If two identical salespeople go out to look for customers and set prices for the products by playing with the available margin, the difference between the prices, contrary to what we think, is much greater than would be ideal for the company that hires them. That difference that we might think is due to a natural statistical bias, with a reasonable average, is due to another concept called noise described by Daniel Kahneman – Nobel Prize winner in economics.
This noise is what is called “decision dispersion” and is more random than desirable. Rationality does not exist when people are involved, because feelings are involved, and these affect decision-making. External factors also have an impact, because they affect our senses. It is the same thing that happens when investing in the stock market, where fear and greed condition all decisions, which is why some experts predict that AI will beat the human investor in investment profitability.
This is very much in line with the prisoner’s dilemma, also enunciated by another Nobel Prize winner (J. Nash), who also associated decision-making with very human situations.
So, we are not as efficient in deciding what is best for our company as we think, even experience can be a problem because of the inherent predisposition to think that we know better and act better.
