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2010 Executive Tidbits
IBM, P&G, General Mills, McKinsey, and McDonald's have the best manager training programs according to Fortune 2009. |
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Check out Keith's other site:
Virtual Writing Coach |
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The
Executive Connection SM
a publication of The Virtual Executive
Coach SM
"Vision + Accountability = Success!"
www.virtualexecutivecoach.com
November, 2008
In This Issue:
1. Preview
2. Executive Summary
3. Behavioral Economics
4. Helpful Hints
1. Preview
The Executive Connection explores the creative and analytical
process of business development, team-building, and executive
development. We are an interactive community of executives
and small business owners who desire to network with like-minded
high-performance executives to enhance our knowledge,
skills, and aptitudes in the competitive business world.
Published monthly, the Newsletter offers coaching suggestions
around the topics of: business development, financing,
marketing, networking, incorporations, mergers, human
resources, governmental regulations, and tax laws. Topics
are presented from the perspective of Keith Barton and
represent only his ideas on creating and running your
business.
Because we are an interactive community of executives
and business owners, other viewpoints are welcomed and
may be printed in future monthly newsletters with permission
from Keith Barton.
2. Executive Summary
November, 2008
Dear Executive Connection Subscriber,
This month's newsletter features: Behavioral Economics
3. Behavioral Economics
I owe the idea for this article from my good friend, Dan Kutsko, a physicist and teacher, who inspires
his students to think "outside the box." He is also a student of history, astronomy, mathematics, and
classical literature. He shared an article from an ongoing think tank called "The Edge" which is comprised
of leading scholars around the world who focus on the intersection between probability theory, psychology,
and economics. Led by Richard Thaler, the father of behavioral economics and the Director of the Center for
Decision Research at the University of Chicago Graduate School of Business, he is coauthor (with Cass Sunstein)
of Nudge: Improving Decisions About Health, Wealth, and Happiness. Other noted colleagues are: Sendhil
Mullainathan, Professor of Economics at Harvard and Executive Director of Institute of Quantitative Social
Science, and Daniel Kahneman, Professor of Psychology, Princeton University and Woodrow Wilson School of Public
and International Affairs. He is also the winner of the 2002 Nobel Prize in Economic Sciences for his
pioneering work in integrating insights about human judgment and decision-making under uncertainty, a timely
topic given today's Stock Market and global economy.
Thaler offers four tenets for his foundations of behavioral economics: bounded rationality, bounded selfishness,
bounded self-control, and bounded arbitrage. The first three bounds are self-evident and based on human
behavior. The economic markets are able to exploit human folly, according to Thaler, which is why panic selling
occurs in a down market (rather than buying) and vice versa in an up market. Bounded arbitrage has to do with
the limits one is willing to compromise given risk-reward and duration in the markets. The longer the duration,
the more the volatility and risk-reward; the less the time left for retirement, the lower the volatility and
less the risk-reward, thus more conservative investments of liquidity. Social psychology can predict that
humans fear loss more than we love gain; thus we are less willing to opt out of savings programs than opt-in
(which is the current system). Also, people are influenced by money and tend to be more selfish and less
willing to help others. Those who are skeptical of a more wholelistic and religious view of monetary envy
being evil, tend to be more risk-aversive in their investments. Those who believe that money is no more than
currency provided by providence with spiritual gifts of talents, skills, and abilities tend to be more
risk-aversive and willing to share their money through philanthropy (witness the Gates Foundation and Warren
Buffett).
Thaler talks about Econs and Humans. Humans are like Homer Simpson, while Econs are like Mr. Spock. Humans
care about how a question is put to them that an Econ would identify as mathematically equivalent without
emotion. Thaler has a concept called "libertarian paternalism" which is an Opt-In program such as save more
tomorrow (SMT) for 401k plans. We don't generally save much, so his program allows us to save on the basis
of promotions and raises, which means our standard of living remains relatively constant (a tough nut to
crack for most humans). In fact we, as humans, opt-in for the "spend for tomorrow" program which is
promulgated by credit card companies who get rich off our greed and selfishness. Before we know it, we're
counting on bonuses to meet living expenses, and bankruptcy is right around the corner.
Sendhil argues that poor people exhibit similar behavior with food stamps and payday loans. His argument is
that under scarcity there is a systematic effect that you put the discount rate way too high for our own good.
Senhil's research concentrates on his native country of India where he studies fruit vendors who typically have
debt payments from their profits, similar to credit card payments in the U.S. His argument is that busy folks
behave similarly to poor folks: if you have little time, it is scarce and you are as time-poor as the fruit
vendors in India. You commit to future events (raise, bonus, promotion, lottery) and act like there is no
tomorrow while spending. The crux of this argument is that time cannot be borrowed or banked, so when the bank
calls in your loan, we must default because we think we can bank time.
More discussion about behavioral economics will be discussed
in future issues, but I direct your attention to Edge
for more information on this topic.
Helpful Hints:
- Argue that monetary temptation is a regressive tax, while time temptation is a progressive tax.
- Look at your present savings plan; to what extent do you ignore time constraints? What can you change in
your spending and borrowing habits to lessen this gap?
- Why do poor people contribute a greater percentage of their disposable income to charitable organizations
and churches? How does Thaler's theory explain why such seemingly irrational behavior is, in fact, rational?
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(c) Copyright 2008, Virtual Executive Coach SM
and A. Keith Barton, Ph.D.
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Republication of The Executive Connection SM
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With advance permission, we are happy to edit an issue
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The Executive Connection SM
Mission:
The Executive Connection SM is dedicated to
helping first-time business owners and executives to recognize
resistance to change, while they create and manage their
own businesses. My goal is to help you transform your
vision into a successful business venture with the addition
of accountability structures and silent partner.
The Executive Connection SM is a publication
of The Virtual Executive Coach SM and Keith
Barton, Ph.D.
We would like The Executive Connection SM to
be as interactive as possible. If you have feedback, comments,
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Send your e-mail to
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Archives:
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SM in our archive section.
About Keith Barton, Ph.D
Dr. Barton received his Ph.D. in 1972 from the University
of Texas at Austin and has been a practicing therapist
for over thirty years. He is a graduate of MentorCoach
and is accepting new clients.
He has been an adjunct professor at the University of
South Carolina, consultant to Fortune 500 companies in
executive development, founded and managed Texas Community
Living Ventures, Inc., in 1986 for providing group home
services to persons with mental retardation. Keith founded
and has been running a clinical practice in Northwest Houston since 1990.
He writes part-time with the goal of completing one novel
a year. His desire to coach others derives from his passionate
interest in helping others become attuned to their creative
powers of storytelling.
Dr. Barton has training in coaching, cognitive and family
therapy and health psychology. He has published articles,
made presentations and conducted workshops about:
Small Business Development
Employee Wellness Programs
Anxiety and achievement
Stress management
Self-esteem
Communication skills
Leadership styles
Core values in the workplace
Executive Development
High-performance groups
Physician support groups
Writer support groups
© 2010
The Virtual Executive Coach SM
and Keith Barton.
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