The $60,000,000 Peanut
One of my favourite stories from Silicon Valley is how Elon Musk, Peter Thiel and their colleagues at PayPal managed to get so many people onto their platform so quickly. They had tried advertising online, and working alongside banks asking them to sign up as customers, and found that the return on their time and investment wasn’t very good.
They found it was more efficient just to hand out free money. For a while, everybody who joined PayPal was given $20 to spend on anything they wanted, the moment they connected their account to a credit card.
It worked phenomenally, and every day for a year they grew by 10%.
15 years later, in Lausanne in Switzerland, Samuel Bendahan, Christian Zehndera, François Pralongc, and John Antonakis designed a game to test how people reacted to having social and economic power.
Since the end of the Second World War, psychologists had been obsessed with trying to find out what had led Germany to Nazism, and how so many ordinary people could have been so callous and uncaring about systematised repression and murder.
They were fascinated by the idea that each of us, regardless of nationality or prior political inclination, had the potential to be a guard at Auschwitz. Some of the experiments they conducted are very well known — the Stanford Prison experiment and the Milgram experiment have even been turned into films.
The Swiss study is a little less popular.
The team in Lausanne wanted to find out about what difference having power makes to our decision-making. Looking through the literature there are plenty of people examining this, but the tests were all imaginary — that is, researchers would ask participants to imagine having power over a situation, and then ask them for their feedback and feelings. Bendahan and his team thought this wasn’t good enough.
They invented a game where individual ‘leaders’ could decide how some money was distributed between themselves and their ‘followers’. They tested people’s personalities, intelligence, honesty and conscientiousness. They controlled for social norms by polling people outside the experiment on which option would be best, and for individual selfishness by testing the students on their responses to prisoner’s dilemma games. There were three options ‘leaders’ could choose from — prosocial (where followers got more), default (with equal distribution of money) and antisocial (where the leader was given more).
What they found was startling.
In every case, increasing the power of ‘leaders’ over ‘followers’ would increase the level of antisocial decision-making by ‘leaders’. Give them more followers, or a bigger range of options for distributing the money, and they become more and more corrupt.
Even if you force them to look at social norms and the expectations of their peers (which they say they share before the test); even if you put them in the same room as the ‘followers’; even if they are normally conscientious and kind and agreeable; power corrupts people’s decision-making and makes them more selfish and antisocial.
Subsequent research has also found that power makes us use stereotypes more often, gives us more confidence in using single sources of information to make decisions, and stops us thinking about the details in our planning.
PayPal’s referral scheme cost Musk, Thiel & Co more than sixty million dollars — an amount Musk later described as “peanuts”.
It made them all billionaires, and now they are the vanguard of a new breed of captains of industry. They have been at the forefront of major political campaigns, funded and won high-profile legal cases (which are seen to have damaged freedom of speech and the American legal system), attempted to expand the frontiers of space exploration, and changed how we look at digital security— all at the same time as protecting and expanding their massive individual fortunes.
I started my Industry Research Project at Hyper Island (which you can have a look at here, if you have an hour free) looking for a little more understanding of how distributing power in organisations can change how we work, and to find out what impact it would have on productivity.
I’ve come out of it as a bit of a pessimist about the culture of Silicon Valley and the startup environment. We have inadvertently designed a system of capital distribution that massively focuses wealth and power in a couple of individuals.
When we are shown the stories of Thiel, Musk, Zuckerberg & Co., we see role models to emulate — great men pioneering new ways of doing business through sheer bloody-mindedness.
Across business and innovation magazines and the popular press we are treated to fawning interviews and are taught that their ways of doing business are a new gospel. Startup accelerators are teaching and rewarding new generations of single-minded pioneers that this individual brilliance is the key to generating huge sums of wealth and exponential growth for their products and services.
We miss that these ways of doing business corrupt us and damage our decision-making. They institutionally invest figures like CEOs and CTOs with extraordinary power over the lives of colleagues and users, blinding them to social norms (like the norm of paying tax) and cementing hierarchies which themselves reproduce this corrupted thinking.
We see stories like Musk’s and we envy that he can throw $60,000,000 at a new project and see it, in hindsight, as peanuts.
The reality is that 90% of startups fail. Because of the power invested in entrepreneurs, they don’t even learn from these failures — and when they succeed, they do so at enormous social cost.
Dominic White is a recent graduate of our MA Digital Management Programme and is now working at Fluxx in London. This article is a brief insight into his Industry Research Project where he explored ‘Democracy at Work in Century 21’. Illustrations by the inimitable Tash Willcocks.
Digital Management is a series of articles in which we focus on the cutting-edge topics explored by our Master’s students as part of their Industry Research Projects.
