Decision Making and Rationality – Part 4

This is the final installment in the series on decision making. The information I’ve been discussing was derived from a survey I conducted over a month ago with readers.

Question 8 on Survey A was: Your company is surviving in this economy but is looking for ways to save money. Inflation is 0% and the company has decided to cut wages across the board by 3%. Is this fair? Nearly two-thirds (62%) said this was not fair.

On Survey B the question was slightly different: Your company is surviving in this economy but is looking for ways to save money. Inflation is expected to be 6% this year and the company has decided to give a 3% wage increase to everyone. Is this fair? Slightly more than two-thirds (67%) said this was fair.

Here’s the point: Both questions are really the same. In each case your buying power will fall by 3% because of inflation. The first case it unpalatable because no one likes to lose (scarcity) and that’s how it feels when your pay is cut. The second scenario doesn’t seem so bad because at least you got something. However, at the end of the day both employees have the same buying power if inflation turns out as predicted. Never forget, how you position things can make all the difference.

Question 9 on Survey A: You’re playing a game and your partner was given $100 to share with you any way they see fit. The two of you get to keep the $100 but only if you think you’ve been treated fairly. What’s the least amount you would want in order to not reject the deal?

Just over two thirds of the respondents said sharing $50 would be fair. The average of fair for all responses was $41.88.

On Survey B the question was: You’re playing a game and you’re given $100 to share with the person you’re playing with. The two of you get to keep the $100 but only if the other person agrees you’ve been fair. How much will you give the other person?

Here 93 0f 100 respondents said $50 w0uld be fair and the average of fair was $50.33.

Here’s the point: Both questions put survey takers in opposite positions. You know you can lose everything in Survey A if your offer is not perceived as fair so you better consider what the other person thinks is fair. As we’ve seen, most people view fair as roughly equal portions.

In Survey B the tables are turned and you can reject the deal which means the other person loses out too if you feel they’re not being fair. However, wouldn’t it be foolish to reject any offer because accepting even $1 makes you better off than you were before the game? What’s the point in teaching the other person – who you’ll probably never see again – a lesson because you didn’t think they were being fair?

Of course, in either scenario there’s lots to be considered if you will see the other person again, especially of you have an ongoing relationship. People take being fair very seriously and you’d best get to know the other person and try to learn their value system if you expect to have a good, long-term working relationship.

Question 10 dealt with salary increases relative to others in the same department. In Survey A the question read: You got a raise from $65,000 to $80,000. You’re now the highest paid person in your department. On a scale of 1-100 (1 least, 100 most) how happy are you?

The question was very similar for Survey B except how your new pay ranks in the department: You got a raise from $65,000 to $80,000. You learn you’re only the 3rd highest paid in your department out of five people. On a scale of 1-100 (1 least, 100 most) how happy are you?

As you can imagine, people in Survey A were happier, the average score being 83.6%with men coming in at 82% and women 86%. In Survey B the average was 74.2% with men being less satisfied at 72% and women reporting happiness of 76%.

Here’s the point: Sometimes we’re better off not comparing ourselves to others. There are times when comparisons are needed to make sure we’re not taken advantage of but quite often that’s not the case as we make comparisons. I wrote a blog post, “The Secret to Happiness,” where I shared a personal philosophy, “Happy is the man who wants what he has.” I must say my thinking in this area is impacted by Biblical principles which continually tell us not to compare ourselves to others because that becomes a source of greed, lust and envy.

I hope you found the survey and resulting posts helpful in understanding how and why people make decisions. If you’re trying to influence people recognizing they don’t always make decisions in the most rational manner is helpful because you can adjust your presentation accordingly. Doing so in an ethical manner can lead you to me more persuasive and hear “Yes” more often.

Brian, CMCT
Helping You Learn to Hear “Yes”.

1 reply
  1. Anonymous
    Anonymous says:

    Brian –

    #8 is huge and I’m sure you can find this in more depth in the economic literature. With both the Great Depression and the current economic environment, the country and world face actual or possible deflation. We are much more familiar with inflation and our policy tools are geared toward manipulating it. In a perfect-world response to deflation, wages and prices would fall in tandem, wages buying the same basket of goods as before, only at lower prices. (It really shouldn’t matter if milk costs $1 or $10, what should matter is how long I have to work to buy a gallon of milk.) However, the bias you have measured is so strong, policy makers have widespread support for mandating that employers keep wages at pre-crash levels. Since the rest of market prices have gone down, employers can’t make money paying people those wages. So, companies go under, and government imposes more mandates and benefit programs in a vain attempt to keep wages up, making economists cringe and making things much worse.

    Our government these days is working overtime trying to overcome the possibility of deflation and spur inflation (QE2, etc.). The result will likely be successful, but its ability to control how much inflation it produces is limited. We could be in for a massive bout of inflation, followed by painful efforts to control it. All because we can’t accept that a 3% raise in a 6% inflation environment is pretty much the same damn thing as a 3% cut in a zero inflation environment.



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