Understanding people to increase profits

“Worth a read?” is not your ordinary book review; it is a meta-review and provides an overview of the opinions contained in a variety of book reviews published in the media at large. This week we take al look at Secrets of the Moneylab: How Understanding People Will Increase Your Profits, written by Kay-Yut Chen and Marina Krakovsky, and published in November 2010.

What’s it all about?

Given the economic slowdown that seems to show little sign of abating, it might be time to move away from traditional economic theory towards something seemingly more unpredictable and seemingly illogical.

Behavioural economics is a relatively new field of study that investigates the relationship between economic decisions on the one hand, and social, cognitive and emotional factors on the other.

Although this field has been studied by a number of researchers, co-author Kay-Yut Chen was offered a once-in-a-lifetime opportunity to run the first-ever experimental economics laboratory at Hewlett-Packard. Together with science writer Marina Krakovsky, “Secrets of the Moneylab” details the results of the cutting-edge social and economic experiments conducted at the lab and elsewhere.

Notions such as fairness, trust, reputation and the desire to ‘play’ the system are placed within the context of economic behaviour to show how businesses can shape the desires of their employees and customers, reduce risk and improve the bottom line.

For example, companies that are considered to be untrustworthy were shown to have transaction costs that are five times higher than their seemingly more trustworthy competitors.

Humans tend to punish others so that they don’t get the better deal, even though not doing so would lead to the better of two possible outcomes. Fairness is strictly relative – in assessing whether something is fair, people compare themselves only with their direct peers and neighbours.

Behavioural economics is ultimately about what people do rather than what they should supposedly do as rational beings. However, although humans do not always act rationally, it is possible to predict their behaviour and decision-making. “Secrets of the Moneylab” attempts to show you how.

Who are the authors?

Kay-Yut Chen earned his PhD from Caltech and his research at the HP lab has saved the company millions of dollars. Marina Krakovsky is a journalist who writes about the intersection between science and business.

The authors’ work has been featured in publications such as Scientific American, Psychology Today,  Newsweek, the Financial Times and the Wall Street Journal.

What do others say?

Unfortunately, reviews of “Secrets of the Moneylab” are relatively limited – perhaps because of the extensive detail provided on the economic experiments, which is not necessarily everyone’s cup of tea. Also the sample sizes used in experimental economics as a whole are perhaps not large enough to allow for overall conclusions to be drawn.

Nevertheless, the economic experiments are fascinating and the authors have managed to demonstrate how the results can be practically applied to the world of business.

At the very least after reading this book you will know why people look at the number of people behind them when considering whether or not to leave a queue.

Businessweek: ‘“Secrets of the Moneylab” is chockablock with … insights likely to be useful to any manager who wants a better understanding of why employees, customers and suppliers behave the way they do; and

Hedge Funds Review: The beauty of this book lies in its wealth and range of case studies and examples to support its claims. Business techniques of Amazon, Domino’s Pizza and Apple are all scrutinised, with insightful conclusions about consumers and their thought-processes. Results from intelligent lab research are supported with examples of extensive field experiments. The authors leave nothing to conjecture or assumption.

How do I get hold of it?

“Secrets of the Moneylab: How Understanding People Will Increase Your Profits” is published by Penguin Books. It is available at Exclusive Books at a price of approximately R220.00.