Secrets of the Moneylab by Kay-Yut Chen & Marina Krakovsky - Book review
Secrets of the Moneylab
How Behavioral Economics Can Improve Your Business
By: Kay-Yut Chen, Marina Krakovsky
Published: September 2, 2010
Format: Hardcover, 256 pages
"The premise of using economic experiments in a company is simple: to make good decisions about major economic processes, test them out in the safety of a lab", write experimental scientist Kay-Yut Chen and journalist Marina Krakovsky, in their groundbreaking and research based book Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business. The authors describe how to utilize the latest experimental research, in the emerging field of behavioral economics, to achieve greater success in any company.
Kay-Yut Chen (photo left) and Marina Krakovsky use examples from real world businesses that utilized the experimental approach to decision making successfully. Combining their leading edge lab research into actual human behavior, combined with the results of tests of game theory, the authors demonstrate that conventional approaches to incentives, trust, irrational behavior, and ethics may be misguided at best. Real human beings don't always act as they are expected to behave. The way that people will react to risk, uncertainty, and social preferences, when money enters the picture may be very different from what is generally thought to be the case. Because people act as individuals, incentives can be developed through experiments to nudge them in the desired direction.
Marina Krakovsky (photo left) and Kay-Yut Chen recognize that people may react in a manner that may be irrational, but prove that this seemingly illogical action may be predictable. Through experiments into the perceived wisdom of crowds, the authors describe how people can act as a herd in some cases, and wisely in others. Through the development of internal markets, this group behavior can be captured to the benefit of both the employees and the organization. Through the application of controlled lab experiments, and the management of game theory results, the authors provide a strong case for questioning conventional wisdom, thinking in terms of variance as opposed to averages, and how to create powerful gains from small but strategic changes.
For me, the power of the book is how Kay-Yut Chen and Marina Krakovsky base the entire book on actual experiments and real world outcomes. The book is built on lab and game theory experiments, and not on conventional wisdom or possibly very misleading anecdotes. The authors' commitment to an experimental, research oriented approach to business problems uncovered results that help companies develop incentive programs for employees, suppliers, and customers that work as intended. All too often, as the authors indicate, people will attempt to game the system, turning seemingly effective incentive plans into financial and business disasters. The experimental method of behavioral economics tests the concepts before they are tried in the real world, saving time, personnel, and money. The authors share research backed results, into how even small changes to programs can yield much stronger profits, because of people's differing tolerance for risk, uncertainty, trust, and ethics.
I highly recommend the revolutionary book Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business by Kay-Yut Chen and Marina Krakovsky, to anyone serious about developing incentives for customers, vendors, suppliers, and customers that are backed by experimental research. Instead of relying on averages, guesswork, past experience, or standard thinking, this book builds the compelling case for utilizing lab research with real people. Before implementing a new incentive, the authors demonstrate that it's critical to understand how real people will act on those incentives.
Read the essential and thought provoking book Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business by Kay-Yut Chen and Marina Krakovsky, and put the power of behavioral economics, lab experiments, and game theory to work for your organizations. The way that people behave in the real world, when money is involved, will surprise you. Understanding how humans act will give your company a powerful competitive edge.
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