Time flies, when you are working 100 hours per week (or so I heard from my younger self – but that is story for another time)! In 2016 I coauthored my first book and cofounded my first company – and never looked back (ok actually I did, but I noticed all these cool entrepreneurs never seem to do so on Linkedin, so sue me!).
Our book Decision Strategy received five stars in the most prestigious business paper in Denmark and went on to win global 5th place just shy of McKinsey, Bain and MITs books that year (and some ridiculous re-re-retelling of the business disaster in EAC – you will be forgiven for not remembering). It was the only time someone managed to not only structure your +200 biases into a comprehensible concept but also match them up against the right business tools – absolutely critical in a time flush with rebottled old concepts and no way of telling the difference (at least if you ask us, and we are certainly not biased…:)
I also left the comfort of corporate life that year. Boldly striking out on my own with many interested potential clients in our concept and exactly… zero signing up… OK I was a bit scared there for a month or so! But then Behavioural Strategy Group took on our first client with a growth strategy for an IT company. And a second. And a third. We combined megatrend analysis to avoid the availability bias group with a twist on Playing To Win strategy to minimize especially the confirmation bias group together with some deep dives and early warning systems to keep the overconfidence, emotional and loss aversion bias groups at bay. You never forget your first love!
It has been a blast despite the many ups and downs of entrepreneurship, but after a horrible 2020 I believe this year will be the best yet in terms of intriguing clients and challenging projects, so I can hardly wait to see the next 5 years. To celebrate the anniversary of our book and to give you all some exciting summer reading, I thought I would share the key learnings from the book one chapter every week for the next 10 weeks – stay tuned!
And if you cannot wait that long to learn the secret sauce behind our strategies, contact me at email@example.com or +45-23103206.
You lie, steal and cheat all the time. Well not you of course – just everybody you have ever met. Some more than others though. Or at least they are the ones who get caught:)
So bounded ethics is your tendency to act unethically, whenever there is a conflict between doing what is right – and what is right for you. It can be small things like taking a pencil from work, crossing a pedestrian street at red light or dressing up your story a bit. Try googling and taking the online test: “How unethical are you?” and share your results if you dare!
In fact most of this is small, but that is also the problem, because once you cross that line, you are entering a very slippery slope, where it is easy to lose your bearings and keep going a little further all the time – and before you know it, you have destroyed a +100 year old financial institution and created the largest financial crisis in almost a century just as a completely hypothetical example (or not – check out the case of Lehman Brothers).
Sometimes it is you hiring a board member from your trusted network or as a 40ish male Caucasian simply just preferring other 40ish male Caucasians for your team, because – well – they just seem very trustworthy and competent. And it is not to pick on 40ish male Caucasians – 20ish female Asians also trust 20ish female Asians the most. Nobody means any harm, but you need to find a debiased recruitment process.
Another interesting trick is to take page out of Amazons playbook with assigning a chair in every meeting to a customer – in this case assign it to the newspaper, you are most concerned about ending up on the frontpage of. But it can also be as easy as posting your values on a poster – in fact you do not even have to have any values written down – research shows that if you just refer to the values of the organization, then people will automatically behave better!
One of my favorite professors Dan Ariely is here to tell you the honest truth about dishonesty:
Now if you know someone, who knows someone, who might have some “issues”, they need to fix in this arena contact me a firstname.lastname@example.org or +45-23103206.
“It is useless to attempt to reason a man out of a thing that he was never reasoned into.”
Jonathan Swift, Author
Have you noticed how some days your ideas are just all approved by your manager and other times none of them? You probably put the same effort and approach into them, yet the result is different. The reason is simple. When people are happy they take a positive view on everything and vice versa!
This is a kink in your emotional bias – it basically works with somatic markers, where if you have encountered a similar situation before, then how you felt about it last time, will determine your response. If you had a good experience AND is having a good day, then this will further accelerate it.
This also works the other way with bad experiences and bad days of course. But it gets worse. A study of parole hearings in the US with three judges working through a bunch of cases in a day showed that the likelihood of parole was decent at the beginning of the day and then it immediately started dropping. Suddenly it would swing back up and then immediately started dropping again before taking one more dramatic increase and drop. What happened at those times of drastic improvement in the likelihood of parole? Lunch and afternoon snacks. That is it. Your life may be decided based on whether people remembered to bring their lunch pack. Because when people run out of energy they immediately return to the base choice – status quo – no parole.
In behavioral economics we call this lack of energy for ego depletion. And the effect is dramatic not just on your motivation for breaking status quo – it impairs your judgement. If you have not gotten a night of sleep it is the equivalent to a 15% reduction on IQ tests. That means that if you are smart, you become normal – and if you are normal you will now have trouble tying your shoes.
Even on an average day with good energy our emotions – and thus our decisions – can be hijacked, as you will experience in this short video clip:
Now I dare you to say that this does not touch you. And that is the point. Because anti smoking campaigns, where people are informed about how smoking ruins their life almost acts as motivators. But this works.
If you want to learn more about how to use behavioral economics to build and execute better business strategies, please contact me at email@example.com or +45-23103206.
“If there is a 50-50 chance that something will go wrong, then 9 times out of ten it will.”
Paul Harvey, Journalist
If someone approaches you with a bet of USD 100 at a flip of a coin – if you win you get 100 and if you lose you pay 100, then you are not going to take it. Whether it takes increasing your winning option to 150 or 250 depends on your specific risk appetite, but on average you need twice as much back as you have in risk. Twice!
Daniel Kahneman – the nobel price winner and author of Thinking Fast & Slow – calls this the most significant contribution of psychology to behavioural economics. The applications in all business, negotiations and not least stock trading cannot be overestimated – any place there is anything less than perfect information on both sides of a deal, there will be manipulation (consciously or not).
Here is Dan Ariely – one of the most popular authors and professors in behavioural economics – giving you some really sharp pointers and tricks on loss aversion:
If you enjoyed this you will love next time, where your own emotional bias will be tested if you dare… And if you have too much of an appetite, then contact me at firstname.lastname@example.org or +45-23103206.
I had the pleasure of my first live Linkedin interview on behavioural economics and why none – yes none – of your decisions are rational a few weeks ago with national Linkedin celebrity Giovanni Niese.
Giovanni managed to make me look both smart and funny most of the time, when speaking about the six main bias problems all humans face and the secret tricks to avoid them before disaster strikes, so sit back and enjoy (in Danish)!
I hope you had just half as much fun watching as Giovanni and I did making this video for you. If you want to learn more about how to avoid irrational business disasters, feel free to contact me at +45-23103206 or email@example.com.
“A very disturbing feature of overconfidence is that it often appears to be poorly associated with knowledge – that is, the more ignorant the individual, the more confident he or she might be.”
Robert Trivers, Sociobioligist
Duke University has been asking CFOs of large companies over a number of years to assess the return on Standard & Poor’s stock index over the coming year. Over time, the researchers collected 11,600 projections and thus had a good basis for assessing whether the CFOs were able to predict developments. Their conclusion was that CFOs of large companies have no idea about the development of the stock market a year ahead. In fact, the correlation between their estimates and price was in fact less than 0. This means that when they said, for example, that the shares would fall, the shares were more likely to rise. But the surprising thing was that CFOs were not aware that their forecasts were complete rubbish. This discrepancy between the CFOs self-perception and their real abilities is a good example of overconfidence.
Can overconfidence be a good thing? Well your tendency towards overconfidence damages your learning process and the quality of your decisions. Positive illusions and overconfidence lead to and escalate conflicts, reinforce arrogant and careless behavior, take undue credit for successes and blame others for failures, plan projects and set goals out of step with reality. Otherwise it is a great thing.
Here is a fun video with a very interesting hypothesis at the end about why you do all that:
Next up is Emotional bias – if you liked this, you will love that!
If you want to learn more about how to avoid this in your business, contact me at firstname.lastname@example.org.
“If you torture the data long enough, it will confess to anything.”
Ronald Coase, Professor in Economics at Chicago Business School
The power of your brain never ceases to amaze me.
You make snap decisions on very little real content and instead respond disproportionally to authoritativeness and approachability. You jump to superficial and quite stable conclusions such as when you have started to favor one prime minister candidate over another, no amount of evidence will change your opinion. This is the reason that televised political debates are pretty much a waste of time.
But how far can you actually take it? That was the question that spawned this hilarious video – watch it to the end for the big surprise:
Normally, you would hear something like: “dont try this at home – we are trained professionals”. Well firstly I guess this is why behavioural economics is the funniest profession and these vidoes are the upside of irrationality – and secondly why not give it a try at home? Let me know how it works out!
Next up is Overconfidence bias, where I have yet to find a great video, so feel free to hit me with ideas at email@example.com – stay tuned!
“I confine my exercise to sidestepping responsibility, jumping to conclusions, pushing my luck, flying off the handle, running up bills and stretching the truth.”
If a picture is worth a thousand words, then a video must be… well better. The upside of all this irrationality in your biases is that all researchers have been “forced” to make fun videos to illustrate their learnings. Now you have been through Dilberts guided safari tour through uncharted decision making territory and a ton of other exciting stuff, but let’s mix it up: You will get a hilarious video and a razor sharp quote the next six week to illustrate, why you – yes you – are irrational all the time!
We will go through all your six core bias groups of (the avid reader will notice how they perfectly conform to the quote above):
Availability bias – why you focus too narrowly
Confirmation bias – why you jump to conclusions
Overconfidence bias – why you overrate your own importance
Emotional bias – why you live by your feelings
Loss Aversion bias – why you hold on to things too long
Bounded Ethicality bias – why you lie all the time.
Lets kick it off with one my favorite videos and quotes about Availability bias:
“Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.”
Daniel Kahneman, Nobel Price Winner & author of Thinking Fast & Slow
Now almost no one gets this video, but of course you did, so pass it on to a friend to test them – after all it is good to laugh at yourself, but more fun to laugh at others… (sorry Danish irony may interrupt core messages here from time to time). Next week you will see, why you jump to conclusions all the time – stay tuned!
If you want to explore more or learn how to save you or your company from these every day mistakes, when you are making big decisions, please contact me at firstname.lastname@example.org or +45-23103206.
Behavioural Strategy Group was just featured in the Comatch newsletter to more than 1,000 strategically minded businesses with an article on our next practice strategy as an innovative project approach!
Originally planned for November last year we had a bit of over-the-holidays-corona confusion, but now it is there and of course you should not be cheated of the article so here is the link – enjoy reading: