Each day I wake up firmly committed to eating right, getting enough exercise, and treating myself to some well deserved relaxation. Then the day begins, I boot up the computer, make a cup of coffee, and prepare myself for the waterfall of emails and other messages that miraculously multiply overnight. At the the end of the day I realize that I have been glued to my computer for well over nine hours and have not achieved any of the lofty personal care goals I was so committed to hours before. I would’ve gone to the gym, had a healthy lunch, or taken a long walk on the beach, but as the demands of the day came upon me everything seemed more urgent and important.

Luckily, behavioral psychologist have developed a theory to explain why my actions are so at odds with my intentions: hyperbolic discounting. In simple terms, I “undervalue” the future rewards of taking better care of myself and “overvalued” the current gratification of answering the seemingly urgent email from a client regarding a deadline that is still several months away.

I’d rather take the smaller payoff now, rather than waiting for the larger payoff later time. While it’s easy to scoff at fancy name for what seems like a basic lack of willpower, hyperbolic discounting is in fact a very important idea that can help predict behavior. Decisions made in the heat of the moment, under a perceived sense of urgency, are highly susceptible to hyperbolic discounting, since we often value actions differently in the present and in the future.

In fact, hyperbolic discounting can help us explain why so many people carry high credit card balances for items they bought “on sale,” while not factoring in the cost of the interest payments. Or why homeowners took out high-priced, cash out refinance loans that stripped them of the equity in their home.

Understanding what drives the seemingly “poor” outcomes is part of the field of behavioral psychology. Behavioral psychologists focus on research to explain why people often make choices against their best interest, even when they know better.

So what does behavioral psychology have to do with how we run our organizations? Easy, everyday we are faced with important decisions, in most cases more than can possibly be made in the time allotted, these decisions are likely to have long term consequences. Traditional behavioral theory generally assumes that the individuals make rational decisions based on the information they have (e.g. knowledge about a specific product or outcome) and his or her resources. This individual makes rational, unbiased decisions that maximize outcomes, systematically evaluating risks and accurately assessing both short- and long-term costs and benefits. If people make a poor choice – for example, by taking a loan they can afford or failing to act on a business opportunity – this approach would lead us to believe they merely didn’t have enough information to make a good decision.

While knowledge is certainly important, it is also clear that is not sufficient to ensure the people make good decisions. This is where behavioral psychology steps in. Rather than assuming that people exhibit perfect rationality, behavioral psychologists try to understand why people often make choices that do not align with a rational assessment of the decision’s consequences. This is not to say that people are “irrational,” but rather that there are systemic and predictable ways that people behave differently from what you might expect, insights into these behavior patterns can help craft more effective and efficient policies to encourage better decision making.

In times of financial stress, such as we are facing now, it’s easy to find examples of how these theories play out. Everywhere you look you find managers acting out of fear, or worse failing to act, on issues that will have broad ranging effects on the future success of their organization. As the pressure builds, organizational leaders are becoming paralized and as a result many companies and nonprofits are on the verge of collapse.

Understanding the psychology behind this behavior is important, but it’s only useful if it informs how decisions are made on a day to day basis. Below are some easy ways to help improve the decision makiing process.

Don’t weigh extreme consequences in your decision making process too heavily.

We often exaggerate how likely “extreme outcomes” are because we frequently see vivid examples of them in the media. Extreme outcomes generate many news headlines, regardless of whether those outcomes are good (winning the lottery) or bad (a horrible death from dramatic causes like earthquakes, tornados, and terrorism). The more something is on the news, the more likely it seems. Winning the lottery seems more likely than it is because we see TV interviews with winners, but never with losers. Dying in a natural disaster or airplane crash seems more likely than it is because those events make headlines. Dying in a car crash or a swimming pool (falsely) seem much less likely than they are because they don’t generate headlines.

Consider failure on an equal footing with success.

This relatively single-minded focus on success or failure has many psychological consequences – some good and some bad. Research has shown that just thinking about an outcome makes it seem more likely, because we then think about all the ways that it might happen. As a result, we plan for success, and typically make life decisions expecting success. Unfortunately, in life, failure is an all-too-common occurrence. Divorce is just as common as staying married.

Look at a decision from many points of view.

Looking at a decision from several points of view is a powerful technique. It helps you make better decisions by pushing you to move outside your habitual ways of thinking. As such, it helps you understand the full complexity of a decision, and spot issues and opportunities which you might otherwise not notice.

Many successful people think from a very rational, positive viewpoint, and this is part of the reason that they are successful. Often, though, they may fail to look at problems from emotional, intuitive, creative or negative viewpoints. This can mean that they underestimate resistance to change, don’t make creative leaps, and fail to make essential contingency plans.

Similarly, pessimists may be excessively defensive, and people used to a very logical approach to problem solving may fail to engage their creativity or listen to their intuition.

If you look at a problem employing this strategy, then you’ll use all of these approaches to develop your best solution. Your decisions and plans will mix ambition, skill in execution, sensitivity, creativity and good contingency planning.

Think long term.

The current financial climate is temporary. Be sure that you are thinking about the long-term outcomes of your decisions.

Don’t let fear dictate your decisions.

Lastly, you didn’t get where you are by being afraid to make decisions. Don’t let external pressures stifle you, be bold, but be smart!

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3. Corporate Social Responsibility, Philanthropy, and Small Business
4. Top 7 Reasons Why Nonprofits Fail – And How To Avoid Them
5. How Tracking the Right Metrics Can Help Projects Succeed

Tags: behavioral psychologist, behavioral psychologists, behavioral psychology, Best Practices, care goals, credit card balances, fancy name, heat of the moment, poor outcomes, sense of urgency, sound decisions
Posted in Best Practices