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Accordingly, it’s up to firms to begin investigating basic beliefs about customers, employees, operations, and policies.When organizations acknowledge and anticipate irrational behavior, they can learn to offset it and avoid damaging results. A few years ago, my colleagues and I found that most individuals, operating on their own and given the opportunity, will cheat—but just a little bit, all the while indulging in rationalization that allows them to live with themselves.It’s been a painful lesson, but the silver lining may be that companies now see how important it is to safeguard against bad assumptions.Armed with the knowledge that human beings are motivated by cognitive biases of which they are largely unaware (a true invisible hand if there ever was one), businesses can start to better defend against foolishness and waste.But when we offered the same chocolates for one penny less each—the truffle for 14 cents and the kiss for nothing—only 31% of participants selected it.The word “free,” we discovered, is an immensely strong lure, one that can even turn us away from a better deal and toward the “free” one.The emerging field of behavioral economics offers a radically different view of how people and organizations operate.
But the global economic crisis, argues Ariely, has shattered these two articles of faith and forced us to confront our false assumptions about the way markets, companies, and people work.
And where do corporate managers, schooled in rational assumptions but who run messy, often unpredictable businesses, go from here?
We are finally beginning to understand that irrationality is the real invisible hand that drives human decision making.
In another setup, we tried to discover whether monitoring and supervision would counteract team cheating. Though cheating decreased somewhat, it didn’t disappear.
More disturbingly, as the members of our experimental group became better acquainted, the tendency to cheat for the sake of the team increased even more.