You have spent hours hunting for the right frock, shoes, bag and hat. You've been primped, plucked and spray tanned, waxed and blow dried. You have dieted, exercised and cleansed. You've been up since the early hours, battled traffic snarls and endless queues. And now here you are. Standing in the car park which has been claimed by heels rather than wheels, crammed in amongst sweaty strangers, sipping sour bubbles and nibbling soggy sandwiches. Ahhh, Melbourne Cup Day...proof irrefutable that we are not entirely rational beings.
In celebration of the famous Melbourne Cup, let's take a sneaky peek at the behavioural economics at play.
Overconfidence bias:
We can be too confident in our abilities which leads to risk taking.
"I've studied the form and of course I know more than the Bookies."
Illusion of control: We think we can control events that we can't.
"My horse always/never wins."
Actor-observer bias:
We attribute our own positive behaviour to our character, and the behaviour of others to the situation.
"When I get drunk it's the mix of wine and bubbles that did it; when you get drunk it's because you drank too much!" or "When I win it's because I am super talented in selecting winners; when you win it's luck."
Endowment effect:
Don't get too excited guys, endowment is about us overvaluing what we own.
"Sure I randomly drew that horse out of the hat, but it's mine and you can't have it."
Restraint bias:
We underestimate our ability to avoid temptation.
"It's ok, I'll only have a couple of drinks."
Remembering self:
Our memories of an experience rather than the experience itself is what persuades us.
I remember the fun of previous Cup days rather than the reality of sore feet, sun burn and expense.
Mental accounting:
Money is allocated to different 'mental' bank accounts.
I paid for my outfit out of a different 'mental account' than my power bill. Any money I win will be 'free' money to be used on fun stuff.
Focusing illusion:
Whatever we focus on has more importance at that moment than any other time.
"What, there's a race after the Cup??"
Clustering illusion:
We see patterns where none exist.
"The jockey is wearing my lucky colours."
Hindsight bias:
We knew it all along.
"I knew it was going to win! I just didn't get around to placing a bet."
Sunk cost fallacy:
Once resources have been invested, we find it hard to walk away.
"I better just finish this last drink. Can't let it go to waste" or "Of course I'll wear that fascinator again!"
Sounds like fun doesn't it? And one for the road,
Hedonic framing:
Separate, smaller gains over a stretch of time are more pleasurable than one large win of equal value, but smaller separate losses hurt more than a once off. In other words, the more times we are interrupted by good or bad news, the better/worse it is.
"This is the best day of my life!" or...
No. Don't worry. Your horse always wins. Have a good one.
PS Why not join like minded colleagues by signing up to the People Patterns mailing list? Every month you'll receive a short wrap-up of behavioural tips for business. Click here for the 20 second sign-up.
Image from http://www.rgbstock.com/images/horses/2
Fresh from a breakfast seminar with Tom O'Toole, I wanted to share some of his pearls of wisdom plus some behavioural insights.
Who is Tom O'Toole?
Tom O'Toole is known as the Beechworth Baker, a man who started a bakery in a country town in Victoria (population 3,500) which, over the past 28 years, he has grown into a multi-million dollar, multi-site business. He is now sought out by businesses across the globe to learn his recipe for success.
Business is very straightforward for Tom. It's all about staff and customers. As he says, 5% technology and 95% psychology and attitude.
Here are some of Tom's pearls;
Staff training: "What if we train them and they leave?" "What if you don't train them and they stay?!"
- Tom's first nugget was in response to small business owners who lament spending money on staff who then leave (loss aversion rears its head). Yes, it's a hassle if you invest in someone who then leaves, but you don't really have any other option. Instead, focus on creating an environment that they don't want to leave.
Staff empowerment: "If you wouldn't buy it, then don't sell it"
- Tom recalls being torn between anguish and pride whenever he sees goods disposed of for failing to meet the standards of the staff member in charge. Whilst he may have disagreed with their decision, Tom knows it was theirs alone to make. This is where too many owners and managers undermine their own policies when it comes to the marginal, subjective decisions. Overruling means undermining.
Customer focus: "You're not making 200 pies, you're making one pie 200 times"
- Tom used this when training a baker who was making 200 pies. Known as the "Drop in the bucket effect", it can be hard to focus on the outcome of our work when we are producing things repetitively and/or en masse. In this case, it was easy to see 200 pies but forget the 200 customers that would each have an individual experience of their pie.
Accountability: "Anytime I have a problem in my business, it's within my four walls"
- In other words, stop blaming external factors. Your competitor, the roadworks out the front, the weather...Known as "actor-observer bias", we tend to blame negative outcomes on things external to us whilst thinking positive outcomes are always down to us.
Pricing: "Quality and service will be remembered long after the price is forgotten"
Tom tapped into a few very powerful behavioural principles here.
- First, there's what is called the "hedonic treadmill". This means we overestimate the joy we will feel from a purchase (eating this pie will make me happy for weeks), because we adapt very quickly and move on. But the experience of service and atmosphere will be with us longer.
- Second, we have a "remembering" and "experiencing" self. This means we are persuaded by not only the experience but our memory of it,
- And finally, we self-herd. This means we follow decisions we've made previously so because the memory of a great quality pie and great service will outlive the memory of cost, we will be more likely to buy a pie in future.
Personal growth: "Everything you want is just outside you comfort zone"
- A believer in raising the bar and constant self-improvement, Tom challenges our "status-quo" bias where we tend to stay in our comfort zone.
Leadership: "When you are placed in charge, take charge"
- We can often be scared to assert ourselves as leaders because that can mean failure is on our head. This is classic "loss aversion" where the risk of losing is more persuasive than the benefits of succeeding, so acknowledge that's what is holding you back and try anyway.
Communication: "Everyone smiles in the same language"
- In talking about language gaps he has experienced here and overseas, Tom keeps it simple; See similarities rather than differences. We can all smile, and that's the greatest bonding device you can have. Behaviourally, Tom is using our tendency to seek patterns and commonality to overcome our tendency to demarcate.
A refreshingly authentic and animated presenter, Tom is the poster-child for smashing through lazy mediocrity by keeping it simple and getting it done. As he says, "you can starve to death reading a cookbook". Time to get cooking.
PS Why not join the People Patterns mailing list? Every month you'll receive a short wrap-up of top news from the behavioural sciences and other nuggets of goodness from me. Click here to sign-up.
Image from http://blogs.abc.net.au/victoria/2012/03/by-popular-demand-tom-otooles-inspiring-conversation.html
