Priceonomics

To understand why Silicon Valley keeps pumping out new companies and technologies, we suggest starting with a number of experiments run by Stanford psychologists in the sixties and seventies involving children and promises of marshmallows. Because the way that toddlers struggle to resist the temptation of a tasty treat, and the conclusions researchers drew from it, provides insight into what motivates individuals to work hard, the roots of global poverty, and Silicon Valley's secret sauce. 

The original marshmallow experiment sought to understand how children develop the ability to delay gratification. To do so, the researchers brought children into a room one by one and tempted them with a five year old’s equivalent of Odysseus’s sirens: a marshmallow. The researcher told the children that they could have the marshmallow now. But if they waited 15 minutes without eating the marshmallow until the adult returned, they would earn a second. 

This was not easy for the preschoolers. They fidgeted, covered their eyes to avoid seeing the treat, and, in several cases, simply ate the marshmallow immediately. One third of the kids persevered and earned themselves a second marshmallow. 

The Stanford professors found the prospect of studying psychology with a bag of marshmallows equally alluring and published several follow-up studies. One published almost 2 decades later found that the children who delayed gratification in the marshmallow experiment scored higher in a number of assessments such as the SAT and questionnaires filled out by parents describing their child’s academic success and ability to focus and delay gratification. After discussing how psychologists believe that the ability to delay gratification reflects cognitive processes that are important for professional and personal success, the research team cautiously concluded that “the qualities that underlie effective self-imposed delay in preschool may be crucial ingredients of an expanded construct of ‘intelligent social behavior’ that encompasses social as well as intellectual knowledge, coping, and problem-solving competencies.”

The marshmallow test became an important part of psychology canon. But a study in 2012 suggests that the children in the experiment did not necessarily differ in their ability to resist temptation. Instead, it was their trust in the researcher to return with the promised marshmallow that differed. 

In the modified experiment, researchers at the University of Rochester first gave children crayons and stickers. But they promised to return with an even better set of stickers and crayons in a few minutes if the children held off playing with the toys until the researcher returned. After the wait, one group received the promised art supplies, while the other were told that a mistake had been made and that the promised goodies could not be found.  

When the researchers then presented the children with the marshmallow test, they found that the children’s ability to resist was influenced by some shrewd thinking:

Children who experienced unreliable interactions with an experimenter waited for a mean time of three minutes and two seconds on the subsequent marshmallow task, while youngsters who experienced reliable interactions held out for 12 minutes and two seconds. Only one of the 14 children in the unreliable group waited the full 15 minutes, compared to nine children in the reliable condition.

While the original marshmallow experiment concluded that the children's ability to wait for a second treat indicated an innate ability to exhibit self control, the Rochester study indicated that the ability to resist temptation was more of a rational decision based on the expected probability of receiving the reward. The idea that the positive attributes measured indirectly by the marshmallow study are related to expectations of trust and reliability is given some additional (although not extremely clear) support by correlations in previous marshmallow studies that children with absent fathers did poorer on the test. A 2013 study modified for adults similarly suggests that people’s decision to delay gratification depends on the perceived reliability of the person offering the reward.

In the marshmallow experiments, psychologists saw innate abilities of self-control behind individuals’ ability to work hard and succeed. They failed to account for how individuals’ beliefs about the likelihood of their self-control and hard work paying off influenced them. The same can be said of economists and others who have sought to explain why countries are poor.

Muckraking through old accounts of Western scholars, businessmen, and expats easily turns up examples of people describing why now prosperous societies are forever doomed to be an economic backwater due to their poor work ethic and cultures that focus on the present and never on the future. Here is one example from a work by developmental economist Ha-Joon Chang, ably summarized by the blog Trading 8s:

Having toured lots of factories in a developing country, an Australian management consultant told the government officials who had invited him: “My impression as to your cheap labor was soon disillusioned when I saw your people at work. No doubt they are lowly paid, but the return is equally so; to see your men at work made me feel that you are a very satisfied easygoing race who reckon time is no object. When I spoke to some managers they informed me that it was impossible to change the habits of national heritage.”

This Australian consultant was understandably worried that the workers of the country he was visiting did not have the right work ethic. In fact, he was being quite polite. He could have been blunt and just called them lazy. No wonder the country was poor — not dirt poor, but with an income level that was less than a quarter of Australia’s.

The country in question…was Japan in 1915. It doesn’t feel quite right that someone from Australia (a nation known today for its ability to have a good time) could call the Japanese lazy. But this is how most westerners saw Japan a century ago.

In his 1903 book, Evolution of the Japanese, the American missionary Sidney Gulick observed that many Japanese “give an impression…of being lazy and utterly indifferent to the passage of time.” Gulick was no casual observer. He lived in Japan for 25 years (1888-1913), fully mastered the Japanese language, and taught in Japanese university. After his return to the US, he was known for his campaign for racial equality on behalf of Asian Americans. Nevertheless, he saw ample confirmation of the cultural stereotype of the Japanese as an “easy-going” and “emotional” people who possessed qualities like “lightness of heart, freedom from all anxiety for the future, living chiefly for the present.”

Today, in the context of brisk economic growth in South Korea and China, Americans fear the “culture” of Asians’ willingness to study long hours in the race for educational opportunities and professional advancement. But when South Korea and China were mired in poverty, Westerners described their people as hopelessly lazy, with a culture that did not value industriousness and taking initiative. 

As time has shown, however, this is not an innate inevitability but a reflection of economic realities. All these “lazy” people were perfectly willing to work hard, study long hours, and plan for the future, but only when opportunities existed and they trusted that hard work would pay off. This lesson, that people work hard when they are confident that it will pay off, is simple. But it is one that is often eclipsed behind perceptions of culture, innate ability, or other explanations. 

This is the theory proposed by high-flying economist Daron Acemoglu and his colleagues. In their work, they suggest that the most important factor behind a country’s or an area’s wealth is whether its institutions incentivize people to work hard. Jared Diamond summarizes their view:

Among the good economic institutions that motivate people to become productive are the protection of their private property rights, predictable enforcement of their contracts, opportunities to invest and retain control of their money, control of inflation, and open exchange of currency. For instance, people are motivated to work hard if they have opportunities to invest their earnings profitably, but not if they have few such opportunities or if their earnings or profits are likely to be confiscated.

There is no incentive to start a new company in Russia if the oligarchs who own the competition can imprison you or shut down your business via a corrupt judicial system. There is no incentive to plant more crops or improve your farm if a wealthy and well-connected person can confiscate your land. Acemoglu suggests a simple point: people will work hard, but only if they expect to benefit from it. That expectation is widely absent (and often rightly so) in impoverished circumstances.

In Silicon Valley, that expectation may be as strong as it is anywhere in the world. People who are members of or related to the technology and startup world see constant evidence of how hard work pays off. A talented colleague’s work results in seed funding or a lucrative acquisition. Someone with an unrelated college degree learns to code and lands a great programming job. 

Silicon Valley facilitates innovation through angel investors and venture capital, research universities like UC Berkeley and Stanford, and the positive externalities of working in the locus of entrepreneurship and technology companies. And many credit the area’s “culture of failure,” in which failure is celebrated for the risk taken and experience gained, as encouraging entrepreneurship. But it is the constant affirmation of industriousness that makes everyone dream up new projects and sacrifice the time and effort to try and make them real. 

When the Silicon Valley programmer goes through the equivalent of the marshmallow test - a situation where he or she decides whether to delay gratification and work hard - he or she recalls the researcher returning time and again with a plush job, big bonus, or a successful IPO. When people from less prosperous circumstances go through the equivalent of the marshmallow test, they remember being fired for reasons outside their control. 

This is also why Americans' pessimism and distrust is of such concern. Every patriotic immigrant story and feel good ode to American identity points to the American Dream: the belief that hard work will be rewarded with a good life. But confidence in the media, government, and financial system are all decreasing (something represented quantitatively in the “Trust in Institutions” barometer) and social mobility is falling. A major premise of Occupy Wall Street was that the rules of capitalism seemed rigged in one group’s favor and President Obama’s “fair shot” speeches during the election played off the idea that people no longer believed in an America “where hard work paid off, and responsibility was rewarded, and anyone could make it if they tried.”

That is dangerous because, as we’ve seen, people decide whether to work hard, take initiative, and invest for the future based on whether they trust that it will be rewarded.

Life isn’t fair. But it helps if people believe it is.

This post was written by Alex Mayyasi. Follow him on Twitter here or Google Plus. To get occasional notifications when we write blog posts, sign up for our email list.


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