Vision theory is a behavioral economics model developed by Daniel Kahneman And Amos Tuersky (Daniel Kahneman and Amos Tversky) has been developed. This model uses advanced math to explain how people choose an item from the options. But, even at the grassroots level, it can provide a good insight into how people react to what they see as good or bad. In this article, we will look at perspective theory and see how it can predict people’s reactions to risk and change and prepare them for change.
Predicting people’s reaction to risk and instability
Muhammad realized that he had been in charge of the reception for some time, staring at him. Maybe because he’s been tapping the table with his finger for ten minutes. He immediately stops doing this, takes a deep breath to calm himself down, but this makes the person in charge stare at him again.
Mohammad is one of the senior managers of a large and old packaging company. The problem, of course, is that he is not sure how long the “big” adjective can apply to the company, as competition is so fierce. For this reason, he wants to propose fundamental changes in the prioritization and transformation of the business, which deals with budget cuts and investment.
He has been thinking for a long time about how to get the approval of the board of directors, and now he has prepared his presentation well with numbers and diagrams. But there is still skepticism about an important issue: How risky are company executives? Will his plan be accepted as the best option for growth or will it be considered dangerous?
Understanding vision theory
In particular, perspective theory suggests some seemingly irrational ways of making decisions. Knowing all this, you can look more convincing in the negotiations and introduce the changes in more attractive ways.
Of course, we all prefer profit to loss. But Kahneman and Torsky point out that the emotional impact of harm is greater on us. For this reason, we tend to avoid losses rather than take steps to make a profit. This is true even when our choices have similar results.
Let us illustrate this with a simple example. Suppose you are offered one million tomans, but you have to choose one of two methods to receive it. The first method is to be given one million tomans. The second method is to be given two million tomans first and you have to return one million of it. The result is basically the same, but usually people prefer to simply receive one million tomans, because we often do not like to taste the loss, even if in the end the win is with us.
When it comes to uncertainty, our emotions are even more aroused. For example, if we are faced with the option of receiving between a definite receipt of three million tomans and the probability of receiving four million tomans or nothing, we will certainly choose 3 million tomans, which is definite. We prefer to receive a guaranteed return rather than even a small loss.
However, when we are offered similar options for losses, our behavior changes to risk-taking. If we are offered to choose between a definite loss of 3 million Tomans and a possible loss of 4 million Tomans or none, we will choose the second option and we are ready to accept more losses, because there is a possibility that we will not lose at all.
The last, and most irrational, case is that when the potential profit is high, even if the chances of making it are slim, all our negative sense of risk disappears. This happens when we buy a lottery ticket in the hope of winning a large sum of money, even though we know our chances of winning are slim.
Applying vision theory
To see how vision theory in the workplace helps you, let’s turn to Muhammad and his presentation. (Admittedly, this scenario is a bit far-fetched, but it helps to see the application of theory in practice.)
Mohammad’s idea is to reduce the company’s overhead costs by facilitating operations and creating a simpler regional management structure. This restructuring is likely to cause employee distress and stress and may temporarily cause problems for the business.
His other suggestion is that the company spends a lot of money over the next five years researching and developing the drone delivery system and establishing a strategic relationship with the pioneering company. The cost of this investment in the short term is greater than the savings he hopes to achieve.
Such a new approach also means making a fundamental change in the company’s culture. People in all parts of the company will have to do complex and time-consuming tasks, and there will likely be a plan to train and hire new staff.
With all this in mind, it will be very difficult for the board to accept Muhammad’s offer, especially when Muhammad predicts that the company will not achieve significant results. But what makes this an option to choose from?
Mahmoud explains how raw materials are becoming more expensive, and competitors are responding to customer needs more and more quickly. He shows how inefficient methods and unreliable information technology are hurting the company financially and lowering people’s morale.
He also provides evidence of the company’s declining market share, declining employee loyalty, and the rising cost of maintaining the company’s old building. All of these factors have plunged the business into recession, and there is no window of hope.
Therefore, the board must choose. One option is to experience certain losses by continuing the business in the same way as usual. Another option is to accept more potential losses in the short term in the hope that it may work out in their favor in the future.
Vision theory tells us that people usually try to avoid definitive loss, even if they are forced to suffer more. Therefore, the board decides to accept the new offer, open the doors of cooperation, divide the company space properly, and develop the workforce to achieve success.
We have already said that this example was a bit simple and superficial, in fact, the board will probably have more options ahead and Muhammad’s presentation will be accompanied by more details. But this hypothetical story shows how to identify the things that motivate people and use them to influence them, so that your proposal can have the greatest impact on others.
You can apply this principle to your team as well. Perspective theory shows us the motivations of team members to prepare ourselves for their reaction and not be shocked by their behavior.
Profit and loss from others may be different from ours. Therefore, it is best to ask them to explain what the benefits of our proposal are for them, as we cannot figure it out on our own and may not be able to do well without knowing what they are doing wrong. Support their interests.
For example, you might suggest creating a new process and organizational structure that has many benefits, including facilitating workflows and taking team members’ opinions into account when making decisions. But perhaps one of the most experienced people in your group is not willing to accept these changes and can easily convince the rest of the team to resist the change.
Use tools such as deformation matrices and perceptual positions to examine the situation from other people’s perspectives, and use the change curve to understand the strength of team members’ feelings in the face of potential losses.
Its application in life
Think about the decisions you make each day. Ask yourself what is the motivation behind each decision. Can you change your mind about risk? If you do, what effect will this new mindset have on your behavior? For example, the difficulty of waking up early on a cold, dark morning to walk may be detrimental to your enjoyment of the benefits of improved health and self-confidence.