Tuesday, November 26, 2013

Are You Really in Control of Your Decisions?

Economics assumes that all human decision-making is rational. In an economist's dreamland, we're able to balance both the cost and the reward of a purchase to make the appropriate economic choice. Modern economists, particularly those studying behavioral economics, have shown that we don't always make rational choices. We make choices based on subjective evaluation instead of on objective, predetermined criteria.

Dan Ariely, head of Duke University's Center for Advanced Hindsight and author of the book Predictably Irrational, says that people do a good job of visualization when looking at the physical world. In the physical world, we build smarter to get around our limitations. Alternatively, we struggle to visualize abstract concepts, and marketers have developed strategies to leverage those mental limitations. 

Ariely uses the example of an ad that "The Economist" once used to draw in new subscribers. Subscribers could choose the digital edition for $59, the print version only for $125 or both digital and print for $125. When they used quick, subjective evaluation, choosing both digital and print for the same price as the print edition seemed like a bargain. In fact, in a survey involving a group of MIT students, most respondents selected the digital/print subscription instead of choosing the budget-friendly electronic version.

Since unconscious factors do so much to sway individual decisions, crowdsourcing decision making has obvious benefits. A crowd may make fewer subjective errors. Also, tapping the crowd enables smarter, faster selections within a fast-paced business environment. Management may not possess the tacit knowledge necessary to make decisions outside of their areas of expertise. For example, a great CFO may have no feel for engineering. In some cases, he or she needs to tap the collective intelligence of the firm's engineers to make better financial decisions related to engineering.

Crowdsourcing decision making enables faster action by taking advantage of employees' tacit knowledge. For both managers and the crowd, an easy-to-use crowd input collection and visualization tool makes choices easier to process. Soliciting collective intelligence requires managers to trust their employees, which isn't always easy. However, considering how easily individual judgment is influenced, perhaps we're wise not to act on our own.

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