There’s a wonderful new book out called Predictably Irrational by Dan Ariely that points out many interesting findings from behavioral economics that help to explain why people behave the way that they do.
The book offers a lot of useful insights for anyone who runs their own business.
Here are three things that the book explains, and the implications of that point for entrepreneurs.
1. People overvalue what they have. Ariely points out that people who have something consider it to be much more valuable than people who don’t have it. This point explains why it’s so hard to get a business buyer to offer you a price for your company that you think reflects its worth and why it is difficult to get an investor to value your business at what you think it is worth.
2. Options distract us from our objectives. Ariely explains that we have an irrational desire to keep our options open, which hinders our performance. This point explains why companies that fail to focus often do worse than those that focus on one product or market.
3. The power of price. Ariely points out that we believe that things that cost more are of greater quality than things that cost less. This point explains how entrepreneurs can use pricing strategy to make money from the irrationality in human behavior.
The book is a great read for anyone, and certainly worth its cost for entrepreneurs.
Check out his blog, too.
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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.