Knowing and Making

I'm starting a series on how to use the principles of behavioural economics in the real world of business. It will be structured around a series of individual cognitive biases, and for each bias I will outline: Examples and stories to demonstrate how it works The cognitive theory of why it works A toolkit showing how to implement it in practice First up, this weekend, will be anchoring . Come back tomorrow to see some examples of this from our clients and other companies. And if you'd like to be featured in this series - and in a forthcoming book on the same subject - please email me to share your stories of cognitive bias or behavioural economics in the business world. If you are writing about a specific business, please mention whether you're happy for their name to be used in this blog and/or in the book.

As I start this posting, I have no idea what I'm going to write about. But surely there must be something? The guy has been so pilloried that his real attributes must surely be better than his public image. Goodwin has just agreed to give back a chunk of his pension , helping the government achieve its political objective, RBS get rid of a distraction, and Goodwin himself look at least a little better than before. But looking further back, surely there were people who thought he was good at his job in 2007? With so many executives hagiographed in the business press, he must have had his turn. So what can we dig up? Start with a Google search for " Fred Goodwin achieved ". Amazingly, there is only one link: someone defending him on the grounds that the cost of his pension was only a small fraction of RBS's losses , and that by performance-related pay standards he does better than the Bank of England. Similarly, " Fred Goodwin succeeded " returns nothing, and ...

My friend Margie, who's at business school, is less optimistic than me about the recession. She thinks things will be dismal for a long time yet. However, she's still considering starting a business when her course is finished. So what kind of company would you recommend starting up in a recession? And if I'm right after all and the recovery starts soon, what sort of companies would be especially successful in a recovering economy? Please suggest your answers in the comments, or by email to leigh@inon.com and I'll post a selection. The best recommendation wins a free skinny latte (other coffees are available).

Oddly enough, given Robert Peston's latest post , I met some people from RBS today. They seemed to have a decent understanding of, and commitment to, their job. I imagine they were - as Peston suggests - completely uninvolved in any of the high-risk decisions that put the bank's capital at risk. Having said that, they have no doubt benefited along with the rest of the staff when the bank was profitable for the last few years. But no matter - the proper economic reason for a bonus is not primarily to reward past performance but to incentivise future performance. The reason it's typically calculated on past performance is to reinforce the notion (from game theory) that sequential games are linked; to create an ongoing narrative of one event flowing from another, credibly tying together present-self and future-self so that people invest today's time and effort for tomorrow's reward. This is how the interests of employees and owners are aligned. If this is made explicit...

The Observer today published its selection of 500 UK rising stars for 2009 . I'm very happy to have been selected in the Business category, along with 70 other businesspeople including Amanda Zuydervelt of Stylebible, Carl Jewitt of Ernst & Young, Jay Bregman of eCourier, Luke Ashworth of Netbasic, Sokratis Papafloratis of Trusted Places, Tom Critchlow of Distilled, Simon Campbell of ViaPost, Richard Alvin of Clearsight, Duncan Cheatle of the Supper Club, Carol Brown of Thomson Bethune, Elizabeth Harrin of Spire Healthcare/A Girl's Guide to Project Management, Edward Mellett of WikiJob and Darren Fell of Crunch. Some interesting people from the other categories are: Art and Design : Alex Fleetwood of Hide and Seek, theatre director Annette Mees, Renato Benedetti of McDowell+Benedetti, sports artist Keith Fearon Drinks : Richard Bigg of Cantaloupe Fashion and Retail : Tamsin Lejeune of the Ethical Fashion Forum Food : Liz Jarman of Sainsbury's Media : Stefan Lewandowski ...

There's a proposal today for a £12bn "small business fund" to help companies across Europe through the current crisis. As owner of a small business, I would naturally be grateful for access to such a fund - but is it economically sensible? Let's look at how it could be structured to make the most impact with the minimum of interference with market mechanisms. Access to credit . Probably the most obvious area where small companies may be suffering in the current environment. This has always been a constraint for small businesses, and the UK government already has a good system to address it - the Small Firms Loan Guarantee Scheme which guarantees loans by banks to small firms. It was expanded in the 2008 Budget and the criteria for accessing it were relaxed. The economic justification? First, that the external returns to the economy for supporting the foundation of new businesses exceed the risk-adjusted returns available to capital. So if the Government can help me ge...