Enhance your innovation efforts with these three concepts.
Build your cognitive toolkit with this trio of mental models from economics and explore their relevance for innovation in education.
- The Network Effect
- Sunk Cost Fallacy
- Compounding
We will look at each model and consider ‘How does this connect with education innovation and leadership?’
The Network Effect
A commodities’ value grows with the number of people who use them.
This is labelled the positive network effect. As more people use something, more people are also motivated to join.
Think about the mobile technology that we use. Any person with an iPhone can communicate easily with another iPhone owner.
The network effect has helped Apple’s growth, but there is also the benefit to us. We perceive and gain more value from a phone when others are part of the network or technology ecosystem.
The Network Effect breaks down to another level of influence.
- Direct network effect
- Two-sided network effects
- Intra-personal network effects
Take a look at Apple’s Success and Network Effects to find out more.
How does the network effect connect with education innovation and leadership?
The network effect is all about how people’s acceptance of an idea or innovation.
Take any new initiative or programme you plan to establish at your school. It could be a new structure for professional learning, reading comprehension routines, assessment expectations, or a design approach in your curriculum.
Have you got an example in mind?
Great, now think about how you might share stories of success within the initial phase. A few reports of success at a staff session might help kickstart the network effect.
Sunk Cost Fallacy
If you have ever ordered too much food and then attempted to get your money’s worth by eating too much, you have experienced the sunk cost fallacy.
Sunk Cost Fallacy is a cognitive and behavioural bias that sees us continue an endeavour due to previously invested time, money, effort or resources.
The sunk cost is part of the experience we can’t change, yet we continue onwards as if we have no other choice.
I have never had much appetite at breakfast, but I miraculously eat all sorts when I have a buffet breakfast at a hotel. I hear myself say, “I may as well.” This behaviour is the sunk cost fallacy.
Here’s a thought experiment from Amos Tversky and Daniel Kahneman:
Imagine that you have two tickets to tonight’s NBA game in your city and that the arena is 40 miles away. But it’s begun to snow, and you’ve found out that your team’s star has been injured and won’t be playing. Should you go or throw away the money and skip it?” To answer that question as an economist would ask yourself the following question: Suppose you didn’t have tickets to the game and a friend were to call you up and say that he has two tickets to tonight’s game which he can’t use and asks if you would like to have them. If the answer is “you’ve got to be kidding, it’s snowing, and the star isn’t playing,” then the answer is you shouldn’t go. That answer shows you that the fact that you paid good money for the tickets you have is irrelevant — their cost is sunk and can’t be retrieved by doing something you don’t want to do anyway. Avoidance of sunk cost traps is a religion for economists, but I find that a single college course in economics actually does little to make people aware of the sunk cost trap. It turns out that exposure to a few basketball-type anecdotes does a lot.
Taken from Richard Nisbett’s article in This Will Make You Smarter.
How does the sunk cost fallacy connect with education innovation and leadership?
I often wonder if we have commitment issues in schools.
I have witnessed lots of irrational reluctance when it comes to abandoning ineffective programmes, which is the sunk cost fallacy at play.
We want to keep every programme running, rather than clear space and resourcing for an innovation that might be more appropriate.
My challenge to you is to consider your school programmes that are still running, despite the ineffective impact they create.
If you want space for innovation, you have to stop putting energy, resources and time into ineffective alternatives.
Compounding
Compounding is all about how small habits over time make a big difference.
When we think of compounding, we typically think of finance and positive returns, as in “good compounding.” But compounding just reinforces what’s already happening — good or bad. There is no judgment. And compounding works outside of finance. So while we can compound money positively and negatively, we can compound ourselves as well. ~ Shane Parrish
This email is the 237th time I have researched and crafted about 700 words in a weekly issue.
In terms of knowledge, mindset and skillset, the gains from such a habit are not just increasing linearly. The improvements would be an example of exponential growth.
But we find it difficult to wrap our heads around longitudinal exponential or non-linear growth.
Consumer psychologists Craig McKenzie and Michael Liersch showed that people could not accurately estimate the outcome of such non-linear processes. Instead, they believe that savings will grow linearly and underestimate how much their current savings will be worth in the future.
Habits are the compound interest of self-improvement. The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them. They seem to make little difference on any given day, yet the impact they deliver over the months and years can be enormous. It is only when looking back two, five, or perhaps ten years later that the value of good habits and the cost of bad ones becomes strikingly apparent. ~ James Clear — Atomic Habits via FS
An element of this mental model that has piqued my curiosity lately is that the compound effect is neutral.
It works for negative and positive behaviours, choices and habits. It is making me think more carefully about which personal or professional routines I have on repeat.
How does compounding connect with education innovation and leadership?
Innovation does not have to be at a pre-defined scale to be worthy of our time.
Implementing a novel idea that adds value can be at a small scale or a whole organisation level.
I am talking about scale because to establish a routine and habit that compounds a positive outcome, we need an achievable output.
Reflect on the scale of your school’s innovations and consider how these might break down to more minor actions or micro-commitments.
For example, a leadership team might be planning to redefine the meeting structures and transform their impact.
Yes, we need to think about the whole programme of change. Still, to take advantage of the compounding effect, we might consider one question at every meeting or a single protocol for collaboration as a starting point.
What small innovative commitments can you make that will compound into a significant change?
Your Talking Points
Three mental models, so I leave you with three summary provocations for your educational innovation efforts:
- Who can share a story of success? [Network Effect]
- What are you going to stop doing? [Sunk Cost Fallacy]
- What could be part of an innovative micro habit? [Compounding]
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