How trustworthy are you? How rational are you? Most of us think that we are more trustworthy and more rational than the average person, yet as a whole, we tend to rate others as less than average in these categories. How is that possible? At the 66th CFA Institute Annual Conference in Singapore, corporate training consultant Lim How, the author of two books about motivation, explained his model of human behavior by using a business perspective and a psychological one. His aim: to help investment professionals better understand the drivers of strong relationships.
The business, or economic, perspective put forward by How, an expert in the fields of critical thinking, leadership, and human relations, suggests that people are primarily rational, objective, and self-interested. The psychological perspective, however, holds that behavior is influenced both by rational and psychological factors. In the latter case, rationality is influenced by social contexts. In other words, what is rational to one person may seem irrational to another.
How emphasized — rightly, perhaps, given his audience of financial analysts — the distinction between mathematical rationality and human rationality. His thesis bears a strong resemblance to the burgeoning body of work in finance and economics that allows for behavioral elements in decision-making versus the pillar of classic economic theory, which holds that humans (aka “Homo economicus”) always maintain a robotic alliance to math and probability.
How did not address the implications of trust for investment decision-making. Instead, he homed in on the challenges leaders face when building trust with clients and coworkers. Trust is the foundation for a good relationship and mutual understanding. Simply treating others with a “business” perspective is ineffective. We all know that human psychology is complex and our brain chemistry is at the root of most behaviors.
In fact, trust is a primary instinct. Studies show that the brain produces oxytocin in a number of bodily functions, including feelings of trust. People build trust through a clear communication of a genuine concern for others’ interests and needs. Distrust of others is such a powerful, instinctual force that it can cause us to override our own rationality and self-interest. When trust is broken, we are willing to set aside our own best interest in the pursuit of justice and fairness. So to build and maintain trust, How argued, we need to divorce ourselves from the idea of homo economicus and adopt a truly psychological perspective.
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