Why studying irrationality is useful?

Predictably IrrationalIf you are not academically inclined and you start reading a book like “Predictably Irrational” and “Thinking, Fast and Slow” (or worse still books that are not supposedly aimed at normal people, but only at academicians), you will identify with the following status update I had posted on Facebook recently:

Human irrationality surprises nobody other than Economists.

Human behavior surprises nobody other than psychologists.

The psychologists and behavioral economists love to spend time (and pages of writing) in convincing people that the traditional economists‘ idea of humans being rational agents is not right. Apparently traditional economists are also not an extinct species and they are busy in debunking these psychologists. The debate continues. And a layman (from the point of view of academic economists and psychologists) is often left to wonder if there is any point in reading what essentially tells us something we already know very well. That humans are not rational!

Well there is a point! Because thankfully, psychologists don’t just stop at explaining and proving that humans deviate from economists’ idea of rationality, they also study exactly how they are irrational. Not being rational does not mean there is no rhyme or reason to human behavior. While figuring out how people are irrational, psychologists essentially figure out how we behave. Some things they figure out may be obvious and intuitive to us, and many others are not. These findings can help us in understanding our own selves better, making better decisions and generally improving our lives by managing our psychology. As marketers and entrepreneurs these give valuable insights into behavior of our customers, employees and anyone we deal with.

The point of studying human irrationality is best summed up in the following insight from “Predictably Irrational”.

Our irrational behaviors are neither random not senseless – they are systematic and predictable.

And that’s why studying them is useful. It can help us predict human behavior.

So, how about starting by reading the summary of “Predictably Irrational“? Summary of “Thinking, Fast and Slow” is also coming soon.


From our newsletter: Bad Roads, No Drinking Water! But “har haath mein phone”?

Government’s idea of distributing mobile phones to the poor for free has generated widespread criticism and skepticism. Even if unintended, could there be some real benefits?

Fortune at the Bottom of the Pyramid

Dear Summary Town Residents,

How are you doing? I am sure you have heard of Indian governments’ intention of announcing “Har Haath mein Phone” scheme. It has met with widespread criticism. When we are yet to solve the problems of safe drinking water, electricity and basic infrastructure like roads. what is the meaning of government spending money on mobile phones for poor? I, too, have no illusions about the intention. It is a get-votes strategy for the election year. I am pretty sure that those who are drafting the plan have not read “Fortune at the Bottom of the Pyramid” by Prof. C. K. Prahlad. But since I have read it, I feel that the impact might actually surprise us. And the government too. (Assuming, of course, at least a decent number of phones reach in the right hands).

Prof. Prahlad argues in the book that poor adopt advanced technology readily. Especially when it gives them entrepreneurial opportunities to improve their lives. Fisherman in Keala are already using mobile phones to get highest bidders for their catches. When ITC installed PCs with Internet connectivity for its e-Choupal initiative, villagers soon figured out how to not only check the soya prices in the neighbouringmandis, but also the future prices in Chicago Board of Trade. If electricity is a problem, entrepreneurs in villages don’t take long to start mobile-charging services using batteries.

From the outside, we often make assumptions about what poor want. Won’t they want proper sanitation in their living quarters before a television set or mobile phones? The reality may surprise us. When the land ownership is not clear, who would want to invest in improving the housing? A mobile and a TV are different. TV viewing builds aspirations and mobile can be a business tool to fulfill those aspirations.

What else do we not know about people at the bottom of the pyramid? Just how big the market is and what are the opportunities it presents? Read the Summary of the Fortune at the Bottom of the Pyramid and find out for yourself. You might agree with what the author says. That if we stop thinking of the poor as victims or as burdens and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole world of opportunity opens up.


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