What This 2017 Nobel Prize Winner Can Teach You About Leadership
Valuable lessons for company builders and leaders from Nobel Prize winners.
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Politics have kept the Nobel Prizes in the news a bit longer than usual this year. But the break in tradition should not detract from the winners' incredible achievements. I loved reading about them all -- from circadian rhythms to gravitational waves to cryo-electron microscopy.
It was when I read about this year's winners, however, that I was struck by something. The principles for which Richard Thaler was awarded the prize in economics hold important lessons for all business leaders.
The Nobel Committee granted the prize to the University of Chicago professor for his contributions to behavioral economics -- the factors that influence our decisions. Successful leaders might have certain traits that set them apart, but they are not immune to these mental mechanisms.
By recognizing some of the underlying causes of our own behaviors, we can exert more self-awareness and control. And by understanding people's motivations (even if they lack logic), we can anticipate reactions and take preemptive or course-corrective measures to lead more effectively.
Here are four lessons you can incorporate into your work:
Status quo bias
Thaler's research showed that people overvalue what they already have. Also known as "the endowment effect," our bias towards the status quo explains why we can sometimes be illogically resistant to change -- even when the change would be to our benefit. Leaders who understand this bias towards the familiar can help counteract it in the workplace.
Most of us like to keep things simple. In order to do that, Thaler showed how we compartmentalize decisions, with the result being that we consider the outcome of each one individually rather than focusing on the overall effect. Leaders can combat this thinking by creating a vision and a strategy to achieve it. With that big picture in mind (and a clear understanding of their role in it), team members will not focus too narrowly.
Thaler used the story of Ulysses and the sirens to explain the tension between our inner planner (focused on long-term goals) and our doer (focused on the short term). By tying himself to the mast of his ship, Ulysses could hear the sirens' sweet song without it luring him into the rocks -- he helped his long-term planning self by removing a short-term temptation. As a leader, you can pre-commit in the same way by sharing long-term goals with the team to stay accountable.
Leaders can also help team members with their self-control through what Thaler calls "nudging" -- guiding people to make the right decisions. A well-defined strategy that is discussed frequently can be the ultimate nudge. The upside is significant. Harvard Business Review reports that 77 percent of successful companies "effectively translate their strategy into operational mechanisms and monitor day-to-day progress." Set a clear long-term plan and help people make incremental strides to get there.
Whether you are a leader in title or action, I think we all want to better understand what motivates ourselves and others.
Human behavior is fickle but not totally unpredictable. It is not about trying to overcome our nature -- it is about helping each other be our best.
What people-related leadership tips do you have to share?