Predictably Irrational

Original from 4/3/2010: Gestão 2.0

There’s a branch of research known as “Behavioral Economics,” a strand a little different from traditional Economics. While the latter assumes a world with rational people who make decisions based on cost-benefit analyses, the former takes into account social, cognitive, and emotional factors that influence our day-to-day decisions.

We believe that every day we make rational decisions, but the truth is that most of the time we make guesses, we decide based on emotion, and this brings very interesting results. One of the most famous researchers is Prof. Dan Ariely, author of the book “Predictably Irrational.”

In that book he analyzes topics about how we see prices, why prices aren’t based on “supply and demand,” why we’re dishonest, how the Placebo effect works. We’re talking about years of empirical experience.

Watch this excerpt I subtitled from his TED talk on the subject:

Why is this relevant? Because we deal with people every day. We make decisions influenced by people or, worse, that will affect other people. We sleep with our consciences clear because we think we made the best rational decision based on the data we had available.

But what if our decisions aren’t as rational as we think? What if we’re easily influenced by data and circumstances? Better yet: what if being aware of this fact helps us understand our limitations and helps us make really better decisions?

That’s why it’s worth understanding our own psychology. Especially someone in a management position needs to try to understand people, because the job itself means “managing people.”

We are irrational, predictably irrational. Use this in your favor.