Your Customers, Employees, Managers and Stakeholders are all Irrational: Behavioral Economics

Cognitive Bias
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Jaap de Jonge
Editor, Netherlands

Your Customers, Employees, Managers and Stakeholders are all Irrational: Behavioral Economics

Most writers treat Cognitive Bias as a negative phenomenon that explains why humans (managers) are incapable of making rational decisions. In their view cognitive bias is frustrating rational decision-making.
Dan Ariely, Prof at Duke University, author of 'Predictably Irrational: The Hidden Forces That Shape Our Decisions', in last HBR is introducing another view and proposes to replace rational economics (based on the assumption that humans fundamentally make rational decisions and that the market's invisible hand serves as a trustworthy corrective to imbalance) by behavioral economics (based on the assumption that humans fundamentally make irrational decisions and are motivated by the invisible hand of unconscious cognitive biases).
In behavioral economics, customers, employees, managers and stakeholders are assumed emotional, myopic and easily confused and distracted. Experimenting with things such as bonus schedules, product pricing, consumer choices and employee behavior are crucial to predict behavior. Ariely warns that the BE process is time-consuming, delicate and may not always provide clear results apart from showing that our initial assumptions were wrong.

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