Today’s podcast is dealing with what our guest Adam Hansen from Ideas to Go calls cognitive bias and his new book, Outsmart Your Instincts: How the Behavioral Innovation Approach Drives Your Company Forward. This is where you show a bias towards a thought or behavior. Sometimes these bias’ make sense and more often they don’t.

Cognitive bias is a first cousin to behavioral economics. Too often we make decisions based on faulty information or beliefs. This can get in our way in making wise decisions about what you need to be thinking about when it comes to making good business decisions.

Here are some of the things we’ll be talking about today:

  • Why the next big innovation will come from between your ears.
  • If you know what your biases are, you can overcome them in your thoughts and actions.
  • What served us in the past might not be serving us in the future.
  • You need to know about Daniel Kahneman and Amos Tversky
  • Recognizing your biases allows you the opportunity to do something about it.

Narrator:         Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.

Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.

Josh:                Hey, how are you today? This is Josh Patrick and you’re at The Sustainable Business.

Hey, today we’ve got a great guest with us. His name is Adam Hansen. He’s one of the principals at Ideas To Go which is an innovation firm. They are really interesting people. I’ve had a chance to talk to three of their principals and the stuff they do is just fabulous. And I’m sure Adam will tell us a little bit about that.

But today, we’re here to talk about their new book which is going to be out on January 10. And we’re recording this right after Christmas but this will be on your dashboard a little bit after the book comes out. The book is called Outsmart Your Instincts. It’s about cognitive biases which is something that’s kind of an important thing for us to understand. And again, we’ll be talking with Adam about that. So, instead of me just on talking about what he’s going to talk about, let’s let him speak for himself.

Hey, Adam, how are you today?

Adam:             Josh, I am well, sir. Anytime I get an opportunity to talk to you and we get the chance to kick around interesting material, I’m always up for it, so this is fantastic.

Josh:                Cool. So, I love having these conversations with people like Adam. I first met you at an innovation thing that Doug Hall was doing down at the Woodstock Inn in Vermont and we had a really interesting conversation the first night that it went for something like three or four hours. We talked about every strange thing in the world. And then a couple of years later, I ran into you at a Michael Port thing and we continued this strange conversation. So, my bet is we might even continue it today.

Adam:             I think that bodes well.

Josh:                Yeah. I think so, too.

So, let’s talk about your book. Why are we outsmarting our instincts?

Adam:             Well, Josh, it’s been our observation that the next big opportunity, we believe, for breakthroughs and doing innovation better really isn’t going to be in coming up with the next generation system or process. Twenty years ago, that may have been the case. And indeed, we saw some really great things happening with thoughts and as far as Stage-Gate and other ways of doing process better. And a lot of those gains have been realized. And so, the observation with our clientele – much for clientele is Fortune 250, Fortune 200 and they, for the most part, now are all there in terms of the systems they’re running, their organizational structures and everything.

We believe now that the next great breakthrough really is going to happen in what’s going on in between our ears. And we started noticing about ten years ago that what we were doing in our work and what was going on in some of the breakthroughs in cognitive behavioral decision making, behavioral science and everything were really starting to intersect rather interestingly. And so, we thought, “Hey, let’s pay some attention to this. What’s going on?”

And so, bit by bit, we started noticing that a lot of the work we were doing was really tying in very nicely with what we were learning about cognitive biases. And so, we said, “Well, let’s just start labeling it as such.” And we started talking more and more about when we’re using this language about banning yes-but.

Well, the reason why we had to do that was because there’s this thing called negativity bias and it really is. It’s very kind of intractable thing that humans just are drawn toward because it was really adaptive – centuries ago, millennia ago. It’s what kept our species alive. These other biases, like availability bias, and confirmation bias, and status quo bias and all these other things. Again, these are shortcuts that were selected for, you know, in an evolutionary sense, to really benefit our ancestors because conditions were different.

And when life was lived much more at the base of—for those of your listeners who are familiar with Maslow’s hierarchy of needs – when the big win was survival and that’s where most of the needs really were aggregated, and to live to another day really was the big win, we didn’t really have to worry about some of the higher order needs. Being really adept at executing some of these shortcuts was really the big win. And that’s why these biases became so well entrenched. That’s why they became automatic. That’s why they were selected for and passed on and why we come by all of these so honestly. And we don’t need to be judgmental about them. But now that we’ve become aware of them, we can do something about them.

Josh:                So, what do these biases do to get us in trouble these days?

Adam:             Well, it’s just the idea that conditions have changed. And whereas, a lot of conservatism and—you know, many of these do cluster around the broad umbrella of loss aversion. Whereas, centuries ago, millennia ago, just really protecting the tribe and protecting the clan was really—you know, you had to do that first and foremost because so many threats loomed against everyone daily. And many of those threats existential.

I mean, that was really important. You didn’t have to worry about some of the finer detail if you got killed. You didn’t have to worry about so many other things if you couldn’t find any food. You didn’t have to worry about so many other things if you just weren’t going to be able to put together some of the basic needs.

And so, now that many of those things are covered—so for example, you know, sufficient calories – that’s not our problem anymore. Our problem is we have too many calories, right?

Josh:                Yeah. That’s for sure.

Adam:             And just as our bodies are still wired for a time of caloric scarcity and what’s got most of us in trouble is now caloric over abundance, given that our bodies still are wired for caloric scarcity. The same thing is true with our mind. Our mind is still, in many ways, wired for this regime of lack. And loss aversion is a big bugaboo.

But those aren’t the conditions on the ground. And so, we need to be aware that our mind is prepared to run these automatic scripts for conditions that just aren’t really the reality anymore. And so, in many ways, our minds are now adaptive and we need to just understand what’s going on. We need to peak under the hood a little more often and be aware that these things are non‑conscious. And we don’t need to be judgmental because we’re all in this together.

And so, as we’ve gone through this and we see all of these biases occurring in our own behavior and really daily. If anything, it’s only made all of us feel much more humble about it as we see this happening ourselves. But it really just makes us feel like, “Well, hey, this is great. This is an opportunity.” We can start doing something about this ourselves. And as we’ve done it, we’ve started to see some real improvement in our own results, in our own behavior. And the great news is that we can fix this and it’s really not that difficult than to start to do some small things to make it a whole lot better.

Josh:                Okay.

So, I will just interrupt here because this sounds a lot like what’s known as behavioral economics. And I just actually finished Michael Lewis’ excellent book about Daniel Kahneman and Amos Tversky which I highly recommend folks read along with your book because you’ll get a sense for what the background for this thought process is and where it comes from. So, is this like a first cousin to behavioral finance?

Adam:             Yeah. So, behavioral science first started getting rooted in behavioral economics. And Michael Lewis, in the Undoing Project, kind of cops to it that as Money Ball started to get press, people were starting to point out that “Hey, you know, kind of the next step for you is to check out the work of Kahneman and Tversky.” And he hadn’t really even heard of them. He talks about it in the introduction to the Undoing Project.

By the way, I will second your recommendation for the book. One of my favorite nonfiction authors, perhaps one of the best, is writing a book on — perhaps right at the moment, my favorite subject. So, holy smokes what a win.

And so, yeah, one of the first places it shows up is in economics. And lot of Kahneman’s students, for whatever reason, start finding application in economics. And people like Thaler—this lawyer guy, for some reason, Cass Sunstein starts finding some real application for it. And he starts getting involved with it.

But maybe it finds—perches first in economics because it’s such a great area to see it modeled because the practical application of it can be demonstrated so starkly. And so, you start seeing it applied there. Behavioral economics is where you first start seeing it first. But now, we start to see it branched out.

Down at University of Texas, Austin, there’s a group there doing some work in behavioral ethics. You start seeing it behavioral finance, you mentioned. We’re going to start seeing it spread out.

We, in the book and in our company, we’re laying claim to the term behavioral innovation. So, I think you’re going to start seeing behavioral-fill-in-the-blank start showing up in a whole lot of extra places because the insights of behavioral science – behavioral decision making are going to be applied to more and more places because the insights have a whole lot of validity.

Josh:                So, the important thing is and you seem to be pointing this out, at least in my opinion, is that if you recognize what it is you’re doing, you have a chance to do something about it to combat what’s going on in your brain and to actually use a rational thought process to replace the emotional thought process. Does that make any sense?

Adam:             I’d make one small adjustment. It’s the idea that what we learn from the whole behavioral revolution is to start off with what was the model before. The model before was the rational man, right? The rational actor.

Josh:                Right. Which we know doesn’t—

Adam:             Yeah.

Josh:                By the way, that’s why it first took place in economics because, in my opinion, the whole field of economics except for behavioral economics is built on a lie.

Adam:             Yeah.

Josh:                Which is, human beings are rational and they’ll do rational things. And frankly, we know that’s not true today. And the economist continued to believe it is true.

Adam:             Well it was all built on, you know, the Latin term of homo ekonomikus. And so, you have all these rather elegant theories worked out of this rational actor. This construct of this perfect person who makes only the most rational decisions based on maximizing his own utility and he has perfect access to all information to make these decisions. Of course, this person has never existed. And when asked to locate this person in reality, not one economist has ever been able to actually locate that person.

Josh:                Including looking internally at themselves.

Adam:             Exactly.

And so, the economist will continue to fulminate against how stupid everyone is in their immediate world and yet would continue to kind of be rather obstinate in their theories. And so, the moment you go, “Wait, that’s a really bad model because it just doesn’t meet the facts on the ground at all.” And you observe that humans are first and foremost emotional critters. And we have to take that into account.

And in fact, one of the biases we talk about the in the book is this idea of confabulation, that we make decisions. And then, after the fact, we seek out the rationale for why we did it. And we’re not lying. We seek the best evidence to kind of make the case for why we did it. And it really isn’t in any way to try to shade it or try to evade truth. We really often don’t have access to why we actually do a lot of the things that we do. And so, we try to be helpful to describe why we did what we did. The fact is we really don’t know.

So, if someone asks us why we did something, we’ll furnish the best evidence for why we did it and we really believe we’re being helpful. And it may come close to why we did it. But the fact is we just don’t know why we did.

Josh:                You know, salespeople have used that principle for a zillion years in that they know that people by in emotion and justify with facts.

Adam:             Absolutely. And so, we need to continue—as marketers, as product developers and everything, we need to continue to obviously make great products. We need to provide value. We need to continue to do that. We need to line up the facts for why what we’re providing is great. We need to provide the rationale and everything because humans aren’t going to quit doing that anytime soon. But the idea that, “My product wins simply because I can furnish the longer list or this longer and stronger list of reasons why.” That will continue to be, as what they say, necessary but not sufficient and we better have the emotional reason for selecting our product.

Josh:                So, it sounds like, when we’re working in the world of innovation, where you live, we really need to be focusing on the big emotional why and then figuring out why that emotional why might have some traction with the people we’re trying to influence.

Adam:             Absolutely. We need to have both parts. And when you have the big emotional why and then support it. In fact, let’s start with the emotional why and then make sure that we have the support – the rational support for the emotional why. The emotional why has legs. It will last longer and is more defendable because if we only have the rational why, we’re immediately beat by any kind of breakthrough that is better in terms of the technical or the rational.

Josh:                That makes perfectly good sense.

Hey, I want to spend a little bit of time talking about this particular principle which you don’t cover in your book but I know you guys think about it a lot which is, “What is innovation?” In my opinion—here’s the issue, is that every time people talk to me about innovation, it seems to be focused on the external from the company. And in my experience, the most important innovations I’ve ever had in my business career have all been around business processes that we do internally. So, let’s spend a little bit of time talking about that, Adam, why people think innovation is only an outside activity when it really needs to be a both.

Adam:             Absolutely.

Well, I’m going to start off with innovation, overall, is just a mindset. And innovation is an ongoing activity. But innovation is anything that produces a positive economic result. And so, it’s a new product. It’s a new service. It’s a new process internally. It can be an entirely internal activity that your customer may never experience directly. It just may be something that increases throughput or just increases internal satisfaction amongst your employees. It can be any of that. But anything that increases the value of the organization just increases positive economic result. Any of that is innovation.

And it doesn’t need to be big event that. It doesn’t need to be the big splash. It can be—what can I innovate on today? What can we do this week that makes some positive change for the organization?

Josh:                You’re speaking to something which is near and dear to my heart which is fail fast, fail cheap.

Adam:             Yeah, absolutely.

Josh:                Too often, the folks that I work with put way too much effort into projects. And then because we’re into what’s called sunk cost, they won’t give up on it. And in my experience, if you aren’t always doing small experiments, you’re never going to get the opportunity for that big breakthrough because it takes hundreds of small experiments before you stumble across it.

Adam:             Yeah, absolutely.

And even our language fails us often – speaking of fail fast, fail cheap. And I wish we just had a broader vocabulary around this whole notion of failure and learning. And I think, if we could work on that some, instead of thinking failures just like what can I learn today? How can with be more aggressive, more proactive in learning today, learning this week? Think more about what can we learn this week? What can we learn this month that makes you us better, stronger, fast in delivering value? What makes us more proactive in getting value to our customers? What just increases the bond between us and our customers? What can we learn with respect to that today, this week, this month?

Josh:                Well, for me, it’s a mindset around mistakes and it started with a guy named Buckminster Fuller who I think is probably one of the, if not, the most important thinkers of the 20th century. And, you know, frankly, he said, “Mistakes are learning opportunities.” And the other thing he said about mistakes is, “You don’t learn less.”

Adam:             That’s great. That’s great.

Josh:                And since both are absolutely true and both are basically around the world of learning experiences, or as the rest of us call it mistakes, we have to start thinking that mistakes are good things and that we can learn from it. In fact, go back to learning to ride a bike. Did you learn by doing it right or did you learn when you fell off?

Adam:             And that’s exactly right. And so, not to carry that metaphor over seems really odd to me. And there’s the notion that we know that’s all true and we know that in our personal lives.

So, I’m a musician and I’m self-taught. My only formal instruction was on the brass instruments. And so, I went through all that but I’m self-taught on a bunch of other instruments.

And my secret there was I was willing to be horrible at them for a while. And so, when I started off on the keys, man, I sucked for a good couple of years. And it was just my willingness to be bad at it for a while. But I didn’t even think of it in that term just because I loved it so much.

I mean, I wasn’t self-delusional. I think I was pretty aware that I wasn’t really ready to go perform in front of a whole lot of people anytime too soon, but I saw enough progress. I saw the trend. The trend is so much more important than snapshot early on.

And you just need to love it. You need to be into it enough. And you need to be focused on the trend. “Am I getting better?” I need to be willing to embrace the horribleness of it enough for long enough. But then, just to see enough progress and focus more on the progress than any notion of mistake or failure. And that’s so much more important.

And it’s just so much more realistic. And yet, we fail to somehow carry that over to the business world. And I don’t understand why we think that those experiences are going to be different somehow just because we’re now in a business setting.

Josh:                I’ve always found that a mystery.

And unfortunately, Adam, we are out of time. And I am sure that some of the folks who are listening are going to buy your book and find out more information on what you guys do. So, if they want to do one or both, how would they go about doing so?

Adam:             Check us out on the web. We’re at www.ideastogo.com. That’s I‑D‑E‑A‑S‑T‑O‑G‑O.com. The book is Outsmart Your Instincts: How the Behavioral Innovation Approach Drives your Company Forward. I’m Adam Hansen. Hansen is spelled with an S-E-N, Danish. And you can check us out, we’re on Amazon. We’ll be in Barnes &Noble. And then launching in February, will be our podcast in support of the book. It will also be titled Outsmart Your Instincts.

Josh:                Cool.

And I highly recommend folks listening to contact Adam and look him up a little bit because he’s a really interesting guy, really smart. His firm does really interesting things. I think that most folks listening to this podcast might have a hard time affording them but, be that as it may, they still do really interesting work.

And I also have an offer for you. I have a one-hour physical audio CD. It’s called Successes to Sustainability: Five Things You Need to Do to Make your Business Personally and Economically Sustainable. It’s really easy to get to this CD. Just take out your smartphone, open your messenger app and text SUSTAINABLE to 44222. That’s SUSTAINABLE to 44222.

And this is Josh Patrick. You’re at the Sustainable Business. I hope to see you back here really soon.

Narrator:         You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at jpatrick@askjoshpatrick.com.

Thanks for listening. We hope to see you at The Sustainable Business in the near future.

 

Topics: sustainable business podcast, behavioral economics, cognitive bias, decision making

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