“The first rule is that there are no irrational customers,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “Customers almost without exception behave rationally in terms of their own realities and their own situation.”

“in terms of their own realities and their own situation.” is a huge caveat. Essentially plenty of customers behave irrationally – by any sensible definition of rational. I agree, to make them customers and keep them as customers you need to develop theories that can make sense of their behavior. And it doesn’t make sense to think if they behave irrationally that means randomly (chaotically, unpredictably, uncontrollably). Customers can be predictably irrational (as a group).

Seeing that people will chose* to fly lousy airlines because the initial price quoted is a little bit cheaper than an alternative (or because they are in a frequent flyer program) you can say the customer is behaving rationally if you want. Coming up with some convoluted way to make their decision, which based based solely on their desired outcomes (and cost factors etc.) is not rational, to be seen as rational seems like a bad idea to me. Instead figure out the models for how they fail to behave rationally.

They consistently chose an option they shouldn’t rationally want; in order to save some amount of money they don’t care about nearly as much as the pain they will experience. And the amount they will then complain about having to suffer because they chose to deal with the badly run airline. That isn’t rational. It is a common choice though.

The problem is not in thinking the customers are being irrational for not buying what you are selling. The problem is in thinking the customers will behave rationally. Your theory should not expect rational behavior.

There are plenty of other examples where customers make irrational decisions. I don’t think calling them rational (within the irrationality of their “own realities” makes sense). People will buy things because they think it is a better bargain to get the more expensive item that is the same, for more money, because originally the store charged more and now it is on sale. Anchoring isn’t an understanding of how people are rational. It is an understanding of how psychology influences people in ways that are not rational. The Doctor’s In, But Is He Listening?, text and podcast from NPR:

Jerome Groopman (photo) is a doctor who discovered that he needed a doctor. When his hand was hurt, he went to six prominent surgeons and got four different opinions about what was wrong. Groopman was advised to have unnecessary surgery and got a seemingly made-up diagnosis for a nonexistent condition. Groopman, who holds a chair in medicine at Harvard Medical School, eventually found a doctor who helped…

“Usually doctors are right, but conservatively about 15 percent of all people are misdiagnosed. Some experts think it’s as high as 20 to 25 percent,” Groopman tells Steve Inskeep. “And in half of those cases, there is serious injury or even death to the patient.”
Errors in thinking: We use shortcuts. Most doctors, within the first 18 seconds of seeing a patient, will interrupt him telling his story and also generate an idea in his mind [of] what’s wrong. And too often, we make what’s called an anchoring mistake – we fix on that snap judgment.

An understanding of theory of knowledge is helpful to counteract errors in thinking. How we think is not perfect, and an understanding the weaknesses and faulty conclusions we are susceptible to making is helpful. That can help avoid jumping to conclusions that are faulty and to design systems that counteract such behavior.

Related: Epidemic of Diagnoses – Write it Down – The Illusion of Understanding – Illusions – Optical and Other – health care improvement posts

Read an exceprt [the broken link was removed] from the book: How Doctors Think by Jerome Groopman .

See more quotes by George Box.

Comment on: When Times Are Tough, Do You Make Better Decisions? [the broken link was removed]

When times are tough you are more likely to do something – take some action, make some decision. When times are good, many are content to let things go: not make any tough decisions or any that might upset someone… When in a bind it is accepted that something has to be done, so you can often get past the “we are doing ok, why make us change…” objections.

Similarly it can encourage those to question a decision they don’t agree with (instead of, when times are good, thinking: well I disagree but I will just go along…). So it is possible that in a dysfunctional management system (which is alot of them) it can seem that when times are tough better decisions are made.

In addition, when times are bad any decision might seem good when things improve due to regression to the mean. Peter Scholtes illustrated this with a boss who yelled at his workers when performance become too bad. And his belief that this helped was reinforced as performance improved after the “tough talk.” Of course, the perception of increased performance may not have anything to do with the “tough talk.”

The “Illusion of Explanatory Depth”: How Much Do We Know About What We Know? (broken link 🙁 was removed) is an interesting post that touches on psychology and theory of knowledge.

Often (more often than I’d like to admit), my son… will ask me a question about how something works, or why something happens the way it does, and I’ll begin to answer, initially confident in my knowledge, only to discover that I’m entirely clueless. I’m then embarrassed by my ignorance of my own ignorance.
I wouldn’t be surprised, however, if it turns out that the illusion of explanatory depth leads many researchers down the wrong path, because they think they understand something that lies outside of their expertise when they don’t.

I really like the title – it is more vivid than theory of knowledge. It is important to understand the systemic weaknesses in how we think in order to improve our thought process. We must question (more often than we believe we need to) especially when looking to improve on how things are done.

If we question our beliefs and attempt to provide evidence supporting them we will find it difficult to do for many things that we believe. That should give us pause. We should realize the risk of relying on beliefs without evidence and when warrented look into getting evidence of what is actually happening.

I commented on in this for Science and Engineering blog.

Related: Management is Prediction – Tom Nolan’s talk – Innovate or Avoid Risk – Management: Geeks and Deming – Theory in Practice

From our post: Targets Distorting the System, Dr. Brian Joiner:

Another example of this in practice: Recount helps one university rise in the rankings [the broken link was removed]:

Behnke, who says he’s no fan of rankings, said he recently spoke to a provost at another institution who was capping class sizes at 19 to boost the “Classes Under 20” number.

I am sure “classes under 20” is a proxy for an intimate learning environment and interaction with knowledgeable professors that can teach well. You can’t directly measure the benefit of interaction with a professor in a small group on learning to create data to be used in ranking schools (Deming on unknown and unknowable figures). So classes with under 20 students and % of faculty with PhDs… are used as proxies for this idea.

If the proxy is the focus (as in school rankings) then distorting the system to create better looking data is a likely result. The purpose behind the action has great significance. If an institution desired to create a better learning environment and they used say a cause and effect diagram to find a group of problems and then determined one appropriate improvement step was to reduce class size (and perhaps another was to reduce the importance of tests and perhaps another was to provide professors training on effective teaching strategies) that a sensible path to improving the system.

The Customer Knows Best? Better Think Again by Anthony W. Ulwick

It’s important to listen to customers – but not follow their words without skepticism. Ask them to design your next product and you’re likely to miss the mark, suggests this Harvard Business Review excerpt.

Excellent point. Some management ideas are pretty easy and straight forward. But many management practices require knowledge and judgment to apply them successfully. Easy solutions may be desired, but, often you must choose between easy and effective (hint, I suggest effective is the better target).

Listening to customers is important but it is not sufficient. W. Edwards Deming made this point emphatically on page 7 of the New Economics:

Does the customer invent new product of service? The customer generates nothing. No customer asked for electric lights… No customer asked for photography… No customer asked for an automobile… No customer asked for an integrated circuit.
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