Behavioural Economics Aiding a shifting perspective

Today we are experiencing a change in all walks of life. People are literally crazy about doing innovative things in all spheres of their activities to keep pace with change and speed. For this, they need to disrupt the existing order of things. We management educators do experience this sort of disruption in Management education, especially in our pedagogical experiments involving teaching and learning processes.

As human beings in general and customers in particular, we are looking for better value delivery, more authenticity, impeccable quality, fair deals, exciting and authentic neuro- experience, clarity of purpose, sense of urgency, positive vibes and a humane approach in all  touch points of  performance at all times. In a corporate world, customers' willingness to pay more always depends on a good mix of all these factors. In a way, these are the true game changers. To realise this, adaptive leadership has been called for in corporate circles. A leader, as we know, is a human being through and through. The human brain is a physical and critical organ associated with mental activity like thinking, emotions, pattern reading, novelty detection, and so on. These activities, if understood properly, can ultimately illuminate our behaviour and make it so relevant for the creation of authentic value and delivery. As a humble management educator, I have been involved in some modest thought experiments in neuroscience and psychology in my own way. This passion has eventually culminated in an effort to conduct a couple of EDPs for corporates and academia. I consider this initiative as a true trigger point to introduce Behavioural Economics as a separate course to management students.

Explaining the importance of psychology in economics, Vilfredo Pareto (1906) said "Foundation of political economy and, in general, of every social science, is evidently psychology. A day may come when we shall be able to deduce the laws of social science from the principles of psychology". Interestingly, this has come true today. We are aware that management is a social science. It is also a young and fast growing science. Human beings do not act rationally at all times. Many times, people 'misbehave', to use Dr. Richard Thaler's phrase (Nobel Prize Winner for Behavioural Economics from Booth School of Business, University of Chicago, USA). Today, we say that ''leadership is a behaviour". Here, psychology naturally comes into picture. There are so many questions being posed in the light of neuroscience and psychology coupled with Behavioural Economics: How do we make better decisions? What are our choices? How do we solve problems? How do we frame things? What is fairness? What is the significance of mental accounting? What is the significance of nudging for policy decisions? How do we make a distinction between planner and a doer? What is game theory? How a firm behaves? etc. These critical questions are addressed by Dr. Richard Thaler, an internationally acclaimed scholar in the field of Behavioural Economics. He made use of the seminal works of Daniel Kahneman (Nobel Prize Winner for Psychology in 2002), Tversky and Herbert Simon. In fact, Simon's principle of ’Bounded Rationality' has provided an intellectual underpinning to Dr.Thaler for his work on Behavioural Economics. 

Thaler has spent a long career seeking to understand individuals as they really are....full of weaknesses, misbehaving, making poor-decisions, displaying irrationalities, inconsistencies and idiosyncrasies. Understanding and appreciating these and a willingness to modify our behaviour can make our life meaningful and relevant. 

After teaching Behavioural Economics to management students, I am really convinced that students have started thinking about business and life-related problems from multiple perspectives with ease. A tunnel view has been gradually giving room for seeing and appreciating the big picture with different frames. Their decision-making skills have improved. They tend to became more humane and all inclusive in dealing with complex situations and hence more adaptive.

by
Prof (Dr) Sudhir Raj K
Justice K S Hegde Institute of Management
Nitte Deemed to be University, Mangaluru