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

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

The first 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 does not have to be money every time. Rewards impact our drive so effectively that this may be the most important aspect to unleash someone’s full potential. The rewards have to be worth it. It is imperative that you get the rewards right. If someone does not care about what the reward is they will not try.

I constantly see my employer give incentives that are so minuscule that no one bats an eye. Then they wonder why something isn’t catching on. We’ll I think getting Papa John’s for the 97^th time has gotten old! It is so simple. If you want to get someone to jump into action you make the reward awesome. People think they will pay too much for the rewards but that is not the case. You will pay more for the rewards than you were doing; however, the results will be so much higher that it will 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.

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, is making sure to NEVER REWARD BAD BEHAVIORS. I cannot tell you how important it is to remember this. When you reward bad behavior you have just started the self-destruct button, in our subconscious. There is no reason for this individual to stop the bad behavior because they will just get 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 have to stop rewarding them for bad behaviors. The same goes for you. You have to be self-disciplined.

I am a firm believer that the rewards cannot 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 opposite of the correct behaviors we try to establish.

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 cannot slack off, in these roles, like you can in a salary/hourly role. 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.” Just think how effective our congress would be with a budget if they didn’t get paid if it went over budget! This is definitely a topic for another day.

Finally, 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 cannot be cruel and unusual punishment. A common yet effective form of punishment is taking away luxuries or shamming. I remember, when I was 10, I stole from a store. My punishment was taking away my TV for a month and shamming among my brothers and sisters. I was so embarrassed and I never did it again! You cannot go overboard with these. Over punishment will cause animosity and negative behaviors.

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

Please comment below an example of how this tendency is happening or has happened to you! I love hearing all the different examples.

Go now and understand the inner workings of your mind.

-Cody