Acting Rationally About Intangible Assets!

There remain many company management teams which do not consistently act in a rational manner regarding their intangible assets in playno surprise, uh, especially how and why they frame particular business issues, challenges, and objectives the way they do, again, when IA’s are in play.  Intellectual, relationship, and structural capital are not quite akin to rocket science!

Richard Thaler, Professor of Behavioral Science and Economics, Booth School of Business (The University of Chicago)…was notified one week ago (on Monday, October 9th) that he had won the 2017 Nobel Prize in economics. Professor Thaler, long known for his study of the first sentence above, writes David Brooks, OpEd columnist for the New York Times, that ultimately lead to this prestigious award.

Does the notion that ‘people don’t always behave rationally, at least partially explain…why the 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 is routinely overlooked and/or dismissed.  Unfortunately, a company’s intangible assets surface independently, largely absent action, stewardship, or oversight by boards, management teams, and/or investors?

Having served in academia for 20+ years, I understand and respect…the many years of research, thought, and work that professor Thaler was consistently engaged would culminate in being awarded a Nobel Prize. Well deserved! Bravo! Truth-be-told however, I have never felt his thesis especially revelatory to the business side, particularly in the realm of intangible assets. Instead and unfortunately, it may be more common; people don’t always behave rationally, at least with a desired consistency. 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’.

The Nobel committee also praised Thaler for trying to “nudge” people and companies to make better decisions. But who, right-mindedly, would want someone leading any organization which they were literally or figuratively invested, to do otherwise? One need only to review business news over the previous ten days in October 2017, to see multiple examples of CEO’s, founders, boards, and c-suites acting, as Thaler describes, in systematically irrational ways, not once, but, consistently, and for extended periods of time.

Thaler is routinely cast as one of the leading experts insofar as identifying linkages between psychology and economics. Through thought and analysis, provide unpretentious insight and relevance about how – why humans make decisions, especially bad decisions.

It’s perfectly plausible that Thaler’s thesis underlies the challenges about company management teams executing on their intangible assets? After all, it is a 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. Rationally, one could assume then, respectfully introducing intangible assets to a company’s investors, board, and management team would prompt – justify immediate and favorable inquiries and actions to exploit and ensure their intellectual, structural, and relationship capital was being maximized.

A particularly relevant and important product of Thaler’s research and work for me…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…

  • endowment effect, i.e., once one owns something, they may be inclined to value it more than before they owned it, or
  • 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, and others, began merging economics with 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, largely due to Thaler’s work in behavioral economics, which most agree he started, there is insight that that assumption does not explain the adverse realities of consistently poor 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.”

“We tend always to substitute emotions for thoughts, and go with whatever idea makes us feel popular”, especially when we don’t understand a subject well enough, suggests David Brooks through the words of T. S. Eliot,  Those who practice this, which I suspect are many, their intellectual capital will carry less value and less influence, at least through my lens.

‘we Americans eat too much, take on too much debt, save too little, and put off doing anything mildly unpleasant as long as possible”. Richard Thaler, New York Times op-ed, 2011.

A Richard Thaler mantra, ‘if you want to get people to do something, make it easy’.

Michael D. Moberly October 16, 2017 St. Louis [email protected] ‘The Business Intangible Asset Blog’ where one’s attention span, intangible assets, and solutions converge!

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