Cheat sheet principle of life:What people say and what they do could be entirely different.
During my marriage hunt, my father learned an important lesson. He passed that lesson to me. He said, ‘People say something, do something’.
Couple of weeks ago I read the book, ‘Think like a Freak’, by Steven D. Levitt and Stephen J. Dubner. I was surprised that there is a similar principle in economics, which mirrored what my father said. ‘People often say one thing and do another, or more precisely, we will say what we think other people want to hear and then in private do what we want’. In economics these are known as declared preferences and revealed preferences. There is often a hefty gap between the two.
Declared and revealed preferences become important when designing incentives. It involves a lot of effort to figure out the right incentives because, ‘People say something, do something else.’ The authors give several examples when an incentive backfired. One example was the cobra effect.
A British Lord in colonial India thought that there are too many cobras in Delhi. He offered cash for cobra skin. Indians bred and slaughtered cobras to cash the bounty. People will do everything they can to game the system, so rather being cross at their acts, appreciate their ingenuity and design a more clever incentive.
The other principle that is valid in today’s world is about failing fast, failing cheap and failing smart, on the path to success. We view quitting as being cowardly, but it is important to know when to quit.
The authors discuss about the sunk-cost fallacy or the Concorde fallacy, named after the supersonic airplane. The British and French Governments suspected that the Concorde was not economically viable but had spent too many billions to stop. It is tempting to believe that once you have invested heavily in something it is counterproductive to quit. So the next time, you are in a theatre, watching a boring movie, don’t waste anymore time watching it. You cannot get your money back, but at least you can save time.
I enjoyed reading this book. The Freakonomics and Superfreakonomics authors came up with another great book. I recommend it for reading.
Image from http://www.businessinsider.in/An-Exclusive-Sneak-Peek-At-The-New-Book-From-The-Authors-of-Freakonomics/articleshow/34886145.cms