Cognitive Bias: 1 of 25 Reward vs. Punishment Response Tendency

If you want to become successful in business, I highly recommend understanding some psychology. You’ll have more comprehension on what drives people. You can grasp the reasons why people make or don’t make decisions. Charlie Munger is an expert on the psychology of the human brain. He’s a billionaire and Warren Buffet’s long-time business partner. Munger studied and put to paper 25 cognitive biases. They’re 25 subconscious loopholes in the brain, that affect our decision-making process. These biases are our instincts. When you fully understand these biases, you’ll have a new understanding on why you and others act and make decisions. It’s important to not abuse psychology. It’s unethical to use psychology to manipulate people. Please don’t use it for that purpose. Use it to understand and know why people make decisions. There are differences between the two. If you need help just reach out to me and I can help you better understand.

The 1st of the 25 biases is the Reward vs. Punishment Response Tendency. Essentially this is the reason why rewards are so powerful. Humans love to be rewarded with money, objects, time, recognition, relationships, status, sex, etc. It doesn’t necessarily have to be money every time. Rewards impact our drive so effectively that this might be the most important aspect to unleash someone’s full potential. The rewards have to be worth it. It’s imperative that you get the rewards right. If someone doesn’t care about what the reward is they won’t try.

I constantly see my employer give incentives that are so minuscule no one even bats an eye. Then they wonder why something isn’t catching on. I think getting Papa John’s for the 97th time has gotten old! It’s so simple. If you want to get someone to jump into action you make the reward awesome. People think they’ll pay too much for the rewards but that isn’t the case. A company would pay more for the rewards than normal; however, the results would be so high that it would pay for itself and then some! Have you ever seen people giving away laptops if you subscribe to their YouTube channel? The results from this are worth more than the laptop. Rewards drive human behavior.

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How You Should Reward People

Consistency is important to set these ongoing behaviors. If you reward the person immediately after making their decision it increases the confidence in that decision. This can work both as a salesperson and a consumer. Example: if someone purchases at this time they are rewarded with the savings of $500 (or whatever the case may be).

Along with consistency, you need to make sure to NEVER REWARD BAD BEHAVIORS. I can’t tell you how important it is to remember this. When you reward bad behavior, you have just hit the self-destruct button in our subconscious. There’s no reason for this individual to stop the bad behavior because they know they’ll be rewarded for it. Example: There are parents that reward children with toys and candy when they hit their sibling, had 3 meltdowns and colored on the walls. If you want your kids to not be little monsters you’ve got to stop rewarding them for bad behaviors. The same goes for you. You need to be self-disciplined.

I’m a firm believer that the rewards can’t be counter-intuitive. For instance, I hate when employers reward someone for working hard by giving them a vacation. Now don’t get me wrong- I think we need PTO to recharge our batteries. I just think these are the opposite of the correct behaviors we try to establish. That’s why I personally think vacations are a bad idea.

Why Performance Based Role Will Increase Results

I believe that performance based roles are more effective and efficient than salary/hourly roles. Performance based roles have the rewards set in stone. You can’t slack off in these roles like you can in a salary/hourly role. We’ll I guess you can but you’ll pay for it financially. I think that every job in the USA should be performance based. The issue with this country is that we have millions of people “milking the system.” I’ve even had people tell me that if they poop every day for 10 minutes that it will equate to 40 hours of PTO… Think of how small thinking that is! Just think how effective our congress would be with a budget if they didn’t get paid if it went over budget! That’s definitely a topic for another day.

Finally, this tendency works vice versa as well with punishments for poor behaviors. Although, the punishment has to be something that people fear. When your punishments are a joke/non-existent no one fears breaking the laws. Now, it can’t be cruel and unusual punishment. A common yet effective form of punishment is taking away luxuries or shaming. I remember when I was 10 I stole from a store. My punishment was taking away my TV for a month and shaming me in front of my brothers and sisters. I was so embarrassed and I never did it again! While you can’t take away someone’s TV you can take their work day from home, sales leads, etc. You can’t go overboard with these. Over punishment will cause animosity and negative behaviors.

If you look out for this tendency you’ll see it everywhere. It’s all around us. The crazy thing is it’s been happening to you your whole life. Understand this tendency and use it as a driving force. You may even be able to prevent yourself from making a hasty decision. Keep in mind that if there’s a crazy deal happening that it’ll happen again (more times than not).

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Be great,

Cody Cameron