A must read!!!! This is a primer for psychology and the foundational basis for Behavioral Economics. This well written story delves into the unique relationship between two brilliant psychologists, Amos Tversky and Danny Kahneman. But it is much more than that; it is a vehicle that allows us to consider some of their groundbreaking research.
As it relates to sales, we should consider implementing some of their findings in our quest to improve our client relationships.
Essentially, they were the first to show that man is not a rational economic animal, but rather a biased, non-statistical-being that makes poor judgements and is easily swayed.
For our purposes it is important to consider some of their key findings:
1. Best known as the fathers of PROSPECT THEORY. It is the understanding that people are biased. Human assessments of risk, particularly the skewed attitudes between gain versus loss, is emotional and statistically incorrect. Individuals look for certainty in gains and attempt to avoid losses, even if the odds are contrary to what they, rationally, should do. People have a stronger response to fear than to gain.
2. Our decisions can be altered by the mere FRAMING of the argument. Telling someone that they can have a positive outcome is less likely to have the same impact as telling them they can avoid a problem. How one frames the situation can have an incredible influence on the outcome.
Example: Assume there has been a fatal influenza outbreak on a population of 600 people.
A. Give the audience a choice between
1) Vaccine Y, which will have a 1/3 chance to save all 600 and 2/3 chance no one.
2) Vaccine X, which will guarantee 200 people will live. (People want sure thing, Most choose X)
B. Give the audience a choice between
1) Vaccine Y, which will have a 1/3 chance to save all 600 and a 2/3 chance no one.
2) Vaccine X, which will guarantee 400 people will die. (People don’t want to think of 400 dying. Most choose Y.)
3. Use ALGORITHMS in lieu of humans. Our judgement can't be trusted. Kahneman used this to identify good pilots for the Israeli Air Force. It removed the human subjective and biased inputs. The implications: come up with a process and use it. Don’t leave it to individuals who have the biases that will screw it up. Look for statistical causalities. This is the premise of MONEYBALL and current sports recruiting practices. We can most likely improve some of our sales results if we deal with the situations more programmatically.
4. The REFERENCE POINT that you start with will dictate much of your response. This is a key point when discussing negotiation techniques. For example, Bob and Sue are being told that tomorrow they will each have $3mm. But today, Bob has $1mm and Sue has $9mm. Will they both have the same reaction? (I suggest you avoid Sue for a while.)
5. Have someone check your work. I.E. TEAMS WORK. A third party that can give uncensored and objective comments can vastly improve the quality of one's work. Lewis sites an example from Delta Airline pilots in the 1970's who were making tons of mistakes. Delta was able to remove mistakes by eliminating the "Captain is King" mentality in the cockpit. This allowed the co-pilots to question the pilots actions and avoid potential accidents.
Please feel free to comment on any of these recommendations and suggest other sources that might be helpful.