06 Jul 2009  What Do YOU Think?

Are You Ready to Manage in an Irrational World?

It is becoming clear that human behavior is much less rational than we assumed, says HBS professor Jim Heskett. Judging from replies to this month's question, there are many nuances to managing in an irrational world. (Online forum now closed. Next forum begins August 7.)

 

Summing Up

What's rational in the world of management? Judging from replies to the question, "Are you ready to manage in an irrational world?," respondents to this column are ready. But they also conclude that the question is much more complex and subtle than this. Some questions raised were:

What part of the job demands rationality? Yaron Kaufman suggested that "Managers must be rational when it comes to planning, financing, operating and measuring business performance…. Irrational thinking is needed when you think about the question, 'What's next?' "

Who demands rationality? Marco Lalama pointed out that "Some people are more rational than others…. What do we do about that?" Phil Clark went even further, saying, "We were never created to be rational."

Are we objective in assessing rationality? Narendar Singh reminded us that "History has proved that each generation perceives its actions as rational but to (the) next it may appear irrational. This is the path to growth and development of civilization." Frances Pratt said, "What is normal and rational is framed by our view of reality." Rebecca Mott added, "If I have a me-centric view of life, then what seems rational to me as an individual may appear irrational in the context of social norms."

Michael Linz asked to what extent a response to the question relies on how we frame the problem? As Jim Geisman put it, "We've seen people and companies reject new technology …. Is (it) irrational … (to) place a higher value on their current solution than they do on a future uncertain benefit(?)"

What about the impact on management? Nicola Stevens concluded that "It (irrational behavior) makes suspect much of what we do as managers." In Deb Seidman's words, "Workers will become increasingly self-managed and the manager's role will require the ability to facilitate dialogue, clarify roles and responsibilities, gain alignment, drive to consensus, and enable peer coaching and feedback." Gerald Nanninga added, "Learn the (personal and individual) biases and all becomes 'rational' again for management purposes." Ron Palmer observed that the discussion "adds weight to the ideas that we need new and better tools for managing complexity …." Tony Eckel observed that "… accepting ignorance is the first step to managing successfully in an environment of uncertainty."

As for what this means for educators, Joseph Holt believes that "economics and management … will be taught even more effectively the more accurately they reflect a human reality that is more complex and imperfect than the traditional approach has supposed." Marie Taillard adds, "we are shifting away from thinking that we can predict or control the behavior of others …." Because economics is a study of value, Deepak Alse comments that "what we need to change is not the approach to value but (emphasis on study of) the perception of value." What do you think?

Original Article

Have you noticed that we are being bombarded by a flood of work by neuroscientists and behavioral economists, aided by such things as clever research design, the use of improved technologies for measuring brain activity, and the admission by Alan Greenspan that markets acted in ways he had not anticipated? The work shares several common counter-intuitive conclusions that: (1) human behavior is much less rational than has been assumed, (2) this renders much of conventional teaching in fields such as economics and management obsolete, and (3) it makes suspect much of what we do as managers.

Consider two examples that came to my attention this past week. One is a book by Charles Jacobs titled Management Rewired, which concludes that many conventional beliefs about management run counter to the findings of neuroscientists. The other is an article in this month's Harvard Business Review, "The End of Rational Economics," by Dan Ariely. It argues that theories, strategies, and actions based on assumptions of irrational behavior on the part of employees, customers, and competitors are likely to be more effective than those that assume rationality. These are just two more of a number of recent writings that both contribute to and seem in part to have been inspired by the surge of popularity of the writing of authors like Charles Handy and those (such as Malcolm Gladwell, Steven Levitt, Stephen Dubner, and James Surowiecki) he may have influenced.

In his book, Jacobs begins by asserting that, because each of us harbors our own perceptions of reality, "It turns out that most of what we thought we knew about management is probably wrong." Reactions to our efforts as managers reflect what each individual receives in relation to what he or she perceives and expects. Because this is highly subjective, the argument goes, generalizations (many of them currently taught in conventional courses) about how to manage are practically useless. Instead, managers should encourage employees to set their own goals, appraise their own achievements, and reach their own conclusions about how to improve. Managers should also spend more of their time inspiring (through stories) and devising engaging activities from which employees may, to some extent, choose.

Things become much more complex in the world of irrationality. Much of traditional economics becomes outmoded when complex relationships based on often counter-intuitive behaviors are taken into account. Instead of a management philosophy centered around the manager as the play-caller, assigning tasks and motivating people to carry them out, we are told by the neuroscientists that the new management job is one of facilitating more of a customized, do-it-yourself process centered around each newly-energized employee, one centered on questions (often leading) rather than direction.

This raises a number of questions. Is conventional wisdom in areas such as economics and management truly threatened? Is it too early to tell? To what extent should the findings of neuroscientists and behavioral economists be incorporated into the business school curriculum? How do we avoid creating a generation gap between those in management whose learning assumed that markets and people behave rationally vs. irrationally? Is it time to place more emphasis on educating students to manage in a world of irrational behavior? What do you think?

To read more:

Dan Ariely, "The End of Rational Economics," Harvard Business Review, July-August, 2009, pp. 78-84.

Malcolm Gladwell, Blink: The Power of Thinking Without Thinking (New York: Little Brown and Company, 2005)

Charles Handy, The Age of Unreason (Boston: HBS Press, 1989)

Charles S. Jacobs, Management Rewired: Why Feedback Doesn't Work and Other Surprising Lessons from the Latest Brain Science (New York: Portfolio, 2009).

Steven D. Levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (New York: HarperCollins, 2005)

James Surowiecki, The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economics, Societies, and Nations (New York: Doubleday, 2004)

Comments

    • William Cusick
    • CEO, Vox, Inc.

    Despite the glut of research and evidence suggesting that we are all, in fact, irrational, my impression is that the lessons are very slow to take hold in most business disciplines. In my soon-to-be-released book "All Customers Are Irrational: Understanding What They Think, What They Feel, and What Keeps Them Coming Back," I try to make the same case for a new approach to customer research and service that you suggest for management. The reality of how we actually perceive the world, make decisions and behave runs counter to long-held assumptions, and change in business practices will surely happen, but slowly.

     
     
     
    • Yaron Kaufman
    • CMO, OneHourTranslation.com

    As a founder of an ambitious web initiative, I can testify that irrationality is critical today. Both innovators and managers must think "disruptive", or slowly disappear. Take a look at exciting initiative such as Twitter or YouTube: rational, non-disruptive thinking would never let them happen.

    How will conventional thinker treat viral marketing, that cannot be controlled or specifically measured? It is not the end of rational thinking, of course. Managers must be rational when it comes to planning, financing, operating and measuring business performance. All those can easily be studied at business schools. Irrational thinking is needed when you think about the question "What's next?".

    Two books that also worth mentioning here are Nassim Nicholas Taleb's "The Black Swan" and Seth Godin's "Purple Cow".

     
     
     
    • Anonymous

    It is much easier and better to manage in an irrational world than to manage irrationally.

     
     
     
    • Anonymous

    Irrational, illogical and random are often confused when describing behavior. Albert Ellis, a pioneer in Rational Emotive Therapy, discusses how behaviors are a result of cognitions (beliefs) about an event or situation and that the cognitions can be classified as rational or irrational. The resulting behaviors (barring the presence of psychosis) will be logical although they may be either rational or irrational. Problems occur for managers when they assume they understand what the beliefs of employees are (often assuming that they are the same as the manager's) and are surprised when the employee responds in what they believe to be an illogical and irrational way that is really coming from an employee's different frame of reference. Management practices will change but hopefully it will come from a greater understanding of human behavior.

     
     
     
    • Marco Lalama
    • Partner, OJOROJO Publicitaria

    I believe that much more research is needed. To start with, not all people are the same, thus generalizations in the form of management rules are not very useful. Some people are more rational than others (Myers-Briggs test). What do we do about that?

     
     
     
    • Anonymous

    Having been a manager "in the trenches" for 20 years, I am giggling a bit at the discovery that people are irrational. Working managers have known this for years. First and foremost, people are about self-preservation or maintaining a staus quo that works for them individually. I have worked mostly in nonprofit development and I can say without a doubt that altruism barely makes the top ten reasons why people join boards or become managers in this field. I am not by any means an authority on management. However, managing people is much easier if you know where they are coming from and where they want to go. One has to know that before he/she can manage effectively. Sometimes, you discover things about people you would rather not know. In the end, knowing these things helps you build a team that can move the collective agenda of an organization forward.

     
     
     
    • Ezra Adams
    • Director of Student Life, Episcopal Day School

    WGary Johansen's "Get There Early" (2007) provides another substantial contribution to the irrationality discussion. Johansen uses the VUCA acronym to describe a future full of "Volatility, Uncertainty, Complexity, and Ambiguity" and the coping tools of "Vision, Understanding, Clarity, and Agility."

     
     
     
    • Narendar Singh
    • professor, Vidya College of Engineering

    Despite little research on the topic. I have seen that irrationality is common all round. The irrational may seem to a particular person but the individual who is acting actually belives it is rational. Leaders, managers, soldiers behave rational in their perception, but it appears irrational to others. History has proved that each generation pervceives its actions as rational but to next it may appear irrational. This is the path to growth and development of civilization. I have tried to bring this out in my book on leadership.

     
     
     
    • Jim Geisman
    • President, Software Pricing Partners

    I'm not sure about the research into irrational behavior. But one thing I am sure of is another person is not irrational just because you don't understand their underlying motivation.

    One of the lessons you learn with age and marriage....

    Often the appearance of irrationality depends on one frames the problem. We've seen people and companies reject new technology despite the many benefits and compelling business case. Is this irrational?

    The "irrationalality" seems pretty rational when you think that people place a higher value on their current solution than they do on a future uncertain benefit. Furthermore, it really makes sense when you realize people are loss-averse even in light of compelling gains.

     
     
     
    • Ido Eilam
    • CEO, SunSetter Products

    The magnitude of irrational behaviour of consumers and business entities, which creates irrational market conditions, varies from industry to industry. But within all industries, it re-enforces the need to collect market data on a constant basis and analize the data frequently, in order to navigate the organization in the optimal way and be able to respond quickly to changing conditions. In parralel, the organization has to be flexible enough to change course in a short time and take advantage of unexpected opportunities and not continue and spend energy and money on opportunities that have become obsolete. Some industries, like high tech, are already managing in this mode and will be the first to adapt to the irrational marketplace.

    Managers in other industries will have to move out of the comfort zone and learn to perform in (and even enjoy) a higher pace of changing conditions. To help future Managers deal with that kind of environment, Business Schools have to concentrate more on subjects like "Managing under constant changing conditions" and on how to build highly frexible organizations with more customized and just in time product development and manufacturing.

     
     
     
    • Deb Seidman
    • President, Green Silk Associates, LLC

    The idea that people don't always follow direction nor behave as you would expect is not a new one. People may behave rationally based on their perceptions of a situation and this may appear irrational to someone with a different perception. Also, facts, emotions, values all play a role in how we operate.

    Managers need to understand these complexities and learn to communicate more dynamically -- to understand, clarify, facilitate dialogues that lead to mutual understanding and commitment.

    This becomes increasingly critical as millennials enter the workforce and technology enables ready access to information. The way in which work gets done and how organizations operate will shift. Workers will become increasingly self-managed and the manager's role will require the abilitiy to facilitate dialogue, clarify roles and responsibiltiies, gain alignment, drive to consensus, and enable peer coaching and feedback.

     
     
     
    • Gerald Nanninga
    • VP, Retail Ventures, Inc.

    I think we need to make a clear distinction here between thinking irrationally and acting irrationally. I believe that nearly everyone acts rationally, i.e. acts acts in their own (or their group's) best interest. It is the only way to keep one's sanity.

    The problem is that those "rational" actions are based on a distorted world view (what people think is real). If you believe these distortions to be true (which people do) then you are acting rationally when you act as if you will benefit best from that distorted viewpoint, even if the outcome is not beneficial because of the error in those thought distortions.

    But even here, I have difficulty calling these thinking distortions irrational. "Irrational" implies to me a sort of random unpredictability of thought devoid of logic. However, based upon my readings, these distortions tend to be fairly predictable and consistent. There is a logic behind the distortion.

    For example, humans do not tend to have a mathematically pure appoach to comparing upside gain to down-side risk. However, there tends to be a consistency in the distortion--most are biased to distort the comparison in a similar manner.

    For a given individual, these biases and distortions will tend to predictably act in the same manner over time (because their internal logic does not change). Therefore, once you understand the people you manage, you will understand those predictable distortions and can manage accordingly.

    Conclusion: People act rationally and think logically (even if that logic is based on distorted biases). Learn the biases and all becomes "rational" again for management purposes.

     
     
     
    • Fernando das Neves Gomes
    • Consultant, Independent

    Dear Professor, dear colleagues,

    First of all thanks for one more big intellectual challenge, and great opportunity article. I entirely agree with this organizational and learning process approach concern, in my humble sought, I think it's just because of that HBS it's the number one academy in Business, allays one step ahead.

    If you allow me I like to share two things in this matter related with the topic. One concerning internal concept and probably regarding the learning process to be prepared for that, and the second concerning the market, the irrational assumption of that.

    Firs, regarding companies that adjust your behavior regarding internal and individual exposition (entrepreneurship), improving methods, contents, results, strategies... It's my knowledge that companies have to be prepared to that constantly challenge and this affect organizational organigram, the speed of relations and flows of information, regarding hierarchy speed for reaction approval, or not, conceptualization to deliver down power to accomplishment, transforming innovation in strategy, product or action. Giving speed and organizational correlation for execution and achievement, getting organizational results, replying, adapting or leaving. And do that in constant cycle, adapting always with speed and not losing professional and organizational engagement. Concluding, traditional we adapt organizations to respond to a product or service, now we have to prepare organization to be always, what we can call, suppleness, to achieve the best results don't losing vision and missi on (in side that boundaries and with this accepts we have to accomplish the most we are able to).

    The second thought concerning market. At this point I think people became more emotional, and internet give them that, one photo, one movie, one article, that explore their emotions, and the freedom to look for that, improve this reality.

    I think the Susan Boyle example is the extreme example for that. I think not, but if i was a strategist for that program, saying "now I will give you the extreme power of communications in society impact" - I will design the Susan Boil event. So this is the new relation we explore in the irrational market, transforming that in one rational act. If we can explore the emotional dimension of one simple act, investing in the communication articulation, ever exploring the product but the indirect impact,...People

    Best regards,

     
     
     
    • Phil Clark
    • Clark & Associates

    Who ever dreamed and sold the concept of rational behavior avoided good observation. We were never created to be rational. Trying to figure out what others are "supposed" to do as a reaction of what "I want you to do" has always been an issue. Man is resilient against any force. We face atomic annihilation and we resort to primative tactics like terrorism. We allow the financial world "free enterprise" and we now are in a mess because the rationality of the theory failed to play against the irrationality and greed of man.

    I like the new research because it lends substance to what we have observed all our lives. We all make decisions based on what we want and need as perceived through our brain. The world of business will always have to play in the field of trial and error just to see what triggers the fancy and attention of customers. That will frighten the control and beancounter mentality of leadership in many organizations. Never forget...all business is about people...not stuff, dollars, or plans.

     
     
     
    • b
    • ceo, iGlobal Network

    I agree wholeheartedly with the current research conclusions that say we are basicaly irrational. But, I would caution that some decisions that seem to be irrational are in fact rational when you consider the context. The book by Tim Harford called "The Logic of Life". Where he make the arguement that much of human behavior is in fact logical and most decisions are made in the self-interest of the decision maker.

    However, I do tend to come down more on the side of the irrational crowd, but only to a point. My view is that what starts out as rational behavior in the unconscious ends up being viewed as irrational behavior and logic. The great sticking point here is that it is the unconscious that is the source of many of our decisions which are made to a large extent outside of our conscious awareness. Also, logic in my opion is somewhat of a cultural characteristic instead of an objective phenomena that is the same across all cultures.

    Charls Jacob's excellent new book, "Management Rewired" is a move forward in management and leadership theory. Many of his points are groundbreaking in their simplicity and practicality. I think the book is really about how to manage in a world of increased diversity, uncertainty, change, and complexity. My only source of critique is that I think many management observers fail to account for the influence of the context and to a larger extent the group.

    Organizations are really made up of cliques and clans that weld an unusual amount of power and influence. People have a tendency to do what the people who are around them do. This is why culture is so critical to the operation of sucessful organizations. I could go on forever, but I will end by saying I find the whole field of brain science applied to management issues fascinating.

     
     
     
    • Michael McPherson
    • Partner/Creative Director, Corey McPherson Nash

    I think the really surprising thing is that our assumption of human rationality is so resilient over a hundred years after Freud. (I recall with some smugness that I dropped Econ 101 when I heard on the first day that the assumption was that humans act rationally to "optimize their utility.") Our assumption of rational decision-making is itself based on our irrational disposition to think well of ourselves in spite of the data. Maybe also the desire to make really pretty mathematical models. In addition to the reading list above, I suggest How We Decide by neuroscientist Jonah Lehrer and Nudge by Richard H. Thaler and Cass R. Sunstein.

     
     
     
    • Joseph Holt
    • Director for Executive Ethics, Executive Education, Univ. of Notre Dame

    The sub-optimal rational functioning of human actors, economic and otherwise, was long ago captured pithily by George Bernard Shaw in his observation that, "Except during the nine months before he draws his first breath, no man manages his affairs as well as a tree does."

    As for the relevance of that observation to the traditional approach to economics and management, I believe those subjects will be taught even more effectively the more accurately they reflect a human reality that is more complex and imperfect that the traditional approach has supposed.

    The traditional approach will still have a great deal to offer, but its practitioners will be akin to a doctor who after years of practice recognizes, to the great benefit of his or her patients, that the approach to healing indicated by his or her training and experience is not the only viable approach.

     
     
     
    • Ron B Palmer
    • President, Gulf Stream Press

    This article adds weight to the idea that we need new and better tools for managing complexity both in general and in the area of management and Economics.

    I remember having a discussion with my Economics 101 professor about perfect equilibrium in markets and simply not believing it even if I didn't yet have the academic tools to articulate why. Since then, I've discovered that many people share my scepticism. One excellent example is documented in a book called, "Complexity: The Emerging Science At The Edge Of Order And Chaos." The book documents work performed at the Santa Fe Institute in this specific area.

     
     
     
    • Deepak Alse
    • Program Manager, Wipro

    Nothing stated in Ariely's book or the other books, challenges fundamental wisdom of pure sciences or of Economics. What these and other books on behavioral economics, do challenge, is the paradigm that we have been using to apply the fundamentals. Economics is a study of value.. what we need to change is not the approach to value but the perception of value. Methods developed in fundamental sciences and applied sciences, have been developed from an experimental approach and are meant to enhance an understanding of the basic rules.

    For example, intuitive thinking or' Blink' thinking, is not a new paradigm.. rather it is a time-compressed view that focuses on how our mind rapidly uses data available to arrive at decisions even when the data is not adequate. What these findings and related research points out is that we need to encourage an open loop orientation to learning. What we call as 'irrational' is often the 'unknown'.. Educa tion (management or others) needs to encourage the idea that every theory is valid until it is replaced and hence the 'unknown' should be a part of the analytical space. From definitive approaches to thinking, we need to go into systems-oriented integrative approaches to thinking- That's the true recipe for staying afloat and succeeding in the 'irrational' world!

     
     
     
    • Donald E. Watts
    • Executive Officer, Retired

    Peer review is necessary, ask Thomas Jefferson (if we only could!). The only indeterminate that I remember facing in managing an operation: people.

     
     
     
    • CJ Cullinane

    I do not think any of us should be surprised by the 'new' findings on people not being rational or even logical. If you read about the Crash of 1929 and the depression that followed there are many similarities to today. Greed, habit, and consensus can turn even a rational, logical human into an irrational person. Is it rational to think that super low interest rates would not create large debts?

    As a species I don't think we have changed much. In order to get grants, write books, and fortify our position we often confuse ourselves with theory and forget reality. Reality and common sense should be our guides. Theory and research has it's place but it is not everything.

    I believe we should teach the basics of business and economics. When Nobel prize winning economists crash and burn it is time to go back to the basics. When our research and theories fail to the extent that they have failed we should examine the reasons. Let's get back to the basics of profit and loss and risk versus reward and teach this in our business schools.

    Great question, it really got me thinking!

     
     
     
    • Alejandro Zarate
    • Consultant, Innonatura

    I am not surprise about this article, there is an extraordinary book named IRRATIONAL EXHUBERANCE by R. Shiller among others between I would mention those written by Nassin Nicholas Taleb, Daniel Kanemann and Benoit Mandelbrot. These authors are exceptional regarding the subject of your article. It is time to change the way and methods we teach in economics and finance.

    Best regards,

     
     
     
    • Anonymous

    Rational or not, The United States of America and the world (the HBS Community not excepted) is presently on "a trip to Abilene."

    For those that don't know the ramifications, the following management read is highly recommended: The Abilene Paradox by J. Harvey.

    Its important message about managing agreement (vs. conflict) is very timely for effective leadership in today's world.

     
     
     
    • Rev. James De Foe
    • President, JeRich Business Development

    In my former career I worked for GM as a mid-level manager. It was here I discovered there was a difference in those who manage top down to bottom up. There first is a cultural difference as to connection to actual market, whether it is the dealer or its customer, by the managers at the top. What is missed is the different levels of culture within the organization creating a disconnect concerning delievery of ideas.

    The only cultural connection is that of advancement to higher management levels with little concern for long term viability. This culture is dominate and does not look at the phsychological perameters of management. No matter how you slice it management motivation is determined through our monetary system with in an organization. This gives no regard for long term growth or viablity, it's how much can I make and to hell with the company.

    There has to be a new culture developed based on truth changing the pay and reward process. We make to much of business management operations being in consistent with the customers fo the business they are in. It id not that difficult.

     
     
     
    • Anonymous

    I used to think that irrational behavior does not bring any good either to business, not to personal life. Any lesson in any school teaches us to be rational, to think logical, to be smart. I changed my mind a couple of years ago. As was fairly described above, a rational person behaves based on his former experience - he is looking for the answer back in the past. So once he comes to a situation with no previous expertise, he is lost - no logic can help. Irrational guys, on the contrary, think outside the box - they generate crazy ideas, they continue fighting. In our fast-changing world I would prefer having a couple of irrational team-players in group of smart professionals - so that together we could make new history.

     
     
     
    • Ed Uecker
    • Lead Instructor, Engineering & Aerospace Sciences Academy

    That researchers are only NOW beginning to realize that the world is an irrational place is the ONLY thing surprising about this revelation.

    While the ivory tower experts on issues like economics, management and education continue to spin fantasies about systems of all types, still the human impulses surrounding possessions. property and the maintenance of the staus quo comfort delusions about security and predictability drive the conservation model.

    We look to conservative repetitions, and presume that the underlying causation is human predictablity, when it is in fact only a handful who control the flow of ideas and dollars to maintain and expand their own comfort and security.

    Another segment of the population - the segment that provides the unpredictability in fact -is being driven by the utter BOREDOM of modern life especially here in the US where there is no culture save entertainment, no intellect save the empty exercises of academia, and no excitement except what we see on TV.

    The "patterns" that economists claim to see is pure humbug. The stock exchanges constitute nothing but institutionalized gambling because there IS nothing logical or rational about the marketplace. All you need is a few bored buyers to decide to break from the pack and the sheep follow because following the trend seems "rational".

    The third segment of the populace are those of insufficient intellect or resources to either be smitten by theories or bored by the banality of daily life to do anything but become unwitting subjects of the struggle between the greedy and the bored - the two most common states of 21st Century "man" that drive both irrational conservation and irrational change.

    Ignorant people are simply incapable of being "rational" about even the least complex of problems, and the only real growth industry for the last 50 years has been ignorance and the suffering it brings because none of us behave rationally. Saying that a positive change in the world occurs because the approach was "rational" can be seen only after the fact, and repeating that "rational" behavior in similar circumstances will not necessarily produce success - so much for "research" in economics models. Continuing to take substantial risks out of boredom or entusiasm - in the market or at the poker table is just as unrepeatable UNLESS we can manipulate the players into beleiving that there's a chance they can win. Every poker player has the same type of "plan" and rational approach as anyone actively in the stock market. Both are subject to the same laws of chance driven by ther sheer number of variables.

    We can predict what UNthinking people will do in a given situation - which is a prime benfit of conserving ignorance. To beleive that you can predict the behavior of a bored human being is what is truly irrational.

    The WORLD is only as irrational as the people in it and given the growth of genuine ignorance throughout the world over the past 50 years, those who value predictability are well on their way to creating a populace that will validate their theories about the predictability of "markets" and the people who are those markets.

     
     
     
    • Wally Bock
    • Three Star Leadership

    Traditional economics (meaning the way I learned it in school) was based on the idea that human beings are rational actors who see everything through an economic lens. A quick glance around the world convinced most of us that was nonsense, right along with the idea that the natural state of the economic world is static.

    Despite all that, good sales people have known for a long, long, long time that buying behavior is primarily emotional. They've turned that knowledge into good sales techniques that precede and will outlast whatever the latest hot economic theory is. What's happening now is that the economists are just catching up to the salespeople.

    In management we have a similar situation. Despite the overhyped claims for the Jacobs book, there's no evidence that what we know about working with people is in need of a major overhaul. Good managers have known and practiced working with team members to set objectives and providing the feedback that improves performance.

    The book is a single bed blanket of studies stretching to cover the king-sized mattress of human behavior at work. A primary claim of the book is that "feedback doesn't work." To support that claim Jacobs offers as his primary evidence a 40-plus-year-old study of less than 100 workers at one company. The study was of the performance appraisal system, not feedback. He then brings in three narrowly defined laboratory experiments to support his case.

    Call me crazy, but I'd rather model the behavior of the excellent managers I've observed for over a quarter century.

     
     
     
    • Marie Taillard
    • Assistant Professor of Marketing, ESCP Europe Business School

    Dear Jim,

    I agree, we have clearly moved away from believing that human decision-making is purely rational, but a great deal of current research by cognitive and developmental psychologists and anthropologists points to bounded rationality rather than irrationality. There is also increasing speculation that some or all cognitive biases (mentioned by Dan Ariely) and cognitive shortcuts or heuristics (work by Gerd Gigerenzer and colleagues) can in fact be linked to human evolution, particularly as they favor communication, including human language, and the transmission of culture (work by Dan Sperber, Deirdre Wilson and colleagues, and Boyd and Richerson and colleagues).

    As we continue to move away from models of pure rationality, we form a more realistic picture of individuals, whether they are co-workers, consumers or other stakeholders, whose behaviors are in fact hard to forecast. This does indeed call into question many of our research methodologies and the management theories on which they are based.

    In short, we are shifting away from thinking that we can predict or control the behavior of others towards attempting to richly describe behaviors that exhibit some of these biases and tendencies. Managers need the skills to recognize, nurture and facilitate patterns of behavior that jointly meet their stakeholders' and their own needs and agendas.

     
     
     
    • Frances Pratt
    • Sales Director, Enspire Australia

    I love this! As many have said, irrational thought and behaviour, or more correctly our 'perception' of this, is the norm. What is normal and rational is framed by our view of reality.

    I think that far from threathening management, theories and research - it actually gives it a base on which to be more successful. Now that we are not faltering under the assupmtion that people are rational - it gives the behavioural based managers a chance to be listened to and to make changes in organisations that are long overdue.

    To reality and beyond!

     
     
     
    • Peter Bearse, Ph.D.
    • President & Economist, Development Strategies Corporation

    So, what's really new? What about Simon's "bounded rationality"? Look at the date at the one book cited among many insightful books by Handy -- 1989, long in advance of the recent rash of books and papers on "irrational" behavior. Mr. Heskett's note may be more noteworthy as an example of the type of presumably irrational behavior lately noticed but often noted in the past -- bandwagon effects, or the (un)wisdom of crowds. Is "each of us harbors our own perception of reality" a novel insight? Hardly.

    The remarks of one of managers who has already contributed imply that what we need to do is pay more attention to what is going on right under our noses, which might be characterized as values in conflict, in practice, within our and others' organizations. Research on the "paradox of groups" also helps more than that of neuroscientists, given the present state of neuroscientific investigations.

     
     
     
    • Anonymous

    Hmmm! Perhaps the observation that we have all missed is that rational economics is not in fact rational. Perhaps what accords with our nature as human beings is what is truly rational. Perhaps we are confusing the concept of irrationality with that of being counterintuitive. Perhaps we are confusing the concept of rationality with that of being scientific or logical in our approach. Does logic define rationality or is there more? Is logic a relative term - logical with respect to what? Yes indeed, what is it that people are trying to say here? I suspect that irrational economics is entirely rational.

     
     
     
    • Krishan Aggarwal CPA

    When I taught economics 101, I used to tell my students that a "rational person" was theory, and would pose a question. Do we as humans always make rational decisions? Answer is No...

    We can be both rational(answering a math problem, or making decisions where we have experienced a similar problem) and irrational (shopping) or making decisions, where we have no experience to go on like an business owner or some having challenges, or following the herd, or the professionals who followed Madoff.

    This is nothing new, except to those who have followed the herd think of the rational man in the past few decades.

     
     
     
    • El Jibaro de Lytle Creek
    • Whistleblower, LACMTA

    We need to look into ourselves and attempt to make sense of our own irrational business education policy, procedures and legislation. We manage to achieve goals that are not conducive to ensure we have everyone working toward the common good. Corporate mentality is about as irrational as it gets yet we continue moving down this same path, until we all succeed at complete failure.

     
     
     
    • JT
    • Active Job Seeker

    The questions that comes to my mind following this discussion are: how do we judge a thought, action or behaviour to be rational? from whose perspective do we judge the rationality of a thought, action or behaviour?

    For example in Q4 2008, when most, if not all of our competitors, were reducing their operating rates or shutting down their production in the face of the collapse in demand, we were running at full speed. They thought that we were mad and we had a hard time killing the "slow down" discussion internally. History (since this event is in the past) has shown that it was the right decision. We pushed out all our expensive feed and freed up space for new material. We were the only party in the market scooping up all the distressed material available. We recovered much faster than our competition and managed to seize the upside that followed in Q1 2009. It was a perfectly rational decision to us. It looked absolute madness to everyone else. Was that decision rational?

    The point that I will like to put across is that this fundamental assumption in Economics may not be as flawed as what some of the participants in this discussion thought. Michael McPherson rightly pointed out that the study of classical Economics assume that humans act rationally to "optimize their utility". I remembered the lesson that I learnt from my first Economics course 18 years ago that the assumptions behind my analysis is just as important as my conlcusion, if not more important.

    What are your assumptions when you judged or deemed certain thought, action or behaviour as irrational? Do these assumptions stand up to the test of reality? In the course of my work in China in the past 2 years, I realised that my paradigm and assumptions were totally not valid when it comes to understanding or judging the decisions of my counterparties.

     
     
     
    • John Magill
    • Senior Development Adviser, Enterprise Ireland

    One of the issues in debating rational and irrational behavior is that differing education backgrounds means that people come to the discussion from very different understandings of what the terms mean. Also, as one of the 'Anonymous' commentators pointed out; rational, logical and random are very often used to describe the same behavior, when in fact they are very different manifestations of reactions to situations.

    The brain is a very complex organ and despite thousands of years of study we are still surprised when people react counter-intuitively to what we predict they will do. Work made popular by writers such as Daniel Goleman (Emotional Intelligence: Why It Can Matter More Than IQ) has highlighted the affect the amygdala portion of our brain has on our response to situations. The amygdala decides on our flight or fight reaction to situations. The amygdala may create a perceived irrational but actually logical response to a situation.

    In the current economic situation that companies find themselves in we should be wary of rewriting the management books just because we perceive irrational behavior by staff. If staff feel threaten in their job do you expect them to behave the same as when everything looks rosy in the workplace. Their reactions are more emotionally charged and their behavior might in fact be a response to a multitude of inputs, i.e. it might be the straw that broke the camel's back.

    We all look for that holy grail of a management book that predicts behavior in all situations. It doesn't exist and will probably never exist. Knowledge gathering is an iterative process and quite often just when we have got some level of comfort the world around us changes. That is not a reason for throwing out our knowledge base, we should add to it.

     
     
     
    • Ozan Bayer
    • Customer rep, Olguncelik

    According to economic theory, man behaves rationally while making decisions. However, as behavioral theorists mention, man has bounded rationality. It happens due to limited information he has, the cognitive limitation of his mind and the finite amount of time he has to make decisions. Economic theory assumes rational man because it tries to find optimal solutions to the problem for which man should make a decision. However, due to bounded rationality, man never achieves to find supoptimal solution instead of optimal.

     
     
     
    • Biju Dominic
    • FinalMile Consulting

    When we approach irrational behavior from the perspective of neuroscience, one realizes it is a scientific reality. Irrational behavior is the result of 1) brain not taking short cuts while taking day to day decisions 2) a large part of our memory, including emotional memories being stored as implicit memory, whose existence and effect on our daily behavior are not known to human consciousness 3) a very large part of human actions and thoughts are managed by the non conscious part of the human brain.

     
     
     
    • K
    • Recent Business Graduate

    I agree with the anonymous post: "It is much easier and better to manage in an irrational world than to manage irrationally."

    Writing from the student's perspective as a recent business graduate (not HBS), I believe not EVERYTHING in teaching business can or should be researched and examined to the smallest detail. Doing so creates conflicting theories which makes irrationality seem even more irrational, and paints the picture of 'irrational behaviour' in customers/staff/business environment as a scary, dangerous and insurmountable obstacle to management. The key to preparing students for the challenge is not bombarding them with theory upon theory, but to use these theories to develop the students' confidence to enable them to trust their own instincts.

    Furthermore, death by research stifles creativity by telling us it's too risky. Innovation is how your organisation will survive in an irrational world. To assume everything is rational or can be forced into becoming rational through study and research is complacency in disguise. Ultimately, it is losing focus that kills organisations.

    That is the biggest lesson that I have taken from business school and hopefully it is a lesson I will not forget during the rest of my career.

     
     
     
    • Anonymous

    Managing an irrational world demands more collaboration than competition.

     
     
     
    • Zbigniew Becker
    • President, Virtual Development Concept Inc

    It's about empowerment of individuals, to be able to use their potential in full. Neuroscience has still a lot to discover, before 'irrational' will truly mean anything. Intuition is by far wider channel of information than many rational constructs, if you're properly tuned in. Would any respected business school include intuitional development in their syllabus?

     
     
     
    • WB
    • B-school grad

    There are two origins of irrational behavior: internal & external. The internal one is the intelligence of the person; the external one is the context in which that person is acting (i.e. the rules of the game). The extent to which a person can use reason (their intelligence) will necessarily limit the extent to which that person can act rationally. Regarding the context, if the rules of the game are irrational, even the most rational individual will behave irrationally (in truth) to win at the irrational game, or appear to behave irrationally by fighting the game itself and sticking to a principle considered loftier than the game. Any amount of irrational behavior will necessarily introduce inefficiency.

    Any strategy other than limiting irrational behavior through education can only make the overall system more irrational. So yes, it is time to start educating students about managing in a world of irrational behavior, not so they can take advantage of the irrationality present, but so that irrationality can be reduced. If irrational behavior were not rewarded (directly or indirectly) by the rules of the game, we would only see irrationality that originates internally, and that would be minimized.

     
     
     
    • Boudewijn De Graeve
    • Key-Conceptor, Global e-Society Matrix

    One of the priorities in designing the post-crisis society and specially its economy and business, is to develop a research program and consequent training programs on the ever-evolving complex-wise function of business companies in the whole, indeed as well, ever-evolving society. No company is a purpose on itself, its 'growth' or even survival is only relevant as far as it corresponds to, ever-evolving, real needs of society. If not, it will generate uncalculable corrective expenses internally and societally (= extra taxes, etc.). Creating or maintaining jobs is not a function of business companies. On the other hand, competition is another aberration in business, to be replaced by complementary networking.

    Business Schools have to undergo a radical e-rational shift in which the e- prefix both means IT and evolutive, sustainability.

     
     
     
    • Tom Dolembo
    • consultant

    Professor Heskett, you ask about training managers for irrational marketplaces using case method. I like that idea. Here's my conundrum. The best managers in chaos I have known regardless of gender, race, etc have had the following general characteristics:

    1. Each suffered the traumatic loss of a father, older sibling, or mother before age 10. They know family. They know fear.
    2. Most have serious learning issues, some downright learning disabled. They read people, not books. Or cases.
    3. Most are ravenously curious, connect dots with great passion, reach conclusions leaping over all interim logic. Highly disruptive, impulsive, forceful arguers.
    4. Many have blind faith in their future while they have grave doubts about their efforts.
    5. Many are second or last child, almost never first born.
    6. A remarkable number have a lifelong devotion to friends, sordid or not
    7. All have failed many times, and moved on.
    8. Many were poor students, or they just dropped out.

    Consider that recruitment profile against HBS' standard issue profile, as wonderful as these current kids are. Do you really want these rabble in one place?

    HBS experimented once, I believe, with a wildly outlandish class composition. Section J, Class of 1971. Misfits, radicals, Peaceniks, bushy haired anarchists. Study that class. Think twice before you try that again (that section shut down first year classes, struck the school, refused to take exams, set fire to decision theory texts, pulled a number of full professors into their pernicious orbit, trashed the Game and went home gradeless). HBS welcomed them back. Wanna another go at it? Be careful!

     
     
     
    • Adam Hartung
    • Managing Partner, Spark Partners

    When researching "Create Marketplace Disruption" (FT Press, 2008) over 12 years from the mid-1990s to mid-2000s we discovered that what often looked irrational to us was because we focused on outcomes, rather than motivation.

    People undertook actions that seemed guaranteed to produce poor outcomes - and outcomes directly contrary to their best interest and stated goals. But deeper research showed that most people were not motivated by results. Rather, they were motivated to sustain approaches, processes and behaviors that had been established much earlier. Managers and leaders were more interested in continuing an ongoing behavior pattern, even if it meant the results were less good.

    When we understood the historical "Success Formula" that had created good results in a previous period we often found that current behavior was directly tied to extending the behavior that had worked before. Even though market shifts had rendered those approaches and behaviors incapable of producing desired results, there was dramatic effort undertaken to continue with historical precedent. Despite what they said, often talking about goals, people were far more interested in maintaining the status quo than they were in accomplishing goals.

    Irrational behavior became wholly explainable within the context of what had worked at a previous time. Managers were sincerely devoted to defending & extending old behaviors regardless of the outcome.

     
     
     
    • Anonymous

    Is the world irrational?
    I don't think so. But, the present situations make us think in this way, which was the after-effects of overmanaging and overemphasizing for a high profit motive. Some forget the rational backgrounds once they become greedy. This in turn leads to needless fighting, burning of energy and money for unnecessary things. The stupid act of a few intelligent management people can cause more damage to the world than the act of stupid or irrational working people.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC (India) Private Limited

    Jim's query is very valid and the true rationals do find it difficult to manage rampant irrationality. However, absence of true rationals is indeed a boon in the present times when managerial success is not achieved only by calling a spade a spade.

    In business, two plus two is not necessarily four - it could even be twenty two (so far so good) or five too !! The Hindus call the present age as "kaliyug" where truth and goodness receive a back seat and we generally have turmoil all around us. Good corporate governance and ethics are loudly talked about but not practised the way these need to be.

    Plethora of laws are there but many remain on paper only. A successful manager has no alternative but to manage in this irrational world and that is what he is doing. You may,at times, consider him neurotic but he is least bothered. At times, he even reflects such an appearance deliberately just to play hardball with focus only on result in manners through means good, bad or could be ugly as well.

     
     
     
    • Manjunath Gaddi
    • Research Analyst, iFAST Financial India

    The world without any life is the one that is purely rational as everything in that world happens by laws of physics. But when you add life into equation, irrationality becomes a part of it.

    Our / an individual's understand of the world = Some rational part + very little irrational part

    I say some rational part, coz its very easy to observe and put an equation to it. I admit we do not know all the secrets of the universe. everyone will admit to this truth when proved.

    The irrational part although easy to observe from a third party point of view, but as a person commiting that action, you will always think you are right.

    Till this time, we were and still solving the rational part, n we think we have made a good progress in that but the human mind always wants challenges, so now the focus is to understand the irrational part.

    If one looks at a regression equation, it has a term called as Error. This error, today majorly consits of irrational part rather than the rational part. Say some 50 years ago, everyone thought the Error part was completely filled with the rational part, which needed to be solved n we have been somewhat succesful in that.

    So, the new frontier / unknown is the irrational part. Like a person in 16th or 17th century, we stand today in terms of our understand of the irrational mind of ours. Although, it will not take us 300-400 years to understand the irrational mind, but we have just scratched the surface of it.

    So studying people where in emotions overtake the rational mind, can shed a lot of light on the working of the irrational mind. Everyone of us is a potential subject, we just need to look into our actions that we did a few years ago n now think they are silly

     
     
     
    • Luis Tondi
    • Partner, Nxpire LLC

    I believe that to get to the bottom of this issue we must clearly distinguish between the roles of knowledge and decission making process. When we are in front of a business or management decission the latter should be driven by the former but history is plagued by examples that this is not always the case. We can not expect that irrational behaviors will dissapear just because we teach people about their occurrence and impact on the economy. Alan Greenspan talked publicly about "irrational exhuberance" but the markets continued to operate "irrationally". The key to irrationality is just that, it will not fall into any pre-conceived scheme.

    It is critical that business schools dedicate time and effort to highlight the irrationality of the human being when taking decissions with the hope that over time individuals will have another tool when takign decissions, but we can not expect that at the end of the day there will be any significant difference. People will continue to randomly behave and decide rationally and irrationally. We can only expect that better awareness of irrational behavior will reduce risk.

     
     
     
    • Nicola Stevens
    • Director of Coaching and Mentoring, www.twitter.com/Xlead

    My experience on the questions raised are: To Q (1) human behavior is much less rational than has been assumed - It has been so called 'civilization' that has branded people and actions as rational or irrational in its attempt to make sense and/or set a standard they can identify. A way to be judge and jury that changes as society's expectations change through generations due to the PEST's (Political, Economic, Social, Technology) of life. But the 'stuff' of life, passion, motivation, love, hate etc are not rational at all and are as old as life itself. So to my mind irrational behavior is not a 'new frontier'. its all about people being open, true and no longer feeling the need - or discrimination - to conform.

    To Q(2) this renders much of conventional teaching in fields such as economics and management obsolete - There is an element of truth here, principally because many of the eminent thinker and writers from Management Schools tend to work from a theorist point of view. they are not actively engaged in roles of leadership and management on the 'shop floor' and feeling the pulse of life and its rhymes. If they were actively walking the floor they would be less surprised by irrational behaviours and see it as normal as it is.

    To Q (3) it makes suspect much of what we do as managers. That depends...... when I am with clients and surprise them by asking for ways that we could measure the success of our work together, even if it is intangible I always ask them to consider that it doesn't matter if it doesn't make sense to anyone else (irrational) but as long as it makes sense to them, and has an effective, positive outcome to the world at large, that's good

    Lighten up HBR - enjoy the ride. I think and feel all need to get used to it with new generations - non conforming and change is a way of life, feeling all the irrational emotional and talking and taking action is normal to them.

     
     
     
    • Veena Bharti

    To an extent, business curriculam does address human irrationality in the subject of Consumer Psychology. The positioning of brands is done on the basis of consumer segmentation, which in turn depends on multiple factors like demographic, psychographic, and lifestyles profiles of the population. But human responses are multifactorial and multidimensional. One cannot take a static view of it. Therefore, I think it is important that business managers continuously study the evolving macroenvironment of business and its impact on consumer psyche.

     
     
     
    • Cynthia Zastawnik
    • MBA Student, Walden University

    People are people. Everyone takes something in and puts something out. In this wonderfully complex and convoluted world, perspective and timing are unique in every situation. Awareness and understanding of global and local issues is a vital key in cusomter relations.

     
     
     
    • Rebecca Mott
    • Project Manager

    Rational versus irrational behavior is something that has been around for centuries. We can take a survey of history and find many examples of rational people behaving irrationally. Hitler's German Nationalism gone awry is one such example. There are many others.

    One cannot underestimate the effects of cultural and social influences on behavior. What may seem rational to me as an individual will suddenly turn irrational if I am placed within a social context that promotes the irrational behavior.

    I believe we are just beginning to see the tip of the iceberg in terms of large-scale irrational behavior. We have socialized, or should I say failed to socialize, several generations. We have given them a "me-centric" view of the world, very self-centered. Back to the social context of irrational behavior, if I have a me-centric view of life, then what seems rational to me as an individual may appear irrational in the context of social norms. I am not worried about the group context, because it is all about me.

    Looking forward to hearing the results of this research.

     
     
     
    • Mok Tuck Sung
    • Owner, Profit Tools

    Being a city state, Singapore economy is very sensitive and is also greatly affected by any changes in the global environment. We are not as fortunate as other economies where they have a domestic market.

    As such, to manage in Singapore environment, is a great challenge. We have to manage rationally, even though the situation is irrational.

    Strategic plans are kept flexible, budgets are tighten with a larger margin of safety, and policies take in the possibilities of effects from external environmental factors.

    We will continue to manage in our rational ways, at the same time, keep learning to improve on the skills of managing in an irrational world.

     
     
     
    • Laura Girella
    • Student, Faculty of Economics, University of Ferrara, Italy

    As part of the 'problem', being a student at the Faculty of Economics, studying in particular Management, I can say, as a result of my experience, that there is no doubt that it is time to place more emphasis on educating students to manage in a world of irrational behavior.

    I had the opportunity, as assistant Professor to teach in a course of Strategy, focusing in particular on the Japanese approach to Intellectual Assets and I noticed that there is an awful difficulty for them to understand this approach. Why? Because for Japanese first of all there is a 'culture of strategy' that is a way of thinking, of behaving that is completely spontaneous, it is not subjected at the organization and use of means useful to achieve a certain aim.

    There is a continuous adaptation to the reality and, from the reality, it is possible to understand the way but, above all, the aim that an organization has to achieve. Strategy is not fixed in rules that employee have to follow. This approach is the result of a totally different way of learning.

    While in the West we have a concept of self-discipline that corresponds to the one of attitude to what we decided to do in our life, in the East there are two concepts, such as competence and expert-ness.

    The first one corresponds to a status in which the requests of the the body are submitted, there is the need to show the Spirit (if you have to work for 60 hours with 10 minutes to sleep, this means that you have to know how to sleep and how to be awake) while the second one, deeper, refers to a status, called muga, that allows people to solve problems with the 'right effort', no more and no minus. In which way? Through koan that are seventeen hundred problems that do not have rational solutions ("Who is it who is walking toward me?").

    I think that this could correspond nowadays to what Simon in 1947 called 'satisfactory solutions' referring to a condition in which people does not have all the information that they need.

    According to me we should learn from these cultures, totally different from ours, but that could teach a lot. Above all regarding these themes.

     
     
     
    • Vasant Kumar
    • President & CEO, Scriplogix

    Much of this remains early thought and actionable shapes are still to emerge from the area of alternatives like behavioral and neuroeconomics. We have been in touch with the faculty at Princeton University to see how some of the early insights in the decision making process can be applied to health care and life sciences. How patients decide and how it impacts their health is one dimension while the other is how physicians decide and how it impacts choice of treatment and products. There is a lot of fascinating early work that is being done with analytics, modeling and predictive approaches that rely on complex systems theory (Santa Fe Institute and Center for the Study of Complex Systems offer some insights we are trying to put to practical use).

    As a business practitioner in healthcare, I think this shift in thinking about irrationality will have profound effects at the patient level (read "How we decide" by Jonah Lehrer) and across the underpinnings of the proposed healthcare reforms - from providers to payors. Behavioral economics may well be at the foundation of the most important longterm structural shift that we will try to make with healthcare.

     
     
     
    • Vanitha Rangganathan
    • Malaysia

    There is a fine line between 'irrational' and 'rational'. It's human nature to deem an act either way, depending on the individuals at play, their inherent motivations and the context. We call children irrational in their demands and they view us the exact way when we impress our views upon them.

    There is no one way of looking at it, Jim. Rationality is increasingly overrated -- just like common sense was -- and still is.

     
     
     
    • C Balaji
    • AVP-Symphony University, Symphony Services Corporation

    Maybe when we think of 'rationality' of 'irrationality' we are thinking of a rationale that is common across people. That is where issues crop up.

    All behaviors are rational. The rationale of one may be different from that of another; but rational, behavior always is.

    I invite readers to read the latest best seller "The Three Laws of Performance" by Steve Zaffron and Dave Logan. With indisputable evidence and logic, the authors state the first law of performance: How people perform (always) correlates to how situations occur to them. here is the rationale for people behavior and performance: it depends on how situations, people, objects etc occur to them. Note that 'occur' as used here should not be confused with 'perceive' that we normally use.

     
     
     
    • Rahul S. Dogar
    • Director, HoliSol Logistics Pvt. Ltd.

    I think the whole idea of irrational behaviour has to be seen from the prism of following factors that lead to our behaviour at workplace or otherwise:

    1. What defines irrationalilty? It depends on the context and the environment that we operate in. Rational may become irrational in certain envirnment and vice-versa. In organisational settings again, it highly depends on what organisation considers as rational vs irrational.
    2. Behaviour is highly conditioned ( or we say directed) by the values, culture and what we see around us, opinionate, imbibe and reject. Don't the whole concept of values and culture in the organisations conditions or directs employess to work in a certain way, don't these frameworks 'tell us' how to behave?
    3. What fits into the organisation's scheme of things?

    I think the question that really needs to be answered is what can irrationality bring on the table in terms of adding positive value. At the end of the day, the management has to decide what is the right mix of rational and irrational behaviour, how much tolerance can be built into 'so called' irrationality as a matter of a manager's perception.

     
     
     
    • Ganesh Ramakrishnan
    • Vice President - Human Resources, Oracle Financial Services Software

    Factoring the irrational working of the human brain is a rational act.

    Abandoning or diluting the teaching of rational methods to students of management is irrational. Equally irrational would be to refrain from including newer insights from behavioral economics and others into the curriculum.

    Our acceptance of the dominant role of the emotional brain in determining our behavior is based on research studies conducted in the good old rational way!

    Whenever new information tilts us away from a one-sided emphasis, thanks to the surrounding hype, we tend to swing toward the other extreme before settling down at a judicious balance. Right now we seem to be roughly in the middle of this cycle for logical/analytical/rational versus irrational/emotional thinking. When Daniel Goleman brought EQ/EI into prominence, it became fashionable to deride IQ. Similar cycles prevailed when creativity techniques and hemispheric specialization of the brain was understood ("don't be so left-brained").

    Part of the reason for this backlash phenomenon is the overuse or misuse by proponents of one method or view. The late Robert McNamara's role in the Vietnam war was a striking example of the failure of rational decision making methods. I believe it is a similar overreliance on esoteric mathematical models to design exotic derivative products that exacerbated the recent global financial crisis.

    Note that rational and logical analysis in hindsight could lead to different conclusions. Today it may easily be suggested that McNamara ignored certain indicators that would have led to better reasoning or that investment bankers were illogical or irrational, but such views, even when expressed at the time by a few (like Taleb), were considered nonsense.

    One good thing is that theory and concept have never accounted for all of practice. The human players in the market do not all swear by market theories and models. Good managers everywhere have always trusted their intuition in certain situations.

     
     
     
    • Michael Linz
    • Master Student, CNAM FRANCE

    Is it about rationality or of different ways of looking at problems? Something from the boss's viewpoint is rational, yet from the employee's, irrational! Vice-versa.

     
     
     
    • Anonymous

    "Are You Ready to Manage in an Irrational World?" is the question posed. We are ready to manage in any world if we can communicate. Can we assess the potential audience: one or many? Can we then state what we want to communicate in a way that the audience can understand? Have we established and triggered that audience's motivation to act on the communication? Do we continually monitor and provide on-the-spot feedback complementing what is being done right so positive action on the communication is continued through to resolution? Do we share the rewards of successful accomplishment of the deliverable? Do we know what the participants consider as rewards, and fun, and make the whole process rewarding and fun? The issue is about us and our capabilities, not about how the audience, the world around us, is defined. Despite whatever is going on around us, can we keep our focus, composure and faith in the process? It's all situational and our understanding that we must be able to communicate in many different ways and select the appropriate ways for each given audience.

     
     
     
    • Bill Flynn
    • CEO, Paeon Partners, LLC

    My Dear Fellows, As a human, we are all rational (intellectual) and irrational (emotional). While we all know this, we have been accustomed to thinking there is something wrong with being irrational. I judge this comes from the fact that the entire concept of management is about control and the purpose for our controlling is to gain efficiency. When workers basically worked alone in terms of their function, the manager could measure their output by calculating their efficiency. But today most workers work in interrelated groups and their functions are not discrete, except their thinking. And I submit that the quantity and quality of thinking is not objectively measured.

    I further submit this calls for a new model; one that is not based on efficiency, politics or power. Rather we need to seek outcomes based on collaboration and cooperation, again something that does not lend itself to yardsticking. This kind of system must be based on Communication and trust, from which accountability can be established. The manager needs to become a member of the TEAM and a full participant in the activities of that TEAM. He or she needs to be willing to not know, not make all the decisions and not hold the accountabilities. If she/he must do these things in order to maintain status up the ladder, their team has little prospect of success, because all the members of the team have been disempowered.

    We don't work the way we used to. We cannot manage the same way and succeed.

     
     
     
    • Ripul
    • Student, Amity Business School

    Everyone stands to be irrational for another as two people always cannot act in same way. So the major task is to create the environment wherein they can understand each other's opinion about the ways of doing work. It will greatly help to enhance effective coordination as well as healthy relations in the organisation. Being rational is termed intellectual and irrational as emotional, and no can be rational in this world.

     
     
     
    • Dapo Ipadeola
    • ASM, PZ Cussons

    We got here by thinking people could be set in molds. By generating data from sample sets, questionnaires, etc and drawing conclusions on management and people processes using same figures and our self determined deductions as representative of the whole human race across ages, generations and cultural divides. It is not rocket science to discover that all people would not fit into molds we created using other specimen particularly with the new generation that have been taught to discover themselves. The beauty is in enlarging our approach as managers to accommodate out of the box behaviours while being able to rein in appropriately divergent views and approaches towards corporate objectives. Appropriately since innovation and creativity derive from divergent views which must be received. For there must still be direction- objectives and the manager must achieve those. To do otherwise is anarchy.

    How would you fancy captaining a ship in a storm with a batch of irrational seamen who are strangers to control and direction but follow their hunches alone?

     
     
     
    • rodgers harper
    • principal, the harper company

    "Rational" management often means expecting people to respond the same way to a given stimulus; successful management can often mean understanding the specific stimulus that will get an individual to respond as desired.

     
     
     
    • Jon Abel

    Perhaps a word besides "irrational" needs to be recognized. Alan Greenspan's "irrational exuberance" was irrational only in the macroeconomic context. On an individual level, one is completely rational to believe that he can achieve the same economic gains as his neighbor or fellow investor, especially given external social inputs reinforcing that belief.

    Likewise, finance professionals, even those with a broader view and knowledge of markets, will be inclined to respond to incentives that provide near-term benefit with perceived higher certainty than longer-term reward, even if that reward is greater. The perception of risk increases along with the distane between action and consequence.

    The correct response is to recognize the motivation for action and create actual incentives for self-interested actions to conform to desired results.

     
     
     
    • sharika kaul
    • Business Strategist

    Are we ready? Asking this question is like that we have suddenly discovered a new world or a new phenomenon that we have to gear ourselves to. The world has always been irrational. Subjects like economics have always referred to the 'mass qualities' of people. There is no subject like Homemaker Economics which would study the decision maker and her actions that sometimes defy the conventional demand-supply theories.

    Marketers spend billions of dollars every year to understand this elusive creature. But there is no real course is there? Maybe study of human psychology should be made a mandatory subject in MBA schools. Point is anyone who manages has to deal with influencing someones behaviour, deal with qualitative information which can't be slotted into bookish categories and then customize his or her technique to deal with that information. You can't say, 'hey let me check out my marketing book for an answer'. So yes I think the schools need to go beyond the quantitative.

     
     
     
    • Anonymous

    Writing from Europe, it is amazing to see how much irrationality of the social agent is loved in the US, be it in negotiation, decision making etc.

    Not that all human being are ontologically rational, but we should follow the healthy advise of people like Max Weber or French elder sociologist Raymond Boudon (most of his books are available in English) and consider that, except in rare circumstances, people have good reasons to believe what they believe and to do what they do.

    It is easier to say they are irrational rather than searching for the reasons behind their behavior and beliefs.

    And if people are (epistemologically) irrational by default, I guess that would mean a madhouse model where idiots are managed by fools...

    Let's rather try to understand what's really behind motives and actions rather than saliving on such foggy concepts.

     
     
     
    • Ron Hurst
    • Developing Leaders, http://developaleader.com

    It seems to me that our feeble attempts to find order and cookie cutter simplistic answers to human behavior will always be inadequate. People are unique, people and the decisions they make become the market, become the economics, become the management that you are describing.

    I disagree that people generally behave irrationally, I think that we (managers, academics) constantly try to explain behavior with simplistic models, systems and equations which are bound to fail, bound to not predict behavior which we will then want to label as irrational.

    As a leadership development coach I teach developing leaders to look at their teams as individuals with their own goals, aspirations and desires. At this micro level behavior can be more predictable when we take the time to learn who the people are in the first place.

     
     
     
    • Anonymous

    The overload in information (not only written but also products, services, logo's, rumours, images) makes that people select more and more information with their emotions. Buzz and word of mouth marketing is one of the business reactions to this phenomenon. The "datasmog" doesn't allow the consumer to see the forest through the trees. The American elections perfectly illustrate how important passion, sensation and adrenalin are in today's world.

     
     
     
    • Linda Ortiz
    • Organizational Leadership, APU/Grad

    While leaders have always had to deal with some "irrational behavior," that is one of the main reasons they are needed, to sort it all out, and make the best decisions considering the probable and possible outcomes for all the stakeholders involved. This is a very complex and interesting topic because the terms rational and irrational are so subjective.

    It seems that many people consider anyone in disagreement with themself to be irrational. I think it is not only acceptable for employees and managment to have these "irrational" ideas, but productive to long term organizational growth. One of the reasons managers may consider employees and clients to be irrational is that they just do not understand where they are coming from. We live in a very diverse society, (global awareness) and therefore should be willing to learn from one other. I do believe that structure, responsibility, accountability, strategy, and ethics will always be an important factor in the final personal and organizational decisions that leaders ultimately will have to make.

     
     
     
    • Hujaj Ali Nawaz Khan
    • General Manager, Tafani General Contracting L.L.c

    Counter-intuitive conclusions in my view are: (1) human behavior is irrational rational.
    (2) this renders constant change economics and management.
    (3) it makes us believe in what we do as managers.

    To avoid a generation gap among those who assumed that markets and people behave rationally vs. irrationally,a constant dialouge and curiculum need to be developed which addresses the irrational rational.Well it right time to place more emphasis on educating students to manage in a world of irrational behavior and posing it as rational action blaming global scenarios etc.

     
     
     
    • Shareef Abdul-Kareem
    • Student

    The world was created with order, or shall we say, they are set laws, and regardless as to how we wriggle (irrationally) within the system we come back to that order (rationally). However the cultures of businesses and the cultures of individuals may make one perceive that there are clashes (irrational behavior), when in truth they are behaving rationally, each trying to reach a specific goal. The answer for management lies in the understanding and the merging of these goals. There is no such thing as irrational behavior.

     
     
     
    • jan wennerlo
    • consultant, jw publishing

    Personally I am impressed by so much thinking, knowledge and understanding on the question of rationality. The fact that man in his rational or irrational thinking and behavior is an ongoing, learning individual that finds and makes his decisions based on a natural group behavior, gives the main question its answer: without acceptance of these facts, the business and social world will stop functioning.

     
     
     
    • Anonymous

    And God said, 'Let there be irrationality.' And there was irrationality. And God saw that it was good.

    Irrationality is often understood as a mental inferiority, inability, illogical thinking...etc. that keeps challenging rationality. Nonetheless, both the rationality and irrationality are parallel but differing constructs and both are concerned with a complex mix of motivational conditions, personality factors, environmental conditions and opportunities. So, the crux of the matter is to harness the power of both and use them as the sources of creativity and innovation.

     
     
     
    • Anonymous

    By basing on assumptions to manage from the perspective of irrationality among employees, clients and prospective markets will help managers and companies look into the unthinkable and come up with action plans that otherwise go unnoticed in 'normal' rational circumstances.

     
     
     
    • Douglas R. Elliott
    • CEO, TEQ Development LLC

    As always, an interesting question with even more interesting responses. I think there is a way to rationally embrace irrationality that would go something like this:

    According to the 'laws' of science anything that happens must have a reason for happening. When we understand the reasons, that becomes part of the 'rational'. When things happen without our understanding that is the 'irrational', which is to say, (at least according to Webster's dictionary) 'without reason'. Therefore the discovery of irrational behaviors and events is the first step in deducing their rational root cause.

    'Insanity', on the other hand. can be defined as doing the same thing over and over while expecting a different result. Yet my experience over the years is that most persons will, given the opportunity, do what they like to do even when doing it has no hope of generating a different and desirable outcome. Science itself is not immune from this. How often have I sat through R&D strategy sessions where eminent and previously successful scientists lay out research protocols based on past breakthroughs and claim that different results are also possible so please fund this project. Yet this 'insane' process of waste is understandable because not only the scientists themselves but managers of R&D like what they are doing, and reinforced by the past pleasures of success, want to recapture that glorious feeling once again. I suspect this is also the trend in non-science endeavors.

    Overcoming behavioral insanity will not be easy. Rationally speaking, the answer would be to condition people to do what is needed not what they like doing. But that means denying the mind the pleasureable sensations of past success. And I suspect those nerves are older and more hardwired that those that govern reason.

     
     
     
    • John Parikhal
    • President, Joint Communications

    The issue of 'irrationality' is a red herring for management (although it is important in understanding consumer behavior).

    We shouldn't confuse how people behave at work with how they behave when purchasing something.

    The 'behaviors' are very different. Let's just focus on the management side.

    People 'behave' in any given situation to get what they want (whether they are conscious of it or not). This includes employees and managers.

    We learn our behaviors in childhood, evolve them and then bring them to the workplace.

    For example, Baby Boomers learned one set of behaviors in the 60s. In the 90s, Gen Y learned some different behaviors that 'got them what they wanted'.

    That's why a Gen Y behavior in the workplace that might look 'irrational' to a Baby Boom manager seems 'rational' to the Gen Y employee.

    It might mean the Gen Y person simply chose the wrong behavior to get what they wanted in a given situation.

    Which means it was inappropriate, not irrational.

    Since people usually choose a specific behavior in any given situation unconsciously and habitually, they are often not aware of how that behavior is perceived.

    We see behavior and we assign motive to it. Even the neuroscientists are doing this (wrongly in many cases).

    This confusion between how people behave in a given situation and what they are trying to get as a result of that behavior is the basis of huge misconceptions about how to manage 'difficult' or 'irrational' people.

    It's not that hard to manage 'irrational' people. There are proven methods that make it simple. Start by focusing on the 'root cause'.

    Unless a person is certifiably crazy, their 'irrational' behavior is usually based on simple issues such as:

    Non-negotiated expectations ('I expect my job to make me happy, etc).

    Lack of versatility (Behaving inappropriately in a given situation).

    Inability to get 'emotionally neutral' in specific situations (blowing up or quietly steaming about someone else's behavior).

    A breakdown in trust (questioning intent, propriety or competence).

    Or as a result of management's previous inability to effectively deal with identified non-performance (so that the employee now thinks it's OK to do something 'irrational').

    'Irrational' may be the new buzzword.

    The more we focus on it, the less likely we are to remember and use effective management and business basics.

     
     
     
    • CJohnson
    • Adjunct Professor, Strayer University

    First, we are assuming that that there is something called rational and that we have all agreed on how people are acting and behaving when engaging in this so call "rational" behavior" Rational is an ideal concept-not a accurate, predictable, set of behaviors we can predict.

    What is irrational to you may be perfectly rational to me. It gets back to what someone said earlier, people behave in a way that serves their own self-interest and for them that is rational.

    So, maybe we ought not be talking about people behaving rationally unless we can agree on what this rational behavior is suppose to look like. I doubt that any of us would agree on what that is, so how can we say a person is not behaving rationally when we can't even agree on what rational look like.

    Maybe we ought to be focusing on understanding what individual needs drive people's behavior and what payoff they are looking for. We might then better understand or predict how people will behave.

    I don't think you can take a theoretical concept like "rational" and talk about everyone in the same way. Everyone will behave to get their individual needs met and you are more likely to understand the behavior on an individual basis.

     
     
     
    • Partho Guha
    • Director, Elephant Strategy+Design

    Rationality of human nature is a 'machine thinking', today is seems like a industrial age hangover but all our knowledge is framed around this logic / rationality.

    It is a meta subject and fundamentaly touches the way we create, store and communicate knowledge. Today we are discussing the shortcomings, tomorrow we will certainly evolve the completely new framework and tools to practice this.

    Our knowledge will soon centre at human (in its true sense) and not traditional practices. That will be a new dawn!

     
     
     
    • Mayur Vegad
    • Engineer & Student, CEPT University

    Rational and irrational is all within us. The irrational decisions and processes have triggered irrational behaviors.

    As far as management education is concerned, it should be provided to mature & integrated people and not the inexperienced, immature people who cannot even handle personal life problems.

    A person poor to resolve his own state, which the society or the community states as a problem, cannot generally be a rational personality. As the market has proved (slowdown) that it had a lot of people like these, the rational personalities are still there and are preparing to manage such an irrational world.

    So yes, if anybody wants to manage these irrationalities can reassess its role and act as required for being a rational element. The management schools should redefine the criteria to identify their students and limit their intake to experienced people who have worked on a grassroots level.

     
     
     
    • Richard A. "Tony" Eckel
    • President, Systems Synergy, Inc.

    As an applied scientist, there is no such thing as irrational response or behavior, only unknowns and uncertainties. That we apply intuition and induction in the face of ignorance makes us human. That some are capable of routine success applying intuition creates danger (in the form of incompetence), not opportunity.

    The probability of perfect implementation with imperfect knowledge becomes vanishingly small as the variable set expands. We manage by simplifying problems through focus on developing solutions, instead of developing comprehension. This encourages critics, and the occasional success manager, to crow all the louder even while no more capable of routine success.

    Rather than blame knowledge shortcomings on irrational "whatever", a closer look at the ignorance that prevents perfect understanding should be in order. In the absence of full comprehension and control, application of risk management (identification and mitigation of adverse events) on a broad scale would serve to prevent catastrophe as well as support early identification of assumptions that threaten desired success.

    The ability to operate effectively with imperfect knowledge (irrationality) should be considered a teachable skill. It is not so much the ability to apply intuitive thinking, but being flexible and reactive to unexpected events.

    A real issue is the projection of personal rationality to co-workers because it assumes common values, motivation, and ambition. We can all agree that these types of assumptions are dangerous to any plan. But this is why we are trained to communicate, evaluate, and modify visions and methods; it forms a common direction and purpose for a diverse team to accomplish specific enterprise goals.

    It seems to me that accepting ignorance is the first step to managing successfully in an environment of uncertainty. This should not imply lack of control. Rather a recognition of the limitations of management in the face of overwhelming uncertainty.

    Greenspan didn't adjust his assumptions in the face of changing conditions; a case study in hubris; Humans endeavors are no more perfect than their knowledge.

     
     
     
    • Mbabazi Tadeo
    • lecturer, Kyambogo university

    Managers are human beings, and all human beings have an emotional and social aspects that in most cases lead to irrationality in our behaviour. There are situations where rational behaviour may not apply, especially in the management of human resources in complex, turbulent, and uncertain environments.

     
     
     
    • Coretta Jackson, MBA
    • Strategist, Tighten Me Up, Doctoral Student

    There is no escape from the irrational world---which is why emotional intelligence is essential!

    We are emotional beings, therefore, management should be well prepared to deal with emotional flux.

     
     
     
    • Anonymous

    I remember years ago when in a statistics class the professor stated " what you can apply to a group, you can't apply to the individual". Once conformity was the path to success. Today non-conformity is the way to success. So for companies like Microsoft, Google and other WEB and non-WEB based companies the non-rational model has brought success. But in many cases (not all) when they grow the common wisdom is that they must become rational and conform.

    What I find remarkable is that top executives in company still follow the rational model of management. However, companies make non-rational decisions all the time but due to other non-rational factors such as "liking a person" non-rational business practices cloaked in rational business practices continue.

    We continually here that the growth of the economy is based on new ideas that do not hold to the traditional business models, but how many companies during hard times decide that more controls are needed instead of new initiatives and out-of-the-box thinking.

    If we were rational and knew that creative ideas would move the economy forward the R&D budget would be the top priority. Small business seems to get this model whether conscientiously or conscientiously.

    So we tend to dress non-rational behavior in a rational way. My other favorite saying is that "you can dress up a pig, but it still a pig".

     
     
     
    • Gordon Johnson
    • President, Johnson Associates

    Jim -

    I'm afraid I have to disagree with your opening premise that "human behavior is much less rational than we assumed." I thought dealing with irrational human behavior is what management is all about. Management is helping people have a good reason for doing what the company needs them to do to achieve its mission, rather than dictating what they should do.

    Perhaps I'm dated? I was at HBS in 1948-50, before the computer age, when we had to make decisions without enough information, and before economics became a mathematical science. I don't remember any management cases based on dealing with "rational people," in the sense that a rational person is one who will read your mind and do what you expect him to do.

    Every person was considered different, with his/her own biases, opinions and priorities, and management had to figure out what those were. Good things happen when people do what they do because they WANT to do them, not just because they are told to do them. The fact that people are different and act in unexpected ways was at the heart of our management cases. Learning how to deal with non-conformists was key to having a creative and innovative business.

    Dealing with "irrational" people has become even more important today than it was then. In earlier times, efficiency experts focused on making workers' hands and feet more productive with their stop watch studies popularized by Frederic Taylor. Today we have robots to do most of the manual manufacturing labor and management is indeed all about harnessing workers' minds to accomplish a common mission. This is particularly true for the growing service industries.

    The answer to your question, "How should we educate students to manage in a world of irrational behavior?" is to keep doing what you have always been doing. Keep coming up with new cases. The heart of the HBS message when I was there was, "All generalizations are false. . . . including this one." It's the case system that demonstrates over and over that people do what they do for their own reasons, and while that may make them seem "irrational" for the manager, that's the manager's problem, not theirs. The fact that people are different, doesn't make them irrational.

     
     
     
    • Kamini Banga
    • Founder, Dimensions

    Tim Harford's new book The Logic of Life argues against irrational behaviour. And he makes very compelling arguments to show that people least likely to be rational (for example, smokers and alcoholics among others) are making decisions about their addiction based on logic and rationality.

     
     
     
    • Chanpreet Singh
    • Consultant

    The biggest mistake that managers or leaders have made in the history, and would continue to make, is that of being dogmatic and rigid about their own beliefs and expecting others to have the same, be they employees, customers or investors. Conventional wisdom has always required leaders to have an open mind and avoid taking assumptions about expectations without reasonable justification. The change required now is to avoid taking assumptions at all.

    Probably it's time that the some of the management theories are re-considered by altering the assumptions on which they were based. However, we need to ensure that in that endeavor we do not end up generalizing and confining the varied human behavioral patterns into closed tight compartments once again.

    "One person's rationality may be another person's irrational expectation."

     
     
     
    • Anonymous

    Thanks to all who contributed! Of note to me was #43 Tom Dolembo, #41 WB, and many others. I cannot mention each and everyone, but thanks! Rationality is a goal to wish for (maybe?), but there has never been, and may never be pure rationality. As a manager, business owner, and adjunct professor for over 30 years, I have strived to act rationally based on my mission and the situation in which I happened to be in. I have always worked on the belief that "Management is a People Business," managers get things done through people. The people involved did not always have the same goals and objectives in mind that I had in the same situation, therefore, the outcome did not always match what I had hoped for. Allowances must be made for variations and adjusted as things develop.

    Even the most consistent scientists miss the logic of an experiment sometimes. Anyone who has studied history can easily see that rationality has seldom been exhibited. Given the same facts and same situation, two different persons, seldom, if ever, reach the same conclusion. If everyone were rational, presented with the same facts, everyone would think the same and come to the same conclusion. Then there would be only one religion, one type of government, everything would be standardized -- and life would be boring -- we would all be bored out of our minds -- thanks to diversity we have a very interesting world full of challenges and opportunities! I have never met two people who are exactly alike, and I never miss an opportunity to meet someone new. Rational-irrationality, or Irrational-rationality, is a "Steady-state equilibrium" or oxymoron?

     
     
     
    • Rahal Jayawardene

    It is safe to assume that the world is irrational and build our strategies. Therefore, a very significant question we should try to answer today is "How to manage in an irrational world with a rational management process?" Management decisions are based on rational thinking, so how do we manage an irrational world? The answers lie in our efforts and ability to "make sense of things that don't make sense to us".

    Any result has a reason. Similarly a rationale could be found for any "irrational". Close examination of "irrational" behavior, be it of a market or of an individual is always rewarding. Understanding the perspectives and rationale for such behavior could be the catalyst for change and innovation. The markets are made up of individuals. Therefore understanding the thought process behind "irrational" behavior of individuals will help us gain better insights of the "irrational" behavior of markets. Once the underlying thought process is fully understood, no individual or a market would be "irrational", and could be managed rationally.

     
     
     
    • P. Adhikary
    • Country Rep, IRD

    In my expereince, normally people are rational in their thought and deed. But different people have different rational or irrational patterns, and collectively they can look irrational. As a manager, as one of the non-profit making organization friend said, we need to understand people first and then to think our approach to management based on their consistency to rationality or irrationality.

    I always say that to manage 100 computers is so easy as all behave the same or at least similar as programmed. But with humans, even if they are 5 or 10, it could be 10 different behavior and rationality. As such collectivley we can be seen irrational but I don't think we intentionally want to be irrational.

    Therefore, the challenge is to do a beharioral research and identify the magnitude of rationality or irrationality or should we say that the difference between inconsistency and consistency of our behavior and rationality to it.

     
     
     
    • Rebecca Lula

    Rational or irrational -- who cares? Believe me, no manager worth her salt uses the question of rationality as her compass. All these theories are simply that and are used by wise and effective managers as part of a portfolio of tools to guide decision making. Many years out of HBS I continue to find that the most powerful management tool is the suspension of disbelief.

     
     
     
    • Sujeet Prabhu
    • Senior Manager, Larsen & Toubro Limited

    The "ideal rationality" that has been defined in management and economics never existed. There always existed a "non ideal rationality", which has become more non ideal in the recent past.

    I believe most management students understand this even when they are taught rational management. While irrationality will be increasingly debated in Management classrooms, I feel rationality shall still be the foundation of building management skills in the next generation of managers.

    Let us not be irrational about what constitutes management education.

     
     
     
    • Dr. Hemjith Balakrishnan
    • Group. Sr. Vice President- Strategy & HR, Health Prime International

    The rational-irrational part of human constitution is not a modern phenomenon and has been a part of human nature from the time human-kind came into existence.

    Our ancestors have recognized all our complex inner conflict, but it was also a great subject of study (Plato et al...) further ... until Freudian Psycho-analytical theory evaluated such concepts and analysed them further. Freud's view of the irrational self was further critiqued by David Donaldson.

    As Scott Adams said, "nothing defines humans better than their willingness to do irrational things in the pursuit of phenomenally unlikely payoffs."

    Many creative pursuits like poetry, literature and art form involves the mysteries of the irrational perceived through rational words and expression. Irrationality has rationality in it, however it is subjective to many facets of thought process which may sound illogical if not matched upon certain premises.

     
     
     
    • Ranulfo P. Sobrinho
    • Decisions for Sustainability

    I see the problem about the irrational way people act in business and or in your life as connected with some facts:

    1 - generally people have difficulty defining their own values and preferences at the moment of making a decision;

    2 - people are not educated to think and make decisions considering their subjective values;

    3 - people have difficulty thinking systematically and are not educated to employ simple methods that allow them to deal with delays, feedback, and other system properties etc.

    Maybe I am wrong, but I feel that if people have the necessary methods and skills to deal with complexity in their lives, their decisions will become less irrational.

    Ranulfo P. Sobrinho Decisions for Sustainability UNICAMP/Brazil

     
     
     
    • Sainath Nagarajan
    • managing director, www.obviousideas.com

    Indeed we live in interesting times where "one person's intelligence is another's irrationality". Long live hindsight bias!

    ... I would suggest that '"rationality is all relative, and efficiency is not always effective'" ... whether applied to modern portfolio theory, management theory, or leadership lessons.

    ... At moments of crises there tends to arise messiahs that bring new messages to explain the ills of the past and promising the path to a better future. Caveat emptor, before throwing out the baby with the bath water.

    ... Much of what we call 'modern' economic or management theory comes from a lineage no more than a few hundred years old. On the other hand, human behavior, and at a deeper level, cognitive conditioning, has been developing over centuries of evolution. While it might be tempting to build definitive bridges between these worlds, it might be too early to declare 'mission accomplished' in understanding how the 'twain shall meet.

    ... So, let the sociologists, economists, psychologists and other scientists continue to study us managers and leaders in our live petridishes ... while we generate experiential evidence that will both support and counter your findings!

    Cheers,

     
     
     
    • Edward Hare
    • Retired Director, Strategic Planning, Fortune 250 Mfr'r.

    What strikes me about these 95 comments is that people seem to have a wide variety of interpretations around the words "irrational" and "rational". I got so confused myself that I turned to a good dictionary to get grounded on what they're supposed to mean. Then I returned to these wonderful comments and the many nuances shaped by individual experiences.

    Could the dialogue have benefitted by having a definition up front? I think so.

    I'm reminded that words are our currency of communication. Some words deserve careful examination....because they can be interpreted so differently among people. When that happens, people talk past each other without even realizing it. I'd offer another famously slippery word ... "strategy" ... that needs up front agreement on what it means to participants before embarking on actually talking about it.