that paying people more money for making good and correct decisions not necessarily makes better decisions. And here the background is basically that there's kind of this trembling hand effect, right? Oh, it's so super important. Like, like you know, those TV shows where I'm not sure how they are called in the UK, where in the last question you can earn a million pounds or so, and then you start taking, is it really? I believe it's true, A is true, but I don't know actually. Uh, and and that basically means if the stakes become higher, this this has been shown in in several studies, when the stakes become higher, it not necessarily means that people are making more more often correct decisions. It is true that they try to spend more cognitive effort, but it can even be a block in a sense, right? Oh, it's so important, I'm not sure any longer. And kind of the easiness with which with lower stakes you would just say, Oh, I'd say uh gets lost in a sense. So this is so this is uh I think that's the first insight. Just paying more money does not necessarily mean it can help, but it does not necessarily mean that that things get better. You were also talking about uh bonuses, and and here uh in a nutshell, uh introducing a bonus is a nice thing, right? Because people see the carrot in front of them, they work harder, but uh strangely enough, those bonuses can backfire pretty quickly. Because, first of all, humans are uh beings that easily get used to something. And and and now let me let me talk about practical uh examples. So when I was presenting work, the bonuses might might sometimes discourage people because they compare to others, right? This guy got 500 more than I did. So so this is this is unfair. Uh some company leaders came to me and said, Yeah, you know, that's the exactly the reason why we abolished them again. Uh, for the simple reason because we were tired of having all of those discussions at the end of the year. Why did this one colleague get 500 more than the other one? And people were also kind of self-referential in the sense that last year I got 4,900, this time this year only 4,800. What is wrong? Uh also about I mean, come on, how 100 pounds that's just zero. And uh also for this reason they abolished it again because they felt it created lots of uh dissatisfaction, and also actually, and this is this is shown in more detail in the book, also, people quitting more often if they are unhappy about how the bonuses are assigned to, and that's a very bad thing. Now, recently I heard a very nice example where they said in our company we felt people become unhappy with the bonus system, we abolished it, but in order to create uh in order to avoid dissatisfaction, everybody got in a fixed wage at least at what he or she had last time with the bonus. So it's not that the company wanted to save money and I felt this is this is really nice, this this is the right way of doing it. It's not that you abolish the bonus and everybody is disappointed because now this this additional money is gone, but everybody is kept at exactly the same level that he or she had before, but now fixed. No more contingency on some parts of the overall earnings being contingent on the bonus payment. And I've I believe that's the right way of doing it.

Can we talk about your research into teenager's and children's decision making? What are you doing in that area?

SPEAKER_01 50:55

Can we come back full circle to the comment you made about your new research into teenagers and children decision making and tell us a little bit about what you're doing in that area?

SPEAKER_02 51:07

Yes, uh, so I'm I'm I'm very much interested in how economic decision making develops in young age. So, for instance, I've I've done work on patients uh showing that in in the very early years, three to six, seven year olds, young children really learn that waiting has a value. It's good sometimes to say, oh no, I don't want one present today, I'm waiting for two tomorrow, like in this famous marshmallow experiment that most of us do know. Uh and now currently we're we're in a very exciting project in this case in Bangladesh, given through a course network uh that we had there and lots of opportunities, where in primary schools we were doing interventions in the curriculum about teaching them basically patience. And and because this is so important, I I haven't motivated this well enough. So, patience is something which, if you're patient as a young person, you're more likely to be well educated as an adult, you're more likely to earn higher wages, you're more likely to be healthier. So there are super long-term effects of really being patient in the sense that you're willing to give up something today in order to invest it into a better future tomorrow. That's what economists think about patience is. And uh now for that reason, knowing how it when it develops very early on in life, so we were going into those schools in Bangladesh, 135 schools, about three, four thousand children, uh, primary school age, teaching them with simple interventions, uh, kind of making trade-offs between what you have to give up today and and what could that mean for you in the future tomorrow, why would that be good, why would that be bad as well? There are both ways possible, of course. And what we actually found is the earlier we do this intervention, the stronger the effects on uh giving children the chance of being more patient in in simple choice tasks like do you want 10 pounds today or 11 pounds in a week or so, for example. And this is something which we find very encouraging, and we want to follow on those children for longer term because that will most likely also have impacts on their schooling choices, they whether they are staying longer in the education system or not, controlling for IQ, of course, right? Smarter people stay longer in school, usually, but you can compensate their potentially with being more persistent, being more patient, and really kind of going through the sometimes challenging schoolwork that has to be done and also that prepares you for a brighter future. That's something which we're interested in.

What's the most powerful that helps children and teenagers to build that muscle of differed gratification?

SPEAKER_01 53:33

So Matthias, I'm really interested in this area. What's the most powerful thing do you think that helps children and teenagers to build that muscle of deferred gratification?

SPEAKER_02 53:45

I'm not sure whether it's the most powerful. Let me be clear on this one. But very important is judging in a balanced way. What are your options and really be as crystal clear as possible about what are the pros and cons of the different options? Because usually we humans try to jump quickly at conclusions because it saves our mental effort, right? Kind of there is a there is a decision to be made. We say, oh, that's the way to go. Uh, and that often cuts short what is actually available, the whole range of available options that would be out there that we could use. And so this is what we actually try to teach children, right? So, like, stop. First of all, don't make a decision. So, first of all, think about the what's the real problem and what are the potential alternatives, and then think about carefully what are the pros and cons. Now, then that does not mean that for each single decision, whether you have some muesli or yogurt in the uh for your breakfast, that that you run a whole list with 1,000 pros and cons. But for the important decisions in life, it is it is like this that it's very important to stop your impulsive response inclination and go one step back and think about what's out there and what what is what is it. And I believe this is I'm not again, I wouldn't say this is the most important thing, but we believe that this is a super important aspect that children can learn. And so we try.

What have you learnt on what encompases or inhibits ethical behaviour amongst individuals and teams?

SPEAKER_01 55:09

I'd like to end uh before I hand over to Scott to close us out with what you've learned about what encourages or inhibits ethical behavior amongst uh individuals and teams.

SPEAKER_02 55:23

Yes, uh I think the most important thing to encourage moral behavior is good leadership, right? Really living up to the standards which most companies nowadays have, right? Those those guidelines, how to do it properly, their compliance regulations, things like that. But you need to start from the very top that you're an integer person who would never ever want to violate those things and really give a very good example. And also very important, and that that is backed up by research, uh jump at even minor infractions immediately. Uh so if there is the slightest thing going wrong, you need to be quick, not say, oh well, it's just this tiny thing. Because this is this is what in the literature is called the slippery slope, right? You start in with a with a with a violation of the rules which are not proper, and then you say, Oh well, last time that was still okay. Now we can go a little bit deeper in in our infriction, and and then kind of you slide down towards towards this slope, uh down into disaster, I should say. Because at some stage things get large and and and then it might be too late, actually. I believe uh the diesel gate of VW was exactly such an example where they tried to play around with this software and then found out oh, that can be used somehow, and then it was all of a sudden uh the big scandal. Uh, I think this is so this is this is the danger, right? That you start with very sm very minor violations of the rules, and and the solution is be quick on them and also live it from the very top that this is what we what we don't want to do, or just the other thing, live in a proper way. This is the way we want to behave in our company. I think that's very important.

SPEAKER_03 57:04

Well Matthias, thank you for sharing your very important and very useful insights with us today. Um we we covered a lot, but there's so much more folks, so do go uh pick up a copy of Behavioral Economics for Leaders uh straight away, because there's so much more detail and so much ground we didn't get a chance to cover. Um and until next time, folks, remember that the world is evolving. Are you