In forecasting happiness I overviewed some of Daniel Kahneman's research into affective forecasting. This month's Strategy+Business has a nice interview with him sharing more of his thoughts.
Here are some highlights, with all the credit going to MIT interviewer Michael Schrage and to HBS student Matt Mahoney: (I highly recommend reading the whole article, free subscription).
-You can always find an evolutionary quotation for anything. But the question is whether it’s functional, which is not the same as being evolutionary. There might be some environment in which it’s dysfunctional, but mainly it’s inevitable.
-They’re not trying to learn from their own mistakes; they’re not investing the smallest amount in trying to actually figure out what they’ve done wrong. And that’s not an accident: They don’t want to know.
-But, you know, there’s also the issue of perception, which links to intuition. Perception evolved differently than either intuition or cognition evolved.
Matt's final comment is great, "This hits on so many themes from my cognitive science days at UCLA, plus, more crucially, every single class I'm taking (finance, reporting & control, lead, technology operations mgmt.)
His question for me is: "If emotions get in the way (b/c it overweights), how can we use emotion as a tool to build intuition? to blend intuition and reasoning?" Matt, here is one idea (see Finance with Feelings).
As far as it's implications for marketing (see Neuromarketing to Your Mind).
Business Pundit points to "Welcome to The Feelings Economy" which explains that "in an oversupplied economy, customer feelings drive purchase decisions and profitability....Your new imperative is to assess and appeal to your customers’ feelings—period. Feelings are the basis for all profit generating consumption in a market at the mercy of customer choice. Focus on feelings, especially the subtle ones that customers themselves cannot articulate."
I agree with the writers up to this point, but then they make a fatal flaw by trying to distinguish emotions from feelings.
"For our purposes, feelings are not the same as emotions. Rather, “feelings” refers to a very specific quality: pleasantness, unpleasantness, or neutrality in an experience. Pleasant feelings—excitement, fun, reward, increased self-esteem, etc.—habitually condition desire. Unpleasant feelings—pain, effort required, decreased self-esteem, etc.—condition aversion. And neutral feelings condition forgetfulness. Given this definition, the purpose of every business in an oversupplied market should be to increase customers’ pleasant feelings while minimizing their unpleasant ones."
As Paul Zak has mentioned, "emotions play a critical role in decision making" (see Neurobiology of Trust), and I've detailed in Emotions and Neurotechnology and The Future is Emotional Economics, understanding the emotional motivation behind purchase making decisions is critical to long-term success.
Why not "feelings" as described above? Because people always overestimate the happiness a product will bring them (see Forecasting Happiness) and if you oversell the "end feeling" all you will ultimately create is disillusionment and dissatisfaction, not long-term loyalty. The critical issue for brand management and profitability comes from satisfying your customers emotional needs so that they trust your brand and will continue to come back.
BusinessPundit, recently highlighted in Business and the Tragic View of Human Nature that:
"The field of management has a long way to go...a better understanding of human nature (via neuroscience) will allow us to better target management tactics for specific situations, industries, and most importantly, individuals...Good managers are masters of situationalism (if that's a word). They can tailor their tone, attitude, strategies, tactics, etc. to the needs of the individual situation. I think in the future, management will move from being more of an art to being more of a science. In my opinion, management is still in its infancy."
I agree with Rob's assessment, and would add that the tools management will use to help them achieve their objectives will come via neurotechnology. Indeed, improving competitive performance via neuroceuticals will accelerate many aspects team performance by improving individual emotional stability and cognitive clarity. But the effects will go far beyond this: to the nature and shape of the firm.
By radically reducing the spatial transaction cost of finding and sharing knowledge, information technology has played an important role in flattening organizations down from their hierarchical, industrial predecessors.
Neurotechnology will also impact the "typical organization" of the firm in its own unique ways. As we learn more about the neurobiology of trust, how people make decisions, and the many other components of human social interaction that go into everything from contract development to dispute resolution, the emotional transaction cost of doing business will drop precipitously. In my research, I have come to believe that we will see a further flattening of organizational structures and the emergence of real heterarchies.
What do you think?
(Thanks to the Carnival of the Capitalists for bringing this to my attention.)
Mental health is the ultimate competitive weapon. Mental health underpins the development of intellectual capital and competitive advantage. It anchors the capacity of employees, managers and executives to think, use ideas, be creative and be productive. Like never before, businesses depend upon the consistent, sustainable mental performance of their employees.
By enabling a higher level of productivity, neurotechnology represents the next form of competitive advantage beyond information technology. I call this neurocompetitive advantage. As I mentioned recently, innovation is one ubiquitous organizational process that will be impacted. Just as workers today leverage information technologies for competitive purposes, workers in the neurotechnology wave (2010-2060) will turn to neuroceuticals to enhance their competitive performance.
As Randall Parker surmises, financial organizations will be the first to leverage neuroceuticals to boost productivity. He is right on target. In her seminal work, Technological Revolutions and Financial Capital, Carlota Perez details how financial institutions have been at the forefront of adopting, testing and disseminating the latest cluster of technologies that have driven each of the previous five techno-economic waves. This goes all the way back to the water mechanization wave (1770-1820) where banks were among the first organizations to extensively use the penny post.
As more people live longer and global competition intensifies, many people will turn to regulated neuroceuticals as the next set of tools they will adopt to help them survive and succeed. Using cogniceuticals to increase memory retention, emoticeuticals to decrease stress and sensoceuticals to add a meaningful pleasure gradient, neuroceuticals will allow people to compete without being constrained by their neurochemistry.
An important point: the type of effective neuroceuticals to which I am referring are still at least 10 years away as we still need to break the brain imaging bottleneck and develop inexpensive biochips for DNA, RNA and protein analysis. Only then will neurotechnology have matured enough to begin influencing all parts of society.
Do people really know what will make them happy? Not really, according Danny Kanheman, who shared the 2002 Nobel prize in Economics with Vernon Smith.
While we know a Rolling Stones concert beats a trip to the dentist, we almost always overestimate the intensity and the duration of our emotional reactions -- our affect -- to future events. Although we might believe a new BMW will make life much better, it will likely be less exciting than anticipated and it will not excite us for as long as we thought.
Over the past few years, a group of experimental economists have begun to question the decision-making process that shapes our sense of well-being: how do we predict what will make us happy or unhappy -- and then how do we feel after the actual experience? For example, how do we suppose we'll feel if our favorite college basketball team wins or loses, and then how do we really feel a few days after the game?
Here are a few excerpts from "The Futile Pursuit of Happiness" which is a conversation with the leading figures in "affective forecasting". I highly recommend it.
Daniel Gilbert, Professor os psychology at Harvard, calls the gap between what we predict and what we ultimately experience the ''impact bias'' -- ''impact'' meaning the errors we make in estimating both the intensity and duration of our emotions and ''bias'' our tendency to err. The phrase characterizes how we experience the dimming excitement over not just a BMW but also over any object or event that we presume will make us happy. Would a 20 percent raise or winning the lottery result in a contented life? You may predict it will, but almost surely it won't turn out that way. And a new plasma television? Worse, Gilbert has noted that these mistakes of expectation can lead directly to mistakes in choosing what we think will give us pleasure. He calls this ''miswanting.''
George Loewenstein then explains: ''Happiness is a signal that our brains use to motivate us to do certain things. And in the same way that our eye adapts to different levels of illumination, we're designed to kind of go back to the happiness set point. Our brains are not trying to be happy. Our brains are trying to regulate us.''
Then he goes on to describe the "empathy gap", the difference between how we behave in "hot'' states (those of anxiety, courage, fear, drug craving, sexual excitation and the like) and ''cold'' states of rational calm. This empathy gap in thought and behavior -- we cannot seem to predict how we will behave in a hot state when we are in a cold state...''These kinds of states have the ability to change us so profoundly that we're more different from ourselves in different states than we are from another person.''
Tim Wilson says: ''We don't realize how quickly we will adapt to a pleasurable event and make it the backdrop of our lives. When any event occurs to us, we make it ordinary. And through becoming ordinary, we lose our pleasure.''
Kahneman, who did some of the first experiments in the area in the early 1990's, affective forecasting could greatly influence retirement planning, for example, where mistakes in prediction (how much we save, how much we spend how we choose a community we think we'll enjoy can prove irreversible. He sees a role for affective forecasting in consumer spending, where a ''cooling off'' period might remedy buyer's remorse. Most important, he sees vital applications in health care, especially when it comes to informed consent.
To Loewenstein... a life without forecasting errors would most likely be a better, happier life. ''If you had a deep understanding of the impact bias and you acted on it, which is not always that easy to do, you would tend to invest your resources in the things that would make you happy,'' he says. This might mean taking more time with friends instead of more time for making money. He also adds that a better understanding of the empathy gap -- those hot and cold states we all find ourselves in on frequent occasions -- could save people from making regrettable decisions in moments of courage or craving.
''You know, the Stones said, 'You can't always get what you want,' '' Gilbert adds. ''I don't think that's the problem. The problem is you can't always know what you want.''
The implications of this research are profound. Indeed, neuroceuticals are the tools that will help ordinary people reduce their "empathy gap" and gain control over their "impact bias".
Provigil, short for "promotes vigilance," was approved by the FDA in 1998 for the treatment of narcolepsy, a condition in which people fall asleep uncontrollably.
Provigil apparently has the ability to keep people awake and alert for hours, or even days without the side effects — the buzz and jitteriness, or the risk of addiction — of coffee or amphetamines.
It is an interesting example of how individuals and companies might leverage early neurotechnology for their competitive advantage.
How many ways can our brains be molded? Researchers at Oxford believe they have zeroed in on the brain region involved in foreign accent syndrome, which causes patients' accents to shift suddenly.
Listen to a recent example of an English woman reporter who has foreign accent syndrome: before and after.
The first known case was reported in 1941 and involved a Norwegian woman who was ostracized when she developed what her neighbors thought was a German accent after she recovered from shrapnel injuries.
