Behavioral Economics for Better Decisions

Behavioral-EconomicsBehavior Economics for Better Decisions

BY OLIVIA WILLIS, ALL IN THE MIND, ABC RADIO NATIONAL, SEPTEMBER 24, 2015

Summary:

  • Humans misbehave! We’re irrational, indecisive and passionate, yet conventional economic theory assumes that we will always act logically (doesn’t take into account the “human factor”).
  • Behavioral economics (BE) simply; if you want to encourage someone to do something, make it easier for them. Figure out the barriers that stop them and remove them.
  • Foundation for BE is research from Amos Tversky and Daniel Kahneman. Key Findings: We use simple rules of thumb to make judgments and they lead us to making systematic errors.
  • We value the things we own (assets, previous experiences, and previous decisions) more than the things we don’t own (more assets, better decisions, better outcomes). This causes the status quo!
  • “We are recognizing that people are lazy and that they take the easy way. So make the easy way better” (Professor Richard Thaler, University of Chicago, Leader in BE).
  • Key to success is creating “nudges”: small features in the environment that attracts our attention and influences our behavior.
  • “Nudging” as a technique can be used to help people make better personal, professional, and business decisions.

Our Point of View:

  • We are all human!
  • Daily demands and pressures force us “out of survival” to rely on rules of thumb (intuition) to make decisions (big and small).
  • Intuition is based on the past (experiences, bias, successes, failures, etc.). Defaulting to intuition as a convenience (readily available) puts us unknowingly in harm’s way (systematic errors).
  • Acknowledging our overdependence on intuition takes courage because we value what we have (intuition) more than what we don’t have … finding/taking the time to make better decisions.
  • Over dependence on intuition puts individuals and their organizations at considerable risk.
  • All of us are looking for “quick and easy” (lazy ways) to improve our lives (personally, professionally, business).
  • Decision-making standards (mind-set, skill-set, tool-set) exist to provide “nudges” (quick, easy, lazy ways) to help individuals and organizations make systematically better business decisions.
  • By serving the “lazy in all of us”, forward thinking/acting leaders are putting behavioral economics (BE) to work with their teams to produce better economic
    (business) results!

pdfBehavioral Economics for Better Decisions

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