Home > Book Review, Business > Book Review: Secrets of the Moneylab by Kay-Yut Chen and Marina Krakovsky

Book Review: Secrets of the Moneylab by Kay-Yut Chen and Marina Krakovsky

By Nikki Green

Nikki Green

In their book, Secrets of the Moneylab, Kay-Yut Chen and Marina Krakovsky present extensive research on human behavior that can help entrepreneurs improve their business. And like a mad scientist, Chen has turned research into successful results at Hewlett Packard. Filled with smart little anecdotes, mathematical equations, research studies, and wit, this book is an easy read.

The idea that understanding human behavior to be successful in business may seem too complex, after all, human behavior is often irrational and unpredictable, right? The authors of Secrets of the Moneylab argue that although the above may be somewhat accurate, there are formulas for reducing loss and uncertainty in “unpredictable outcomes.” If you can understand human behavior you can apply that understanding and build successful relationships in business.

They sum up the bulk of their research in the following areas: reciprocity, rationality, and reputation.  They discovered that it is human behavior to punish those whom they feel short changed them. When applied to companies, reciprocity is more than just the “Golden Rule”. When employees and customers feel short changed or cheated business suffers. Furthermore, it is how business suffers which truly reveals the nature of this book. Human tendency to punish wrongdoers is escalated, meaning your customers and employees will “one up” in retaliation. Deliver bad customer service and expect a punishment far worse than fitting the bill.  Chen and Krakovsky write “in order to stop the escalation you made need to do more that what you think is fair”. Reciprocity also works for rewarding employees or customers for good things. Businesses that offer rewards programs for loyalty and companies that offer incentives for employees and customers fair better in business.

There is always risk in running a business, but the authors of Secrets of the Moneylab show readers that risk can be rational and calculated. What may seem irrational to one company can be optimal for another. Businesses are not equipped with a rule book for unfamiliar territory; it is up to chance far too often to make good decisions. Chen and Krakovsky provide formulas to reduce loss and predict reasonable outcomes even if the business owners have never been in the situation before.

Reputation, reputation, reputation.  It can not be stressed enough. Reputation has propelled businesses like Yelp and EBay, where rating systems are king. Many of us have gone to the internet to give negative feedback and rate a company or product that provided a bad experience. Chen and Krakovsky argue consumers will buy more from companies with good reputations even if thatmeans spending more money. Careful though, reputation is a double edge sword. Chen and Kravosky dig into the value of reputation, the snowball effect of a well deserved reputation, and borrowing or loaning reputation. Business owners need to understand that just having a good reputation will not bring success. Reputation is fickle and, needs to be maintained constantly.

Other chapters discuss Fairness, and Trust. Fairness is a negotiation process; people want to get what is fair.  Businesses can apply this knowledge when it comes to dealing with employees or customers because as the authors state, “[they] would rather take nothing at all then get what seems unfair.” Refund policies are great examples of the negotiation of fairness, because they differ business to business as consumers and businesses find the fairest way to get what they think they deserve. Secrets of the Moneylab, provides a path to business success by looking at human behavior and applying that research to business.

About the Authors:

Kay-Yut Chen is the principal scientist in the Information Services & Process Innovation Lab at Hewlett Packard Labs. He joined HP Labs in 1994 after receiving his Ph.D. in economics from Caltech. With 16 years of experience applying his study of human behavior, he has irrevocable changed how effective HP practices successful business. Marina Krakovsky, a freelance journalist, has written for numerous publications about ideas in science, culture, and business. Her work has appeared in the New York Times Magazine, Scientific American, Washington Post, and other publications.

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