In the talk, he hints at some of his most recent analysis: On May 17, 2013, he says, “we identified that the US stock market was on an unsustainable path, and we released on our website … that on the 21st of May, that there will be a change of course. And the next day, the market started to change course.”

We talked to him about this, and he was willing to go into more detail, starting with the graph below. On the left axis (in black) you can see the level of the S&P500’s exchange-traded fund, SPY, over the past three years. On the right (in red), you can see the level of the Crash Risk Index (CRI), his team’s forecast of the likelihood of a crash.

The past three years of S&P500’s growth compared to its Crash Risk Index.

There was, as he said, “a pretty strong signal on May 21st. Since then, however, the CRI dropped to zero.” He went on, “The US market saw its peak on 22nd May 2013, and since then, it has gone overall down and sideways, confirming clearly the change of course, breaking the trend that had developed since November 2012, which we expected.”

That new information begged a few more questions:

Are there any other forecasts for the coming year that you’d be willing to share?

We have recently diagnosed bubbles in the financial and insurance sectors, as well as in the construction and realty sectors, in the US. This is interesting, given that these very sectors were at the core of the crisis starting in 2007.

Is there a way to prevent market bubbles from forming in the first place?

The prediction of 21st May 2013 concerning the US market and subsequent developments illustrate that markets are largely driven by political events. For instance, the US market developed in lockstep with the Nikkei after the Governor of the Bank of Japan, Haruhiko Kuroda, announced the massive quantitative easing (QE) in Japan, in the beginning of April 2013.

[Note: QE is the process by which central banks buy assets from private banks and other firms to inject currency into the market by, theoretically, making it easier for those institutions to continue spending and lending. QE has been tried, repeatedly over the past few years and never without controversy, in the US, UK, Japan and EU.]

Indeed, equities are expensive, and prices have been propped up by central banks’ easing policies. But the big correction, when it comes, will be triggered by a major political or social event induced when bubbles, driven by the QE everywhere, reach maturity and global instability rises.

All this is to stress that market bubbles are formed in response to accommodating policies of central banks and governments. Now, it may actually be counterproductive to prevent bubbles from forming. There are many indications that central banks, and the Fed in particular, react dynamically to stock market developments in an effort to push them up. This has become the unwritten goal of the Fed — as growth and a booming stock market creates wealth and instills confidence for investors and consumers. But, having said that, I do believe that bubbles in the financial sphere, in the long run, drive the misallocation of resources and generate great instabilities.

What specific mechanisms can prevent boom-and-bust cycles and forge a sustainable path for growth?

There are several mechanisms to prevent booms-and-busts, but they come at the cost of stronger regulation and a stricter control of the banking and insurance industry, such as reenacting of the Glass-Steagall Act. In other words, in the present architecture, lower volatility and smaller booms-and-busts come at the cost of lower growth. More specifically, the simplest way to prevent bubbles is through monetary policy (by increasing the interest rates, as well as other instruments to reduce access to credit).

The social bubbles argument [Note: the argument that market bubbles can spur a concentrated spurt of innovation in the relevant sector] is interesting in this context: Over-optimism can be a powerful driving force for innovation, as it was in the cases of the Apollo and the Human Genome projects. [1-4] But, in those two examples, there was a clear vision driving public investment. That is very different from pumping money into the private financial institutions and hoping for the best, as central banks have been doing from 2008 on. The current QE-fueled bubble will probably not have any useful social consequences …

What scares you most about today’s global economy?

My worry is that the present QE policies may jeopardize long-term growth by not addressing the underlying structural problems and the exploding debt of nations.

What scares me most is the illusion of the perpetual money machine [5] that continues unabated, along with growing structural imbalances that are absolutely not being addressed at their roots (e.g., German vs. Greek productivity and many others; the exorbitant privilege of banks in the economy when they do not serve their real, useful role; the focus on short-term economic growth at the level of nations without addressing the paralyzing structures that have to be modified … and so on).

And central banks are flying blind, they have no clue and are doing an enormous real-life experiment with enormous consequences for the welfare of real people.

And what is frustrating is that the knowledge is there; it’s just that central banks are mostly guided by DSGE (dynamic stochastic general equilibrium) models that do not account for the possibility of out-of-equilibrium bubbles and crises. They are using sextants, while they should be using GPS.

Does anything about today’s global economy make you optimistic?

Young entrepreneurs, the creativity of people, and the conviction that, when things get much worse, great creativity and cooperation will be unleashed.

I do not believe we will see a smooth and soft ride, but rather rough and turbulent times ahead of us that will hurt different nations and groups of people differently. Mankind will have to adapt to the new normal, with accelerating changes. It won’t be without pain, but there will be great opportunities for those who are prepared with multiple skills.

I would also mention the immense startup ecosystem that has built up over the past two decades, both as a result of open-source software (OSS) and the first big internet bubble. The way I see it:

• Cheap money (due to both QE and past internet successes) + cheap capital (in the form of tools, due to the incremental nature of OSS) + cheap labor (due to high youth and structural unemployment) => optimism.

• OSS and collective learning, cooperation and problem-solving provide truly unique and novel opportunities.

Footnotes:

[1] D. Sornette, Nurturing Breakthroughs; Lessons from Complexity Theory, Journal of Economic Interaction and Coordination 3, 165-181 (2008), DOI: 10.1007/s11403-008-0040-8 (http://arxiv.org/abs/0706.1839)

[2] Monika Gisler and Didier Sornette, Exuberant Innovations: The Apollo Program, Society 46, 55-68 (2009), DOI: 10.1007/s12115-008-9163-8 (http://arxiv.org/abs/0806.0273 and http://ssrn.com/abstract=1139807)

[3] Monika Gisler, Didier Sornette and Ryan Woodard, Innovation as a Social Bubble: The Example of the Human Genome Project, Research Policy 40, 1412-1425 (2011) (http://arxiv.org/abs/1003.2882 and http://ssrn.com/abstract=1573682)

[4] Monika Gisler and Didier Sornette, Bubbles Everywhere in Human Affairs, chapter in book entitled “Modern RISC-Societies. Towards a New Framework for Societal Evolution”, L. Kajfez Bogataj, K.H. Mueller, I. Svetlik, N. Tos (eds.), Wien, edition echoraum: 137-153 (2010) (http://ssrn.com/abstract=1590816)

[5] D. Sornette and P. Cauwels, The Illusion of the Perpetual Money Machine, Notenstein Academy White Paper Series (Dec. 2012)(http://arxiv.org/abs/1212.2833 and http://ssrn.com/abstract=2191509)

Photo: James Duncan Davidson

Harvard Business School professor Michael Porter is here to make the case that business can help tackle social problems. Issues such as healthcare, access to water and climate change are bread-and-butter concerns for TEDsters in the room, who clearly agree with his early statement that we’re all very aware that these problems exist. Many of them also clearly agree with his analysis that business is often seen as the problem, not the answer.

Here’s the problem with the problem. The systems that we’ve developed to deal with social issues, including NGOs and philanthropies, are well-meaning and motivated, but they’re not designed to scale. “The awkward reality is that we’re not making fast enough progress. We’re not winning,” says Porter. “These problems seem very daunting and intractable. Any solutions we’re achieving are small solutions, incremental progress.”

The issue: the current model doesn’t have nearly enough resources to finance the necessary change. We need to confront this issue head-on. “How do we create resources?” asks Porter. His answer: via business, which creates wealth when it meets its own needs and makes a profit. That’s a simple equation that leads to taxes, incomes, charitable donations and so on. “Only business can create resources,” he says. “So the question then is, how do we tap into that?” He shows a slide showing the split of revenue within the United States: Corporations dominate. “Profit is the magic. You might say ‘ugh’ to that,” he says, (Indeed, many of the audience members do just that.) “But that profit allows whatever solution we have created to be infinitely scalable.”

Through his work as a strategy professor and advisor to global multinational corporations, as well as the founder of various nonprofits, Porter has come to see a shift in business processes in recent years, away from seeing social problems as a side project and toward treating them as central to the core business model. This subverts the conventional wisdom that either social performance or economic performance could thrive, but not both. Where issues like environmental sensitivity once seemed like unnecessary frippery or a marketing “nice to have,” now they’re seen as solutions to solve — and drive profits.

Photo: James Duncan Davidson

“Issue by issue, we have started to learn there is no tradeoff between social progress and economic efficiency in any fundamental sense,” Porter says. Good business and good social practices are not fundamentally opposed. And companies are catching on. He has some examples: Dow Chemical is developing healthier oils that replace transfat or saturated fat products. Jain Irrigation has brought drip irrigation to farmers–and reduced the need for excessive water usage. The Brazilian company Fibria has planted eucalyptus to harvest for paper, protecting old-growth forests. Cisco has trained four million people, not to “be responsible” but to disseminate IT technology and grow its own business. “There is a fundamental opportunity for business today to impact and address these social problems,” Porter says. “This is the largest business opportunity we see.”

He’s dubbed it “shared value” (indeed, it’s the topic of a feature article he wrote for the Harvard Business Review) and he calls it “a higher kind of capitalism.” More and more companies are embracing the philosophy, and more will do so in the future. The key now, Poster says, is to support deeper collaboration between NGOs, governments and businesses, to have all entities pull together in the same direction in the name of progress. “NGOs that are really moving the needle have found partnerships and ways to collaborate,” he says. “Governments that are making progress are enabling shared value in business rather than seeing government as the only player.” Rethinking kneejerk antipathy towards business and fostering collaboration and competition might just provide the scale necessary to solve some seemingly unsolvable problems.

Photo: James Duncan Davidson

Toby Eccles doesn’t believe that the private and public sectors have to operate separately for social change. And he and his colleagues at Social Finance have been working since 2010 to prove it — with a new financial instrument known as social impact bonds. They are, as Eccles says, “not a new intervention, therapy or way of working with kids,” but a new way of doing business for social change.

Consider the problem of recidivism in short-sentence prisoners. In Britain, 63 percent of men who serve short prison sentences are expected to reoffend within a year. In fact, on average these men have committed 43 previous offenses and been to prison seven times before. Eccles and his team approached the Ministry of Justice and asked them: What is it worth to you — economically, in terms of police time, court time, prison time, etc. — to have these men reoffend fewer times? The social benefits are important, but it’s the economic value that makes the case truly compelling and irrefutable, says Eccles. And more important, if Social Finance and the Ministry could agree on how to measure progress, including a dollar value that demonstrates that progress, they could agree on a contract.

In a social impact bond, socially motivated private investors put up funds to pay for services, and the government pays up if progress happens. If the outcome improves and the agreed-upon measures are met, then the public department pays the money saved (from court time, prison time, etc.) back to the investors, who get their money back plus returns. If the outcome doesn’t improve, investors lose their investment — but the government doesn’t. It’s win-win-win: Investors can invest in social change (and Eccles says, “A surprising number of people want to invest in something that produces social good.”) and get a reasonable return; service providers have a chance to increase the evidence for their efficacy and demonstrate the value of their service; and the government benefits because it saves money. And society isn’t doing too badly, either.

Photo: James Duncan Davidson

Social impact bonds encourage:

1. Innovation: The public sector, which is usually under financial constraints that don’t allow it to innovate, can take bigger risks.
2. Rigor: Since the outcomes are agreed upon from the beginning, data-gathering is built in to the plan.
3. Flexibility: The first draft of a business plan often fails, but these plans are adaptive from the start and change depending on the cause.
4. Partnership: Social impact bonds marry public funds, private funds and socially motivated services.

Social Finance signed a contract with the Ministry of Justice in 2010 to start a program with 3,000 offenders at Peterborough Prison. If they succeed in lowering the conviction rate by 10 percent or more, Social Finance will make money for every conviction saved. As Eccles told me separately, early results will be published tomorrow, June 13. If all goes well, the future of public and private funds for social impact is looking up.

UPDATE: Early results from the middle of the Peterborough prison pilot have been published. — June 13, 2013

Photo: James Duncan Davidson

Risk economist Didier Sornette makes bold claims on Wednesday morning at TEDGlobal 2013, during the session “Money Talks.” According to Sornette, we have been operating under a few detrimental illusions that have landed us in our current economic state: One, we have been living in an age of never-ending growth and prosperity. Well, $30 trillion losses in the global market from the Great Recession have already shattered this illusion. And two, that we couldn’t see this crash coming.

The 2007-2008 crash seemed to come out of nowhere, with no source or group to take responsibility, an unpredictable one-time anomaly — as Sornette calls it: “the wrath of God.” But as he says firmly: Despite what standard risk management tools show, these outliers operate under special mechanisms that make them predictable, perhaps even controllable. Sornette and his team at the Financial Crisis Observatory (FCO) call these special cases “dragon-kings.” Dragon-kings, in direct contrast with “black swans,” are at the core characterized by a slow maturation of instability, which move toward a bubble, until the bubble reaches a climax and bursts.

There are many early warning signs of dragon-kings, but one of the crucial ones is super-exponential growth. Super-exponential growth is trenchant and unsustainable and can be found in many areas of study to predict dragon-kings. Sornette has applied it to Ariane rockets, parturition problems, epilepsy, landslides, even blockbuster movies and YouTube virality.

Photo: James Duncan Davidson

Dragon-king theory can be applied to 30 years of financial bubble history, starting with the worldwide bubble that started in 1980 and popped in 1987, and ending in the most recent global over-valuation bubble that broke in 2007 and 2008. In December 2007 Sornette predicted the Chinese market bubble, to the disbelief of analysts. Three weeks after his presentation the markets lost 20 percent, and by the end of the year they had lost 70 percent.

Can the dragons be slain? In a way. Learn the art of planning and predicting, says Sornette. If we find pockets of predictability, advanced diagnostics of crises are possible. So that crises may never again take us by such surprise.

Didier Sornette’s TEDGlobal Talk has been posted. Watch it here »

Geoffrey Canada rocked the audience at TED Talks Education with his passionate talk. Photo: Ryan Lash

Geoffrey Canada gives a very interesting analogy in today’s TED Talk: He compares the current education system in the United States to the era when banks were only open between the hours of 10am and 3pm.

Geoffrey Canada: Our failing schools. Enough is enough!“Now, who can bank between 10 and 3?” asks Canada to a big laugh. “It went on for decades. You know why? Because they didn’t care. It wasn’t about the customers. It was about bankers … Now one day, some crazy banker had an idea. Maybe we should keep the bank open when people come home from work?”

What do “bankers’ hours” have to with education? Well, Canada says, many of the US education system’s similar ingrained habits — long summer vacations, testing at the end of the school year — go against everything we know about student learning. And yet these old habits continue. As Canada puts it: “Here’s a business plan that simply does not make any sense.” Among his ideas: Shorten vacation so kids don’t backslide academically during the long summer; and test early in the school year, when there’s still time to correct course.

To hear his passionate plea for educators to start looking at data and to think more about the customers — students — in order to curb the United States’ abysmal dropout rate, watch this powerful talk.

And here are more fascinating TED Talks that suggest ideas for education from other seemingly unrelated fields.

Susan Cain: The power of introvertsSusan Cain: The power of introverts Idea: Make time for solitary work, not just groupwork From: Psychology Susan Cain’s blockbuster talk from TED2012 focuses on the wondrous, largely ignored skills that introverts have to offer. She points out that schools are unabashedly built for extroverts, with their emphasis on group exercises and group activities — and urges classes to leave time for solitary work to capture the best of introversion.

Margaret Heffernan: Dare to disagreeMargaret Heffernan: Dare to disagree Idea: Teach kids how to debate From: Business In this talk from TEDGlobal 2012, Margaret Heffernan contends that conflict, challenge and openness to changing our minds are all key to progress. The problem is, we tend to avoid disagreement at all costs. How to counter that? Heffernan describes a Ph.D. program that requires students to submit five statements that they’re prepared to defend in the face of authority. “I think it’s a fantastic system, but I think leaving it to Ph.D. candidates is far too few people and way too late in life,” she says. “I think we need to be teaching these skills to kids and adults at every stage of development.”

Carl Honore: In praise of slownessCarl Honoré: In praise of slowness Idea: Ban homework (or ease up on it) From: The Slow Movement We’re trying to do more and more with less and less time — and Carl Honoré explains why this isn’t a good thing. “By slowing down at the right moments, people find that they do everything better: they eat better, they make love better, they exercise better, they work better, they live better,” he says. And, of course, they learn better. Kids, Honoré says, are overworked to the point of burnout. He proposes that we embrace slow education, easing up on (or even banning!) homework to allow kids time to process and relax after school.

Jarrett J. Krosoczka: How a boy became an artistJarrett J. Krosoczka: How a boy became an artist Idea: Drawing helps kids deal with emotions From: Art At TEDxHampshireCollege, Jarrett Krosoczka, an author and illustrator of children’s books, says it’s essential that kids get the opportunity to flex their drawing muscles through extracurricular classes. He talks about the emotional outlet that art and writing gave him as a child — even as he dealt with hard emotions surrounding his complicated parents.(Check out Krosoczka’s picks for 10 great children’s books that are destined to be classics.)

Dave Eggers' wish: Once Upon a SchoolDave Eggers’ wish: Once Upon a School Idea: Multitasking can make for a better education From: Practicality Dave Eggers kept hearing about the stresses of teaching — the overcrowded classes, the inability to give students one-on-one attention — from friends and family members in the profession. At the same time, Eggers also noticed other pals especially skilled in language arts — writers, editors, graduate students — in need of a space to write. At TED2008, he shares the story of how he opened a combined writers’ space and tutoring center, where the writers would write until school was out, and then become tutors.

And a bonus unreleased talk:

Stuart Firestein: Celebrate ignorance
Idea: Don’t just teach answers — teach questions
From: Science
In this yet-to-be-released talk from TED2013 — about the necessity of high-quality ignorance to scientific discovery — Firestein proposes a model of education based on evaluation rather than weeding out. Instead of feeding kids facts that they can then repeat, he imagines a system in which we encourage kids to ask, not answer. (Watch for the talk this fall!)

Robert Gordon and Erik Brynolfsson debated their opposing views of where the economy is headed at TED2013. Last week, they brought the debate to a TED Conversation. Photos: James Duncan Davidson

Last week, TED speakers Robert Gordon and Erik Brynjolfsson joined us for a live, one-hour debate on the future of the US economy.  It was a furious hour of typing, with both speakers contributing just over 1,500 words in response to a wide variety of user questions.  A few highlights:

Ryan Zeigler asks:

Mr. Brynjolfsson, you stated in your talk that you feel that we need to “race with machines” rather than against them. In what manner do you feel that this effects the future of education?

Erik Brynjolfsson responds:

We really need to reinvent education. My industry has lagged other industries in digitizing. Far behind music and other media, finance, manufacturing, retailing, etc.  But that’s good news: lots of room to improve.  Digitization of education will do two things:

1. Much higher quality and lower cost as very best teachers and methods reach larger audiences. Examples: superstars like Sal Khan of Khan Academy or physics lessons from best MIT profs at EdX.
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2. More importantly, gather enormous data about what’s working and not working. Apply big data techniques to improve teaching methods and to personalize how things are taught. Adapt pace and methods, based on students unique situation. Continuous learning by the educators, not just students. My students are already doing this to optimize ad clicks – can soon do it for education.

Michael Noyes asks:

Capitalism has created more wealth by far for more people than any other system. However, have we reached a point in our technological history when the pendulum must swing back toward more socialist economics to achieve more prosperity for more people?

Robert J. Gordon responds:

You have to distinguish between “socialism” and the capitalist welfare state as exemplified by Sweden, the Netherlands, etc. Socialism involves government ownership of the means of production and was practiced by the postwar UK Labour government which nationalized steel, transport, etc. It was Thatcher’s achievement to reverse all that, and Britain went from being a laggard to one of Europe’s most dynamic economies.

Yes, we need more of a welfare state, particularly to prepare children in poverty to compete in our educational system. Now they are dropping out of high school and condemning themselves to lives of manual labor and unemployment.

Theresa Sanker asks:

When are America’s economic priorities going to shift toward education, saving, and long-term investment, and away from excessive reliance on military power and cheap energy?

Erik Brynjolfsson responds:

When more people like you demand it. Simple as that.

Robert Gordon adds:

Heckman has shown that the problem is not that we don’t spend enough resources on education. Reducing class sizes has no effect. The problem is that educational resources are not distributed evenly. In an ideal world we would get rid of property taxation as the basis for educational finance, since that gives an advantage to communities with wealthy residents. We should have education funded by a nationwide value-added tax.

The problem with our military, besides the needless wars in Iraq and Afghanistan, is the endless buckets of cash poured into ridiculous projects like the F-35 fighter which has no known enemy to justify its cost. We built the B-17 in WWII for $250,000 per plane!

Finally, what’s wrong with cheap energy? Are you in favor of expensive energy?

With 113 excellent questions and answers, this was a fascinating and informative debate. Don’t miss the rest of the responses, available on TED Conversations »

Nilofer Merchant’s boots at TED2013 were certainly made for walking. Photo: James Duncan Davidson

In today’s talk, Nilofer Merchant gives a startling statistic: we’re sitting, on average, for 9.3 hours per day—far more than the 7.7 hours we spend sleeping. “Sitting is so incredibly prevalent, we don’t even question how much we’re doing it,” Merchant says.Nilofer Merchant: Got a meeting? Take a walk “In that way, sitting has become the smoking of our generation.”

But there are consequences. Physical inactivity, Merchant says, leads to upticks in our risk of breast cancer, colon cancer, heart disease, and type II diabetes.

Merchant’s own habits changed when a colleague couldn’t fit a meeting into her schedule and asked if Merchant could come along on a dog walk instead. Now, she says, “I’ve taken that idea and made it my own.” Instead of meeting in conference rooms, she asks people to go on walking meetings—20 to 30 miles’ worth a week. “It’s changed my life,” she says.

Merchant is carrying on a long tradition of frequent, even ritualistic, walking. Here are some other fans of the amble. Some are walk-and-talkers; others or simply stroll for its own sake.

1. Aristotle allegedly instructed students while strolling about—which fits with his students’ being called “Peripatetics.”
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2. In August 1910, Sigmund Freud took a four-hour walk with the Austrian composer Gustav Mahler, who had requested an “urgent consultation” via telegraph, according to the BBC. Mahler’s marriage was disintegrating, and he was about to have a breakdown—hence the emergency walk-and-talk with the founder of psychoanalysis. In fact, Freud conducted a number of walking analyses, according to Freud: A Life for Our Time. Another significant example: Freud conducted his first training analysis on Max Eitingon in 1907 through a series of evening walks. Eitingon went to become president of the International Psychoanalytic Association.
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3. Steve Jobs made a habit of the walking meeting, especially for first encounters, according to CNNMoney, which quotes from Jobs’ biography: “taking a long walk was his preferred way to have a serious conversation.”
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4. Harry S. Truman was a routine-oriented man, and walking was a fundamental part of that routine. According to the University of Virginia’s Miller Center, Truman woke up at five in the morning for a “vigorous” walk of a mile or two, “wearing a business suit and tie!” (This in addition to his frequent midday swimming session in the White House pool, “with his eyeglasses on.”)
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5. Charles Dickens “was from childhood an avid, even compulsive, walker,” Sports Illustrated wrote in 1988. (Apparently, the mid-1800s was “the golden age of professional foot racing, or ‘pedestrianism.’” Who knew?) Dickens frequently walked around 20 miles a day—one night in 1857, he logged 30 miles—and often did so at night. Walking was a means of both observing the cities around him and de-stressing. “Dickens found composition to be hard, painful work,” SI writes. “The hours he spent at his desk agitated him tremendously, and walking served as a kind of safety valve.”

Robert Gordon: The death of innovation, the end of growthEconomists Robert Gordon and Erik Brynjolffson see very different things when they look at the stagnation of the U.S. economy in recent years. It’s almost as if they’re looking at an optical illusion image – one seeing a candlestick while the other sees two faces just inches apart. In today’s talks, they both outlined their thoughts.

Gordon sees the candlestick — he believes that the growth could be tapering off for good and that our best innovations may be behind us. As he points out, between 1900 and 1960, we went from traveling by a horse and buggy to taking Boeing 707s. But in the sixty years since, we haven’t learned to go any faster at a mass commercial level. What’s wrong? In his talk, he outlines four headwinds which are keeping us from continued growth at the pace of the past two centuries: demographics, education, debt and inequality.

Erik Brynjolfsson: The key to growth? Race with the machinesMeanwhile, Brynjolfsson sees the faces. He says that the stagnation may simply be growing pains as we move from an economy based on production to one based on ideas. He also looks to the past for an example, taking us back 120 years to the Second Industrial Revolution. While all the tools were in place for mass production, it took three decades for productivity to skyrocket. The first generation of managers — who had old ideas about systems and workflows – had to age out of the system for growth to start. This is where Brynjolfsson thinks we are now. He sees another wave of innovation in our future — if humans can learn to work alongside computers and robots in more symbiotic ways.

Click the links above to watch these two fascinating talks. And then watch this 12-minute debate between the Gordon and Brynjolfsson on what it means to work today … and what it will mean in the future.

Do you think we are witnessing the end of innovation? Is growth over? Did either speaker here change your opinion? Explain in the comments.

Dan Ariely: What makes us feel good about our work?When you look carefully at the way people work, he says, you find out there’s a lot more at play—and a lot more at stake—than money. In his talk, Ariely provides evidence that we are also driven by meaningful work, by others’ acknowledgement and by the amount of effort we’ve put in: the harder the task is, the prouder we are.

During the Industrial Revolution, Ariely points out, Adam Smith’s efficiency-oriented, assembly-line approach made sense. But it doesn’t work as well in today’s knowledge economy. Instead, Ariely upholds Karl Marx’s concept that we care much more about a product if we’ve participated from start to finish rather than producing a single part over and over. In other words, in the knowledge economy, efficiency is no longer more important than meaning.

“When we think about labor, we usually think about motivation and payment as the same thing, but the reality is that we should probably add all kinds of things to it: meaning, creation, challenges, ownership, identity, pride, etc.,” Ariely explains.

To hear more on Ariely’s thoughts about what makes people more productive – and happier – at work, watch this fascinating talk. Below, a look at some of Ariely’s studies, as well as a few from other researchers, with interesting implications for what makes us feel good about our work.

1. Seeing the fruits of our labor may make us more productive
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   The Study: In a study conducted at Harvard University, Ariely asked participants to build characters from Lego’s Bionicles series. In both conditions, participants were paid decreasing amounts for each subsequent Bionicle: $3 for the first one, $2.70 for the next one, and so on. But while one group’s creations were stored under the table, to be disassembled at the end of the experiment, the other group’s Bionicles were disassembled as soon as they’d been built. “This was an endless cycle of them building and we destroying in front of their eyes,” Ariely says.
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   The Results: The first group made 11 Bionicles, on average, while the second group made only seven before they quit.
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   The Upshot: Even though there wasn’t huge meaning at stake, and even though the first group knew their work would be destroyed at the end of the experiment, seeing the results of their labor for even a short time was enough to dramatically improve performance.
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2. The less appreciated we feel our work is, the more money we want to do it
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   The Study: Ariely gave study participants — students at MIT — a piece of paper filled with random letters, and asked them to find pairs of identical letters. Each round, they were offered less money than the previous round. People in the first group wrote their names on their sheets and handed them to the experimenter, who looked it over and said “Uh huh” before putting it in a pile. People in the second group didn’t write down their names, and the experimenter put their sheets in a pile without looking at them. People in the third group had their work shredded immediately upon completion.
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   The Results: People whose work was shredded needed twice as much money as those whose work was acknowledged in order to keep doing the task. People in the second group, whose work was saved but ignored, needed almost as much money as people whose work was shredded.
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   The Upshot: “Ignoring the performance of people is almost as bad as shredding their effort before their eyes,” Ariely says. “The good news is that adding motivation doesn’t seem to be so difficult. The bad news is that eliminating motivation seems to be incredibly easy, and if we don’t think about it carefully, we might overdo it.”
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3. The harder a project is, the prouder we feel of it
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   The Study: In another study, Ariely gave origami novices paper and instructions to build a (pretty ugly) form. Those who did the origami project, as well as bystanders, were asked at the end how much they’d pay for the product. In a second trial, Ariely hid the instructions from some participants, resulting in a harder process — and an uglier product.
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   The Results: In the first experiment, the builders paid five times as much as those who just evaluated the product. In the second experiment, the lack of instructions exaggerated this difference: builders valued the ugly-but-difficult products even more highly than the easier, prettier ones, while observers valued them even less.
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   The Upshot: Our valuation of our own work is directly tied to the effort we’ve expended. (Plus, we erroneously think that other people will ascribe the same value to our own work as we do.)
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4. Knowing that our work helps others may increase our unconscious motivation
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   The Study: As described in a recent New York Times Magazine profile, psychologist Adam Grant led a study at a University of Michigan fundraising call center in which  student who had benefited from the center’s scholarship fundraising efforts spoke to the callers for 10 minutes.
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   The Results: A month later, the callers were spending 142 percent more time on the phone than before, and revenues had increased by 171 percent, according to the Times. But the callers denied the scholarship students’ visit had impacted them.
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   The Upshot: “It was almost as if the good feelings had bypassed the callers’ conscious cognitive processes and gone straight to a more subconscious source of motivation,” the Times reports. “They were more driven to succeed, even if they could not pinpoint the trigger for that drive.”
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5. The promise of helping others makes us more likely to follow rules
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   The Study: Grant ran another study (also described in the Times profile) in which he put up signs at a hospital’s hand-washing stations, reading either “Hand hygiene prevents you from catching diseases” or “Hand hygiene prevents patients from catching diseases.”
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   The Results: Doctors and nurses used 45 percent more soap or hand sanitizer in the stations with signs that mentioned patients.
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   The Upshot: Helping others through what’s called “prosocial behavior” motivates us.
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6. Positive reinforcement about our abilities may increase performance
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   The Study: Undergraduates at Harvard University gave speeches and did mock interviews with experimenters who were either nodding and smiling or shaking their heads, furrowing their eyebrows, and crossing their arms.
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   The Results: The participants in the first group later answered a series of numerical questions more accurately than those in the second group.
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   The Upshot: Stressful situations can be manageable—it all depends on how we feel. We find ourselves in a “challenge state” when we think we can handle the task (as the first group did); when we’re in a “threat state,” on the other hand, the difficulty of the task is overwhelming, and we become discouraged. We’re more motivated and perform better in a challenge state, when we have confidence in our abilities.
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7. Images that trigger positive emotions may actually help us focus
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   The Study: Researchers at Hiroshima University had university students perform a dexterity task before and after looking at pictures of either baby or adult animals.
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   The Results: Performance improved in both cases, but more so (10 percent improvement!) when participants looked at the cute pictures of puppies and kittens.
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   The Upshot: The researchers suggest that “the cuteness-triggered positive emotion” helps us narrow our focus, upping our performance on a task that requires close attention. Yes, this study may just validate your baby panda obsession.

What have you noticed makes you work harder – and better?

TED@Intel brought together 18 speakers from within the tech company. Photo: Shawn D. Morgan

Last week, Intel hosted a unique event — an afternoon of TED Talks delivered by their very own resident innovators, thinkers and dreamers. Through a partnership with TED, they received guidance on event production and curation. The final product — TED@Intel, themed “the future in progress” — was a moment for the organization to celebrate and communicate their best ideas.

According to Intel staffer Jeremy Schulz, these are the five most intriguing ideas he heard from the event’s 18 speakers:

1) To create technology that truly enriches people’s lives, you have to ask users what they need and immerse yourself in their challenges. Then think: What can you make that would be most useful for them? Tony Salvador has spent 20 years as an ethnographer at Intel doing exactly that. As he shared in the talk, “The Importance of Listening,” you can’t bring preconceived ideas into the process or you’ll only “hear what [you] want to hear.”

2) Employees living outside the U.S. negotiate an important but delicate balancing act between Intel’s open — but U.S.-centric — culture and the local cultural norms. Makiko Eda, who leads marketing and branding for Asia Pacific, gave the talk “The Corporation as an Agent of Cultural Fusion,” explaining that the balancing act practiced by people on the ground is vital to connecting the global company to local cultures.

3) “A little bit of insurrection” is necessary to keep new ideas alive inside corporations. In Peter Biddle’s “straight-shooting” talk, called “Plucky Rebels: Being Agile in an Un-agile Place,” he gave these pithy tips:

• Make an attractive corpse: Projects get cancelled and plans change, but with an agile approach, your team will have built something and will have tangibles that at worst could go on a resume. “Worked for 2 years on 3-year project that got cancelled” is useless.
• Keep it secret—until you have something real to show: In a large company, lots of people will want to “help” you, but “don’t be afraid to go dark until you have something to show.” Then show it—don’t rely on PowerPoint.
• Find some users and make them happy: Anybody can create hockey-stick earnings charts, but “if you have people that are happy with what you’ve done, you’ve got superpower.” (See idea #1 again!)

4) Parents should act as shepherds to the online world, not gatekeepers. In the talk “Are You ‘Technically’ Fit to be a Parent?” McAfee CTO  and father Michael Fey shared how parents should negotiate the scary world of their children and the internet. He says that if you learn the ins and outs of the online community, “you can learn how to mitigate risk and prevent harm, and you can use technology to better connect with your child.”

5) If you tap into your community you will find “a fountain of creative and courageous people.” As Schulz wrote on Intel’s internal blog, “I came looking for ideas, but it was the people that left the greatest mark.”