

LONG BEACH, California – Swarthmore psychologist Barry Schwartz, author of the Paradox of Choice delivers the final presentation of TED 2009 on Saturday. He spoke previously at TED about the suffering and paralysis that having too much choice engenders.

Lately he and Swarthmore colleague Kenneth Sharpe have been examining wisdom, in particular "practical wisdom," which Schwartz says is in short supply these days. Wired.com spoke to Schwartz about wisdom, moral skill without moral will, and the Machiavellian motivations of Bernard Madoff.

Wired: You call practical wisdom the "master virtue." What is practical wisdom and why is it important?

Barry Schwartz: Very central to Aristotle was the notion that to do the right thing, and ultimately to be happy, required that you be a person with the right character – courage, honesty, perseverance, and so on....

The problem was that having these virtues wasn't enough, because, how courageous should you be and when should you be courageous? The circumstances we face from day to day are varied and multiple, so you can’t be formulaic about it. You need to use your judgment. And the virtue that is the judgment virtue is what he called "practical wisdom." It's knowing when and how to display the other virtues. It's knowing how to choose when two virtues conflict.

Wired: It sounds like you're talking about the ability to reason.

BS: Well it’s a particular kind of reason. Practical wisdom is what's called for in situations that have a moral dimension to them. There are dozens of decisions we make every day that call upon us to be wise in our interactions with other people.... They're usually too small for us to even appreciate that there's a moral dilemma to them. And that's the kind of thing we think wisdom applies to.

The way Ken and I talk about wisdom, it's composed of two different components.

One is what we call moral skill, which is the ability to figure out what's called for in a given situation. It's kind of analogous to what people call emotional intelligence –- the ability to read people, understand where they're coming from, what they're aspiring to. The second component is moral will, which is the desire to do the right thing. If you have lots of moral skill but not the will do to the right thing, then you're a [Bernard] Madoff because you use all of the moral skill to manipulate people to serve your ends. It's Machiavellian if it's de-coupled from the desire to do the right thing.



Wired: You've said in the past that we've lost practical wisdom. How and when did we lose it?

BS: I think it's a gradual process. We've lost it in part because we don't appreciate how important it is and what it takes to develop it.

It takes two things to develop wisdom.... You need to have autonomy, and you need to try things [and] see them fail and get feedback and slowly over time develop a kind of sensitivity to what each situation demands. If you put people in a situation where they are rigidly following rules, they will never have the opportunity to develop this judgment. Rules eliminate the need for judgment. And one of the things we have increasingly done in American society – partly I think because we're worried about somebody suing us – is we develop more and more rules and take individual discretion increasingly out of the hands of the people who actually provide the service [in a company or organization].

Wired: You say that rules are the enemy of moral skill. But many people are saying that the country's current financial meltdown was caused by an absence of rules and regulations.

BS: I think that's a correct assessment. What the Reagan/Bush free-market ideology has done is basically said take all the rules away, they hamstring people. The market will take care of producing efficient outcomes for everyone. And that was clearly an unmitigated disaster. So I'm not talking about getting rid of rules. I'm talking about getting rid of the idea that rules are enough.

People who work in financial services don’t have one shred of concern about the well-being of the people they serve. They're only interested in themselves. And why are they that way? Part of our argument is that when you incentivize everything, you de-moralize it, you take the moral dimensions out of it.

Arguably, in the olden days, bankers wanted to make money, but they also wanted to serve clients and communities. What that means was that there was a certain way to proceed if you were a banker to make sure that people were not taking on more debt than they could handle, that people were putting away enough money so that when they retired they would be able to pay their mortgage and buy food and clothing....

Nobody thinks that way anymore.

When you rely on incentives, you undermine virtues. Then when you discover that you actually need people who want to do the right thing, those people don't exist because you've crushed anyone's desire to do the right thing with all these incentives. And if you bring in a new set of people to replace them – virtuous, moral people who want to do the right thing – and they're subjected to the same set of incentives, they're going to become just like the people they replaced.

I'm not talking about getting rid of incentives; people have to make a living. But people need to understand that rules and incentives aren't enough.... The more rules and incentives you have, the less wisdom you will have. There needs to be room left on the one hand to nurture in people the desire to do the right thing and on the other hand to give them the tools so that they'll know what the right thing is. This incredible pressure to increase payoffs is an obstacle to doing the right thing. You will never be able to create a system of incentives that rewards people for doing the right thing. The system of incentives may start out that way, but very quickly clever people will find ways to ... game it.

The current system of incentives in the financial industry, which is responsible for so much of what has happened -– you know, huge bonuses

–- this was put in place 15 years ago as the solution

to the incentive problem. The incentive problem was, CEOs make this cushy salary and they don't give a shit what happens to the company, because they're getting paid. So how do we make them work hard to improve the productivity of the company? I have it! Let's give them a bonus! And when this got proposed it was like the scales were removed from people's eyes. I never thought of that! How brilliant can you be!

And, you know, for 20 minutes it worked. And then people found a way to make their company look like it was doing well in the short-run, then collect their bonus and be sitting on a beach someplace when everything caved in. The idea that the current system was the solution to a problem is lost on people. The idea that you can come up with another solution that somehow is going to be immune to being gamed is just hubris.

Wired: How do you nurture people to do the right thing?

BS: I think the first step toward achieving these things is appreciating that the tools we currently use are not sufficient.... The step after that is to identify and acknowledge the existence of moral exemplars – if you like, moral heroes – that the people you're training can aspire to emulate. And they don't have to be people who do extraordinary things. There are people who do small things that count as moral heroes. And then giving the people you're training the room both to improvise and to have room in their lives for wanting to do the right thing and not just the profitable thing.

Wired: We've just come out of an important presidential election, and everyone talks about feeling a change in the air since

Barack Obama was elected. Do you think there are signs that there might be a return to the kind of things you're talking about?

BS: Absolutely. The question is how does this get cashed in concretely. At the end of his inaugural address, Obama appealed to the

American people to show two things: one was hope, the other was virtue.

What an odd word to choose ... virtue.

He said in these troubled times, we’re fighting this war, and all we have left is our hope and our virtue and that will be enough for us to overcome. So he's appealing to us to be good people. Now you can't just exhort people to be good and they'll be good. You need to take some of the pressure off that gets in the way of people being good. So there's a lot of stuff that has to get done in order for virtue to actually get nurtured and for people to be willing to express it....

There's a very nice study that was done years ago where divinity students have to walk across the Harvard campus and give a sermon on the parable of the Good Samaritan. And as they're making this walk, they pass somebody lying on the street. Now one group of people is told, "You're late. Hurry up." The other group of people, there's no time pressure. So here they are, hurrying across the campus, rehearsing the speech they're about to make, and they essentially step on this poor person who needs help. And that's the kind of pressure I mean.

Everyone is capable of behaving badly under the right circumstances.

And the idea is to try to make it a little easier for people to do the right thing and remove some of the barriers.

Obama also said, about three weeks before the inauguration in a press conference, he said it's not enough to ask, Is it profitable? You have to ask, is it right? This is another idea that's foreign to people in the financial world. There are only two things that matter in the financial world – is it profitable and is it legal? Right has nothing to do with it. And he's saying right has something to do with it. Where does that come from? It certainly doesn't come from the last 20 years of American financial history or American politics. And I think he's exactly right. That is the question that people in every walk of life need to be asking. Is it right? And he may inspire people to ask that question and to live with the answer.

Wired.com reports from TED 2009: