Thinking about behavior and making decisions

Published in the San Diego Union-Tribune, November 6, 2017

Today is the potpourri column — spices, dried petals and wonderment at the world.

First into the bowl is Harvey Weinstein. I am not going to rant on his obvious wrongs, but what interests me is this, “Harvey, what were you thinking? Did you simply assume you would never be caught?” What fascinates me is that it took Harvey 30 years to reach the zenith of Hollywood and power and fame, and it took only eight days to go to the bottom of the mountain. Like, all the way down the mountain into a gigantic snowball.

What were you thinking on the way down? This syndrome also often plays out dramatically in politics, news and finance. No shortage here; operators are standing by for your call.

Next up, one of my favorite icons, Richard Thaler, who just won the Nobel prize for his work in behavioral economics. He is famous for a lot of things and is pals with one of my other favorite icons, Daniel Kahnemann. One of Thaler’s big ideas is the “nudge theory,” which explores the “design of choices” or in layman’s terms — can we lead a horse to the water that he should be drinking even though he is headed for the trough with the vodka which is bad for him and might well kill him. Getting to a good decision is not easy or obvious, because after all, who doesn’t like a martini?

I spend a lot of time consulting young entrepreneurs (anyone under 60 is young in my book) and one focus is to try to “make it impossible to say no.” In other words, can we design an offering in your company where it is so obviously beneficial to all parties that anyone semi-rational cannot turn it down? I owe this thinking to Thaler and to WD-40. I want zero friction in the decision process — what is commonly called a “no-brainer.” Trust me, getting to that solution is definitely a brainer.

Here is a real-life example. I belong to two clubs (I know the admissions committee made a mistake, but do not tell them). Christmas and the annual bonus round are approaching. Last year, I prevailed on one club (the other resisted) to simply make the members “opt out” of an increased gift amount rather than have them proactively choose a number. This is all Thaler, and some hard workers (at the golf club) will thank him, I am sure.

Here is another Thaler. In what order do they put the certain foods when you do a buffet? Duh — they put the salad and the vegetables at the front — your plate is empty, you put those on because they are first.

Now, hang with me here. The above is designed to encourage healthy choices, but it works well for the owner of the buffet because the most expensive stuff — the meat and the fish — are the last items. By then, your plate is pretty full, so you can’t put as much of that stuff on your plate. So when you go to an all-you-can-eat joint, if you want high economic return — start at the end of the line and work backwards. If you are watching your figure, don’t go to a buffet in the first place. Thaler writes extensively about “impulse control issues.” We all have them. And trust me, the owners never lose money on smorgasbords — even if you bulk up on the lobster. The law of large numbers works.

One of Thaler’s big nudges is on how we (don’t) save for retirement. Bottom line — we don’t make good choices. But a discussion of the effect of compound interest is for another time.

Another Thaler concept is the “winner’s curse” effect. In essence, in a common value auction, as the number of bidders increases, the likelihood that the winner of the auction will have overpaid is exponentially increased. In my world, that means be careful what you wish for, you may get it.

Finally, here is a challenge to my readers. The Stanford Institute for Economic Policy Research came out with a paper recently with the headline that says, “Big ideas are getting harder and harder to find.” That feels depressing — like a “Where’s Waldo” problem — so if you are inclined, feel free to send me your suggestions of where to look (truffles, anyone?)


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