Behavioral Economics and Intangible Assets…

On or about October 9, 2017, Richard Thaler…Professor of Behavioral Science and Economics, University of Chicago’s, Booth School of Business, was notified he had been awarded the Nobel Prize in economics.

David Brooks, columnist New York Times…respectfully writes, the central thesis to Thaler’s research and Nobel Prize, are somewhat obvious, i.e.,

  1. people don’t always behave rationally, and
  2. demonstrates ways in which people are systematically irrational.

Having devoted 25+ years to becoming an intangible asset strategist…risk specialist, author, speaker, trainer, and writer of 650+ blog posts on ‘all things intangible’, prompts this question; does Thayer’s – Brooks’ perspective, in any way, perhaps, even partially, explain why this globally universal economic fact, i.e.,

  • 80+% of most company’s value, competitiveness, reputation, and sustainability, etc., lie in – emerge directly from intangible assets,
  • but is, frequently overlooked, perhaps wholly dismissed, or intangibles merely left to marinate and then potentially surface independently, and,
  • if – when they do, intangibles and the lucrative – competitive advantage benefits are uncoordinated, occur haphazardly, and largely absent the impetus – direct action of boards, business leadership, or at the urging of investors.

Having served in academia for 20+ years, albeit not at a top tier university as The University of Chicago, I do have, a respectful understanding for the many years of research, thought, debate, and work that professor Thaler must have  consistently engaged, culminating in being awarded a Nobel Prize. Well deserved! Bravo!  

Unfortunately, I do not sense Professor Thaler’s (Nobel Prize winning) thesis was met with revelatory enthusiasm relative to the business side of business, instead, as Thayer noted…

  • people don’t always behave rationally, at least with a desired – prudent consistency,
  • a point which I, and I suspect most, if not all, of my colleagues in the relatively small international niche of business intangible assets would agree.

After all, says Heather Long (economics contributor to Wonkblog), ‘an American professor won a Nobel Prize in economics for trying to understand bad human behavior’, and I might add, ‘poor business behavior’ by not aggressively exploiting the intangible assets which most of their businesses readily possess.

The Nobel committee also praised Thaler for trying to “nudge” (presumably business leadership and their companies, “to make better business decisions”, but not specifically identifying intangible assets businesses acquire, develop, and are embedded in and delivered (sold) through their products and/or services, which, by the way, are consistently – perpetually in play.

Too be sure, during the many years I have been advocating for business leaders to seek – achieve operational familiarity with their intangible assets, I still, with disappointing frequency, engage business leaders, board members, and investors who, again, are utterly dismissive of their intangible assets, which for me and my colleagues is so evident.

For me, it remains variously perplexing in 2019…why, otherwise intelligent, successful, savvy, and experienced business professionals would be hired to oversee a business, be it a research-based startup, a small – medium sized business, or even a Fortune ranked firm, but are variously and operationally unfamiliar and untested with respect to the exploitation of intangible assets, including their valuation, commercialization,  monetization, competitive leveraging capacity, and contributory roles and value. 

After all, in 2019, significant and growing percentages of businesses are… indeed intangible asset intensive and dependent!  To overlook or dismiss this realities is, as Professor Thaler would likely suggest, irrational.

One need only review various business news resources in the days – weeks prior to – leading up to Professor Thaler’s Nobel award…to learn multiple examples of business decision makers acting, as Thaler describes, in systematically irrational ways, not once, but often consistently, and for extended periods of time, that produce adverse economic – competitive advantage effects to their business.

Thaler is routinely cast as one of the leading experts in the field of academic (business) study…who recognizes linkages between human psychology and economics, and through analysis, provide unpretentious insights and relevance about how – why humans make business decisions, especially bad (irrational) ones.

It’s plausible Professor Thaler’s thesis extends to…the challenges that underlie why business management teams are reluctant to act – execute on their intangible assets…? 

  • after all, it remains a globally universal economic fact that 80+% of most company’s value, sources of revenue, competitiveness, reputation, and sustainability, etc., lie in – emerge directly from intangible assets!

With Professor Thaler’s guidance, one could rationally assume…that skillfully introducing intangible assets to a business’s investors, board, and management team would conceivably prompt – justify…

  • immediate and favorable inquiries about how to effectively, lucratively, and competitively exploit and ensure their intellectual, structural, and relationship capital was being maximized.

Another particularly relevant product of Dr. Thaler’s research, is…that we now know a lot more about biases, inconsistencies, and variances that affect – distort people’s perceptions and thinking insofar as (their) decision making.

Two such examples of this are what Thaler refers to as the…

  1. endowment effect, i.e., once one owns something, they may be inclined to value it more than before they owned it, or
  2. mental accounting, i.e., that occurs when one thinks about a dollar they have in their pocket differently than the dollar(s) they may have in a saving account in a bank.

Before Thaler began merging the study of economics and human psychology to…learn more about human decision making, most economists assumed it was sufficient to proceed as if people are, for the most part, consistently rational (decision makers) and utility-maximizers.

But now, thanks to Thaler’s work in behavioral economics…which many would agree he started, there is more clarity and insight that, that assumption does not explain the adverse realities of consistent poor (business) decision-making… 

  • by his own admission, Thaler recognizes his work only scratches the surface in terms of explaining people’s irrationality.
  • Thaler believes a lot of one’s thinking is related to bonding, not necessarily truth-seeking. A percentage of people are quite willing to think or say most anything which they believe will contribute to being liked by the group which they wish to be associated or identify.
  • and, some are willing to disparage those who, as Marilynne Robinson (an American novelist, essayist, and 1995 Pulitzer Prize winner for fiction) once put it, “the reward is the pleasure of sharing an attitude one knows is socially approved.”

David Brooks suggests, when we don’t really know a subject well enough ala in the words of T. S. Eliot…

  • “we tend to substitute emotions for thoughts, and go with whatever idea makes us feel popular”.  

Those who practice this perspective…which I suspect may be legion, their intellectual capital will carry less value and less influence, at least through my lens!

Michael D. Moberly St. Louis April 29, 2019 [email protected] the ‘Business Intangible Asset Blog’ since May 2006, 650+ published posts, read in 137 countries, ‘where one’s attention span, businesses intangible assets, and solutions converge’!

(This post was initially published here October 17, 2017. The post underwent significant revisions at my hand and is now re-published on April 26, 2019.)

Readers are invited to explore more blog posts, position papers, video, and books at https://kpstrat.com/blog

Reader comments, as always are invited and respectfully welcome!

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