One of the more refreshing theories about why people behave the way they do comes out of the school of Behavioral Economics which rejects the idea that people behave according to rational models. Although the first principle of economics states that “people maximize utility” it is not difficult to point to decisions throughout our daily life that contradict that assertion. “Utility” understood in modern business economics is what people do to optimize outcomes consistent with the decisions they make. And yet, how often do we observe that is exactly what is not happening in our workplace?
What we observe (more often in others than in ourselves) are behaviors that are not consistent with stated decisions. Is this because people are irrational or is it possible behaviors are actually reasonable if understood from a different frame of reference?
To put it in Star Trek terms, just because Mr. Spock would cite perfectly logical and accurate, but dismal odds, why is it that Captain Kirk would go his own way and always seem to come out alright?
Rules of reason may serve as guideposts for our decisions, but may not suffice, for instance if:
- Our gut tells us the decision is not consistent with our moral code;
- Our survival instinct kicks in a “fight or flight” response.
- Our ego anticipates a potential blow.
- Our self control has run down and we need a short cut.
Captain Kirk knew the value of data but worked from a larger, more whole, perspective.
Although as leaders and managers we must be able to recognize, to the best of our ability, how our thought processes are shaped by underlying forces, we may not recognize or be only vaguely aware when our behavior is out of sync with our decisions because we have changed course without thinking!
However, if we let our “irrational” thought processes into the game; if we acknowledge we are more than the sum of our rational parts, we stand a chance of making tougher decisions in the face of the odds.
When we raise our awareness of how our rational thinking varies from our actual choice of behaviors, new avenues of growth open up to us. Once we begin to understand how we arrived at a thought or behavior, which may be perfectly rational if not logical, within a new frame; then we can check this insight against our goals and re-set our course of action, or our goals, based on that new information.
Perfectly reasonable, right? Behavioral economics theory explores many new frontiers in human psychology and theorists and practitioners are nowhere close to agreement on many aspects, but the debate is sprouting vigorous ideas that are expanding our understanding of human behavior.
Listen to a lively conversation on Here and Now (WHYY / NPR) between Richard Thaler from the University of Chicago who is one of the earliest thinkers to shape the theory and Dan Gilbert, professor of psychology at Harvard University who studies happiness.
[Thaler says Rational Economists throw common sense out the window when they create rational models of human behavior and then wonder why people misbehave.]
HBS Executive Education – Q & A
Utility Maximization and Experienced Utility
Daniel Kahneman and Richard H. Thaler
(Article from the Journal of Economic Perspectives)
Our Buggy Moral Code
Dan Ariely on TedTalks