Incentives play a powerful role in shaping behavior, as seen in the examples of Federal Express and Xerox.
Psychological denial distorts reality and can have significant consequences, emphasizing the importance of recognizing this bias.
Understanding psychological tendencies such as reciprocation, authority influence, and social proof is crucial for navigating decision-making processes and avoiding undesirable outcomes.
Deep dives
Underestimating the power of incentives
People often underestimate the power of incentives and their role in shaping behavior. For example, Federal Express struggled to efficiently move packages until they changed the way they paid their night shift workers, which improved operations. Similarly, in the case of Xerox, a commission arrangement favored the sales of an inferior machine over a better one. Understanding and recognizing the influence of incentives is crucial in both personal and business decision-making.
The impact of psychological denial
Psychological denial is a common tendency where individuals distort reality to make it more bearable. This cognitive bias can have significant consequences, such as the case of a mother who refused to accept the death of her son who disappeared while on duty in the military. This bias can also be observed in other situations where individuals refuse to acknowledge or accept uncomfortable truths. Being aware of this bias can help individuals make more informed and rational decisions.
The power of psychological tendencies and their combination
Various psychological tendencies such as reciprocation tendency, authority influence, and social proof can significantly impact human behavior. These tendencies can work individually or in combination to influence decisions and actions. For instance, the Milgram experiment demonstrated how obedience to authority and social proof led participants to deliver what they believed were harmful electric shocks. Understanding these psychological tendencies and their interplay can help individuals and organizations better navigate decision-making processes and avoid undesirable outcomes.
Psychological tendencies influencing decision making
Humans are influenced by various psychological tendencies that impact their decision making. These tendencies include the authority bias, which causes people to follow the lead of an authoritative figure, even if their actions may lead to negative outcomes. Another bias is the bias from deprival super reaction syndrome, where people overvalue what they are losing or almost getting, leading to irrational behavior. These biases were illustrated through examples like the New Coke debacle and the mungar dog's protective behavior. Recognizing and understanding these biases can help individuals make more informed decisions.
The interplay of psychology and economics for better decision making
The field of behavioral economics seeks to combine psychology and economics to gain insights into decision making. By considering psychological tendencies such as envy, liking distortion, and consistency and commitment, economists can develop a more comprehensive understanding of human behavior. Practical applications of this approach include implementing effective communication practices, using simulators for training, and applying decision trees. While these psychological tendencies are deeply ingrained, they can be harnessed and effectively managed for better decision outcomes. Integrating psychology into economics can lead to a more nuanced and accurate understanding of decision making processes.
