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Be rational about irrationality

Be Rational About Irrationality

by Scott Keller & Mary Meaney

Murray Gell-Mann, Nobel Prize-winning physicist and co-founder of the Santa Fe Institute, once said, “Think how hard physics would be if particles could think.” His sentiment captures the importance – and complexity – of dealing with the human side of leading organizations.

In our view, the challenge is even greater than this sentiment implies. It’s not just that the “particle” equivalents in organizations can think, it’s that they often do so seemingly irrationally.

The phenomenon of human irrationality illuminates why leading people is a challenge for even the smartest, hardest-working and well-intentioned leaders and why so many “textbook” recommendations miss the mark. Messages are sent but not heard, actions misunderstood and incentives create unintended consequences.

But luckily we can predict human irrationality in many areas, thanks to research by social scientists. Grasping this, savvy leaders can use irrationality to accelerate vs. derail their change efforts.

Motivate others through involvement

Consider Nobel Prize Winner and Princeton Professor Daniel Kahneman’s experiments involving a lottery with a twist. Half of the participants were assigned a lottery ticket randomly. The others received a blank piece of paper and wrote any number they wished on it. Before the winning number was drawn, researchers offered to buy back the tickets. The question they wanted to answer: How much more would they have to pay to those who wrote their own number than those who received one randomly.

The rational answer would be that there was no difference at all since a lottery is pure chance and every ticket, written or given, enjoys the same odds. What they found was that, regardless, of geography or demographics, they had to pay at least five times more to those who wrote their own number.

The lesson for leaders? If you want to increase the motivation for – and, therefore, the speed of – execution, it pays to involve others in creating the strategy, even when the answer may already be clear in your mind.

Engage through anchoring heuristics

There’s another experiment where soup cans are put on sale at a supermarket and, as a result, shoppers on average buy 3.3 cans. Yet, when the same sale includes a “limit 12 cans” sign, shoppers buy seven cans on average. Psychologists call this the “anchoring heuristic.”

In the first instance, shoppers “anchor” on however many cans they came to buy and adjust upward when they see the cans on sale. In the other, shoppers anchor on 12 and adjust downward.

When we ask leaders their cost reduction goal, we typically hear a percentage reduction from last year’s budget (the “anchor”). We rarely hear that no cost is considered a given (the “anchor” is zero). The difference in impact is both proven and profound, yet taking a zero-based approach to cost reduction is rarely practiced.

The predictability of irrationality

Further examples of predictable irrationality abound with important business implications. We cite many of these in our new book, Leading Organizations: Ten Timeless Truths, including the importance of fair process over fair outcome; the motivational benefits of focusing on strengths vs. deficits; and how leaders possess a self-serving bias that makes them believe changing behavior is everyone else’s problem but theirs.

The field of economics already has been transformed through behavioral economics that offers an improved understanding of how humans are predictably irrational. It’s high time the same transformation happens within the practice of leading organizations.