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Paul Zak is the founding director of the Center for Neuroeconomics Studies and professor of economics, psychology and management at Claremont Graduate University.  Dr. Zak has degrees in mathematics and[…]

A conversation with the Claremont Graduate University economics professor.

Question: What is the role of oxytocin in the brain?

Paul Zak:  So six years ago, we discovered this ancient molecule in our brains that’s been associated with childbirth and care for offspring was also facilitating trust in a stranger in a tangible way.  So we used, what I call a Jerry McGuire approach to research: “Show me the money.”  So if you trust somebody, we’ll put a stack of money on the table and say, hey look, you can send this money to somebody else and if you do it will grow, and then they can keep it all or they can send some back to you.  So this is a task that encapsulates how we trust people outside the laboratory.  And the question was: "Why would you ever trust a stranger with your resources?"  And indeed, we trust strangers with our lives all the time; the planes we fly, the meals we eat.  Who was doing all these things that put our lives at risk.  How can we do that? 

So we found that when someone trusts you, your brain releases oxytocin, this tiny, little, faint and fleeting signature of safety, of care.  And when it does that, the person with higher oxytocin reciprocates.  So when we’re shown trust, our brains motivate us to be trustworthy.  So it’s a beautiful kind of system. 

Question: How can someone increase oxytocin?

Paul Zak: We have found is that there are simple ways to induce the brain to release oxytocin.  For example, we showed recently that when you watch a highly emotional movie, your brain releases oxytocin.  We went to a wedding recently and took blood from the bride and groom and the wedding party.  And weddings, these rituals induce oxytocin release in a pattern you would expect.  Who releases the most oxytocin at a wedding?  The bride, of course.  Who’s next after her?  Who loves this ceremony almost as much as the bride?  Her mother; it’s got to be. 

So, there are patterns.  There are environments that we’ve created that can induce oxytocin release and this bonds us together as a group and as a species.  So there are simple ways to do this.  The simplest is through touch.  So we’ve found that 15 minutes of back massage in the clinical setting will induce oxytocin release and cause people to be much more generous to strangers, subsequently emotional movies, even simple things like making eye contact and hugging are probably enough to activate the system.  And the way it works is, the more you release oxytocin the more your brain is triggered to release it.  That is, you lower the threshold for oxytocin release. 

So if you want to connect to people, if you want to understand what they are feeling and thinking, then you need to engage this oxytocin system.  And that goes from in romantic relationships to friendships to people I work with.  We found very recently, in fact, that those who release more oxytocin when they’re trusted are happier, they report greater satisfaction with life, they have better romantic relationships, they have more friendships, and they have more sex.  All that sounds like a pretty good situation to me.  So by training your brain to release oxytocin through your behaviors, you can actually improve your life.

Question: Is there a link between trust and poverty?

Paul Zak:  So the kind of key issue that drove me into neuroeconomics was something I found in the late 1990’s, that trust at the level of a country was the big gun to explain why countries are rich or poor.  So economists have for 50 years or more, looked for the factors that cause a country to grow and become prosperous or those factors are missing and countries are mired in poverty.  And trust really was this huge factor.  High-trust countries are by and large rich countries, or certainly fast-growing countries, and poor countries are countries with low trust.  And the variation of this data is substantial. 

So the last data I saw, 2% of Brazilians said they trust each other, whereas in the United States around 45% of Americans said they trust each other and two-thirds of Norwegians trust each other. 

So we characterized why trust would be higher or lower across different environments.  And the payoff to raising trust, which can be done through public policy, is substantial in terms of improving people’s lives. 

Countries in which trust is high have effective governments, they have very tight social structures, people interact very nicely with each other, they don’t have a lot of divisions, and there’s a positive feedback loop.  They have higher incomes which further accentuates greater growth.  So trust is this kind of great summary measure of a society in which things are working well.  And lack of trust therefore is a measure of how things do not work well in society. 

Question: What does this mean for a nation’s potential?

Paul Zak:  So there’s kind of an upside and a downside to this cross-country trust where one is that we find that there is a threshold level of trust in other people below which you get very little growth at all.  And that threshold depends on the environment of that country being in.  But if trust is too low, it’s just too hard to engage in transactions.  There’s too many, what economists call, transaction costs.  I need lawyers and judges and the cops to enforce all of these agreements.  And so therefore, the number of people I interact with economically gets very small.  I am only going to interact with my family or my clan or someone who is really trusted because I can’t count on the government to enforce these contracts.  That limits the size of the market and therefore the number of transactions that can occur that increase prosperity. 

So for the developing countries, this is particularly critical that you need to have solid institutions that will facilitate economic transactions.  So trust, for example in China is quite high.  China has a very effective government; even though it is authoritarian, it's market oriented. And other work I’ve done we’ve shown that with sufficient growth, all authoritarian governments eventually become democracies.  So personally, I’m less concerned with China as an authoritarian system—although I think the human rights abuses are horrendous.  That will resolve itself as economic growth proceeds, because it moves power away from the center and towards the individual.  And when individuals have economic power, they can press a government to be better. 

And so I think that’s the way to make progress in developing countries.  In other developing countries, largely in sub-Saharan Africa and some in South America, you see trust levels that are so low that you see no or little economic growth. And so in some of these countries, Haiti comes to mind, Venezuela, you have such corrupt governments that there’s no reason to even undertake transactions.  You do what you need to eat and then most of the money flows out of that country into the United States or into the West, where the money is safer.  So that’s a huge problem and I think the way to solve that is not necessarily internally; it may require international focus on improving institutions in these countries.  So the World Bank has a program that has done some work in this area, but it’s awfully hard to move a country that has very poor institutions into one that’s got very good institutions absent something catastrophic.
Question: Is there another option?

Paul Zak:  The alternative approach is to start from the ground up.  So if things like microfinance and micro-entrepreneurship are a way to take economic power and bring it back to the individuals even at the lowest levels; weaving cloth, making pottery.  And the way to do this now I think is through the Internet, where you can have collectives that sell to someplace that gets this to a larger market and that allows small farmers, small weavers, these individuals to actually earn a living that doesn’t depend or even outside of a purview of a corrupt government.  And as they do that they build this ground swell of support of better institutions because they have enough capacity to do that. 

So if your belly is empty, you’re worried more about getting enough calories onboard than about whether your government is inflating the currency.  But once you actually have some economic base, then there can be a role for ground level change in governments.  And I think this is one reason why the United States had these brilliant framers, but the decentralized power and so there’s a constant feedback between keeping power from centralizing in the United States and allowing it to disperse, which creates better government. 
Question: Can neuroeconomics work for individual businesses?

Paul Zak:  There are direct applications for organizational leaders on how you design an environment in which you can be both profitable, productive and have very fulfilled employees.  So one way to do that is to lead by fear.  So if you’re business is about exploiting individuals, taking advantage of people, making the biggest profits possible, this is the kind of "greed is good" model, then you kind of just want to whip people into doing things that are not fun, not interesting, it’s a nine to five job. 

If instead, the oxytocin research is correct, that individual normally connect with each other, that’s our motive being as social creatures as human beings, and it means that if business is about service to others then business itself is a virtue – you are engaging in a virtuous activity by serving the needs of somebody else.  When you do that, when you serve the needs of your employees, of your customers, you will induce oxytocin release and they will want to reciprocate.  So can you say, “Customer loyalty?”   This is how you do it. 

Okay, so if you can induce this oxytocin rich environment, if you can create this environment, then you have a way to drive productivity and drive individual satisfaction for being part of this organization.  We have a purpose, we are here to serve others and we see this as some endeavor that we do together.  When do it together we feel good about ourselves and about the people that we’re helping. So what this means is that in the old model, "greed is good," the measurement technique is: lead with fear.  In the model, empower individuals to be the best they can be in an organization with purpose, you’re going to lead with love.  So if you lead with love then you have this oxytocin environment that will motivate people going beyond, exceeding expectations and leading to delighting the customer, delighting the people around me.  And delight is what we really want from a customer experience. 

Question: Can this relate to employees too?

Paul Zak:  So one of the key findings we just discovered, just in the last two years, is that oxytocin relates, facilitates release of other chemicals in the brain, including chemicals that are associated with reinforcement learning and reward.  So it literally feels good to do good.  And I think that was the missing piece of the conscious capitalism equation... Which is, "gee I think I should do this, I think I have a good reason to be compassionate towards those around me and be a good steward with the resources I have.  But I’m really working against human nature."  And I think the science we’ve done shows that’s not the case.  That this is, in fact, very compelling.  People want to work for Whole Foods or The Container Store or Southwest, because they enjoy it.  They get pleasure out of doing good for other people.  And by doing good for other people, you attract people to you, that is customers, and when you have those customers you can do more good.  So there is a positive feedback loop. 

Now the downside is also true.  If I’m doing my job poorly, if I am not serving the needs of my clients, then they’re going to be unhappy.  They will leave and tell other people.  That puts more stress on the organization and stress inhibits oxytocin release.  So now we’re kind of in a downward spiral
Question: How can a company reverse a downward spiral?

Paul Zak: If you want to change that direction, there is a kind of recipe from the science that we’ve done on how to do that.  And the first thing you want to do is have a change in a whole outlook.  You’ve got to refocus on what you’re mission is.  What is your purpose?  Once you do that, you have to recognize individuals who are contributing substantially to that purpose.  And again, that could be, and is often... it’s the janitor who sweeps the shop floors who does this every day perfectly and doesn’t make a mess.  That’s so important.  Right?  You know, if you walk into a restaurant or retail store and there’s gunk on the carpet or floors, you just feel like the job's not being done right.  So everybody from the janitor to the CEO has got to be focused on, number one priority, make this an experience for our client, for our customer that is outstanding, that is delightful, that is wonderful. 

And if we do that, what happens is, that customer smiles.  They’re happy, they give us feedback.  And then in this larger brain system facilitated by oxytocin, we want to do it again; we’re reinforced to say, “Oh, this is how it really works.  This is how we get good business.  This is how we sustain ourselves.” 

So the first way is this subtle change.  The more radical approach is change from the top down.  Kick out the CEO and senior staff and just start over.  And that has worked in a number of places.  That is something that is much more costly because you’ve got to reform the culture, fire a lot of people, and so I think there are small ways that you can start and for this, ground up.  For empowering individuals to actually have this purpose and make a change.

Recorded October 27, 2010
Interviewed by John Cookson