Procurement and Psychology – More Evidence that We’re Irrational

You are a thoughtful, objective decision maker, aren't you? You weigh matters up carefully, think logically about the best decision to meet your well considered goals, and proceed in a sensible, rational manner.

Well, that's what you would like to think anyway. The problem is, it's almost certainly not true. Like pretty much every other human on the planet, you are almost certainly prone to jump to conclusions, look for the easy solution rather than really thinking things through, have an illogical attitude to risk, are easily influenced, and generally make a toddler in a tantrum look like a model of rationality.

That is the conclusion that won Dr Daniel Kahneman his Nobel Prize for economics in 2002. What was unusual is that he is not and never has been an economist. He is a behavioural psychologist by training, but it was his work and that of others in his field that showed how our thought processes are far from rational. And that blew huge holes in traditional economic models and theories, which relied on the assumption that people behaved rationally when faced with choices and economic decisions.

A recent study has highlighted an example of this. It's conclusion is that even when someone knows that a colleague is less competent than they are themselves, they give that other person’s views almost equal weighting in a group decision. That was true even when people knew the other person was less competent and there was real money resting on the decision!  "Equality bias" the researchers called it, and it joins a long list of biases and heuristics that Kahneman and friends have come up with over the years.

So what has all this got to do with procurement, I hear you ask. Well, the study mentioned above clearly has implications for tender review boards or other procurement groups involved in decision making. More widely, if you read Kahneman's masterpiece, Thinking Fast and Slow, you won't go too many pages anywhere in the book without thinking "oh yes, I can see how that is relevant to what I do."

Because of that, I am currently putting together a Real World Souring session titled New Approaches to Negotiation. It is not just going to talk about Kahneman, but there are some areas of his work and ideas that are very relevant to negotiation. We will cover some other aspects too, but the Kahneman related elements should be fascinating. And we will try and have some fun too!

The first airing for this session is actually going to be with Tejari, the BravoSolution joint venture in the Emirates, on April 14th in Dubai. We will then be presenting it in London on June 3rd. And on April 15th, during my Emirates trip, I will be leading a Real World Sourcing session in Abu Dhabi with Tejari on another one of my favourite and fascinating topics, Evaluating Bids and Tenders.  

Finally, don't forget the next London RWS is on April 29th, with my friend and colleague Guy Allen leading on Category Management, a Fresh Look. I don't think Kahneman will feature in that, but Guy has some fairly radical ideas to help stir up anyone's tired CatMan programmes! I do think these sessions will sell out, so follow the links to book now.

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