This episode was filmed prior to the SuperBowl, so to all our listeners who are Chief fans, congratulations on your win! Both Doug and Jess voted for the Chiefs to win.They also go through a brief walk down memory lane to talk about their favorite halftime shows. For Doug it was Prince and for Jess it was Michael Jackson, though Prince was a close second.
While these two could talk about football and music for an entire episode, today the focus is on one of the Seven Disciplines of Strategic RevOps - Behavioral Science. Doug thought it would be a great idea (and it is) to have a recurring element that from time-to-time they talk through key behavioral science principles that any RevOps, Executive or Growth Executive should know. So if you have principles that you'd like for these two to cover in the next one, email me, the podcast producer with your inquiries!
Note: If you enjoy the conversation today and the information strikes a chord with you, read or listen to the book, Thinking Fast and Slow by Daniel Kahneman.
1. Certainty and Possibility Effects
What are possibility effects?
Before we answer this question, the core of understanding why people do what they do and why people behave the way they behave is that people are inherently lazy. This is encapsulated in the principle of the path of least resistance. Our brains are really lazy. They don't like to work and we want to run on autopilot. An extension of this is that we don't like to do math. The part of math we like to do the least is any math that exists between zero and one.
We do not like percentages. Our brains also can't tolerate conflict or gaps because we seek certainty.
The certainty and possibility effects, to quote the official element, changes in the probability of gains or losses do not affect people's subjective evaluations in linear terms. What this means is, if you go from a chance of 50% to 60%, how will that influence your decision? It won't.
Think about this, if you are told that you are going from a 50% chance of winning to a 60% chance of winning, it will have less impact than if you are told you are going from a 90% chance of winning to a 95% chance of winning. This happens because 95% is closer to 100; it's closer to certainty.
What you're going to see through this is that certainty and possibility affects how people respond, react, and interpret whatever's being done. This goes along with choice theory - as we add more and more choices, we break down and all of a sudden certainty goes away. If you can reduce the number of choices that someone is making, you can operate on a better path of certainty.
The other element that you have to understand is that to enable people to excel in how they work, you're operating in false environments. That's why models are so important.
2. Prospect Theory
What is prospect theory?
It's one of the things that enabled Kahneman and Tversky to win their Nobel Prize in economics. It's why we're loss averse. It takes roughly 5 to 10 times to equal the pain and distress from losing. So, we'll do far more to avoid loss than we will to gain. There's also an element that we don't value things for their utility.
Here's a great mathematical question for you all. This isn't related to prospect theory, but it relates to what we're talking about. If you want to eat well this week, what's the best thing you can do? Plan what you're going to eat on Sunday and then go out and buy for that.
If you remember the show Let's Make a Deal, there's three doors you can choose from, one that has a nice prize behind it and two others that aren't as great. In Doug's example there's a million dollars, a goat and a chicken. After picking door 2, it's revealed that the chicken was behind door one. Now Jess has a choice, she can either stay with door 2 or switch to door 3. She chooses to stick with door 2, but there's a better decision, to switch to door three. Why? You'll dramatically increase the likelihood of winning. How? When there were all three doors, the probability of choosing the wrong one was two out of three, or 67%. Now that there are two doors left, the probability of choosing the wrong one is 50%. If you run the experiment of switching the door, that's the best solution. This is risk aversion because for those who keep the same door, they don't want to lose what they have.
We value what we have more, so there's a bias towards overestimating what we have.
How does this come into play with how you set your team up for working? How does this come into play in the sales process with prospects?
Doug sees the approach that is dominating when there are exit criteria is very different from Lift's exit criteria. Most exit criteria are very limited. What we do with exit criteria is it's increasingly casual; it's progressing. The reason we do that is so that there's clarity.
Another way to put it is what you see is all there is. By identifying a broader set and how we approach decision criteria, there's sales process criteria and there's customer decision criteria. It's prospect theory that causes reps to hold onto accounts and spend too much time on an opportunity. This is where a lot of education can come in to help.
Anchoring is a priming effect. It sets a stage.
Let's look at an example here. If Doug said to you, "Did you see Moneyball jackpots up to $600 million?" before a presentation/proposal or, "Can you believe the score last night was 6 to 3?" you'll pay more money for whatever he offers if he talks about Moneyball. The reason is that you heard a large number. Without realizing it, even if he were to say the cost would be $176,000, the $600 million is still ringing in your head.
Why in negotiation do you start high and go down? You're anchoring high.
Everyone is afraid to talk about price early, but it's your opportunity to anchor.
If you see a number somewhere before having a conversation, that number will have an impact on the conversation. The question comes down to what level of impact will it have? It's not brainwashing; it's not hypnosis.
As you think about how you're crafting a presentation, you're anchoring in your presentation. You don't even realize that anchoring plays with framing. Remember, we don't want to think. We avoid thinking with heuristics.
Doug doesn't think that people think about the behavior science enough when talking about sales processes. The thing that's always shocked him, is at its core, sales and marketing are an influenced business. Yet it's only recently that behavioral science has been embraced.
- Creating outside forces to go against loss aversion are important.
- When you're looking at prospects and then the sales process, you have to find those opportunities with your prospects and then you can't lose what you don't have.
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