s216 New thinking is not so easy

"The rational decision does not exist. As a theoretical construct, it is valuable because it necessarily activates cognition." RICHARD GRAF

The coaches and transformation coaches of agile@All-Finance, a well-known insurance company, informed themselves about Behavioral Economics and held an open discussion using KiE-DecisionMaking with 100% participation.

Behavioral Economics

People act against their interests. Behavioral economics describes how people behave irrationally in terms of cognitive biases. Even if people know that cognitive biases influence their decisions and their thinking and remembering, they cannot avoid irrational behavior.

KiE: Behavioral economics
Figure 01: Behavioral economics

Topics

  • The keynote by Richard Graf addressed the following questions:
  • What is Behavioral Economics?
  • What are cognitive biases?
  • What is the origin of irrational behavior?
  • How can irrational behavior be used and/or avoided?
  • What does agile coaching and transformation have to do with cognitive biases?

Practice transfer and workshop

The experts at agile@All-Finance know very well that people make irrational decisions and managers make intuitive decisions. Thus, the phenomena that behavioral economics deal with are not only important for the company, but also for the daily work.

KiE: Managers decide more intuitively
Figure 02: Managers decide more intuitively

The sense of the importance of prioritization and commitments for agile coaching as well as of change and transformation projects prevails among the specialists.

KiE: Importance of processes and prioritization
Figure 03: Importance of processes and prioritization

The importance of both processes in change and transformation processes in order to re-establish priorities and commitments again and again is seen very diversely. 

The rational decision does not exist, as the keynote based on the scientific papers of Herbert A. Simon, Daniel Kahneman and Dan Ariely as well as many others from the field of behavioral economics clearly demonstrated. This is impressively documented by the increasing number of the now more than 200 cognitive biases that have been identified by 2020.

The rational decision as a theoretical construct is nevertheless an extremely important and valuable form of decision making because it necessarily activates cognition. Awareness on the part of the participants of the fact that the emotional motive “concern for security” tends to dominate in an insurance company, while the “chance to influence” is pursued in a start-up, would lead the reasoning in a targeted direction. However, when the logic of the emotions is too strong and thus dominates the reasoning, the rational decision loses its value.

The lively and topic-oriented discussion showed the relevance of KiE-DecisionMaking for both the company as well as for the experts from agile@All-Finance. Seeing corporate culture as employee behavior, which is organized in cyclical internal and external cycles, allowed for an idea of why behavioral economics is so important. 

Figure 04: Culture of a company and behavior of people

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May 2020 – Richard Graf, Elsa Graf

The rational decision does not exist. As a theoretical construct, it is valuable because it necessarily activates cognition.” Richard Graf

Source:

GRAF, Richard. „Die neue Entscheidungskultur: Mit gemeinsam getragenen Entscheidungen zum Erfolg“. Carl Hanser Verlag München 2018.