Sarcasm has become part of normal everyday conversation with my house mates. Apart from being bloody funny, a new study has shown that sarcasm actually shows intelligence and creativity! It also shows a level of trust between the person asking the stupid-ass question and the person giving the sarcastic answer. The reason why sarcasm has an effect on creativity levels is because it activates abstract thinking.
Sarcasm is usually used to express negative emotions...
And so is thought to increase conflict between people in an organisation (Tip: Don't give your boss a sarcastic answer), however, sarcasm in a more personal and trusting setting boosts creativity without conflict. So if I give you a sarcastic answer it makes us friends :) It is essentially a very British way of expressing any kind of approval of someone, by openly being sarcastic about them.
All forms of sarcasm have been shown to exercise the brain more than a direct message, by increasing the brain activity of people who were exposed to sarcasm. This is thought to happen because sarcasm involves conveying a message by saying the opposite of what you mean (usually in a sarcastic tone). So both saying something sarcastic as well as understanding sarcasm shows you can recognise and understand separate ideas to mean one thing.
A lot of research suggests that abstract thinking produces greater creativity. So how does sarcasm increase both?
Because sarcasm is a contradiction between what you mean and what you say, it is a source of psychological distance, in which we traverse by the use of abstract thinking (obviously). Let me explain it a bit more…
We can only experience what we are doing at this exact moment, at this exact time (so for me I am trying to understand psychology while watching TV; not recommended). We cannot experience being other people, being in a different reality or the past or future, we only experience the present. However our minds are constantly filled with plans for the future, memories and predictions about other people and other realities (the old what if…) which affect our choices and how we feel. How do we plan for the future or take other people's opinions into account? 
Well, Construal Level Theory says we do this by forming abstract mental pictures of these distant objects (distant meaning away from you, which is at the centre of this theory. You literally are the centre of the world that you perceive). Predictions, memories and speculations are all things you construct in your mind, they are not what you are directly experiencing . They go beyond your immediate situation and are psychologically distant objects. (Hopefully, that makes sense.)
Psychological distance is subjective. You are the centre point (the reference point for the world) and how far away something is from the here and now is a psychological distance. Something can be removed from the centre point in different ways, like time, social distance and hypotheticality, and these are different distance dimensions. Crossing these distances involves the use of abstract thinking .
So sarcasm is a source of psychological distance as it is taking 2 contradicting ideas and making them one idea. We have to cross psychological distances to understand sarcasm and use abstract thinking to do this. Using abstract thinking, in turn, boosts creativity.
Hence, sarcasm boosts creativity :) (Got there in the end).
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Now psychology is not my area of expertise, so if anyone who does psychology has a better explanation for this theory then please, please let me know!
1) Li Huang, Francesca Gino, Adam D. Galinsky, The highest form of intelligence: Sarcasm increases creativity for both expressers and recipients, Organizational Behavior and Human Decision Processes, Available online 17 July 2015, ISSN 0749-5978, http://dx.doi.org/10.1016/j.obhdp.2015.07.001.
Keywords: Sarcasm; Humor; Conflict; Trust; Creativity; Abstract thinking; Psychological distance
2) Yaacov Trope and Nira Liberman, Construal- Level Theory of Psychological Distance. Psychol Rev, 2010
3) Liberman N and Trope Y., Traversing psychological distance, Trends Cogn Sci, 2014.
I give full credit to the authors of all the papers that were referenced in this blog post. Please search the papers or click on the links to find the papers. I also give full credit to the authors of the pictures that I used. The links below the images go to the pages where I found the images. The images are not my own and if you know the authors please let me know so I can get in contact with them. I believe that all the information in this post is correct to my knowledge, however, if there is anything that is wrong please feel free to let me know so I can correct it.
Photo 1 credit: http://weheartit.com/entry/64027491/via/fernandacosta