Book Review: The Power of Habit: Why We Do What We Do in Life and Business

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The Power of Habit: Why We Do What We Do in Life and Business

In just its first month of operation, the new Horseshoe Casino in downtown Cleveland welcomed about half a million people through its doors to hit the slot machines, sit at the World Series of Poker table, and take their chances at the various gaming tables. Guests have come from near and far, including foreign countries.

Why do games of chance draw such widespread enthusiasm and generate multiple return visits? In these times, it’s probably not the vast sums of discretionary money lining people’s pockets. In some significant measure, it must be the rush that comes from a craving to win.

New York Times journalist Charles Duhigg, in his smashingly popular new book, The Power of Habit: Why We Do What We Do in Life and Business, gives us the science behind the behavior. Not only does he explain the neurology behind individual free will, he also outlines the powerful behavior patterns that influence social movements, marketing campaigns, and business results.

Duhigg frames the psychology behind the individual habit loop in a simple three-part process. It starts with a cue (location, time of day, routines, emotional triggers) that quickly cycles into a routine (the behavior itself, whether physical, mental, or emotional) and ends with the ultimate reward (the bedrock satisfaction that drives the habit loop). He contends that if you discover the structure behind the cue, routine, and reward cycle, you can change the habit.

Most of us want to understand why we engage in what seem like mindless actions, especially those that are harmful to our health, relationships, and daily living. Not surprisingly, it turns out that those seemingly mindless behaviors are controlled by a primitive structure deep within the brain known as the basal ganglia. This sector stores knowledge of activities that have become habitual—such as putting on our shoes or backing out of a driveway. Complex thinking, on the other hand, occurs in the outside layers of the brain in the prefrontal cortex. The ability to do several tasks at once owes to the basal ganglia’s taking charge and making our routine tasks effortless. That’s a good thing for the most part.

But the brain’s dependence on automatic routines can also be dangerous, because habits can be as much a curse as a blessing. Duhigg tells a harrowing tale of a compulsive gambler who continues to be lured back to the casinos and ultimately loses her home and blows her inheritance because she feels powerless to overcome the urge to win.

Pathological gamblers actually see near-misses on a slot machine as wins—triggering behavior that keeps them gambling when they should logically walk away.

A cognitive neuroscientist has determined that patho­logical gamblers actually see near-misses on a slot machine as wins—triggering behavior that keeps them gambling when they should logically walk away. Duhigg reports that gaming companies, understanding this psychology, have been reprogramming their slot machines over the past few decades to supply a more constant stream of near-misses to keep people coming back.

Then there are the implications of habits for retail market­ing plans. Target uses data from customer loyalty cards and redeemed coupons to create complex individualized demographic profiles. These profiles show when parents are gearing up for summer camp season or when expectant mothers are likely to deliver—all based on their purchasing histories. The store can then use that information to push out more promotions to keep people coming back to shop for more.

Duhigg offers an array of examples on how habits lead to outcomes, for both good and ill. For me, the most compelling of his stories focus on transformational change within organizations. For example, NFL coach Tony Dungy used the power of habit to turn around the foundering Tampa Bay Buccaneers starting in the late 1990s. Instead of using a thick playbook, he coached his players to use only a handful of formations, concentrating on where their opponents were lining up and moving on the field. He shifted the team’s precise behavior patterns until their performances became automatic and they began to believe they could win. In just a few years, the Bucs were division champs and within a decade, won the Super Bowl.

Then there is the amazing power of “keystone habits”— which identify a few key priorities in an organization and fashion them into powerful levers for change. Former Treasury Secretary Paul O’Neill accomplished this at Alcoa when he was named CEO. By putting a laser focus on the keystone habit of worker safety, with a goal of zero injuries within the company, he set a standard for excellence that every employee could salute and support. The strategy worked—with Alcoa’s annual income increasing by a factor of five during his tenure as leader.

Without keystone habits, very bad things can happen. In the late 1980s in a London subway station, 31 people perished because no single person, department, or engineering chief had ultimate responsibility for passenger safety. Operating within their “boxes” of functional routines and failing to escalate the emergency to the right authorities, employees allowed a small fire to rage into a death trap.

Although Duhigg does not offer a specific example related to the economics profession, he does provide some food for thought. Traditional economists tend to describe people as rational beings who are unlikely to make repeated mistakes. Behavioral economists have made inroads by trying to account for imperfect rationality, but it’s safe to say that mainstream economics continues to rely on “homo economicus”—the rational man—who, as Duhigg’s work makes clear, is more an archetype than a reality.

The Power of Habit offers so many forceful stories and underlying psychologies behind them that it’s hard to stop thinking about the possibilities for old patterns to be rethought and bad habits transformed.

What if all members of Congress committed to a keystone habit of fixing the U.S. fiscal cliff before disaster hit? What if a retail data mining strategy focused on giving consumers the option to choose sustainable products to reduce materials going to landfill rather than adding new plastic gadgets to our homes? What if all of us took a good, hard look at the mindless routines we follow in our own lives and resolved to change a couple of them to make life better for our families and co-workers? Not so crazy a habit to get into, come to think about it.

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Meet the Author

Robin Ratliff

| Assistant Vice President

Robin Ratliff

Robin Ratliff is a former assistant vice president and assistant corporate secretary at the Federal Reserve Bank of Cleveland.

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