Friday, August 28, 2015

Applied Psychology series (3/4): Psychology of Money

A brief sketch:
I have drawn upon various academic work & scientific research, from an Applied Science perspective. My objective, was to provide practical tips which can find application in our real life.
In the interest of keeping the blog-post concise, I had traded off the details of the research work & have focused on the key aspects. However, at the end of the blog, I have listed down the references for advanced readings.
Flow of topics, are as follows:
# Definition (Psychology of Money
# Concept of Money
# Conventional Economics to Behavioral Economics
# Psychology of Money:
1. How we perceive Market & Social norms
2. Money as motivator
3. Money & it's relation to Happiness
4. Anticipation of money
5. Our behavior in relation to Soft Money
6. Mental accounting
7. Money Illusion
8. Availability Heuristic
9. Loss aversion

Psychology of Money! When I had heard this phrase for the first time it really caught my imagination. So what does it mean? Let us take the two key words: Psychology & Money as separate entities & then try to connect the dots.

What is Psychology?

In layman's term it is defined as 'study of mind', but directly studying mind (mental processes) is difficult, because mind is abstract & non-tangible. However, the mental processes (i.e. thoughts, motives, attitudes etc) has an outward expression through one's actions, emotions, behavior & habit.

Thus in true sense, Psychology is both an applied & academic field that scientifically studies (observes) the outward expression of mental processes & seeks to understand & explain thoughts, emotions & behavior.

What is Psychology of Money?

It is our beliefs, feelings, behavior & habits around financial matters & their influences on our money management (e.g. choices we make, spending, purchasing, savings, investments, altruism etc).

Concept of money:

I had reached out to my friends, requesting them to respond to a survey question: 'What is their definition of money?'

The essence of their responses were:
  • Money is an instrument for carrying out transaction (for buying necessities)
  • Money is our means (tool) for achieving our ends (needs/goals)
  • Money should always be in circulation for it to remain valuable.
This shows, we all perceive an intrinsic value in money, we perceive money as a means for meeting our needs & wants, we perceive money as a means for gaining social status & money in circulation keeps our economy (market) running.

Money has become such an integral part of our life, that we seldom give a second thought about the origin of these mental concepts.

If we take a biographical approach of money, we would see that the concept of money had an evolutionary journey, hand in gloves along with human beings.
Artistic expression depicting the evolutionary journey of money
Barter (direct exchange of commodity).....Token money (shells, stones, grains, salt etc)......Coins (metals like Gold, Silver etc)......Paper money (originating in ancient China)......Plastic money (Debit & Credit cards)........Digital money (Net banking)........Mobile money (mobile wallets, Apps etc) future the concept of money may continue to evolve to suit our changing lifestyle.

Different forms of Money
To put things into perspective, Money is one of the greatest invention of human beings.

The invention of money is:
  • Conceptual (it is a figment of collective imagination which has an endorsement of the issuing authority - ancient times it was the kings & queens, while today it is Governments)
  • Tool for Facilitation (barter system was self-limiting & couldn't be scaled up; whereas money facilitated exchange of commodities & contributed towards expansion of market)
  • Dynamic (it's form changes - physical money to today's digital money)
  • Omnipresent (transcends into every aspects of our life - birth to death).
Like in the case of any important inventions (e.g. electric bulbs), the invention of money has changed our lives & our world forever.

Shift from Conventional Economics to Behavioral Economics:

In the book 'Coined' , the author Kabir Sehgal satirically mentions:
Association of ringing of bell & food provides motivation to the laboratory animal (dog) in Pavlov's experiment. Metaphorically speaking, Money has become our Pavlov's bell, activating our brain regions & conditioning our behavior wanting for more.

Even, if we discount the above satire as an exaggeration, won't we be dishonest to ourselves if we pretend ignorance to the influence of money on our thoughts, feelings, emotions, actions & behavior?

Foundation of conventional economics is build on the principle that human beings are rational & are able to trade-off between choices. However, in reality we humans are far from being 100% rational beings (logical), in fact our emotions, beliefs & habits have a strong influence on how we deal with money.

The research of Daniel Kahneman & Arnos Tversky (Nobel laureate in Economics, 2002) has shown how we have cognitive biases in our financial dealings & their pioneering work, has established Behavioral Economics, as a new way for understanding economics.

Contemporary research in Behavioral Economics & Neurosciences shows our dealing with money tends towards being more psychological, than an economic (logical) approach.

Let's explore the specifics of Psychology of Money

1. How we perceive Market & Social norms      

The underlying norms of social & market norms
Human society has two aspects - social (family, friends, acquaintances) & market domains (business & professional) & the unsaid norms of the concept of money, for both the domains are very different from one another. Our relationship with money, lies on a continuum between market norms & social norms. Gift economy operates in social world & Money operates in market (business) world.

  • Generally, in social domain direct exchange of money is not recommendable. (Though offering of direct money is economically more efficient, but the anticipated social value gets eroded. Direct money does not help in nurturing the relationship & doesn't build social capital).
  • Culture specific social norms dictates, when money is regarded as an appropriate gift.
  • The price & the type of gift determines it's appropriateness. (culture & context specific). The price of a gift which is too less or too expensive, can end up being perceived repulsive. Also, a gift which does not sync into the context, occasion & right culture fit will end up hurting the receiver.
  • Advertising the cost of gift, violates the social norm.
  • There is a thin line between gifts & seeking favour in business world.
  • In social world, people are willing to work (help) for free. If money is introduced to procure help, then the willingness to work (offer help) is drastically reduced. The willingness to work, goes up once again, only if large amount of money is offered). 
  • Social relationship creates a greater sense of reciprocity, in comparison to business relationship. (depending on what kind of relationship one wants to build, he can mix & match gift economy & direct money).
  • Once, one moves away from market norms to social norms, it is difficult to go back to the market norms in the same relationship.
Lessons for us: 

As we live on a continuum between market norms & social norms, we can judiciously mix & match, direct money & gift economy. This will help us in enhancing our social capital, help us in nurturing our professional & personal relationships.

2. Money as motivator

Money as motivator

The word motivation means, a force that creates stimulus & drives us towards achieving it. For long, it is believed that money is the most powerful motivator, for us to go to work. The mathematical equation is as follows: Money = Motivation, Motivation = Work & Work = Money.

It is true, that Money has a big motivation effect on us, but 'Money to be considered as the best motivator', is debatable.

Let's look into some of the key aspects of money's influence on human psyche:
  • In most of the cases when asked, people say they aspire for 'freedom' (they define freedom as having enough money, so that they can pursue things they really want to do). It indicates, that the real motivation is the end result i.e. 'the state of financial freedom' & not just money.   
  • Societal relativity, rich & poor, have's & have not's, social hierarchy etc has become ingrained in our psyche. People strive to become better than one another on this perceived relativity scale. It indicates, that the real motivation is social recognition & money serves as a tool for achieving this outcome.
  • Several research at work place has indicated money does not serve as the best motivational tool. Money is shown to encourage self-serving short-term behavior better than it motivates lasting institutional achievement. Over-reliance on monetary rewards erodes emotional commitment. [Some of the long-lasting motivational factors at work place are: Empowerment (to feel autonomous), Personal time, Happiness, Recognition, Goodwill, Emotional bonding (feel related to others), Challenge & New Learning (feel competent)].
  • Money as incentive tool - For tasks requiring cognitive ability, low to moderate performance based incentives can help. But when incentive level is very high or clubbed with penalty clauses, this leads to undesirable stress, distraction & ultimately leads to reduction in performance level. 
Lessons for us: 
  • One should develop the ability to distinguish the means (money & how money is earned) & the ends (financial goal & life's purpose). This clarity & self-awareness will increase one's well-being & help them stay focused on their life's journey. 
  • Ideal situation would be when one is aware of their life's vision/purpose & while working towards achieving them, income of money happens as a by-product
  • An employer (organization) can create a healthier work environment by including the psychological competent along with money as a motivational tool. The resulting engagement will be deep rooted & long-lasting in nature.

3. Money & it's relation to Happiness

Maslow's hierarchy of needs

Abraham Maslow's 'Hierarchy of Needs', depicts the needs of human beings in the order of priority.

The more one steps up on the pyramid, the human needs transforms itself from biological needs, to materialistic needs & into psychological needs.

Money & Happiness, the law of diminishing returns

When the basic biological & materialistic needs are not met, it results in unhappiness.

With increase in income & fulfillment of these basic needs, results in exponential gain in the happiness level.

However, once these basic needs & a decent comfort level in life is achieved, further increase in income level (money) does not result in similar gains in the happiness level.

This phenomenon is called the law of diminishing returns (i.e. marginal increase in the output, in spite of pumping in input).

Lessons for us: 

This indicates more money may not be the key to long-term happiness. Once the basic needs & a decent comfort level is achieved, one needs to engage themselves into activities which gives them a purpose & meaning, for experiencing gain & maintaining their happiness.

4. Anticipation of money

In anticipation
I am risking myself to sound like a geek :). Studies in the field of Neurosciences shows how various brain regions responds in relation to money. 

Nucleus Accumbens (part of the reward & punishment system of the brain) activates when anticipating a gain, while Anterior Insula (part of cerebral cortex & functionally linked to emotions) activates at the prospect of loss of money. 

The anticipation of making money leads to a surge in Nucleus Accumbens & increases Dopamine levels.

Surprisingly, Nucleus Accumbens fires less intensely, when one received an award, in comparison to anticipation of money. This indicates, that idea of gaining money is a stronger neural stimulant than money itself.

  • Since anticipation of money acts as a major force in our mind, this probably throws some light on why many people involve in gambling & purchasing of lottery, even though the probability of winning is very minimal. 
  • One needs to be aware that in the domain of consumerism, many marketers are exploiting this aspect by leading the potential buyers into anticipatory offers like lucky draws, contests etc, in their marketing strategy. 
  • As the prospects of losing money triggers negative emotions, many people tend to take a conservative approach in their investment decisions rather than opting for optimal portfolio. 
Lessons for us: 

With knowledge & awareness of how emotions are linked to money matters, one can become more conscious when placed in anticipatory situations & try to make rational financial decisions, taking into account the probability factors & weighing the risk benefit ratio.

5. Our behavior in relation to Soft Money

Hard Money (paper notes, coins etc) & Soft Money [Plastic money (credit & credit cards), Digital money (mobile wallets, mobile apps)]

Hard money & Soft Money

The world in which you & I live has technology, internet, consumerism, digital marketing etc as part of it's system. Going by the trend, the future is going to be driven by IoT (Internet of Things), Mobile Apps, Smart phones, Online shopping, Cashless transactions (soft money). There is going to be further sophistication of market intelligence, consumerism, big data (data mining & data analytics), enhancement of M2M (machine to machine learning) & artificial intelligence.

We humans do not have a long history of coping & living side by side, with such rapid advancement of technology & a cashless world (soft money), so there is could be high degree of variability in our behavior towards Soft Money when compared to Hard Money (coins, paper note).

Let's look into the key differences of our psyche & behavior towards Soft Money:

  • Payments by cash & cheque generates more pain of paying (registers in our memory more), in comparison to plastic money (credit/debit card payment).
  • Plastic money, results in underestimation of the past spending & increases the propensity for spending more in the current transaction.
  • In cashless transaction, we are unable to visualise, money being spend at the time of purchase. Whereas cash payment evokes thoughts of cost/benefits of purchase at the time of purchase. 
  • Psychographic reasons: Our behavior & attitude towards the usage & acceptability of plastic money (credit cards) differ due to psychographic reasons. Affective attides involve emotional feelings (e.g. my credit card makes me feel happy); cognitive attitudes involves thoughts (e.g. heavy usage of credit cards results in heavy debt); while behavioral attitudes involve actions (e.g. I use my credit card frequently)
  • Temptation & Instant gratification: Some people may buy through credit cards, for a genuine reason (convenience of cashless transaction, emergency/unavoidable need). But on the other hand, many people end up buying through credit card, before their income arrives, as they succumb to their temptation & their urge for instant gratification.
  • Ignoring the interest rate & late payment clause: Consumers may not even consider the fine prints (interest rate & late payment clause) while making purchases with their plastic money. The reason being, they do not intent to borrow for an extended period when they make purchases. However, they may change their minds when the bill arrives.
  • Soft money makes us more gullible towards spending: With data analytics & market intelligence in practice, we unknowing are being succumbed to make purchases. With online, mobile app, digital wallet the convenience of payment has gone up significantly. Also as elaborated in the above points, the pain of payment is relatively low, which makes us more gullible towards spending our soft money.
  • Cultural influences on the usage of plastic money: 
a. Religion: Islam has a different point of view concerning credit cards, Though banks want consumers to use plastic money, they also have an obligation to abide with the Sharin (Islamic Laws). According to the Sharia, credit cards is permissible as long as one does not delay paying the bills & pays the total amount on time. Whereas in several other Islamic countries the usage of credit card is forbidden. [Taking this cultural aspect into account, the Standard Chartered Bank had launched a global Islamic banking brand 'Saadiq' in Mid East (Pakistan Standard Chartered, 2007).

b. Country specific cultural norms: The culture & traditional beliefs has a big influence in the way we view plastic money (credit cards). For example, country like USA is saturated with credit cards, on the other hand the credit card penetration is quite low in several other countries. China with 1.3 billion people, has only 67 million credit card users. The reason can be attributed to traditional of Chinese culture, i.e. Chinese tend to save more & are reluctant to take on debts. Another example is Germany with 82 million population, the credit card holder are only 10 million people. This phenomenon can be traced back to German tradition & culture, wherein Debt (Schuld in German) means guilt.

Lessons for us:
Now that we understand the evolution of money (hard to soft) & we understand we are living in this time point where a major transition in the concept of money is happening, we can become more conscious towards our behavior & adaption in relation to this changing form of money.

As our feelings, emotions & cognition are very different towards soft money, we need to raise our level of self-awareness to distinguish between our Needs & Wants. We also need to make the right choices & make the right judgment between the convenience of the mode of payment VS. staying on course with our financial budget/goals.

6. Mental accounting (categorisation of money)

Mental accounting of money
We all have a tendency of separating our money into seperate category (accounts) in our mind.
This categorisation is based on variety of subjective criteria, like the source of money, intent for each category. This is almost like how an organisation does financial planning & budgeting exercise (each department are allocated their respective fixed budget). Similarly, in our minds we do mental accounting for our money e.g. household budget, entertainment budget etc.

Mental accounting can lead to the following behavioral outcomes:

  • Compartmentalizing income & assigning it into different mental accounts violates one of the basic rules of economics - i.e. money is fungible (interchangeable).
  • The source of money, influences how we spent it.
  • The setting up of mental accounts, can have paradoxical effects.[To illustrate this point, let us think of an office scenario. At the end of the financial year, one might not get approval for a new laptop because the IT hardware budget has been exhausted, but he might be granted an overseas trip because there is money left in the travel budget. One's rational argument that the need for a new laptop is more critical for smooth functioning of work, is most likely to fall on deaf ears.This phenomenon can translate in personal finance management as well, for example one might end up compromising in one particular dimension of life's need (e.g. fuel budget), because the budget assigned to this particular category got exhausted, but he might end up lavishly spending on another dimension of his life (e.g. entertainment). Basically, he ends up treating his money as non-fungible & does not reassign it].
  • Mental accounting can lead to snap deals on items we may not need. When something sells for below the assigned mental price, the deal takes precedence over the actual utility of the item.(For example, according to the dimension of one's living room, a person would have decided to buy a three seater couch. He assigned a mental budget (price) of Rs. 5,000 for his purchase. When he visits the furniture store, he finds an ongoing sale in which a five seater couch is put on sale at the same price (Rs. 5,000). Even though the three-seater couch was meeting his utility needs, he mostly might opt for the five seater couch (mismatch with his utility, need & does not fit in well with the room dimension). The occurs because, the price matches his mental price & this takes precedence over the utility).
  • Mental accounting & treating money as non-fungible can lead to misplaced priorities & not spending money wisely. (One might not spend money on utility, because he would have exhausted the budget assigned to it in his mind) but end up wastefully spending money on outing/entertainment, without diverting the fund to meet his utility bills).
Lessons for us: 

The alternative to mental accounting is to think about our money in a complete rational manner, i.e. each time to evaluate the opportunity cost & benefit across all categories.
But in real world, being 100% rational all the time is next to impossible. Even though the concept of Mental Accounting is not a full proof method, it is probably a useful tool for our money management.
With the awareness of the fallacies of mental accounting, we can improve upon it by being more self-conscious & treating money as fungible across all category. This will enhance our effectiveness in money management & make mental accounting methodology work more in our favour.

7. Money Illusion

Money Illusion

Have you observed a child, 4 or 5 years of age? If you offer then five coins of Rupee One denomination, they would feel happier, than receiving one coin of Rupee Five denomination. This is because they look at the absolute value i.e. five coins vs one coin, even though the monetary value is same. This is a type of money illusion, which plays in a child's mind.

The not so good news is, we adults too are not free from money illusion. By our natural instinct, we ignore factors like inflation & deflation while making financial decisions. That is, we think of money in it's nominal value rather than real monetary value (which tends to decline on a time scale due to inflation).

Lessons for us: 

Due to money illusion, we tend to discard the erosion of our wealth (purchasing power) in the future. This short sighted approach & being ignorant of the real monetary value, can hit us hard if we ignore saving for our retirement days (inflation will erode the purchasing power of today's money). Hence, we should make ourselves self-aware of money illusion & start our financial planning for a secured retired life, in our not so distant future. 

8. Availability Heuristic 

Availability heuristic

Availability heuristic is one of the limitation of our cognitive ability. We tend to make financial decision based on the readily available information & based on what we recollect (remember), rather than exploring & examining all the other possible alternatives. In simple words, it can be described as 'taking short-cuts' rather than going through the lengthy & cumbersome process of detailed evaluation.  

Lessons for us: 

In most of the cases, any financial decision which is made on limited information (readily available) skipping through a detailed evaluation & analysis can lead to regret in future (in hindsight we do pick up our errors). 
Also, due to the tendency of availability heuristic, we are gullible to get persuaded by a seller & end up purchasing something which may out-run it's value & utility in the long run.
Hence, with the awareness of 'availability heuristic' phenomenon, we should consciously delay our decision making time (avoid snap deal or start exploration much early) & in this extended horizon of time period we can try to explore more options, seek information & reach out for diverse point of views, before making the final decision. This can help us in making a better financial decision, which has more probability of withstanding the test of time.

9. Loss aversion

Loss aversion
It appears, we humans are hard-wired towards loss aversion. In economics, loss aversion refers to our strong tendency towards avoiding losses towards acquiring gains. Studies have shown, the negative feelings coming from loss are much stronger than the positive feelings coming from gain.

The tendency of loss aversion, influences our money management in the following manner:

  • Making a decision of changing the investment portfolio, seems very difficult, because with the change there is a probability of 'what if my decision goes wrong?' The thought of incurring loss makes us uncomfortable, whereas maintaining status quo seems a convenient route, overriding the obvious not so favourable, opportunity cost.
  • We end up holding on to things for a longer period in time, even though we know it is not making good financial sense. Example, holding on to a poorly performing stock for a long period in time, hoping that it will revive & we will avoid making loss.  
Lessons for us: 

With the awareness of our strong emotions towards loss aversion, we can make conscious effort in separating our emotions from our financial decision process. By overcoming our negative emotions towards loss aversion, we can increase our probability of better money management.

Psychology of money is a two way traffic, our mind is on money & money is on our mind.

Psychology of money, it's a two way traffic

From time immemorial, money has been part of human civilization & when something becomes as natural as breathing & sleeping & eating, we seldom take a step back to reflect, introspect & question our relationship with that phenomenon. May be something similar has happened to us & to our relationship with money.

We should remind ourselves that money was an invention of humans & it was invented to serve as a tool to facilitate transaction for meeting our needs. 

Money was a means to meet our ends (goals) & it was & is not to be confused as an end in itself. 

Like everything else, with passage of time, with evolution & systems moving from being simple to complex, our understanding towards money has got blurred. 

Also, money being a long term companion of humans, in the course of it's journey, it has learned to exert it's influence on our minds. 

By understanding the 'Psychology of Money', we can get valuable insights & we can go beyond the obvious, thereby making our relationship with money & money management more effective & healthier. 

Hopefully, this understanding can help us in making our life richer, not just in monetary sense but in it's true sense of richness.

(in alphabetical order)
  • Behavioral Finance: Key concepts - Mental Accounting (
  • Cashless Society & Plastic Money Marketing Essay (
  • Coined - Kabir Sehgal (a very interesting book, which takes a biographical approach towards money)
  • Predictably Irrational - Dan Ariely (highly recommended for readers interested in Behavioral Economics)
  • Study of Factors Affecting Use of Plastic Money (
  • Washington Post (Mental Accounting)

(in alphabetical order)

Special thanks to my friends Protyush Lala, Preetha Ajit & Nandhini Thangavelu, for their thoughtfulness & participation in the 'Survey Questionnaire'.

Sincere thanks to my seniors Bhavesh Acharya, Raghavendra Kalmadi & Sanjay Patel, who have helped me to see money in a new perspective.

Images taken from internet search, no copyright violation intended.

Thursday, July 16, 2015

Applied Psychology series (2/4): Management of Agreement

We humans are social beings & day in day out, we interact & live among people in our personal & professional spaces. Hence Interpersonal skills is of huge importance, for our effective functioning in society. Interpersonal skills is multi-facet comprising of team work, communication, cross-cultural understanding, just to name a few.

Group Decision Making is one such critical social skill, which we need on a frequent basis, for working effectively in group setting, for facilitating discussion & decision making.

Group Decision Making, in progress
In fact, we all have engaged in group decision making process, on a regular basis, in some form or the other, either as a participant or as a facilitator.

Hence, it might be a good idea to spend some time in understanding the various aspects of Group Decision Making, so that we can up-skill ourselves in Group Decision Making technique & become effective in 'Management of Agreement'.

Several years back, while undertaking a course on Social Psychology, I had came across three very interesting phenomenons (listed below), which have profound impact on the effectiveness of Group Decision Making process.
  • Group-think (Conformity) 
  • Group-shift (Group-polarization)  
  • Abilene Paradox
At the core, these concepts are raising a fundamental & radical question:

'Is Group Decision Making always preferable, in comparison to Individual Decision Making?'

Group Decision Making vs Independent Decision Making, which is better?
Intuitively, we might have a positive bias towards Group Decision Making, for it's obvious benefits like consensus building, generating multiple ideas through brain-storming sessions, engaging with multiple stakeholders etc.

However, Group Decision Making, has it's own pitfalls & hence it is crucial for us to raise our awareness about these not so obvious phenomenon, if we want to become effective in our 'Management of Agreement'.

All members in sync, with group decision
Let's begin our deep dive, by taking stock of the merits & demerits of Group Decision Making:
  • Merits of Group Decision Making
  1. Likelihood of generating more information & benefiting from collective knowledge
  2. Varied inputs & heterogeneity into the decision making process
  3. Increased diversity of views
  4. Multiple approaches & alternatives
  5. Consensus building & increased acceptance of the decision(s) made 
  • Demerits of Group Decision Making
  1. Brainstorming sessions are time consuming (slow paced process)
  2. Conformity (an individual with a different point of view, succumbing to group pressure)
  3. Group decision making can be dominated by one or few members 
  4. A group's overall effectiveness will suffer, if it comprises of low & medium ability members,
  5. Ambiguous responsibility (in an individual decision, accountability for the final outcome resides on one person. However, in group decision, the accountability of any single member is diluted).
Let us now, explore the three phenomenons which can derail the effectiveness of Group Decision Making process:
  • Group Think: 
Group-think - Social Pressure on an individual to go with majority
Many of us, at some point in time, would have experienced this phenomenon, in varied degrees & in various occasions in our day to day life. 

We would have felt like speaking up in a meeting, in a classroom, or in an informal gathering but finally we would have ended up, deciding against it.

One of the probable reason may have been our inability to overcome our shyness.The other possibility, is we might have been a victim of group think.

Group-think, is social pressure on an individual who has a different point of view, to conform (agree) to the group consensus (norm).

Group-think, suppresses the full expression of deviant, minority & unpopular views of an individual.

Does group think happen in all groups?

The comforting news is, 'No'.
However, there are many factors which contributes towards the occurrence of group-think, in a group decision making process.

The probability of Group-think, is high in the following situations:
  1. When there is a clear group identity
  2. When members hold a positive image of their group
  3. When the group perceives a threat to their group's positive image & they want to protect it.
To safe-guard the effectiveness of our Group Decision Making, let us now explore the strategies to mitigate it's occurrence:
  1. Group size: People grow more intimidated & hesitant as the group size increases. Hence try keeping the group size upto 10 members or split the large group into smaller sub-groups
  2. Facilitator should try to play an impartial role. 
  3. Devil's advocate: Someone in the group can be assigned to play the role of devil's advocate.They should explicitly challenge the majority position & offer divergent perspectives.
  4. Group Leaders: They should avoid expressing their own opinions, especially in the early stages of deliberation. They should actively seek inputs from all members.
  5. Avoid Positive Bias: Delay discussion of possible gains, instead talk about the dangers or risks of a proposed decision. Focusing on the negatives, makes the group less likely to stifle dissenting views & more likely to gain an objective evaluation.
  • Group shift or Group Polarization:
Group taking extreme position
From our personal experience, we would have been witness to situation(s), wherein the group takes an extreme view, during their course of group discussion. The discussion process, leads members towards a more extreme view of position, than they originally held. This phenomenon, is referred as Group-shift (Group-polarization).

Conservatives become more cautious & more aggressive types take on more risk.

Whether the shift in the group's decision is toward greater caution or more risk, depends on the dominant pre-discussion norm.

The reasons, for group polarization are:
  1. Shared identity & comfort zone: The members of a particular group have a shared identity & they are in a comfort zone with each other. Therefore in group discussions, the group members are more willing to express extreme versions of their original positions.
  2. Diffused responsibility: Group decisions frees any single member from accountability for the group's final decision, so group members tend to take a more extreme position. 
  3. Competition with Out-group: The IN-group members, have an urge to demonstrate themselves as different from the OUT-group (other groups, whom they perceive as their competitor).
As a group-leader or as a group-member, we should execute our judgement & moderate the extreme approaches during our group decision making, which unintentionally we might end up taking.
  • Abilene Paradox:

Abilene paradox example
The paradox between explicit & implicit behaviour
Have you ever, been in a situation, when as a group member you went along with a decision thinking it is a group consensus? Later on, you discovered, even the other members of the group did the same, thinking it was a group consensus. The paradox was, every member went along with the decision thinking it is a group consensus. In reality, none from the group agreed with the decision, but still all went along, till things fell apart. This paradox is called, Abilene paradox. (This theory was coined by researcher Jerry Harvey).

Let's look into the probable reasons behind the occurrences of Abilene Paradox:
  1. Group members, feel a compulsion to be perceived as part of the group
  2. They are fearful of challenging conventions (traditions)
  3. Dominant & rigid hierarchy, results in members toeing the line
  4. Groups which displays passive behavior & lacks interaction among the members
Let us explore the possible mitigation strategies, for avoid this unwanted phenomenon in our group decision making process:
  1. We should develop a culture of transparent & open communication 
  2. Facilitate interaction among all the group members, cutting across hierarchy.
  3. Group leader, should encourage 'critical reasoning' among the members, to avoid herd mentality.
  4. If members are fearful of expressing their opinion freely, create systems for seeking anonymous feedback & opinions.
  5. Arrange a follow up review session, with sub-group(s) or individuals, for evaluating the final decision (consensus).   
Putting things into perspective, we can see Group Decision Making offers both breadth & depth of input for information gathering, makes analysis more critical & facilitates support from the group for implementing the final solution. 

But on the other hand it is a slow process, it can create internal conflicts & aspects of human behavior like group-think, group-shift & Abilene paradox can derail the final outcome of Group Decision Making process.   

So in conclusion, which method is most effective?
Is it Group Decision Making or Individual Decision Making? 

Effective Group Decision Making
(Image courtesy:
Taking into considering all the above stated factors, we can clearly see there are pros & cons, in both the methods. 

Hence one needs to factor in all these aspects in their evaluation process & opt for the method which best suits in the given context & situation. 

In practice, one needs to be observant for picking up early signals of the probable pitfalls (Group-Think, Group-Shift & Abilene Paradox) for their timely mitigation, to facilitate an effective 'Management of Agreement'

References: Organizational Behavior - Robbins, Judge & Vohra (Pearson)
                    Course on Social Psychology - Professor Scott Plous Wesleyan University

Sunday, July 5, 2015

Applied Psychology series (1/4): Wear Your Thinking Hats

critical thinking
Image courtesy:

The ability to 'THINK', is possibly the greatest skill possessed by we humans.

Ironically, thinking through all aspects, taking into account the time perspective, collateral implications, balancing emotions & rationality does not come natural to us.

In most cases, we end up with 'not so good decisions' & in the hindsight we uncover the judgement errors we made.

If these lessons learned were embedded in our cognition & next time around we were better off in our thinking & decision making, it would mean we are progressing & getting better.

For some of us, this does happen [wiser folks :)], but then there are majority of us who end up 'herding' to our old thinking pattern & decision making.

Edward de Bono's 'Six Thinking Hats' is a very powerful yet simplistic model, which can help in enhancing our thinking ability & facilitate better decision making.

Six Hats method is synonymous to 'Parallel Thinking'.

Parallel Thinking, is holistic approach, multi-dimensional view, putting all views on the table & choosing the best alternative keeping aside ego & bias.

Image courtesy:

The colour of each hat is related to a function:
  • White hat: White is neutral & objective
The white hat is concerned with objective facts & figures.
  • Red hat: Red suggests anger, rage & emotions.
 The red hat gives the emotional view.
  • Black hat: Black is sombre & serious.
 The black hat is cautious & careful. It points out the weakness in an idea.
  • Yellow hat: Yellow is sunny & positive
The yellow hat is optimistic & covers hope & positive thinking.
  • Green hat: Green is grass, vegetation & abundant, fertile growth.
 The green hat indicates creativity & new ideas.
  • Blue hat: Blue is cool, & it is also the colour of the sky, which is above everything else.
 The blue hat is concerned with control, the organisation of the thinking process & the use of the other hats.

Advantages of Six Thinking Hats concept:
  • Power: Intelligence, experience & knowledge (in a group setting) are fully used.

  • Time Saving: Divergent point of views are put alongside (in parallel) & based on merit, a decision is made. (This is different from being argumentative).

  • Removal of Ego: Six hats, put asides confrontational & adversarial thinking, which feeds into ego issues. (Six hats method provides a neutral & objective exploration of a subject).

  • One thing at a time: Processing information, managing feelings, exploring options, walking the line of caution etc all happening at same time leads to confusion, which adversely affects good thinking. Six hats model, helps us to entangle these threads & take one aspect of thinking at a time.

For a detailed understanding of the concept, one can refer to the book 'Six Thinking Hats', by Edward de Bono.

Psychology Today had quoted in it's review - "We owe de Bono a debt for constantly reminding us that thinking is a skill & can be improved".

It is indeed a great book, to invest our time, if one seeks to improve their thinking & decision making skill.

Saturday, February 16, 2013

Why do you need more?

It was just another normal day, I sat in the taxi with my son, on the way to drop him to his pre-school. It so happened that we found a coin (HK dollar) on the seat. My three & half years old son, took the coin with playful innocence while I instinctively looked at the seat, just in case there were more coins accidentally left behind. My son asked me what Pappa? to which I responded, I am checking if there were more coins. I was subjected to a profound philosophical follow up question by my three & half years old son, "You got one coin,..........Why do you need more?"

Much of our problems of today's complicated world, can be traced down to this simple question, Why more? I am not talking in terms of ideologies like socialism or capitalism, but from the philosophical & from the popular culture point of view, which we all have created & subjected ourselves as the order of the day (societal norms). 
The whole yardstick of success in our modern society is How much money one makes? (micro-level), what's the GDP of a country? (macro-level). 
I am not advocating that the modern day's policies are 'plain black & white' or a 'zero sum game'. There has been many bright things like significant improvement in people's living standards, substantial progress in individuals economy, health, education etc. 
But the myopic vision & greed on materialistic gain, as the only yardstick of perceived success will keep on deepening the divide between the have's (rich) & have not's (poor) resulting in an unstable & unsafe societies (crime, civil war, protests), degradation of moral standards (money & muscle power, crony capitalism). Trust deficit within societies will continue to go on it's downward spiral, unabashed plundering of environmental resources will push us to hyper acute crisis state sooner or later (climate change).

The time has come, when we collectively as a human society now need to have a paradigm shift & readjust our trajectory of evolutionary process, towards a Holistic meaningful progression. 

Coming back into my day to day life as an individual, I do not have any ready made answers to the question "Why more?", which my three & half year old innocently asked me. 

However, over the years gone by, in my understanding one of the most important word in English dictionary is 'Balance'. 

Collective change will happen out of compulsion in near future (this is my strong belief - crisis will compel us to rethink & re-calibrate our direction). This collective change probably will take time, till the tipping point is reached. However, at an individual level I can at least strive to strike a Balance in my thoughts & in my way of life. I call this personal philosophy in my own words as, "Quest to be a Practical Idealist" - striking the right balance between practical-ism & idealism, to make a purposeful, meaningful & fulfilling life.


Wednesday, November 14, 2012

We are the Prisoners & We are the Guards

I am reading a book "What I wish I knew When I Was 20 - by Tina Seelig". In this wonderful book, the author mentions about one of her favorite dialogue from the movie "My Dinner with Andre", which says,  New Yorkers "are both the guards & prisoners & as a result they no longer have ..... the capacity to leave the prison they have made, or even see it as a prison".

This line is so very powerful, yet so simple, it is so deep, yet it is just tugged away somewhere & we all tend to miss this very essence from our consciousness, from our daily life each & every moment.
Isn't it so true that we all are the Prisoners & we are the Guards, for ourselves.

 The extrapolation of this statement can be made in all dimensions, in all aspects of our life. 

We do make rules, assumptions, expectations, believe, value systems & then unknowingly become prisoner within this boundary & guard ourselves to make sure we stay within this invisible walls.  

If we step out of the philosophical metaphor & see ourselves in the realm of the real world & society, it is the same story, isn't it? 

We graduate in a particular field of study, we pursue a chosen career & do not challenge ourselves to see the endless possibilities of breaking the stereotype, we define success in terms of title, money, car, house, exotic vacations & sleep walk through our life as prisoners within this invisible framework of rules, we created unknowingly or unknowingly for ourselves.

In history & in our contemporary life, there have been many men & women, who perceived life, society & themselves with a very unique lens of their own. They were willing to identify & challenge assumptions, & to break free of the expectations that they themselves & others had projected on them. They were not afraid of getting out of their comfort zone, they had a healthy disregard for the impossible & to turn well-worn ideas on their heads.

Of course, leaving the well-worn path & choosing to walk against the current is never easy, but these unique men & women have left behind a legacy & tale of inspiration for all of us to ask this question to ourselves - "Are we the Prisoners & are we the Guards for ourselves?".

Knowing that you can question the rules is terrifically empowering. The sole rule is that you are limited only by your energy & imagination. - Tina Seelig.

Acknowledgement: The photo, is taken from Carl Pendle's beautiful blogpost 'Bird Tied Up'.

Sunday, October 7, 2012

Educated - Real education or certificate education?

There are several questions in LIFE, which makes us feel very uneasy & not so comfortable. When I
became a Father, I wondered what is the right way of upbringing my son? What are the dos & do nots? Isn't it funny, that we have Soft & Technical Skills trainings in Professional life, we have a manual on how to install & operate electronic gadgets, but there is no Manual to refer to for the most important phase of our life, BEING A PARENT!

I remember many of those soft moments, filled with Love, Care & Affection & then those crazy moments of anger, frustration, losing my cool on not being able to handle my son adequately. I soon realized, my parenting methodology was trial & error, my knowledge was based on my thinking ability & my understanding which I inherited from my previous generation, in other words it is ‘My Way’, but not necessarily the ‘Right Way’. Quite frustrating isn’t it? We the average large section of the society seem to know about Economy, Climate Change, Politics, Movies, Cricket, TV Soaps, Property Rates, Fashion, Cars, Festivities & our Gods, yet we know so little about the most important role of our life Parenting & Child Psychology & Development.

As parents many of us lack the scientific knowledge of ‘Child Development', & in the urban scenario we have a busy lifestyle, we are working couples….thereby limiting our influence on the day to day process which shapes up our Child into a teenager & one fine day transformed into an adult. So to speak, for many of us, our Parenting outcome is ‘Luck By Chance’.

The grey areas of our country’s Educational Sector, keeps me introspecting further:
Most of the educational institutes are more focused on becoming coaching centers for cracking exams rather than preparing for life. 
On top, the approach of one size fits all in education, not taking into account each individual is different & offering career guidance leaves a big gap in the final outcome, by the time the child comes out of the education system. 
In a nutshell we cannot blindly outsource our children’s upbringing to the educational institutes & absolve ourselves from our parenting responsibilities.

I can speak for myself, I loved History, Philosophy, Archaeology, Teaching, Creative Writing, Theatre but never knew how to pursue them as a career, when I was in school. I followed what others thought I should do, because a Professional Degree is considered to be more secured & stands a better chance in the Job market, rather than MA in Philosophy or studying Archaeology. So today, here I am with a reasonable success & established career in the corporate world, but with graceful ageing now I have a realization may be, with proper guidance & encouragement to think ‘out of the box’ during my childhood years, my present may have been totally different. 
Well no complains & I know my parents are ‘Best in the World’ for me, but rationally speaking
they did their best in their own way, quite similar to what I am doing today as a parent.

By the way, the current Educational system has a very short history, just dating back to the emergence of Industrial Era, in the 19th Century. The bulk of the certifications, diplomas, degrees are batch production mode, to make supervisors & officers to run our Industrial Houses.

I came across a beautiful talk on TED, by Sir Ken Robinson (Author/Educator) on the "How our current Education System undermines Creativity". In this talk, he elaborates about the phenomenon of 'Academic Inflation'.

Think about it, during our Grandfather’s generation a Diploma would have fetched a good job, in our Dad’s generation a Bachelor’s Degree would be needed for an equivalent job, in our time we need a Masters Degree & by the time our children enter the job market PhD or Post Doc for a job will not be a far stretched nightmare. The Academic Inflation is inevitable, with the huge population explosion, impact of Technology, Business reallocation based on emerging markets, low cost centers, downsizing of Work force, cost cutting, dramatically changes the Business environment, the Degrees having no values & Employment rate shrinking in our ailing Global economy. (UNESCO – “In next 30 years, worldwide more number of Graduates will come out, than the entire Graduate population in the whole of history”).

When I see my son now, I can see a reflection of my childhood in him, full of potentials &
possibilities. Will he too follow the same pattern of ignorance, herd mentality & might live a life in full sync to his true self? It’s painful to pen down, but that probability is quite high,unless I as a parent, first unlearn, re-learn, introspect & partner with him, in this new light of conscious parenting.

Hence it is absolutely important that we help our children to recognise their true talent & potential, help them pursue their interests, we should not suppress their creativity, we should not force them to have a herd mentality & follow the safe mediocre path just because of our own fear & insecurities.

We really need to reassess our own mindset, our insecurities, our methodology & what should be our
Objectives & Motives behind upbringing & educating our children? Do we want them to be educated by Certificate or 'Truly Educated in preparation for Life’. Someone who grows up to be Truly Confident & Competent to take on the world, a world which will be far more complex, difficult, unstable, dynamic than our's. We may or may not be there, but our Children will live in that world & it is our responsibility to prepare them for those unseen times, through the right upbringing & holistic education.

Saturday, August 18, 2012

Beautiful from Outside, Ugly from Inside

I have a 3 year old son, who has started his new phase in life: going to Kindergarten. In mornings, I drop him to his kindergarten & after that I head off to my office. The morning ritual of dropping my son to his school, is one of my most treasured moments, as we get time to spend with one another, talking, walking, bonding with each other. 
On one such occasion, I was holding my son's hand & waiting on the pavement outside our Community gate for a Taxi. There was a young couple standing few paces away from us waiting for taxi, probably headed to their office. They were very attractive, well dressed, sophisticated, well groomed urban couple. I spotted a taxi coming from the other side of the road & waved my hand & called out Taxi! Luckily, I managed to catch the cab driver's attention & he drove his cab towards us. Since he was on the other side of the road & our destination was on the opposite direction I signalled the driver to make a U-Turn. 
The cab steered it's way, towards this side of the street & came to an halt mid-way between Us & the Couple. I started walking towards the cab holding my son's hand, matching my pace to his small steps. The Beautiful Lady, rushed towards the cab, opened the door & sneaked in. The guy, was still hesitant & perplexed, he came near to the cab & had a short exchange of words with her (probably, telling her, it's not right moral values). He then looked at me sheepishly & told SORRY (poor soul, he lacks courage to do what he things is right) & got into the cab & drove off. 
My Son, asked me "Pappa, why he said Sorry?".
It is normal for us to lose our temper, spoil our mood over such irresponsible & unjust act of others. Such emotions did start to empower me momentarily, but being a PARENT now, I have started to realise I have an opportunity each time to help my child learn a lesson, from the GREATEST TEACHER of all, i.e. LIFE. 
So I quickly regained my calmness & refrained from getting into an impulsive reaction. I explained my son, what happened & told we should never become one of them. That particular unpleasant event at the start of our day, now turned into a Life's Lesson for my Son. He got lessons on Etiquettes, Good Behaviour, Respect for Rules, to make right judgement & build moral values, no school could have taught him better than Life itself.
I was also left behind with a philosophical thought by Life, "The real Beauty resides Inside..... what's the point in being Beautiful from outside, Ugly from inside'. 

Sunday, August 12, 2012

Concert of Incomplete Orchestra

I had heard a lot about the Movie Director Akira Kurosawa from Japan, who is regarded as one of the 'All Time Greatest Director' in the history of World Cinema. I came across Akira Kurosawa's movie collections at a DVD Shop in Shanghai & without a second thought, I picked it up & since then it is one of my prized possession in my humble sized library.

This weekend, I watched my first movie of this great director, the movie name is "One Wonderful Sunday" (English translation) (Original name: Subarashiki Nichiyobi - in Japanese), it's a black & white film made in 1947 & runs for 108 minutes.

Even though after the passage of 65 long years & me as an audience who is not Japanese (alien to the cultural aspects), the movie connected instantly with me by the storyline's pure innocence, the wonderful chemistry between the two lovers, the heart touching beautiful moments of hope & courage to keep alive their dreams & the heart wrenching moments of their despair & hopelessness, in the back drop of post-war Tokyo.

The story plot goes like this: Yuzo & his fiancee Masako, are in love with one another. They do not earn enough to met their ends & possibility of a better job, better income is remote during the post war times in Japan. Due to their financial constraints, they haven't been able to take forward their relationship into marriage, as Masako's  family would not approve of Yuzo, due to his low social standing & low income. 

Masako stays with her family in the suburbs of Tokyo & Yuzo stays with his room mate in a rented shabby room. They save whatever they can from their meagre income over the week for the eagerly awaited Sunday, the day of their dating. The typical date starts with Masako arriving Tokyo in train early in the morning with Yuzo waiting anxiously at the platform to receive her, then spending their whole day within their meagre budget & at night they part off with a heavy heart at the railway station, with the lingering hope to seeing each other next Sunday once again.

The movie, is about one such Sunday, they spend together with their weekly savings of 35 YEN..... the story takes you through the whole gamut of Human Emotions of the two lovers, through the day they spend together in the middle of the difficult times.

One of the scene & the narration: "Concert of Incomplete orchestra" will always stay with me, probably it was the essence which Kurosawa-san wanted to convey. Our life's may not be perfect, but we should try to make the best of it........"Concert of Incomplete Orchestra".