Why Do People Do What They Do?

I just finished reading Misbehaving, written by one of the pioneers of behavioral economics, Richard Thaler.

The book contains many great stories about how people and markets behave in the strangest ways. Like,

  • People will gamble more, even if the stakes are higher, just for a chance to break even.
  • People will take money out of their own pocket if they could just punish someone for being unfair.
  • If people don’t think it’s their place, they will let disaster happen rather than speak up. (see another great book, The Checklist Manifesto.)

In the book’s conclusion, drawn from his 40 years of experience, Thaler points out 3 critical lessons that can be used by businesses that wants to improve performance:

  1. Observe– see what customers and employees do in different situations…look for patterns.
  2. Collect data– document results / track records in order to learn and predict outcomes…conduct experiments to get better at predicting.
  3. Speak up– disasters can be avoided, or opportunities captured if people feel the freedom to speak up.

The EOS ProcessTM strongly incorporates these principals of performance.

Observation and data collection are the bedrock of holding the leadership team, and others, accountable. Specifically, these manifest in the form of the Scorecard and its ability to help predict future outcomes.

Speaking up is an absolute must in a company running on the EOS ProcessTM.  Open and honest is a core tenet of the system.  At Level 10 MeetingsTM up and down the organization, any individual is empowered to speak up, that is, raise issues to be discussed and solved.

Behavioral economics is used in business and society to influence and predict behavior and thereby results.  Leadership teams would be well served to understand the basic principles of why people act.  Using behavioral science should then be leveraged in the system and processes used in all aspects of the business – sales, marketing, finance and operations.