So one thing I get from Dan’s videos is that more we see ourselves as rational, the more we could be operating in the irrational.

Why is experimenting difficult?

Risk tolerance is certainly a factor, but it’s more than a feeling; it’s a strategic value and a management practice with lots of reinforcing mechanisms. As such, more often than not, “now” is the enemy of “later”.

The processes, structures, values, and strategies that enabled success yesterday and today may be much less valuable or relevant for future successes.

Organizations struggle with experimentation because it inherently means doing things differently. For example, that could mean cannibalizing currently profitable revenue streams to develop new ones, or other equally scary and blasphemous things.

Openness to experiment is often challenged by a sentiment of “incremental change is best.” Whereas, I think that when you look at a few fabulously successful organizations, they are much more willing to risk resources on a portfolio of “experiments” (i.e., a mix of small, medium, and larger incremental and disruptive innovations).

Experimenting at the organizational level requires specific and enduring commitments to create flexible strategic, procedural, structural, and value systems. Naturally, this is incredibly challenging, which is why the majority struggle with it.

Ironically, the risk of being risk averse is even worse. Which is in itself, perhaps another thought provoking irrationality.

Dan Ariely is right; irrationality and/or emotion can be fundamental in good decision making and can build business advantage.

Too many organisations do not realise this and fail to include ‘corporate philosopy’ into their strategy development and planning. If ‘corporate philosophy’, i.e. the reason why the business exists (beyond the obvious financial reasons) and how it delights its customers, partners, employees, and other stakeholders consistently, is included in the analysis, it builds a more engaged business and brand where everyone understands where the business is going and why; and importantly, what and how each stakeholder has contributed to this. It provides a sound value system with desired behaviours that provides a solid foundation for decision making. It is also very cost effective and leads to better processes, products, and services for its target markets and hence is beneficial to its shareholders, too.

Balancing ‘corporate philosophy’ with the more traditional strategy facets of ‘operational excellence, product leadership, customer intimacy’ early in strategy reviews can be very powerful. However, it is much harder and requires much deeper thinking from the top of the organisation.

...Nothing really groundbreaking if you are a progressive leader, but how many of them really are out there? We tend to over-rationalize decision making to an extreme for the sake of reporting and Wall Street. This is why a lot of privately-owned companies tend to be happier, more creative places to work.

I’ve long dealt with irrationality in my medical specialty (psychiatry) and have been struck by the irrationality in the everyday practice of medicine, particularly focused on issues related to evidence-based practice. What’s equally striking is the same kind of irrationality affecting managerial decision making or the behavior of nurses. All parties involved want to improve but rarely is anyone willing to participate in a small experiment that includes adequate identification of the multitude of implicit assumptions that operate underneath the surface.

Watered waaay down: When ideas are presented carefully, projecting potential benefits and acknowledging potential risks, the decision makers can relax their brains enough to replace fear with rational consideration. Regardless of whether or not your idea is accepted, you will be respected for your insight.

I’m not convinced with Dan’s opening argument. Moving the ball doesn’t negate our intuition. If we are totally sensitised to the situation, our intuition will inform us of where the ball could be as it will pick up on data points, cellular, and energetic differences in that environment. The first example is about making direct links between how the ball felt to be kicked and where it landed. Intuition is much more than that. It picks up on ‘something.’ We can trust our intuitive power 100% that it will pick up on a ‘something.’ It is over time that we will learn to interpret those signals and gather more information to help make decisions.

But it is this feeling tone in decision making that isn’t rewarded in business as often as it should be. I agree with Dan that we should experiment more. Totally agree and hooray for that. But to discount our insightfulness and intuitive power at the mercy of a random injection is simply wrong. Look no further than the great content provided in all these lovely comments. Totally at random, they come from the world and all helpful if you read them.

Why don’t people experiment more? Because the results aren’t always known immediately. People want to wait to understand if an action has a positive or negative reaction.

In business, if you try something and know immediately the results—whether it works or doesn’t work—and could either expand upon it, halt it, or correct and adjust it, then individuals within companies would experiment more. Immediate feedback helps to increase confidence that if you fail, you won’t fail miserably and if you succeed you have a chance to succeed greatly. It comes back to immediate feedback. Understanding detailed results and real-time measurement increases experimentation and encourages risk taking; if only because of the irrational fear of failure and the rational perception of an opportunity to make immediate correction if you are offtrack.

It is obvious that we apply intuition and emotional factors that surpass the weight of reason when taking decisions, no matter how big or small. Just like the Trust game that Dan has mentioned, people everywhere use emotional values of trust and revenge even in business and such emotions quite often do trigger innovations as well. But if companies spend a little to develop some kind of a mechanism to map the level of an irrational- or emotion- driven component in decision making, they can actually trigger innovation and support the growth of business.

Ariely makes an interesting point with respect to irrationality; it definitely leads one to think twice about the paradigms shaping today’s way of doing business.

Rationality always presents the option to judge based on past experiences—it is a binary system where it is required to have good and bad things. Irrationality is based on current events putting aside the judgment, the good and the bad are gone in this perspective.

The Re-evolution in business is pointing to the strength of soft skills, those that support the understanding that we, as a company or business, are only one team where everyone contributes to the get the best results, in favor of everyone.

The meaning of team will shift into a more integral concept that considers the administration of competencies done by the team itself in a clear action of diversification within and outside the team, with only one aim: the success of the team.

That is really irrational today, where the rationalism dictates the need to predict all the possible paths to get efficiently and effectively to our goals.

In the last decades, the trend has been to get well-educated, technically competent employees to act under the processes established to succeed. Today the trend continues to the step of empowering them to avoid the bureaucracy of trying to keep everything under control, and move into a more adaptable and lighter business model to keep at a good pace versus the customer/market.

Never has a crowd been taken as intelligent and smart to lead for changes, but it has always been judged by rationality, what will the irrationality tell about it?

Interesting examples, but Dan Ariely doesn’t really explain why. Try reading Dr. Antonio Damasio’s books on how emotions are created in our brain. This is really helpful in (change) management.

In the old days when there were two suns in the sky we called this a state of “believing your own bulls*#t. “Reality checks” hit entrepreneurs much harder than performance-motivated employees because personal needs often conflict with the integrity of a proposition.

Dan talks about reality at workplace. Irrationality is a perception of the victim. Dan should have thrown more light on ‘predictable irrationality.’ Many a times, the boss does not want to be perceived as being predictable. This may lead to ‘followers.’

“It’s a little bit like Ulysses and the siren. You remember the story: Ulysses tied himself to the mast, put [beeswax] in his ear to make sure that when temptation comes he would not be able to be tempted.”

He needs to get his facts right if he going to cite a legend. Ulysses had himself tied to the mast so he could hear the singing of the Sirens. Ulysses made his crew put the bees-wax in their ears so when called for them to go the Sirens they did not hear him, carried on rowing and saved the ship.

Just becuse a decision is irrational it doesn’t mean it was not reasoned. There is method in the madness, and as a species we have thrived for thousands of years in spite of the irrationality of our decisions.

CEOs in particular seem to do more than fine regardless of the alledged irrationality of their decisions. This will carry on for as long as there is redunduncy/slack in the system (e.g. company, market, economy) and they do not have to bear the full costs of their poor decisions.

Once, say, fast-food restaurant customers eating fatty menu choices get high cholestrol, high blood pressure, diabetes, etcetera, they tend to improve the ‘rationality’ of their choices :-)

It is an interesting article—irrationality in business has a wide area of influence and we are only at the beginning of exploring it.

Our emotions have a great impact on us and they are the subject of marketing. If people would only be guided rationally, let’s say, by technical specifications and price, then why would they buy luxury cars (or even middle segment)?

We buy them because the brand means something to us, and it is not only about rational ‘better quality,’ especially in times when more and more goods are being produced in the same factories in Asia. We buy those brands because we feel a certain emotional (irrational) attachment to them.

Irrationality (emotion) has a great impact on people and branding is a way to channel (guide) that into a desired direction.

Why don’t companies experiment more? I’d suggest that it’s related to the fact that no executive is explicitly incentivised to experiment. The sub-text being that an “experiment” is an acknowledgement of uncertainty; and uncertainty is often perceived as synonomous with indecision. Can’t imagine many execs enthusiastically embracing either, “I’m uncertain” or, by extension “I’m indecisive.”

I appreciated the examples provided. Especially the one about trust. Trust really works positively in many teams. And is in fact an enabler and key element of many decision-making processes.

The interviewer should have pressed more, asking about irrationality examples linked to emotions and intuition—about anger, about conflict, and about caring in the workplace.

I am convinced that irrationality in decision processes is also linked to irrational pre-concepts on people, that lead us to conflicts, to mistrust, to care about or to reject some individuals’ ideas or initiatives, especially in multicultural environments.

There is so much more to do when improving teamwork and productivity in multicultural teams! I think that understanding the irrationality aspects of our behaviour is a corner stone of the building of acceptance. Dr. Ariely’s contribution is very important in this sense, and I am looking forward to read and hear more from him!

I like out-of-the-box thinking. The key is taking what Dan said and integrating it into a system of management (a framework for running the business) so you can measure the value of this kind of thinking and at the same time promote it in the way you measure.

I appreciate Dan Ariely’s views on irrationality.

First, experienced leaders do, in theory, make better intuitive decisions. On the other hand, with the changing economic and political environment, a fresh mind may make a better leader. Each new season must birth new leaders with a different paradigm.

Trust is so important. I would like to hypothesise that the deteriorating trust in the marketplace is causing a deterioration in the quality of life overall without focusing on material benefit. Too much rationality can be counter productive, and I don’t think we were created to be so.

I think a good sense of morality and discipline together with good data manipulating skills will shape the greater corporate leaders. The ability to go against popular consensus will be key.

Experimenting is a very well-established practice among Internet-based companies. The testing and experimenting most e-businesses do is a daily routine, it’s the name of the game, perfecting conversions and moving the needle. It’s relatively easy to do thanks to the amount of data they can collect. Not sure what companies Ariely has in mind when he refers to the lack of experimentation, but I suspect that the “tyranny of the urgent” is what makes “traditional” businesses avoid that fundamental discipline.

The key take out is that if everyone was rational (self interested) society would not function, society also needs trust (social capital). Adam Smith’s Wealth of Nations is often misrepresented as espousing rationality, the pursuit of self interest in the marketplace. However, Smith wrote a lesser known companion piece, The Theory of Moral Sentiments, where he was equally as interested in the capacity of people for benevolence. He saw moral sentiment as just as essential for making the magic hand of the marketplace work.

This was interesting, but what is the real take-away? Irrationality is sometimes good, sometimes bad. Human behavior—motivations and decisions/actions—is complex and often, well, irrational. Leaders need to be careful of relying on intuition but also know when it’s good to go with their “gut.” Either way, they need to be careful to rationally consider the impact of decisions on their often irrational employees and customers. That’s what I took from this interview. Not sure how it helps me.

I have to take issue with the way Ariely defines rationality. He suggests that the individual that receives the $400 is behaving irrationally if he shares half of the sum with the other player. However, isn’t this true only if utility is measured exclusively in dollars?

The individual’s behavior could be viewed as rational if one simply assumes that either 1) the ‘guilt’ of short-changing the player that ‘shared’ with him will cause the individual to experience negative utility equal to or greater than $200, or 2) the pleasure of knowing that he acted in a way that he feels is ‘honorable’ or ‘fair’ results in utility of greater than $200.

Likewise, in the case of revenge, the utility received from knowing that the player that ‘cheated’ him has been ‘punished’ may very well be greater than the utility received from the amount payed out to exact revenge.

It’s been observed in numerous studies that people prefer transactions that they view as ‘fair,’ and have very negative reactions to transactions viewed as ‘unfair.’ This preference is only irrational if money is the sole source of utility, but can be viewed as rational if one takes into account sources of utility other than money.

All too often, particularly in the data-rich environments of today, behavioral dynamics are poorly or under-considered. I believe that the wealth of available data can lead to more irrationality, not less. Maybe it’s a function of interpreting the data available that contributes to cognitive dissonance and decisions are made to escape the anxious condition; maybe it’s the changes in workplace loyalties, company to employees, and vice versa, or many other ineffable factors. I do know that in any formal or informal human system, each person has to reflect on his or her effect on process and outcome. Often, what lies beneath the surface behaviorally drives the car.