QUOTES OF THE DAY
“The heart has its reasons which reason knows nothing of.” - Blaise Pascal
"Reason is, and ought only to be the slave of the passions" - David Hume
SUMMARY
At the heart of every successful product or marketing campaign is a behavioral secret! In fact, our ability to make logical and rational choices is closely linked to our ability to experience emotions.
Making decisions is also the most important job of any executive. Bad decisions can damage your business and compromise your personal well-being.
However, research shows that people are pretty bad at making decisions. This is because we have many irrational tendencies (called cognitive biases). Cognitive biases are like glasses that you don't realize you have on, they shape the way you see the world, but you're blind to the fact that they exist.
So, what are the most common biases in decision-making? What can you do to avoid them when making strategic choices in your business? And, how can you use people's irrational tendencies to design more emotionally engaging products that connect with people's hearts as well as their minds?
Understanding the secrets of human behavior can help you not only design more effective and emotionally appealing products through what's called "choice architecture", but also, and perhaps more importantly, help you make better decisions as you go through your own business journey (and life).
In this section of the course, we will learn about some of the most common (hidden) traps in decision-making. We will also discuss several businesses that were founded on behavioral economics principles.
REQUIRED READINGS
- (17 pages) Hammond, Keeney, Raiffa (2006). The Hidden Traps of Decision Making. Harvard Business Review [read here] [alternative link]
- (8 mins) How behavioral science can lower your energy bill [watch here]
OPTIONAL MATERIALS
- How Ikea tricks you into buying more stuff [read here]
- (20 mins) The Paradox of Choice by Barry Schwartz [watch here]
- (17:34mins) Optimism bias [watch here]
- (50 mins) How to Make Better Decisions [watch here]
- John, Norton, and Norris (2015). Making sTickK Stick: The Business of Behavioral Economics. Harvard Business Review
- The Psychology Restaurants Use to Manipulate You [read here]
- The shady economics of ‘buy one, get one free’ deals [read here]
- How to make choosing easier [watch here]
- Why we make bad decisions [watch here]
- How to make hard choices [watch here]
- Life lessons from an ad man [watch here]
- Why more free stuff makes us irrational [read here]
- The battle of future vs present self [watch here]
- TED: Predictably irrational (series of 11 talks) [watch here]
- Chris Anderson (2010). Free: How Today's Smartest Businesses Profit by Giving Something for Nothing [amazon.com]
- Cognitive Biases Cheat Sheet [read here] [download cheatsheet]
- NPR: Facts Aren't Enough: The Psychology Of False Beliefs [listen here]