“Trying to design the perfect plan is the perfect recipe for disappointment.”
We are not perfect. We are, in fact, irrational creatures who often act against our own best interests. The Royal Swedish Academy of Sciences awarded a Nobel Prize in economics to Richard Thaler for his work in behavioral economics—or why we don’t make rational economic decisions. He identifies at least four ways we lock ourselves into poor decisions. These apply equally well to organizations.
Loss Aversion and Anchoring. We value something more highly if we already have it than if we were trying to acquire it. In other words, you would ask for more money when selling something you already own than you would willingly pay to buy the same thing. This is connected to loss aversion, which anchors us in the value we gave for something regardless of its current objective value.
These tendencies lead us to avoid or delay giving up on outdated or unworkable ideas or plans. We tend to hold onto what we are invested in and value it too highly, even in the face of evidence that it is no longer workable. We also tend to devalue new ideas when they conflict with those we already hold in our “emotional portfolio.”
We can offset this tendency by first recognizing that it is real and then finding and trusting outside advisors who can offer emotionally detached opinions regarding the decisions we face.
Doing Versus Planning. We naturally—and therefore sometimes irrationally—find it easier to do something that provides immediate gratification than to plan something that creates increased future worth. A classic example of this relates to individual savings for retirement. Switching a company retirement plan from “opt-in” to “opt-out” vastly increases the number of participants. This is because when asked to shift money from their paycheck to retirement savings, many won’t. But if you take this option off the table, the number of people saving for retirement goes up dramatically.
This manifests itself in decision-making by favoring work and effort that yield immediate results instead of doing things that will create long-term—and therefore hard to visualize—value. (Unfortunately, our government does this all the time.) The solution here is to have a long-term vision and then compare our daily decisions and effort to that vision. Things that move us closer to the vision are valuable, and things that don’t are less so.
Availability Heuristic. A heuristic is any approach to problem-solving. The availability heuristic states that people are inclined to make decisions based on how readily available information is to them. We tend to heavily weight our judgment on the most recent information or the simplest to recall.
Research shows that shoppers tend to favor stores as being lower priced across the board when they have recently seen advertisements offering a low price on just a few items. This also partially explains the tendency for fake or misleading news to become the “truth” simply because it is easy to repeat and what people most often or most recently heard.
To combat the availability heuristic, we must intentionally seek reliable sources of information and create ways to categorize and recall the most important points. When making a personal decision, we might create a list of pros and cons and then ask others to read the list to see if we left something off either side. When making management decisions, we must have robust processes for evaluating and vetting information and opportunities.
Status Quo Bias. Simply put, people don’t like to change. Most people are likely to stick with the status quo, even if there are big gains to be made from a change that involves just a small cost. Back to the retirement example: once people are automatically enrolled, most won’t bother to change. Once in the plan, they are more likely to stay put.
Our own experiences also tell us that we are more likely to be static than to change. This tendency can be shifted though. The more often we acknowledge the need to change, make the necessary changes, and value the results, the more likely we will seek to do it again. In other words, we can train ourselves to want to change because we enjoy the result.
Proverbs has much to say regarding these tendencies we call human nature. Without vision, people perish. In many counselors, there is wisdom. A fool returns to his folly. Man plans his future, but God directs his steps. And the list goes on.
Kimray has a compelling vision. We are learning to let go of things that do not work as well as they used to and embrace change as it comes. We are learning from others who have already traveled the path we are on, and we are listening to wise people who can give us objective counsel.
If we continue to help one another stay aware of our tendency to resist change and avoid risk, we will continue to move forward. If it is God’s will, we can reach that mountain peak and then go on to things we can’t even see from here.
That’s The Kimray Way.