June 2008 – Irrational behaviour stalks the jobs market

You don’t need me to tell you that the jobs market is heading for an uncertain summer. But we shouldn’t start digging out the history books to look for neat patterns, nor should we be rushing to make assumptions about where the market is heading.

Some financial employers have begun making cuts, but many are doing so without fanfare while trying to hang on to their essential staff. Redundancies in the City so far have been limited but more may follow.

The news this week that Goldman Sachs had cut staff at its investment banking division was no surprise. Just now, however, it is the peripheral costs that are getting cut. Since staff began working shorter hours - still longer than normal office hours - one bank has cut out free canteen meals and taxis home for those staying late.

The banks, however, have been hit by the credit crunch far more than other institutions. While the housing market too has stalled, that can be interpreted as a good thing for first time buyers and those who have not overstretched themselves on borrowing who can look forward to a better deal on property when trading up.

Newspaper headlines often overlook the sensible people who are still willing to save. There are a lot of them about and some of them are still spending as the latest UK high street sales figures have revealed.

But behaviours are changing, not least in the workplace. According to recent reports, people are spending more time in the office just now, rather than working from home. They are also smartening up their appearance. Ties sales have risen markedly in the past three months.

These last points suggest that, whatever we may believe about change in the workplace, it doesn’t take much for people to reach for the apparent safety of familiar practice.

What’s in a tie, you might ask? The answer, quite simply, is a perception of greater job security or at least the belief that smartening your appearance around the office might send the right signals about your commitment to the job. So people are making themselves more visible in the workplace, and, at the same time, they are asserting their seriousness with clothing.

This shouldn’t be surprising. It is why we dress smartly for job interviews. Rightly or wrongly, enduring decisions are made on the strength of our appearance.

It takes a certain spirit to defy convention. When Albert Einstein’s wife once asked him to change his clothes to meet the German ambassador, he replied: “If they want to see me, here I am. If they want to see my clothes, open my closet and show them my suits.”

Einstein was making a rational point. Unfortunately people behave irrationally all the time and when economies falter such behaviour becomes more pronounced.

In a new book, Sway, The Irresistible Pull of Irrational Behaviour, the authors Ori and Rom Brafman, outline a series of irrational behaviours that remind us just how often decisions are made not on sound reasoning but on emotional impulses that can have critical consequences.

What should we make, for example, of the airline pilot who let concerns for lost time cloud his judgement when deciding to take off in foggy conditions without terminal clearance? A series of misjudgements and miscommunications led to the world’s worst aviation disaster when 583 people aboard two aircraft were killed in Tenerife in 1977.

But, as the Brafman brothers point out, the decisions that led one of KLM’s most experienced pilots, Captain Jacob van Zanten, to go ahead with take off, were influenced in no small measure by his desire to complete his journey before he would be grounded for a mandated rest period.

The brothers explain his decisions partly through a phenomenon known as “loss aversion.” Loss aversion has been noticed in the way people respond to price increases.

Prof Daniel Putler, a former researcher in the US Department of Agriculture, noticed when looking for patterns in Californian egg sales, that people were far more sensitive to price increases than they were to price decreases. While egg buying improved a little if prices dropped, it dropped steeply when prices went up. The same has just happened in diesel consumption among motorists.

This so-called asymmetric behaviour is not just of interest to economists; it also influences decisions on staffing. According to the Brafmans, assumptions made during job interviews and selection can influence attitudes about individuals that can make or break their careers.

They quote another piece of research, this time looking at the performance of American basketball players relative to the order in which they are first chosen to represent a team.

In the US, professional teams line up every season to pick players from that year’s college draft of young talent. Using various measures such as “assists per minute” researchers found that, above and beyond a player’s performance, the variable most responsible for a National Basketball Association player’s time on court was his draft selection order.

This means that a player selected fifth in the draft will get more time on court than a player selected eighth, regardless of how well each of them performs.

More than that, we make judgements on people based on a whole series of external influences. In the same way we may like a piece of art, simply because it is valued by someone influential who was prepared to lend it some worth.

To illustrate the way this value attribution works (or fails) the authors point to an experiment run by the Washington Post in 2007 when the newspaper persuaded virtuoso violinist, Joshua Bell, dressed in jeans and a baseball cap, to play his $3.5m Stradivarius in a subway station at rush hour.

Bell, who normally performs to sell-out audiences in the biggest concert halls, played his best for 43 minutes, while more than a thousand people passed him by without stopping.

“Without realising it, the commuters attributed the value they perceived – the baseball cap, the jeans, the subway venue – to the quality of the performance,” say the authors who add: “Whenever we’re called upon to make judgements, value attribution plays a role, often altering our perceptions to a person or thing.”

All those people, therefore, who are wearing ties today while dashing around the office, are doing so for a reason. They know, instinctively, that these make a difference; they shouldn’t, but they do.

My biggest surprise at the Joshua Bell story was that it didn’t surprise me. As Einstein again once remarked: “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.”

*Sway, The Irresistible Pull of Irrational Behaviour, by Ori Brafman and Rom Brafman is published by Doubleday, price $21.95

See also: Who wants to be a commodity?