Leadership and ManagementDecision Making

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1. The Influence of Relativity

   • Example: When given subscription options to The Economist, people chose the combo of print and online, not because it was the better deal, but because the pricing structure made it seem like a steal compared to the online-only price.
   • Action: Be cautious of how choices are framed. When making decisions, step back and ask yourself if the options are making you biased.

2. The Costs of Zero Cost

   • Example: When participants were given the choice between a free Hershey’s Kiss and a Lindt truffle at a small cost, the free option was overwhelmingly favored despite the lower quality of the product.
   • Action: Re-evaluate the true value of “free” offerings. Free might not always be as beneficial as a slightly more expensive but preferred option.

3. The Fallacy of Supply and Demand

   • Example: Ariely showed that initial price anchors (like the random digits of a social security number) could impact how much participants were willing to pay for items in auctions.
   • Action: Be aware of the anchoring effect. When pricing goods or evaluating costs, try to identify if unrelated figures are unfairly influencing your decisions.

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1. The IKEA Effect

   • Example: Ariely found that when individuals assembled furniture themselves, they valued it more highly than equivalent pre-assembled pieces.
   • Action: Engage in creation or assembly tasks to increase personal value and attachment, especially in tasks at work or projects at home.

2. The Not-Invented-Here Bias

   • Example: Companies often disregard external innovations because they didn’t originate internally, even if they offer substantial value.
   • Action: Be open to external ideas. Actively seek and integrate innovations regardless of their origin to improve processes and outcomes.

3. Combined Efforts and Rewards

   • Example: In experiments, smaller, immediate rewards sometimes led to greater task completion and satisfaction than larger, delayed rewards.
   • Action: Structure tasks and rewards in a way that provides immediate, smaller incentives to maintain motivation and progress.

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1. The Fudge Factor

   • Example: People tend to cheat just a little, enough to benefit, but not so much that it challenges their self-image as honest individuals.
   • Action: Create environments where small cheats are difficult to justify. Implement frequent but non-intrusive monitoring to remind individuals of honesty standards.

2. The Influence of Creativity

   • Example: Ariely’s research indicated that more creative individuals could justify dishonest behavior more easily, due to their ability to rationalize it.
   • Action: Encourage honesty by fostering transparency and openly discussing the temptation to rationalize unethical behavior. Create clear ethical guidelines.

3. Conflicts of Interest

   • Example: Participants tended to make biased decisions when they stood to gain from the outcomes, even unknowingly.
   • Action: Separate decision-making processes from those who stand to benefit personally. Establish protocols to ensure impartiality in evaluations and decisions.

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1. Awareness and Mindfulness

   • By understanding various cognitive biases and how they affect decision-making, individuals can become more aware of their irrational tendencies.
   • Action: Practice mindfulness in daily choices. When faced with a decision, consciously reflect on the potential biases at play.

2. Structuring Choices and Environments

   • Design choices in a way that leads to better outcomes by considering the impact of relativity, anchoring, and other psychological effects.
   • Action: For instance, when creating a workspace, incorporate elements that foster ownership (like the IKEA effect) and structure rewards to maintain motivation.

3. Implementing Ethical Standards

   • Develop a strong ethical foundation within organizations and personal life to mitigate the tendency towards dishonest behavior.
   • Action: Establish clear, consistent ethical guidelines and engage in regular discussions about the importance of honesty and integrity.

4. Leveraging Positive Irrationality

   • Utilize the understanding of irrational behavior to improve creativity and innovation in various settings.
   • Action: Encourage collaborative efforts, value small contributions, and provide immediate feedback and rewards to harness the positive aspects of irrationality.

Leadership and ManagementDecision Making