Mike Lehr's Blog

The research behind behavioral economics is full of emotional solutions to everyday problems. By tapping into the emotional biases behind our decisions, we can expand the range of limited solutions offered by rational thought models. The exploring of emotional solutions has gone big time as the article, “Nudge Nudge, Think Think” explains in the March 24, 2012 edition of The Economist by focusing on the amount of investments governments are making in this area.

Said simply, “How we phrase things matter.” I’ve written how this can change the taste of food and even change the reactions to a bonus plan. As the article explains, nudging “shows it is possible to steer people towards better decisions by presenting choices in different ways.”

For example:

• People were three times more likely to pay an outstanding vehicular tax when the letter was simplified and included a picture of the automobile.
• Boys did better than girls did when a technical drawing class was called “geometry,” and girls did equally well or better when it was called “drawing.”
• People were more inclined to use less energy when their consumption was compared to their neighbors.

Not only does this help us solve problems, it also helps us avoid them by being aware of what we say so we don’t sabotage our well-intentioned plans. Choosing the right words for a personality can go a long way in helping us to effect the change we desire by tapping the right emotions.

For example, my wife won a bet at a party by talking a friend’s six-year-old daughter into selecting a vegetable over chocolate to eat. Understanding and appreciating the power behind words’ connotations helps us immensely here, and Roget’s Thesaurus is invaluable in our efforts.

Remember, people eat escargot not snails.

The article, “The Modern Matchmakers,” from the February 11, 2012 edition of The Economist contained two major business lessons that I’ve discussed earlier regarding the solving of people-related problems:

1. What people think they want isn’t necessarily what they will choose
2. When faced with too much choice, people have less energy to think about them

For example, the article cites the work of Eli Finkel of Northwestern University on speed-dating in which he found that “people’s stated preference at the beginning of the process do not match the characters of the individuals they actually like.” Furthermore, “that when faced with abundant choice, people pay less attention to characteristics that require thinking and conversation to evaluate . . . and more to matters physical.” In short, just as Sheena Iyengar of Columbia University and Mark Lepper of Stanford concluded that too much choice is demotivating,” Finkel found it can dull thinking processes.

As I had also done in an earlier post on online dating, we can translate these themes to our business efforts by asking three questions:

1. How much freedom does someone want?
2. What does someone really want; what will he really do or decide?
3. How much (and what kind of) thinking will someone require from a leader?

These further translate into more tactical questions for managers and executives such as:

1. How much flexibility or process must I give someone?
2. What differences do I see between what he wants and what he actually does?
3. What kind of decisions do I give her to make and what (or when) do I decide for her?

Complicating this further is the fact that the answers will vary for each employee, requiring deeper and more interpersonal skills from managers and leaders. Are your managers up for the challenge?

Previous post on online dating:  What the Failures of Online Dating Can Teach Us

We often don’t learn the value of listening techniques in building relationships. Consequently, people might not realize we are listening; this needs to occur to build relationships.

A pause is usually a short, silent break in an interaction of about ten seconds or less. However, it requires discipline to stay quiet, especially if you’re waiting for an answer or a reaction. Pauses give others thinking time, encourage others to talk and fill silence, and slow down a conversation to temper negative emotions.

We employ pauses by suggesting others take their time, asking for “a moment to think,” looking upward or to the side before responding, and incorporating thinking gestures such as:

• Connecting finger tips of both hands
• Hand to the chin
• A couple fingers over mouth
• Clasping hands

Some examples of pauses include:

• Silence before responding
• Asking, “Do you mind if I think about this a moment?”
• Allowing the listener time to think after asking a question

From a relational perspective, pauses convey the feeling that you are:

• Thoughtful, not thinking off the cuff
• Deliberate in decision making
• Not reciting some canned response or talk
• Patient in waiting for a response
• Not fearful of silence
• Willing to give others a quiet “space” to think

The effect of the pause is to encourage people to:

• Open up as they attempt to fill the quietness
• Cool down from heated remarks (good conflict management technique)
• Share more because you are giving thought to conversation

As simple as pauses seem, they are effective relationship buildings when integrated with other techniques.  They encourage a more casual and friendly conversation. By demonstrating that you’re thinking about what others say; you convey that you’re listening too.

Other posts in this series:

• Relationship Building Technique #1: Open-ended Questions
• Relationship Building Technique #2: Closed Questions

People periodically ask me, “Should I get a coach?” I chuckle because it’s akin to asking, “Should I get married?” Coaching as with marriage is great if you find a great person. However, it can be unrewarding, even harmful, if you don’t, especially if you’re already good at your profession.

If you’re considering a coach, I strongly recommend reading, “Personal Best”, by Atul Gawande which appeared in the October 3, 2011 issue of the The New Yorker. Gawande gives an excellent account of his decision-making process for securing a coach. More importantly, he made three points about coaching that standout from other coaching literature I’ve read:

1. “Good coaches know how to break down performance into its critical individual components.”
2. “Good coaches speak with credibility, make a personal connection, and focus little on themselves.”
3. “. . . bad coaching can make people worse [especially if they are already professionals]”

In many respects, it doesn’t matter what the coach’s credentials, experience, references or record of accomplishment are: if the coach and you do not connect on a personal level, your experience will be mediocre and possibly damaging. Yes, selecting a coach is a highly subjective affair.

Many coaches will transfer their failure to the client by saying, “I’m only as good as my client is.” Theoretically, this is true, but in reality, you can have two excellent coaches in a situation where one succeeds and the other fails. Coaching is not an objective science; it’s a subjective art. What works for one client might not work for another.

That means determining what you want in a coach. If credentials and experience are important, that’s great! If not, don’t fret. You’re in charge; it’s your coach . . . and your choice.

When I’ve written about the illusion of free will, I’ve focused on the advancement of technology and research methodologies to uncover subconscious thought patterns. However, these advancements are also discovering a connection between chemical reactions and some of our emotions.

In the September 24, 2011 issue of The Economist, the article, “Rogue Hormones,” reports on the research of John Coates, a  neuroscientist from Cambridge University. His research of derivative traders showed that when they “are on a winning streak their testosterone levels surge, sparking such euphoria that they underestimate risk.” This biochemical process produces extremely “powerful emotions” encouraging traders to “go crazy.”

This helps to explain why we often learn more from our failures than our successes and why success can deliver us to a state of hubris, an exalted arrogance that can corrupt our decision-making processes. Such biochemical processes help explain why such exuberance can infect many people to think and act similarly without communicating with each other while each is believing he is responding of his own free will. Thus, such events as financial bubbles and housing bubbles can occur on a broad scale.

A way to mitigate this effect is to diversify your workforce to include many types of personalities in decision-making positions. For instance, the article concluded that hiring women, who generally have about 10% as much testosterone as men, could help offset “irrational exuberance.” Experience can also help especially if it contains crises brought about by excessive risk taking. Moreover, even from strictly a gender perspective, not all men will experience the same increases in testosterone levels from success making them prone to erroneous risk assessments.

Of course, it’s not easy to manage a diverse workforce.

I decided to revisit the illusion of free will after running across two other articles reinforcing it. As technology and research methodologies advance, we are finding more and more that biological and psychological factors heavily influence us without our knowledge, further eroding the rational actor theory. This theory forms the basis of many decision-making models in business; however, it’s turning out we cannot expect people to behave rationally.

The article by David Eagleman, “The Brain on Trial,” appearing in the July/August 2011 of The Atlantic, discusses recent brain and genetic research. Whether you believe nature or nurture is the more impactive force in our development, the point is this: we control neither. If free will really existed, we wouldn’t need drugs to cure depression because threats would work. As Eagleman also indicates, free will has tremendous difficulty overcoming what our subconscious has already decided to do. We cannot divorce behavior from biology or the unconscious. At minimum, free will operates in an increasingly smaller field of play.

We are also learning that genes don’t just change at an evolutionary rate but at a generational one too. In the July 23, 2011 of The Economist, the article, Baby Blues, mentions, “a mother’s stress while she is pregnant can have a long-lasting effect on her children’s genes.”
Biology and genes form an integral part of our personalities. As I mentioned in my previous post, if we look at personalities as being analogous to software in computers, we can see where knowing the personality can help us predict behaviors in much the same way as knowing the software can help us predict what a computer will do.

What this means is that our decisions need to factor in a reality where people don’t behave rationally because they aren’t free to do so.

Related link: Illusion of Free Will

Designer labels encourage us not only to believe that the wearing has status but also trustworthiness, talent and many other positive attributes. In fact, the label is more important than the clothes themselves.

In the article, “I’ve Got You Labelled”, appearing in the April 2, 2011 edition of The Economist, Rob Nelissen and Marijn Meijers of Tilburg University in the Netherlands reached this conclusion from their research. While initially far-fetched, we find that a piece of art can fluctuate enormously in value depending upon whom people think painted it even though the art itself does not change. It’s also why people persistently knowingly buy knockoffs; they want the label.

One of the needs labels address is security. As we saw in my posts, Is Freedom for Everybody? and People Follow Leaders Not Facts, not all people are comfortable making their own decisions; they want others to make them for them. Status labels do exactly that; they help people determine what is good. The attributes of what makes clothing good such as the material, stitching, design, fabric, dyes, thread, etc., can make a qualitative determination daunting.

What is fascinating from Nelissen and Meijers research, is that this qualitative stamp not only influences our perceptions of the clothes but also the wearer. The qualitative effect is transferable, and it occurs on a subconscious level.

From an intuitive perspective, this means we can upgrade ourselves simply by wearing the right labels. This is what politicians do when they try to tie themselves closely to their country’s flag. This is what manufacturers do when they invest huge amounts in the packaging of their products. Presentation strongly influences our evaluation of content; plating affects our food’s taste. Thus, this principle holds true for the presentation of our ideas.

The notion of free will is a byproduct of our conscious, more specifically our ego. It treats emotions as a nuisance which it should control and the unconscious a fantasy which it should  ignore. Yet, these two are fundamental determinants of our personalities which make our choices quite predictable.

In the January 17, 2011 issue of The New Yorker, David Brooks writes in “Social Animal” that “A core finding of this work [cited in the article] is that we are not primarily the products of our conscious thinking.” In other words, we just think we are making choices.

Some people use choice as proof of free will; if we have a choice, we have free will. However, we program computers to make choices all the time. Under one set of criteria, they choose “A,” while under another it’s “B.” They can even make random choices: choosing “A” 65% of the time and “B” 35%. But, do they have free will?

Yes, they are just following coded programs, but we could be following our own program. It’s called personality and is heavily influenced by genetic code. When we understand a computer’s code, we can predict its choices. If it’s too complex, we won’t. The same is true for personality. If we understand it, we can make predictions about a person’s choices. If we don’t, we can’t.

David Brooks describes everyday events that appear choice-filled but are quite predictable. The key is to remember that we are observing a people who 1) believe they have free will and 2) don’t believe they’ve been programmed with a personality.

Related link: Illusion of Free Will Revisited

Emotions drive human decision-making, a key assumption behind the effectiveness of intuitive approaches. However, mainstream economic theory – as represented by neoclassical economics which most of us learned in college and business school – is rooted in the belief that humans arrive at decisions through a rational process incorporating logic and reason.

Recently though, the work of Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School on the momentum effect in financial markets challenges investors’ rationality. Their work reinforces a more contemporary theory, behavioral economics, which incorporates emotions’ in financial decisions.

As mentioned in the article, Why Newton Was Wrong, published in the January 8, 2011 edition of The Economist, the momentum effect says we can successfully invest in financial markets by looking at a stock’s recent performance. There is little need for fundamental analysis of the company to determine its intrinsic value. That is because stocks that went up in the recent twelve months are likely to continue to go up and vice versa.

The momentum effect challenges conventional wisdom, more specifically the efficient market hypothesis (EMH) which assumes investors are rational. It claims that investors can’t logically gain an advantage by looking at past performances; a stock that is going down is just as likely to go up as one that is already going up.

Emotionally, investors like winners. They believe rising stocks will continue upward. Consequently, they buy more. Their beliefs become reality because many investors do the same. Objective stock value is relatively immaterial compared to momentum. This helps to explain how economic bubbles (i.e. tech stocks, housing) form.

Appreciating the emotions behind investing, helps us realize that efficient markets are nothing more than rational mirages. The same holds true for virtually every human decision.

More detail on the momentum effect: Financial Times article and ABN-AMRO Report (pdf containing charts and graphs)

A colleague was concerned whether her advice was helping someone. Too many times, we focus on the advice rather than the process of giving advice. The real key to helping others is that you don’t have to be right. The best help is where you help others help themselves.

It’s a matter of encouraging, even challenging people to think along different lines, to look at problems from a different perspective. This develops their problem-solving skills and decision-making capabilities. In fact, good advice that doesn’t encourage people to think is worse than bad advice that does.

It’s similar to a math problem where we simply tell people the answer rather than showing them how to arrive at one. It’s similar to a job that we do for people rather than showing them how to do it. Thinking, not knowledge, is a source of true power.

Simply talking about a problem is helpful too. This along with good questions can go a long way toward triggering a brainstorming event within the individual. We don’t need a group of five, ten or a hundred to brainstorm. We can create a similar free association of ideas within a single person.

We also need to keep in mind that good advice is largely arbitrary. It’s conditional upon the person, time, situation and group. Since every event is unique, people need to tailor advice. They can only do this if they’ve learned how to think through problems, if they’ve learned how to solve problems and make decisions. They can’t do this if others have thought or made decisions for them.

If advisors only focus on giving advice, people will become dependent upon advisors and never grow.