Free Kisses!

No, this is not an offer, it’s an example. Of people behaving in a way that is contrary to how you might think they would normally behave. It’s also an example of people behaving predictably – because you likely reacted favorably to one or both of the words in the headline. And that is why you’re reading this right now. (Patience… there is a link to an article if you’d like to read about the free Kisses story.)

Question: Do people act rationally? I have been reading a book called Misbehaving: The making of behavioral economics, by Richard Thaler. This book covers one of my favorite subjects – why people do what they do. I am fascinated with this topic because people can seem predictable at times (still thinking about those free kisses?) and completely unpredictable at other times. While most of my other posts have focused on specific business topics (i.e. my previous blog on business analytics for small businesses), this post looks into the motivations and actions of people in general.

What is behavioral economics?

Behavioral economics is the idea of applying psychological insights to explain economic decision making. When you think of economics, the first thing that might come to mind is the idea of supply and demand. Supply and demand have an inverse relationship – as supply increases demand decreases and vice versa. This is concept is pretty intuitive. If there’s more of something the demand will go down because there’s plenty to go around. When the supply is low, the demand (and prices) tend to go up.

Traditional economics assumes that individuals will make the best decision based on all the economic information they have. Behavioral economics, on the other hand, tries to balance this out with the fact that we are all human. We make LOTS of decisions every day, and we certainly can’t be expected to calculate every economic factor each time. Sometimes we make decisions out of habit. Sometimes we make decisions “just because.” And sometimes there are free kisses involved.

Did someone say free kisses?

Here is the article I promised you that highlights five examples of situations when people made decisions that defied logic and economics.

There are some great lessons to think about in these examples. How can you change the way you do business to take into account the fact that your stakeholders (employees, clients, shareholders, communities, etc.) might not always make the rational decision?

While it would be great if we could use logic and economics to predict exactly how people will make decisions, it’s just not realistic. You are for more likely to be successful by using analytics to predict behavior.

And if all else fails, offer free kisses. (Stop by my office. I’ll have a bowl of them on my desk and we can chat about behavioral economics and why people do what they do.)