MBA1088 Must Read: Thinking, Fast and Slow by Daniel Kahneman

Hey O. Welcome to the Hundred Dollar MBA show, the business podcast that crams as much business knowledge as possible in 10 minutes with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar mba, a complete business training and community online and today's episode is a must read episode. On our Must Read Episodes, I share with you a book that I've read that has greatly influenced me as an entrepreneur. I share with you some of its takeaways and why you should read it too. Today's must read is Thinking Fast and Slow by Daniel Kahneman. This book, Thinking Fast and Slow is like putting your brain under a microscope. He goes through several concepts on how our brains work as human beings and how they apply to our daily lives. And and I will show you how they apply to our business, our customers, our services, our products, all that stuff. To me, this is a book that's like a crash course in human psychology that's useful. In today's lesson, I'll share with you some of the takeaways in today's book that's going to help you know how to price your products, how to sell better, how to prepare your customer's mind to be a buyer, how not to be over ambitious based on your data, how to make it easy for your customers to become customers. We got a lot to cover. Can't wait to get into it. So let's get down to business. Support for today's show comes from wgu. WGU is an online university that's changing lives by changing higher education. WGU is affordable and offers degrees in business, it, teaching and nursing. Their innovative model will design to fit the lives of busy adults like you and I. You can study anywhere, anytime your schedule allows and move through the material you already know so you can finish faster and graduate with less debt. WGU's degrees are current and relevant, so you'll get the skills and credentials employers are looking for. You'll also get personalized one to one faculty mentors. From day one, get your $65 application fee waived at WGU.edu 100 MBA. So in this book, Thinking Fast and Slow, he goes over a lot of different what I would call thinking exercises takes you on a journey on how the brain works. Now he covers a lot of them, but I'm just going to highlight the ones that really stood out to me and how you can apply them to your business. The first one is called Priming and priming is like Preparing your brain to process information or preparing your brain for what you want it to actually do. So he gives this example of giving you a picture of a bathtub. And then he gives you a word with missing letters, that word being S P. Looking at the bathtub, your brain is primed to think the word is soap, because soap has to do with the bathroom and bath time. But he says, if I showed a picture of a restaurant, your brain would be primed to guess soup, not soap. So the point of the exercise is to show you that our brain works with context and you can prime your brain with context. So if you want to get a result, think about how you can prime your brain. So, for example, if you want to have a great day, a productive day, how can you prime yourself to have a productive day? Well, you can smile. You can start the day with smiling, actually being mindful of your face. Are you smiling right now? Try to actually smile. I know it sounds like you're forcing it, but yeah, smile your first 10 minutes while you're eating breakfast. You could prime yourself by watching something that motivates you. A motivational video. With YouTube, there is a plethora of motivational videos. You're about to get on a sales call. Watch your favorite sales movie or scenes from a sales movie. One of the things I do before I give a public speech or I get on stage as I watch some stand up comedy, this gets me loose and gets me primed to speak in front of people because I'm watching an example. Great piece of advice. In his book, the next thing I want to share with you from the book is what he calls cognitive ease. And this is really how easy is it for your brain to process information? If you find something hard, it's going to be hard for you to understand it. For example, if you're reading a book when you're really tired and stressed, you're going to get a whole lot less out of it than if you're reading that book when you're fresh. That's why some people prefer reading books in the morning during breakfast rather than at bedtime. But a good example of how to use this concept is how easy is it for your customers to comprehend what you're saying? How easy is it to read your sales copy? Is it convoluted? Are your sentences like three lines long? This is why great sales copy is short, concise, easy to read short sentences, easy it is on their brain to read the sentence, the more likely they're going to understand it and remember it and comprehend it and really internalize it. One of the best examples of this is Warren Buffett's letters to his investors. If you just Google Warren Buffett's letters, read the way Warren Buffett writes. It's so easy to understand. It's so straightforward. It's just plain English. And this guy is one of the richest men in the world. He doesn't have an ego and he doesn't need to complicate things to look smart. Another concept he talks about in this book is called anchoring. Anchoring is the way our brain works. We use examples so we can make sense of things. This is especially important when you're pricing your product. If you go to a store, for example, and you see this really amazing winter jacket you want to buy, and the original price is $500, but then you look at the price tag and it's marked down to 275, you're more likely to buy that jacket at 275 because it's on sale at 275 and you're anchoring the price from 500. Then if you saw that jacket and its original price was 275 and it wasn't on sale, your reference, your frame of reference is telling you this is a good value. This is why discounts and sales really work in commerce. This is why people on their pricing pages have three tiers of pricing, so they have something to compare. Okay, this is not the cheapest option, but it's not the most expensive option. It's somewhere in the middle road. This is not a new concept. This has been around for. People do it on websites, people do it on membership sites. People do it in big companies like Apple. You know, they have different options with different phones and different price points. This is because they understand the power of anchoring. A really good example of this is if you've ever watched an infomercial on tv, there's a reason why they say you're not going to Pay, you know, $300 for this mop, even though it would be a great value. You're not even going to pay 250. You're not even going to pay 200. Not 79, not 69, not 59. You get the point. And they give you the price, $49, plus you get a second mop for free. The reason why they go through that whole spiel is because of anchoring. You've seen a number before, you saw the price you're actually going to pay. So your mind automatically compares the price you're going to Pay with the numbers they saw before. This is something out of your control. Your brain just operates this way. And this is why marketers do this. The next topic he covers in Think Fast and Slow is one of my favorites. It's called the Sunk cost fallacy. And this is the idea of once we are invested in something, it's hard for us to let go, to actually leave that investment because we say to ourself, man, I've already spent X amount of dollars or time doing this thing. I want to get a return on investment. I want to make the most of it. So I'm going to keep on doing it. I'm going to give you a very simple example. Let's say, for example, you go to the movies with your loved one and you're going to the movies. You had great intentions of watching a great movie. Halfway through the movie, you both realize this is a horrible movie. Most people are victim to sunk cost fallacy because they stay. They say, let's just watch the end of the movie. We paid for it. Let's see where this goes. Even though you're just not enjoying yourself and you waste an hour of your life, that second half of the movie, instead you can get up and leave the movie and do something else you enjoy. Go bowling and have a more enjoyable hour. We do this all the time in business. We'll try a strategy, a marketing strategy, and we'll keep on doing it thinking that, hey, I've already invested all this money in the strategy in this way of doing things. I might as well keep on going and see if the result will come later on. Sometimes we do this with our whole business. We invest so much money in our business and our infrastructure and it's just not working. And instead of trying to change, we just keep plowing forward because of the sunk cost fallacy. I know people do this with degrees. Instead of changing their major and getting their degree in something they actually enjoy, they will continue and do their degree in something they don't enjoy because they've already done two years of it. And that's obviously not a good investment because, hey, you're going to get a degree in something you're never going to use. So keep that in mind. The sunk cost fallacy. It's huge. It's part of our daily life and business. There's one more takeaway I want to give you, and it's a big one. But before that, I want to give love to today's sponsor. Today's episode is supported by betterment. Investing in your future is something you have to do. You have to start planning your finances now. Investing involves risk. We know that. But in my opinion, the biggest risk is not investing at all. But you're not the average investor, so why settle for the same old investing? There's a smarter way to manage your money. It's called Betterment. Betterment is an online financial advisor for people who refuse to settle for average. They use cutting edge technology to build customized portfolios to help you make more from your investments. Then they guide you along the way with unbiased advice to help you make smart financial decisions. All this for one low transparent fee. Plan for retirement. Reach your financial goals. Make the most of your money. Don't settle for average. Demand better. Choose a smart way to manage your money. Choose Betterment. I would choose Betterment if I could, but I can't. It's actually illegal. I can't use Betterment and have them as a sponsor at the same time. But you're not me. So you go ahead and choose Betterment. And as a listener, you can get up to a year managed free by visiting betterment.com mba that's betterment.com.com mba betterment outsmart average alright, the last takeaway I want to give you from Daniel Kahneman's book Thinking Fast and Slow is Prospect Theory and Loss Aversion. This is a big one and I'm going to give you a scenario to illustrate what this all means. Scenario number one, would you rather get $900 for short $900 just given in your hand or would you rather have a 90% chance to get $1,000? Now most people will choose B, the second one. Because when it comes to winning things, gaining things, we're willing to be risky. We're willing to say hey, 90% chance, that's pretty good. I got 1,000 bucks instead of 900. But when it comes to loss, we act differently. Here's another scenario, very similar, but different. A would you rather lose $900 for sure, meaning you have to give me $900 right now, or B would you rather roll the dice and have a 90% chance of losing $1,000 most of us will not take? B we'll take A, say I'll pay $900. I don't want to take the risk of paying an extra hundred dollars over my $900. And that's because most of us are risk averse and we're loss averse. We don't like take risks with our money when we have to lose money. This is why insurance is Such a big business. This is why we get, you know, warranties and Apple Care and all that kind of stuff for the products we buy. Because we know that if we have to pay money right now, it's not something we want to do. But we don't want to lose a lot of money, take the risk of losing a lot of money. This is important to know because we're all the same. Your customers are just like you. They're loss averse. They don't want to lose a lot of money or lose a lot of time. So this is why it's important to have a money back guarantee to lower that risk and say, hey, don't worry, you're not going to lose money. This is why giveaways work as a promotion, because people are willing to take a risk so they can gain something. Prospect Theory and Loss Aversion. I love this. What a great book by Daniel Kahneman. A real doozy, a real adventure into the human brain. I hope you loved my takeaways and I hope you really got a lot out of the way. I think you can apply these to your business and and your life as an entrepreneur. Thank you so much for listening to the $100 MBA show. Before I go, I want to leave you with this. When you're an entrepreneur and you read any kind of book, psychology, a history book, a how to, a biography, it doesn't matter. There's always something that you can get out of it and apply to your business. If you're coming from that frame of mind, how can I take some of the things I'm learning from this book and. And apply it to my business, to myself as an entrepreneur? When you have that channel open in your brain, you get a whole lot more out of a book rather than just going through it and zooming through the actual content. Thank you so much for listening. I'll check you in tomorrow's episode. I'll see you then. Take care. Of sam.