The Science of Making Better Decisions

Understanding some simple principles of behavioral economics can help us make better decisions in the short run to achieve our long term goals. This can help us take and sustain action on any learning pursuit.

Full Show Notes

Quick Links:
Predictably Irrational by Dan Ariely
Payoff by Dan Ariely
Alex's Behavioral Econ Videos
TrainUgly.com

Transcript

Speaker 1: 0:00

Alex. Yes, Trevor. You go to the doctor for a checkup, something's wrong, and they write you a prescription. You take your, you take your dog to the vet, something's wrong. The vet writes the dog a prescription[inaudible] research shows that were actually more likely to administer the, the full prescription to our dog than ourself. What? That's crazy. Yes. And this is like, think about that for a second and I like, got to make sense. Yeah, I think that would, we would do that Alex. Yeah. Do you value your life? Yeah, it's pretty important. I meant, okay, so imagine a scale where your life is on one side and a text message is on the other. Okay. Okay. Which one's winning? I'm going to choose my life. Okay. Same. And I think everyone would agree. Right? Yet all of the time we do the exact opposite of that. That's true. We text and drive all the time. Texting and driving. Right. It's like if you weigh it out, it's like totally ridiculous thing to do. Like there's no way that that text is even close to as valuable as staying out of danger and not running someone over hurting yourself. Yet we lose that battle all the time. Today we're gonna explore why this happens and to do so, we're gonna use some research from this field of behavioral economics, but we're also going to give some tools for how we can use this in our daily lives. Help improve our action.

Speaker 2: 1:26

I'm Trevor. I'm Alex. Welcome to the learner lab podcast presented by a train ugly.com each week, something new that can help us learn. Let's go. I know what you're thinking.

Speaker 1: 1:38

This isn't to you, Alex. This is to the audience. It's like these bros are talking about behavioral Econ, right? Yet this is a podcast on learning. So help us like bridge those two. Like how did these two connect? I think the big connection here between behavioral economics and learning is that too often when we try to take action, we look at ourselves through this lens of we're perfect and we're going to do whatever. We set our mind to always make the right decision. Do the right thing. It makes a lot of sense. But too often we do things that aren't aligned with those actions. We want to take. Behavioral Economics is sort of the study of how to get better at actually taking in sustaining action. Yes. Which is you could argue the most important piece of the learning puzzle. And we, we've said that in almost every episode, right? And this is a way to like look at the science of how we can kind of align our actions with the goals that we have. The big problem here isn't that we don't know what's good. Like we know what's good, we know the basics of eating better. We know that working out, it's good for us. So we don't need more tools and information to convince us that the problem is we don't really take her, sustain that action in the short run. From what I've learned so far, and tell me if I'm wrong, perhaps the biggest angle, and one of the big pillars of behavioral Econ is we think we're rational, but oftentimes we're not. Right. But I mean by that is like we, we're always going to make the best decision for the short and longterm. But oftentimes we do the opposite, right? That's exactly right. And behavioral ECON is sort of looking at why that happens and how to fix that. So the way I look at it is rational is this is the best move for what I'm trying to accomplish. Irrational is this might not be the best move for what I'm trying to recall. If you think about it, like if, if you want to lose 15 pounds, the rational thing to do would be to work out to eat. Well, you know, go on a diet, these things. But oftentimes we have a hard time doing that and we're going to eat the pizza that's in front of us, we're going to not work out when we get home from work. And that sort of are irrational self coming into play. Of course. Okay, so that makes sense. So this is basically understanding human behavior and understanding that a big problem is we think that we're going to make the right decision, but oftentimes we don't. Right. That's the big issue is we're sort of viewing our world through the lens of we are rational beings, which sometimes we are, but we hold ourselves to too high of a standard. If we think that in every scenario we're going to act completely rational. It's just not feasible. We can't do that. Right? So when we were first digging into this, my uh, sort of logic was like, well, let's just be more rational. And from like what I've seen so far, it's like that's really hard to do. We can try. But I think, again, everyone listening, we've tried to fight that battle a lot and lost that battle a lot. Yeah. If you just think of how many decisions we make on a daily basis, hundreds of decisions, even really small ones, there's no way that we can be completely rational and every single one of those. So we use these rules of thumbs to make decisions and those sometimes lead to irrational behaviors. Absolutely. So I guess the goal here is to realize it's really hard to become more rational. We're going to be irrational. But once we understand that we can start to work with that. It's all about working with our nature rather than against it. Got It. If we were all rational, it would be as easy as, you know, coming up with these tools and then just presenting them to people and then we do it and then we do it. That's the best smooth. It makes a lot of sense. We want to lose the 15 pounds. When someone says, this is how you lose 15 pounds, then we just do it. Right. The thing is this is how you create a better culture in a school. Here's the tools, do it right, but we don't why? It's because we're humans and we make mistakes. We make errors were not perfect all the time, so in order to take and sustain action, of course we need the tools. We need to be pointed in the right important piece of the puzzle, but we have to be aware of our human nature in order to help ourself and others kind of do the things we need to do. That helps us in the long run. I think though, the way that makes the most sense for me, it's like in the long run, we're all pretty rational. Like our future self reads for an hour a day grows on a run, listens to podcasts and rights. The people we aspire to be our short term self, very irrational. But the problem is right.

Speaker 2: 6:00

If we're always losing these battles in the short run, we never get to where we want to go in the long run. It's, it's sort of building those two things together and bringing in the short run in the long run together. So our moves that we're making today are in line with where we're headed. That's the goal and this is the science of how to be better with that. When we say that we're all human and we make these errors and that we're rational, it sort of seems like like a dark cloud above us, right? Like, oh, we make all these errors. It's a bad thing. Well, a researcher from Duke, his name's Dan Ariely, he paints us in a better light, basically saying that, yes, we're a rational and we do these things. We make mistakes. But the good news is we do them repeatedly and often we do them predictably. So his big phrases, we're predictably irrational. And so that's sort of the silver lining of this is that we can use those irrational behaviors to actually guide ourselves towards making the decisions we want them if we're aware of, if we're aware of. And if you're like me,

Speaker 1: 6:55

like I just became aware of a lot of these yesterday. So it's like we're going to try to put some stuff on the table now. Right. Okay. So one of the big concepts with behavioral economics is designing your environment, which they call nudges or choice architecture. Sure. And that's basically just looking at your environment and then making it easier for you to take the actions that you want to do in the long run. Nudges are kind of having a moment in econ right now and the econ world yet. And nobody ever heard of an agency for these guys. We just won. I Dunno, I said we, but you can't on it. Richard Thaler just won the Nobel Prize in economics for a lot of work that he did with nudges last year. And there's a bunch of governments all over the world who have their own nudge units figuring out how to apply nudges. It's great, right? I want that job. Head of nudge unit. One way that I like to think about nudges is an example that I think everyone who has a car can relate to. So when you're driving on the highway and you start to veer a bit towards the right side of the road, you hit that rumble strip, right? And it's jarring and it guides you back into the actual lane, right? So that's sort of what a nudge does. So when you get on track, yeah, when we're pursuing a goal that's in the future, we're going to deviate, right? Sometimes we're not going to eat as well if we're trying to lose weight, but the idea with a nudge is sort of to get us back in the lane going on the path that we want to be going on. Perfect. Classic example of this is at a cafeteria. If you want people to eat healthier and a cafeteria, you should just start putting the healthier food at the beginning of the lunch line. So that's the first thing that they see. And if they want the bad food, they have to maybe walk further to go get it. So you're sort of designing the environment in which they can make choices. Nudges are all over in the world, right? And they're not always nudging us towards the thing we wanted to know. Uh, think about a grocery store, all the candy right there at the checkout, like buy this game, checking out. It's just one little reach it that's on purpose because like everyone buys that low friction, getting us to do something that we don't want to do. But that's a nudge in and of it. It's so the, the piece that really made the most sense for me, it's like, it's being aware of friction and using it. So it's like the, the goal is if we want to do something more, make that easier. Right? If we want to stop doing something, add friction, make it more difficult. Uh, so for me it's like if I'm trying to eat healthy, one way to create some friction is get rid of all of the unhealthy foods in the house. If there's no candy bars in the house, it's pretty hard to eat. They've, they're, they're very little friction. I'm gonna eat it, right? Like we're going to eventually lose the battle, but if it's not there, it's more friction. I have to go to the store, buy the stuff. And so if we like load our kitchen with healthy food, there's less friction there, I'm more likely to eat that. And there's more friction of trying to get the candy. Uh, James Clear writes a lot about this and atomic habits, fantastic book. Another way to kind of use friction to help encourage the behavior is like, okay, if every day we want to go for a run, right? If we just leave our shoes out. So think about what that's doing. One is, I see it. So that's kind of a trigger. Like, Oh, it's a reminder and they're just there. I have to go find them. They're in the same place. So it's a visible thing. It's sort of reducing the friction and more likely to do it. Okay. So if I want to meditate every day, what are some nudges I could build into my environment to help me? We're social creatures, right? Right. So if we want to meditate more, we could put a chart up in the living room and maybe whoever we're living with, be it a spouse or our parents or roommate, whatever, Plod May, uh, you put that sheet up on the wall, right? And you tell the other person who lives with you, I'm going to meditate every day, just five minutes a day, whatever, but I'm going to put an x everyday that I do it. Now the person doesn't even actually really have to hold you accountable, but just you having that chart, knowing that that person can see whether or not you're meditating each day. It makes it social. And I can't not do this. That makes sense. So it's like, okay, friction is like make the behavior easy and maybe a, a, a visual trigger. So like, uh, I could like lay out a mat and on this mat, right? Meditate and that's already out. Exactly. And then making it social is like, how do I like draw some attention to this? And it's, it's working with your nature, right? Because we know that we're social creatures and so we don't want to mess up down. Yeah. Don't want you to know I'm not stinking. And so doing that sort of encourages us to stick with that holds you accountable. That's like, there's a lot of apps now that do this. It's like you can create these little challenges in these groups that we're all going to do this thing. So that makes a lot of sense. Make it social, make it visible. Think of friction. Uh, okay. How would this look in the workplace? So say we're a leader, what are some kind of rules of thumb we could use to increase the behaviors we want to see? Let's see. If we wanted to create an environment where ideas spread a little bit more collaboration, more creativity, all of this stuff. If we wanted to do that. And let's say we have a lunch room, but all the tables are spread apart. Everyone kind of eats by themselves. They don't talk. One thing you could do is take all of those tables that are individual, get rid of him and get one big long table, right? So now people sit together. We, we've seen this in person, right? Like we were just out with a major league baseball team and in their cafeteria there is a huge table in the middle and that's where everyone sits together. And those lunch conversations are fascinating because people are getting to bump into each other that normally wouldn't throughout and ideas are just flying by everyone. It's unreal. It was one of the coolest lunches I've ever had. So again, it's a small thing, right? It's just that long table encourages people to sit next to each other and sort of ideas start spreading. They don't have like rules on the wall like you must have had together. It's, here's a big old table that's a small nudge we're probably going to eat together. And then there's the famous stories of like Steve Jobs at apple and at Pixar, like they even made the lines in the cafeteria like zig zag. So you're more likely to bump into people. So these are just examples of nudges, small changes in the environment, helping to encourage the behaviors we want. Exactly. I read an article that was talking about Google and everyone kind of champions Google as a great workplace and you know, being very creative and they are, and the author was making the argument that Google is very good at what it does with its employees because they don't control the employee, but they control the environment in which the employee makes decisions. Absolutely. So it's all of these things giving them, you know, a two hour free period to go work on their own ideas, right? They're not telling them go give us a really good idea, but they're designing the environment to encourage them to create new things. The way I see this as, all right, look, just because we set up the environment doesn't mean we're automatically going to do the thing, but it gives us a better chance. Like nudges can help us take in sustain action, which helps us create the habits which are going to make the longterm impact. This is a thing that can help us in that process. We still have to do the thing. We can't just put the poster up on the wall and things like suddenly were great. Our actions need to align with the nudge that we're trying to do, right? So I think, again, relating this back so it makes sense to people like me. Like you majored in this stuff, you get it. But like people like me, it's like one, where are we? Uh, we're way more irrational than we think. We can use that and create an environment that helps us win a few more battles. Right? Another reason we're super irrational, uh, and this is a concept that you taught me, is when we put in a lot of effort, time and energy into something, we tend to overvalue it. And that can cause some problems. This is what behavioral economists have dubbed the Ikea effect after everyone's favorite Swedish retailer. Right? How's that Cunin coming alone? Ikea doesn't assemble itself. You know, I don't mind the Cunin, it's an improvement on the her doggies and he thinks I'm proven over there. I'd taken an Agnes or, or three silver though her doll. Tell us what it is. So like you said, the Ikea effect is just the idea that we overvalue things that we create ourselves. So a good way to sort of understand this is to just go right into the study that they did. So they had these just basic ikea storage boxes and then they had two groups of people. One group of people, they gave them an unassembled Ikea box, just gave it to him and said, okay, build this real quick, just like you have to do. Yup. Those super detailed instruction, right. Great instructions. Uh, and then the second group, they gave them a preassembled box and just said, here's a box. Just kind of look at it for five minutes, inspect it. Sure. You know, spend some time with it. Then what they did is they asked each of them two questions. The first question was how much money would you pay for this? What's the value of this? And then the second question was, how much do you like this? Right? So we would assume that they would be basically the same, right? It's the same exact small box. It's not that great, whatever. But the first group, the builders, the people who had assembled this box, they valued it like 63% higher and they liked it more. So, okay, in building it and investing the time and energy, we tend to be more kind of like married to that product. Right? Another illustration is a, I read this study and Dan Ariely's book payoff where similar setup to the Ikea boxes and it's like, okay, we have a group of people who creates an origami crane and then a second group of people, the buyers. So we're comparing like if I build it, what do I think the value is versus someone who didn't build it? What do they think the value, right? They're sort of trying to figure out how big the Ikea effect and what they found is the builders would value the crane like five times higher than the group that was just trying to buy it. That's a huge amount of five x and this happens with tons of things, right? It's not just origami cranes in Ikea boxes. No. Everything that we build, right? This is sort of happening in our minds now. This causes some problems. So one is if we work really hard on something and we overvalue it, we're less likely to take feedback, right? We're less likely to look outside the box and try something new. We're kind of married to this and we're going to go to bat on this. And that makes a lot of sense, right? If, if I've prepped hours for a presentation and then right before I give the presentation, I asked someone, could I get some feedback first? And they're like, oh, I don't really like this or this. This just doesn't work here. You're like, I just spent a week of my life preparing for that. Right? This is good. This happens to me all the time, right? It's easy to do. Yes. So when we're married, when we've invested a lot of time and energy into something, this is a source of kind of being irrational, like someone's trying to help us. But were less receptive to this. Right. The other thing is this happens within an organization to all the time they kind of, they call this the not here syndrome. So the basic idea with it is companies ignore external ideas that or other organizations have created in favor of their own. Even though the idea is that might be outside of your organization could be better. So if we were going to be a hundred percent rational, it's the best idea win what? Whoever made that idea go with it. But this is a perfect example of like us being irrational, right? We're humans and the Ikea effect is one sort of source of that. No, it's not all bad. Not like we can use the Ikea effect to our advantage. The first step is becoming aware of it and then once we understand sort of that it's happening, then we can find ways to work with it rather than,

Speaker 2: 18:31

there's a few dimensions to this one. The obvious one so far is if I've worked really hard on something, I need to be aware of how I might be like overvaluing that and just kind of check myself and be more receptive to the feedback and support or ideas that I haven't thought of. Just because I worked really, really hard on this doesn't mean it's perfect. So being aware of the Ikea effect. Now as leaders, we can kind of use this to our advantage. It's about providing opportunities for our people to invest time and energy on projects so they're more engaged in them.

Speaker 1: 19:05

Right. This research supports the idea that the micromanagement approach is a seriously flawed one, not, not the most effective. Because what we're doing is essentially assembling the boxes for everyone. Exactly. So then no one gets those rewards not engaged. I don't feel any ownership. So it's about providing opportunities for people to do some work and struggle a bit and build their boxes. They feel a part of this. No more ownership. Now again, we're not saying here's a menial task. You know, here's a mundane task. Just go and do it. Right? So this isn't an argument. Just like, okay, make everyone work really hard on things that don't matter. It's okay, we can add that layer of meaning and we talk. We did a whole podcast, meaning episode four, episode four about having some meaning and purpose around the project matters and airy. Ellie also looked into this. So this study also in the boat payoff. In this study they had two groups and the goal was to build little like lego creatures and the idea was it's like, okay, if you build a creature we'll pay you$2 and if you build another one we're going to pay you a buck 90 so it goes down by 10 cents diminishes. The goal is to see how many creatures will you build. So how long are you going to keep doing? Write group one built the creatures. As soon as I was done building it, the experimenter would disassemble the creature to get the pieces back. So I'd build, they take it apart. So there's really kind of like, it feels like we're just spinning our tires there. I'm making this, you're taking it apart. It's like pushing the ball up the hill and then the rules back to absolutely. What's that called?[inaudible]. It's it now a group too. It's, I'm making these creatures, they experiment and doesn't take them apart. They just kind of put them on a shelf. Okay. What they found is group two made way more. Now think about that. They're doing the same thing, the same amount of money and is on the line. The only differences, you're not taking them apart. So this is showing like fueling some meaning and progress. It's like, look at this progress. All My lego creatures are lined up on this shit. Feel proud about the work that we've done is a visible thing. So there is some appreciation. So it wasn't just the work itself, it was sort of like the overarching meaning or purpose. I feel some sort of accomplishment. Right? So once again, the idea is everyone is sort of building their box. They're going through this process, putting an effort. The final layer is when we feel seen and appreciated or there's some meaning or purpose that's even better. Right now, the purpose isn't always going to be, we're going to change the world. It's just a small little thing and we're also not pushing for like empty praise. Like all this is the best lego thing of all time. It's helping our people feel appreciated and seen. I see that you worked really hard on this. Tell me about the lessons you learned so many times in the workplace or in school. We invest so much time and energy and then the leaders like, oh nope, wrong. It's like, it might be wrong, but asked me some questions about the process. Helped me see, help me feel appreciated. Right? That's the goal here. Allow for opportunities for our people to do the work. Don't rob them. Other reps, shout out last episode and create some meaning. Help people feel like they matter and appreciate it and in genuine, authentic way. When we do that, we create more engagement in the project and that's something that we can do in the classroom. That's something that we can do in sports. That's something that we can do in business. Right? Um, I think this is it a huge reason that like guided discovery is so important. Uh, John Kessel and one of my mentors always says, shows them where to look, not what to see and what we're doing in this sort of guided discovery approaches. We're allowing people to build their boxes and feels some ownership of what they come up with. And this is something that we try to weave into our workshops as well. Instead of just giving people the answers all the time, set up a problem, give them the tools, allow them to connect the dots and solve the problem that is going to stick more. They're going to feel more engaged and involved in the process. And so this is like a little trick that we can use in teaching, presenting, finding ways to help our people solve the problems themselves, not just giving them the box preassembled. So to zoom out, why did we just talk about the Ikea effect? I think it's a really good illustration of how we act in irrational ways in this can either lead us astray or we can use it to our advantage, right? But step one is understanding what it is and that it's there, that we are irrational at times and the solution isn't to become more rational, rather it's to work with our nature rather than against it 100% and just to be real. It's like when we first started to outline this, I didn't really see the value. I was like, oh, it's interesting stuff. But now I kind of see it. It's we have to sustain action in order to build a new skill, change a habit. And this is the science that helps us do that. So this is like the tip of the iceberg. We've talked about a few studies, the Ikea effect. We talk about nudges, right? There's way more tons. If you're interested. Alex actually has a youtube channel, what's it called? Intermittent diversion. Yeah. And he makes like explainer videos about all this stuff. So there's more info there if you want. Right. But the big takeaway here is just to realize that we're more irrational than we realize and that's okay. And that's okay. We can work with it rather than against it. If you're like me. So many times I beat myself up because it's like I said, I wanted to read every day and I'm not. He said, I want to do this and I'm not. And what this research helps us understand is that's normal, right? And there are ways in sort of small changes we can make that can help us win a few more battles, which changes our habits, which changes our behaviors with, helps us become a better learner or get better and do the things that we want to do. And that helps us stay on the right track for this thing that we're all pursuing. We're not going to do questions this week. Both of us are on the road and we didn't have a chance to collect any, like we recorded kind of back to back episodes. We will have questions next week. Remember the hotline number?(805) 635-8459. Thank you guys so much. And Jack says, what up.