Want to be Successful? Then Let's Understand Patterns of Human Behavior, Irrationality & Decision Making

The study of human behavior and decision-making is endlessly fascinating to me. As a businessman and executive, I am grateful to experts who spend their time unraveling the mysteries of the human mind. I am particularly drawn to studies on the effects of context, emotions, expectations, money, and power on decision-making.

These questions span the gamut how we act as consumers, as businesspeople, and as policy-makers. In particular, the emphasis in these studies tends to be on our systematically irrational behavior. Life in general is quite complex, so there are a number of factors at play in every decision-making environment, whether or not we recognize them. 

The exploration of those factors through careful research has revealed some fascinating and predictable results about the systematic ways in which we behave irrationally. Aside from being fascinating, these results can positively influence the way we live our lives.

By shining light on the general principles of mind that seem to dictate our decision-making and our behavior, we can reevaluate our own thought processes and those of the people around us. 

What’s Going On Under The Hood?

There are a few general principles from the social sciences that have significantly affected the way I think about people.

I will work through a few of them here. 

My hope is that some of these resonate with you, and possibly, make a positive difference to the way you live, do business, and think about decision-making.

Problem of Relativity

In behavioral economics, there are two titans who explored the Problem of Relativity in a simple study: Amos Tversky and Daniel Kahneman. They posed the following thought experiment: 

Suppose that you have two errands to run today. You need to purchase a pen and a suit. You go to an office supply store and find the pen that you were looking for. The pen costs $25. You decide to purchase it but then you remember that the same pen is on sale for $18 at another store about 15 minutes away. Would you take the 15-minute trip to save $7? Most people reasoned that they would take the trip.

Now, suppose that you move on to your second task. You find the perfect suit for $455 and you decide to purchase it. Then, a customer whispers in your ear that the same suit is on sale for only $448 at another store just 15-minutes away. Would you take the 15-minute trip to save $7? Most people reasoned that they would not take the trip. 

This should seem odd. $7 is $7, no question. However, the experiment elucidates that the value of a dollar amount can be perceived differently relative to the comparative reference point.

This general principle helps us understand upsells, for example. It is easy to understand why someone would be willing to add an extra $200 to a $5,000 catering bill when the same person would clip coupons to save 25 cents on a $1 can of evaporated milk.

The moral is that we should consider the value amounts objectively rather than relatively. A broader perspective on this could save us a lot of money in the long run.

Free Is the Best Price

I think we can all agree that few things are superior to free. Part of the reason seems to be that zero, or free, has deep ties to our emotions. We often overreact when we hear something is free, assuming that that must be the logical alternative.

Assume that you had to choose between two products. One product is free and the other isn’t. Studies show that people irrationally opt for the free one, even if it means greater expenses in the long-term.

Let’s say that you had to choose between two checking accounts. One is advertised as free with no monthly rates or minimums; the other is $5 per month but includes free travelers checks, online banking, and possible cash rewards. Most people will choose the free account. 

Zero, therefore, is not just a mere discount; it is a powerful decision-making factor. If you are in business, you may know this already. Zero can be used to draw in large crowds and guide decision-making toward long-term revenue.

It can also be a way to promote positive social norms. If healthcare providers want to decrease the incidence of disease and illness with preventative care and early-detection, they should make the tests critical to those goals, free. People will be far more likely to take advantage of them. In the long-term, this may save healthcare providers millions of dollars in medical costs.

Money Is Not the Best Motivator

Corporate loyalty is a slight oxymoron today. Most people move from job to job searching for better pay, better benefits, better amenities, and greater degrees of upward mobility. Loyalty to the company doesn’t play into the decision usually. Loyalty to select co-workers, however, still has great impact.

That is why companies should start thinking about employee retention in terms of social norms. The productivity of employees is largely dependent on their talents and their willingness to do the work. More and more, willingness and happiness are key considerations for employment. Salary alone does not motivate people to risk their lives, for example. 

Public servants who put themselves in harms way won’t cite their paychecks as strong motivators. It is the social norms of job satisfaction, professional pride, and duty that motivate them to potentially give up their lives and health.

The general principle to consider here is that we are not rational machines, but feeling entities. In fact, we very well may base many of life’s more important decisions on emotional intuition rather than pure reasoning.

To recognize this can help us reconsider the way we think about decision-making, institutions, and our lives.

Commitments Make Us Accountable

We all have temptations, vices, and habits that we want to undo or avoid. Some of us have alternatives that we’d rather replace those negative behaviors with. We will tell ourselves that we must change, but sometimes fall short. It may even seem like we have multiple personalities.

When we identify the negative behaviors, we tend to catalogue them in broad categories and then decide that the things in those categories will be eradicated from our lives by sheer willpower. Although this is a step in the right direction, it is irrational to assume that we can simply uproot negative behaviors by sheer willpower. We often need external incentives.

One way to help us keep from procrastinating when it comes to our self-improvement is with commitments. A commitment to other people means accountability. Yes, if your negative behaviors are emotionally charged enough that alone may not keep you from them. However, it can bolster your efforts. 

This general principle applies in other contexts too. Companies often use dictatorial measures to motivate their employees. This can be damaging in the long run. We all have some degree of self-control. It may wane sometimes but being forced to do things won’t fortify our self-control. 

Making a commitment, however, can. It demands personal accountability, which can increase self-control through forward thinking and external pressure on our willpower. 

The Fallacy of Ownership

Ownership, as a psychological experience, is quite strange. We can feel and believe that we own all sorts of things that we reasonably cannot own. For example, there is a sharp distinction between owning an iPhone and owning an idea. 

Peculiarly, we can feel that we own something before we even have it in our possession. Virtual ownership is a mainstay of marketing. The experience can be best described as wishful thinking. 

Imagine that you see a couple riding along the California coast in their BMW, or you receive a Patagonia catalog with hikers scaling up a mountainside. Your desire for that experience, that clothing, or some part in that activity, is virtual ownership. Marketing thrives on this almost irrational desire for the things other people have or seem to have. 

The general principle is that we often claim ownership of things that truly cannot be ours. Often, this can lead to bad decision-making, and in a number of contexts.

In politics, the apparent ownership of an ideology, and our stake in its survival, is fallacious, yet we see in-fighting and large-scale policy decisions that seem to hinge on that illusion. 

The moral is that we should put some distance between ourselves and objects of ownership. To whatever extent we can muster, we should seek to view all transactions involving things we truly cannot own, as transactions of pre-ownership.

You Can’t Keep Every Door Open

This is a big one. We often prefer to hold on to things that damage us for the fear that losing them would be a far greater damage. Doors are possibilities, and we need to learn how to close some of them. Some doors are bigger than others. The size has less to do with the potential outcomes and more to do with the difficulty of closing them.

Some doors might lead to a new career or a better job. Some doors are tied to dreams and hopes. Some doors lead to relationships with people. Wherever a door may lead, keeping them all open can be exhausting. It can deplete your time, energy, and sometimes, even your finances.

The general principle here is that we have an irrational compulsion to keep our options open. This doesn’t mean there is something irrational about keeping our options open, but not every option is worth preserving. We must learn when to close doors, despite the uncertainty.

Expectations Shape Our Perception

It is no surprise that our beliefs influence our thinking. The surprising thing is that our expectations influence our perception. We do not have to believe that something is the case, but rather we merely need to assume that something might be the case for it to infiltrate our perception of physical or imaginary events. 

Have you ever had the experience of receiving an alphabet soup of a text message and still being able to decipher what the person intended to write? That is an instance of expectation infiltrating reality. 

Have you ever had the experience of assuming what someone’s personality will be like based on their attire? That is an instance of expectation infiltrating reality.

Are you familiar with the concept of placebo effect? That’s an instance of expectation infiltrating reality.

This is unavoidable. The brain is not a blank slate and as you live more, your repository of experience, whether real or perceived, grows. So too then does your ability to expect outcomes, irrespective of their plausibility or accuracy.

This isn’t to say that our expectations are always wrong. It is to say that they aren’t always right. When expectations enter the realm of human activity, as in inter-personal interactions, they escalate to the level of biases. 

At that stage, it is critical that we acknowledge our personal biases and expectations so that we can safeguard against them when we make decisions.

The general principle is that our expectations can strongly influence our perception and attitudes toward real world events. 

The moral of the story is that we are not victims of those expectations. If we purposefully cultivate a healthy mindfulness about our own expectations and biases, we can assess them in the moment to determine whether they are applicable or inapplicable given present circumstances.

Morality with a Price Tag

Honesty is the best policy, or so they say.

From an evolutionary perspective, honesty is rewarded highly. Honesty is connected to acts of altruism, reciprocity, fairness, all cornerstones of human civilization. From a historical perspective, cultures the world over have edified norms to promote honesty, including punitive measures to punish those who betray it. 

When it comes to money, however, it seems that our perceptions of honesty can bend a little. When we find ourselves in situations that involve our financial benefit, we tend to see the world in terms compatible with our self-interest and less so with moral standards. This distortion can lead us to justify dishonest actions.

In a now classic experiment, students were asked to predict if people would cheat more for tokens that could later be converted for money than with cash. The students predicted that the rate of cheating would be the same, given that both the cash and the tokens represented money. 

Their predictions were entirely wrong.

The participants who dealt with tokens were far quicker to rationalize cheating with a token than with cash. Their blindness to this human weakness is ours too. 

Legal libraries are riddled with cases of corporate theft. People up and down the corporate ladder have committed also sorts of acts of dishonesty, cheating wherever possible, just to increase their wealth.

The general principle is that the more distanced we are from the cash itself, the more likely we are to commit acts of financial dishonesty.

Think about times when you or someone you know has stolen from the office, taken a glass from a bar, or maybe taken someone’s lunch. The point is that we can be dishonest without thinking ourselves so. 

It is difficult to say how exactly we can undercut this tendency. Hopefully being aware of our lax judgment when it comes to non-monetary objects will wake up our conscience’s somewhat.

Pawns of the Mind

There are two takeaways from the lessons of social science regarding human behavior and decision-making.

The first one is that we are pawns in a game of mind that goes one below the surface of our awareness. We like to think of ourselves as drivers, fully in control of our decisions, but the truth is that free will is an illusion. Our wills are not free nor are they unbounded. They are influenced by our emotions, relativity, social norms, context, expectations, and many other factors. These factors exert power over our decision-making every day.

The second is that we are not powerless against them. We must learn what our irrational tendencies are, learn about our biases, and learn about our weakness. That is the only way we can ward away their ill effects. 

It is through vigilance that we can overcome our inherent shortcomings. This attitude is critical for all people, but especially for those in positions of power. Their decisions have an incalculably far-reaching scope. 

If they do not heed the warnings of the social sciences, we may all be the worse for it.