The Riddle of Experience versus Memory

Daniel_KahnemanI’ve written about the Nobel laureate Daniel Kahneman and his groundbreaking work on cognitive biases and behavioral economics both here and more recently in my regular column for Outsource Magazine—but I wanted to share a TED video of his in which he talks about how our “experiencing selves” and our “remembering selves” perceive happiness differently.

Kahneman, professor emeritus of Psychology at Princeton University, questions the assumption of rationality behind the decision-making process and the “cognitive traps” that make it virtually impossible to think clearly about happiness and success. His insight has profound implications for economics, public policy, our own self-awareness – and yes – in business to business relationships!

He uses the examples of a patient going through pain during a colonoscopy, a family vacation, and a person listening to a symphony to clearly show how easily it is to get a cognitive bias based on the flawed way we remember happiness. Give the talk a listen:

As I watched I thought about the days when I used to work for a service provider and was hyper-sensitive to “proving” that as a supplier we were doing a great job. “We have a green score!  We’ve met every SLA you wanted!  You must be highly satisfied with us!”  I can attest first hand (as I am sure just about any service provider can) that a buyer perceives performance only as much as their last memory of a service mishap. Put another way, do 100 things perfect, and all they remember is the one missed shipment the service provider did. It was then that I became conscious of what I came to term the “Watermelon Scorecard.”

Yes, I do think we need to have a radical focus on service levels. But I also believe that Kahneman’s talk has a good point. We need to put into perspective and balance our “experiencing self” and our “remembering self” when we think about our perception of how satisfied we are with our service providers.

I also liked Kahneman’s comment that “happiness is mainly being satisfied with people that we like, spending time with people that we like.” I thought about the importance of Vested‘s Element 7—relationship management—and how the Vested process puts so much emphasis on building compatibility and trust between business partners. This is one reason we encourage business partners to dig deep to understand how well they are culturally aligned with compatibility and trust.

It’s also why we’re pushing for highly strategic deals to use a Request for PartnerTM process designed to make sure you pick a supplier with a high degree of cultural fit and that you, well, LIKE!

Finally, don’t forgot to watch the Q&A at the very end, where Kahneman talks about money and wages as a function of happiness: “Below an income of 60,000 dollars a year… people are unhappy, and they get progressively unhappier the poorer they get. Above that, we get an absolutely flat line. I mean I’ve rarely seen lines so flat. Clearly, what is happening is money does not buy you experiential happiness, but lack of money certainly buys you misery, and we can measure that misery very, very clearly.”

Kahneman’s point applies in business as well. Below a certain profit margin – suppliers simply don’t function well. My takeaway? In the business world, the relentless pursuit of money will not necessarily lead to happiness, success or even satisfaction, despite what we may remember about it. In fact, leaving money on the table can result in longer term relationship health and satisfaction! This philosophy ties tightly to how we teach the concept of structuring a pricing model designed to drive service provider investment (our online Creating a Vested Agreement course has detailed step-by-step instructions for how to create a true win-win Vested pricing model).

The next time you are structuring a highly strategic business agreement take a look at the behavioral economics aspects of what you are doing. Kahneman has some hidden treasures, and that is why we have taken many of his lessons and applied them to the art and science of advanced deal making.

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