Behavior Matters!

Harnessing the power of behavioral science to improve how organizations, leaders, and people work

Tag: self help

Behavioral Economics and Change

brain - left and right

Rational vs Emotional

For the past 20 years, I have been exploring how people change their behavior.  This exploration has led me down many different paths and lines of inquiry.  One of the most fascinating areas of research that I’ve investigated surrounds the now hot topic of behavioral economics.

I often describe behavioral economics as the “fusion of psychology and economics in order to gain a better understanding of human behavior and decision making.”

So what do we find out when we fuse psychology and economics together?

“Humans often act in very irrational ways.”

Now that is not ground breaking news for most of us.  Even when I graduated with an economics degree, I knew that people didn’t always act in rational ways – or at least I didn’t  (otherwise why would I stay up watching bad T.V. until 2:30 AM when I knew I had to get up by 7:00 AM for a meeting or why would I spend a hundred dollars on a dinner out but fret over buying a steak that was over $10 at the grocery store?).

However, for many economists, that statement was hearsay.  Many economic models are based on the fact that people act in rational ways to maximize their own utility (i.e.,  happiness).  These theories stated that we might make irrational choices in the short-term, or when we don’t have enough information, or that at least your irrational behavior would be vastly different than mine so that on average, we would be rational.

The truth discovered by behavioral economics is that is not often the case.  We don’t act rationally – in fact, we sometimes act exactly opposite of how an economist would think we should act.

For example, research has shown that we will judge the value of an unknown item using totally irrelevant data to help us in that decision.  Dan Ariely ran a wonderful study where he asked people to bid on a wireless keyboard (something that they were not very familiar with at the time), but before they answered, they had to write down the last two digits of their social security number (a totally irrelevant piece of data).   The results of the bid were fascinating (top 20% being SSN that ended in 80 or above, the bottom 20% being SSN that ended in 20 or below):

Anchoring results

This is a significant difference in how much they bid – entirely based on the last two digits of the SSN.

Here’s another one.

Would you work harder for a set amount (say $10) or for an uncertain amount (say 50% chance of $10 or 50% chance of $5)?  Most rational people would say that they would work harder for the guaranteed payout of $10…that isn’t the case.

In a study that looked at drinking a large amount of water in two minutes – some people were offered a $2 fixed amount for finishing it – the other group was told they would earn either $1 or $2 (random chance of either).  So what was the result?

Behavioral Econ Uncertainty

43% completion rate for the certain award versus 70% completion rate for the variable?  Not what you would think right?

Note – that this doesn’t apply to people choosing to participate – existing research suggests that we prefer certainty over uncertainty when deciding if we should opt-in for a goal.  However, uncertainty is more powerful in boosting motivation en-route to a goal.

So what does any of this have to do with change?

We so often want to drive change in ourselves or our organizations and think through the process of this – in a rational and systematic manner.  I’ve worked with companies who are baffled that they don’t see a long-term increase in employee productivity and satisfaction after they increase their wage (Hedonic Treadmill Effect).  I know people who have mapped out their exercise routine for the next day, only to hit the snooze button instead of getting up and going for their morning run (Hyperbolic Discounting).

Too often we try to implement a change program based on a belief that we are rational beings.

Behavioral economics highlights that this just isn’t the case.

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Change is hard (4 ways I defeated my own change process)

Change is hard

Change is hard

For the past two years, in addition to my regular day job, I’ve been researching what it takes for people to make meaningful and purposeful change.

It has been fascinating.

I’ve talked with a number of people about their change journeys.  I’ve read countless books and journal articles on change.  I’ve been introduced to a number of new insights from neuroscience, motivational theory, behavioral economics and habit formation that, when brought together, can have a huge impact on how people can effectively change.   I have identified what I think are six major components that help drive successful change.

I’ve lived this, breathed it, and dreamed it…

And yet…

I’ve not been able to keep my own change habits going.

At the beginning of the year I had set out to write five pages a week on change (not quite a New Years resolution, but very close).  I thought that would be a manageable goal and one that would allow me have enough material for a book on change by the end of the year.

Five pages a week isn’t even a page a day – how hard could that be?

Well it was hard.  Very hard.

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Play “The Lotto Game” – what would you do with your life if you won?

I am too much of an analytic to play the Lotto much.  The odds are just not there for me to spend my money on.  I might as well take my dollar and throw it out the car window – at least that way, somebody might find it and get some use out of it.

However, while I don’t play much – on occasion I do.

It is on these occasions that I make it a rule to play a game that I call “The Lotto Game.”  It involves spending time dreaming about what I would do with the money if I won.  Would I go out and buy a bunch of things?  Would I take a trip around the world?  Give it away to charity?

I can spend hours visualizing what I would do with my millions.  This way I feel that I am getting something for my money – the entertainment value of the dreaming.

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