Tag Archives: Behavioral economics

Connect Actions To Cost

 

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Costs are out of control because the use of time, resources, and supplies are not always directly linked to money.

I just worked on an improvement workshop where one of the targets was to reduce cost in after-clinic dictations.  Until we discovered the rate per line associated with dictations, providers did not consider there was a meter running.

I read Dan Ariely’s Predictably Irrational last year and never connected his chapter on stealing and cheating to how organizations easily spend out of control.  The attached 19 minute video goes into deeper detail about his findings (RSS readers will need to open post to view).  He found people would steal a coke from a fridge but not a dollar bill.  He saw people cheat more if their reward was a token to be exchanged for money instead of the group who was given money directly.  He asks if it is easier to steal a pencil or a dime from somebody’s desk. 

His findings were people steal or cheat more the farther away from actual money it seems.

I honestly do not think staff is intentionally stealing but this concept can be applied to organizations.  If there is not a direct connection between the use of something and the cost associated with it, then spending becomes rampant.  Make costs visual, talk about them in meetings, show where you are saving money.  In this tough economy, most staff would rather help save money than risk seeing them or their co-workers lose their job.

My 2009 Hansei: Scarcity inspires creativity and innovation.  How can I help harness that inspiration?

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Filed under Business, Reflection, Visual Communication, Visual Systems, Waste

Book Review: Predictably Irrational

The Hidden Forces That Shape Our Decisions
author: Dan Ariely
average rating: 3.78
book published: 2008
my rating: 3
read at: 04/08

I really enjoyed this book. This was my first dip into behavioral economics. Despite the boring-sounding subject matter, the author made it interesting and relevant.

The major parts that stood out to me were Relativity, Anchors, Jeckyll & Hyde (Hot & cool states), the true power of expectations, and our tendency to keep doors open despite the loss we get in doing so.

Interesting but not as revelatory were zero cost, social norms, procrastination, and honesty.

I think this book is important for understanding why we act or buy things. Product and service marketing people already understand this stuff and we need to be aware of what is going on. Dan Ariely provides great advice for knowing how to offset our natural irrational behaviors to ensure we make a logical choice instead.

This book has value to leaders. Leadership is about influence. Behavioral economics is about how we react to influence. Leaders can utilize some of the techniques in the book to positively affect the people around them.

I found the author went a bit long in some of the chapters. After I understood the basic concepts and grasped the initial experiments, I did not need the further detail that was provided.

There were hints of the writer’s political views in the book that I felt was a distraction. It wasn’t overbearing but the few times he brought it up, it stuck out like a sore thumb to me.

My review was posted at GoodReads.
 
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