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May. 17th, 2014 04:50 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
chita_iThe strange thing about academics, which always fascinates me, is that they believe they're completely immune to status considerations and consider themselves to be more or less monks. In reality, of course, academics are the most status-conscious people in the world. Take away a parking space from an academic and see how long he stays. I always find this very strange when you occasionally get in the realm of happiness research, you get fairly considerable assaults on consumerism as if it's just mindless status seeking. Now, the point of the matter is, is that academics are just as guilty of the original crime, they just pursue status in a different way. ...
The problem—in terms of understanding human behavior, and I go even further, in understanding economics—is, why is neoclassical economics so disproportionately influential among the social sciences in influencing policy and bank behavior and, indeed, business? I mean, the finance director—the chief financial officer—is now typically the second most powerful person in any organization. He will, unconsciously or not, base quite a lot of his decisions on the unproven assumptions of neoclassical economic theory. So why has neoclassical economics, which is a pretty appalling predictive guide to individual human behavior, achieved this influence? One of the reasons is it's mathematically neat so people just fall in love with the elegance of the thing and are happy to ignore the fact that, empirically, it ain't all that.
First of all, the relative progress in mathematics is not without its own biases. If you look at it, the Greeks were extraordinarily good at geometry. Why? I suppose because they had two obsessive preoccupations: Astronomy in order to predict weather or seasons so you can plant crops—and perhaps in calculating boundaries between parcels of land. If you look at the history of math, certain things like an understanding of basic statistics and probability was extraordinarily late to emerge in mathematics. Someone told me that in the 17th Century people would assume that if you threw a die six times, each of the six numbers should come up once each. They were that shit and that was how bad it was. Game theory only really kicked off after the Second World War. There are many things that were impossible to model until the advent of modern computing power. So a theory expressed in words may be the best we can do for now.
It is true of quite a lot of progress in human life that businesses, in their blundering way, sometimes discover things before academics do. This is true of the steam engine. People developed steam engines before anybody knew how they worked. It's true of the jet engine, true of aspirin, and so forth. People discover through trial and error—what Nassim Taleb calls "stochastic tinkering." People make progress on their own without really understanding how it works. At that point, academics come along, explain how what works works and to some extent take the credit for it. "Teaching birds to fly" is the phrase that Taleb uses.As I say, I was seduced by economic thinking and the elegance of it, but at the same time having worked in advertising for 15 years, I was also fairly conscious of the fact that this isn't really how people behave. We'd always known, in those fields of marketing, like direct marketing, where you actually got results—you sent out letters to 50,000 people and saw how many people replied—there was something going on that we didn't understand. In other words, occasionally you might do incredibly elaborate, complex, and expensive work and have more or less no effect on the uptake of some product. Then someone would redesign the application form and slightly change the order of the questions on the application form, and the number of people replying would double. We knew there was this mysterious kind of dark force at work in human behavior.
I know that academics go practically deranged at the mention of Malcolm Gladwell. They'll say some of the things that he says are unrepresentative, or slightly inaccurate, or he misrepresents science, or takes credit for this or that. My view is much more benign, which is, look, if 100,000 business people read his books and wake up the next day being slightly more open-minded or slightly happier to work with the counterintuitive than they were the day before, then that book's a net victory and I'm not that bothered. But that's because business and academia are fundamentally different. In academia you have to be right, in business you've just got to be less stupid, less wrong than your competitors. And so the approach we have to progress is fundamentally different. We just look for ways to be less wrong. And of course we don't need to know why something works, just that it does.
perfect information and perfect trust, marketing and advertising wouldn't need to exist. One of the reasons that people in economics have traditionally had an absolute horror of marketing is they believe there was an objective truth, a known valuation for everything, and that anything that interfered with the presentation of that truth was basically there to deceive people and to distort and effectively hack their perception or preferences.
I'm very, very interested in understanding how the brain processes information. I'm also hugely a fan of the understanding that what we have evolved a kind of heuristic toolkit. It's not, by the way, a constant toolkit either. We learn and replace and change the way we use of things. But in those things which we do reasonably regularly, we get pretty good at using those proxies. In other words, information sources that are readily available, computationally tractable and pretty good at helping us satisfice.
If you want me to explain, as an advertising person, brand preference—I'm not the first person to say this—Phillip Nelson and Toshio Yamagishi both got this—one perfectly sensible explanation is that someone who has a very valuable reputation that's been built up at great expense over many years is simply more reluctant to sell a bad product than someone who has no reputation to lose. If you want to put it very crudely, we like doing business with people we can hurt a bit. But if someone has a valuable but fragile reputation, we feel more comfortable buying from them than we feel buying from someone who's effectively anonymous and untouchable.
Our preference for brands, if you look at the reputational game theory, if such a field exists, there's nothing particularly irrational or foolish, and it's a basic proxy. I want to buy something, I'm happy to pay a little bit more for a feeling of reassurance and the unlikeliness of the product being a disaster or a rip-off, so I will buy from someone who is well-known—and has a reputation to lose.
The fact that we do this instinctively is not irrational—it's fallible, yes, but it's remarkably clever.
One interesting thing that's regularly occurred to me in business, which no one in economics seems to have considered, is that the consumer surplus doesn't seem to bring any happiness, and that seems interesting. Would it be possible for you to enable people to understand the consumer surplus? Would that make them happy? For example, most people who are in the top quartile of disposable earnings, when they buy a flat screen television—first of all, it's worth remembering about a large plasma screen television that Louis XIV would've given you half of Burgundy in exchange for a modern television. So, if your frame of reference is: what would Louis XIV like? you would fill your house with electronic equipment and rejoice in every single last element.
The second thing is when you buy that television, you might be prepared, if such things cost that much, to pay $3,000 or $4,000 for a large plasma or LCD television. In reality the thing is priced at a level which effectively appeals to, let's say, 75 percent-80 percent of the market and you only have to pay about $800. But nobody leaves that shop going "That's extraordinary, miraculous. I am now extraordinarily happy because something I would have paid $3,000 for I can buy for 700 or 800." They've walked out of there with a net gain of $2,300 dollars, and yet it seems to generate no happiness at all. We simply think of things being worth what we pay for them. Now, if you solve that problem, you can synthesize an extraordinary amount of human joy—admittedly, mostly in the wealthier 50 percent of the populace. Thus, there is an interesting question, which is, people instinctively seem to think that framing is a dishonest activity—but can it help?
There was a very interesting finding fairly recently that Germans who go from being unemployed to being retired enjoy a very significant gain in happiness, even though their material state doesn't change at all. Simply by rebranding themselves retired rather than unemployed, they enjoy a gain in happiness that is equivalent to the gain and happiness enjoyed by newlyweds. Now, that has to be important, doesn't it? If you believe, as economists seem to do, that happiness can only depend on objective and financial conditions, you may be woefully wrong.
First and foremost, let me give you a business example. The single best thing the London Underground did in terms of improving passenger satisfaction per pound spent wasn't faster, more frequent, later running trains, it was putting dot matrix display boards on the platform to tell you how long you were going to have to wait for your next train. There's something about the human brain, for whatever reason, which hates uncertainty. That's an interesting case because if you research how can you improve the Underground, most people would have said, "I want faster trains. I want more frequent trains." They would not have said, "I want less uncertainty."
Uber, the taxi-booking app, and Hailo, the British equivalent, are not that revolutionary in absolutely objective terms. You've always been able to book a cab by phone. You could pick up the phone and book a taxi. Big deal, okay. What makes Uber different is that when you phone for a taxi, in between that phone call and the taxi arriving, you enter the Twilight Zone of uncertainty. "Where is he? Why isn't he here yet? They said five minutes. I can't see him. Maybe he's outside. Should we go outside and have a look? What if he's left?" With Uber you watch the cab approach in real time on your map. And you go "Oh, look, he's stuck at those traffic lights. I'll make myself a cup of tea while I'm waiting." And you're both happier, you make better use of the time but you're also vastly less stressed in that period. Now, simply knowing that is really, really important. We don't like uncertainty.
Now, nobody in market research goes on about this much. Economists wouldn't understand this at all. They'd be entirely clueless about the effects of uncertainty, just as it's clueless about the effects of regret or fear of regret. But let's take this a step further, okay? If we know this and we also know that men are disproportionately reluctant to undergo certain kinds of medical testing, I can guarantee that quite sensibly and under the influence of good behavioral science, quite a lot of people have said, "Well, one way to get men to get tested for cancer more regularly is to make it easier and to use lots of nudges where you book appointments, you confirm appointments by text messaging and all that stuff." Absolutely true. And I commend that work, by the way.
There's another thing you can do which is interesting, and no one has tried this, which is to say, "If you have this test, we will give you the results in 24 hours." Because nobody's thought that's relevant. Nobody thought the delay between having the test and getting the result is relevant to the human propensity to have that test. Credit card companies discovered this by accident. The credit card people have discovered, they often said in the credit card ad "Apply now and you can get your approval within 12 hours." They clearly found, through testing or accident or experimentation or whatever, that this made a difference to people's propensity to respond. If you were simply using market research or simply using neoclassical economic assumptions, neither of those two things would tell you that time spent in a state of uncertainty might be an important factor. This is why I'm saying become a capitalist anthropologist, look at the behavior of consumers in small trivial money-grubbing ways. It's kind of like the Galapagos Islands for studying behavioral quirks.
Why do we prefer stripy toothpaste? When you think about it, once you put the toothpaste in your mouth, you mix it all up. Why does it need to be stripy? The strangest thing on the web is, there are hundreds of articles saying how do they make the stripes in toothpaste but there's no articles saying why. All those materials, the red, and the blue, and the white get mixed up in your mouth. It's completely pointless. Why do you do it? Something about the human brain just thinks if there are three different colors, it's easier to believe that that toothpaste is doing three different things: bamishes plaque, freshens breath, eliminates cavities. Because there are three colors, I find it easier to believe that this thing is doing three totally different things. As a greedy anthropologist, use these funny behaviors that are clearly part of our brain mechanism to solve bigger problems.
At this point, I'm excited because I genuinely believe you can synthesize happiness. Better choice architecture, better information, better structure of choices, fewer choices that are completely past-dependent and irreversible. You can improve things. I'll give you one more example just to prove that this isn't just flash-in-the-pan nonsense.
Don't give people 24 white pills. If you want them to finish their antibiotics, don't give them 24 white pills. Give them 18 white pills and six blue ones and say, "When you finish the white pills, take the blue ones." The pills can, frankly, be identical, okay? People will simply be more likely to finish a course of treatment if it comes in two sequential colors. Fact. That's the mental equivalent of cars having steering wheels, not nose steering. It's just the way our brains work. Whether it's notionally rational or not is irrelevant.
This Thing For Which We Have No Name
A Conversation with
Rory Sutherland [5.12.14]
The problem—in terms of understanding human behavior, and I go even further, in understanding economics—is, why is neoclassical economics so disproportionately influential among the social sciences in influencing policy and bank behavior and, indeed, business? I mean, the finance director—the chief financial officer—is now typically the second most powerful person in any organization. He will, unconsciously or not, base quite a lot of his decisions on the unproven assumptions of neoclassical economic theory. So why has neoclassical economics, which is a pretty appalling predictive guide to individual human behavior, achieved this influence? One of the reasons is it's mathematically neat so people just fall in love with the elegance of the thing and are happy to ignore the fact that, empirically, it ain't all that.
First of all, the relative progress in mathematics is not without its own biases. If you look at it, the Greeks were extraordinarily good at geometry. Why? I suppose because they had two obsessive preoccupations: Astronomy in order to predict weather or seasons so you can plant crops—and perhaps in calculating boundaries between parcels of land. If you look at the history of math, certain things like an understanding of basic statistics and probability was extraordinarily late to emerge in mathematics. Someone told me that in the 17th Century people would assume that if you threw a die six times, each of the six numbers should come up once each. They were that shit and that was how bad it was. Game theory only really kicked off after the Second World War. There are many things that were impossible to model until the advent of modern computing power. So a theory expressed in words may be the best we can do for now.
It is true of quite a lot of progress in human life that businesses, in their blundering way, sometimes discover things before academics do. This is true of the steam engine. People developed steam engines before anybody knew how they worked. It's true of the jet engine, true of aspirin, and so forth. People discover through trial and error—what Nassim Taleb calls "stochastic tinkering." People make progress on their own without really understanding how it works. At that point, academics come along, explain how what works works and to some extent take the credit for it. "Teaching birds to fly" is the phrase that Taleb uses.As I say, I was seduced by economic thinking and the elegance of it, but at the same time having worked in advertising for 15 years, I was also fairly conscious of the fact that this isn't really how people behave. We'd always known, in those fields of marketing, like direct marketing, where you actually got results—you sent out letters to 50,000 people and saw how many people replied—there was something going on that we didn't understand. In other words, occasionally you might do incredibly elaborate, complex, and expensive work and have more or less no effect on the uptake of some product. Then someone would redesign the application form and slightly change the order of the questions on the application form, and the number of people replying would double. We knew there was this mysterious kind of dark force at work in human behavior.
I know that academics go practically deranged at the mention of Malcolm Gladwell. They'll say some of the things that he says are unrepresentative, or slightly inaccurate, or he misrepresents science, or takes credit for this or that. My view is much more benign, which is, look, if 100,000 business people read his books and wake up the next day being slightly more open-minded or slightly happier to work with the counterintuitive than they were the day before, then that book's a net victory and I'm not that bothered. But that's because business and academia are fundamentally different. In academia you have to be right, in business you've just got to be less stupid, less wrong than your competitors. And so the approach we have to progress is fundamentally different. We just look for ways to be less wrong. And of course we don't need to know why something works, just that it does.
perfect information and perfect trust, marketing and advertising wouldn't need to exist. One of the reasons that people in economics have traditionally had an absolute horror of marketing is they believe there was an objective truth, a known valuation for everything, and that anything that interfered with the presentation of that truth was basically there to deceive people and to distort and effectively hack their perception or preferences.
I'm very, very interested in understanding how the brain processes information. I'm also hugely a fan of the understanding that what we have evolved a kind of heuristic toolkit. It's not, by the way, a constant toolkit either. We learn and replace and change the way we use of things. But in those things which we do reasonably regularly, we get pretty good at using those proxies. In other words, information sources that are readily available, computationally tractable and pretty good at helping us satisfice.
If you want me to explain, as an advertising person, brand preference—I'm not the first person to say this—Phillip Nelson and Toshio Yamagishi both got this—one perfectly sensible explanation is that someone who has a very valuable reputation that's been built up at great expense over many years is simply more reluctant to sell a bad product than someone who has no reputation to lose. If you want to put it very crudely, we like doing business with people we can hurt a bit. But if someone has a valuable but fragile reputation, we feel more comfortable buying from them than we feel buying from someone who's effectively anonymous and untouchable.
Our preference for brands, if you look at the reputational game theory, if such a field exists, there's nothing particularly irrational or foolish, and it's a basic proxy. I want to buy something, I'm happy to pay a little bit more for a feeling of reassurance and the unlikeliness of the product being a disaster or a rip-off, so I will buy from someone who is well-known—and has a reputation to lose.
The fact that we do this instinctively is not irrational—it's fallible, yes, but it's remarkably clever.
One interesting thing that's regularly occurred to me in business, which no one in economics seems to have considered, is that the consumer surplus doesn't seem to bring any happiness, and that seems interesting. Would it be possible for you to enable people to understand the consumer surplus? Would that make them happy? For example, most people who are in the top quartile of disposable earnings, when they buy a flat screen television—first of all, it's worth remembering about a large plasma screen television that Louis XIV would've given you half of Burgundy in exchange for a modern television. So, if your frame of reference is: what would Louis XIV like? you would fill your house with electronic equipment and rejoice in every single last element.
The second thing is when you buy that television, you might be prepared, if such things cost that much, to pay $3,000 or $4,000 for a large plasma or LCD television. In reality the thing is priced at a level which effectively appeals to, let's say, 75 percent-80 percent of the market and you only have to pay about $800. But nobody leaves that shop going "That's extraordinary, miraculous. I am now extraordinarily happy because something I would have paid $3,000 for I can buy for 700 or 800." They've walked out of there with a net gain of $2,300 dollars, and yet it seems to generate no happiness at all. We simply think of things being worth what we pay for them. Now, if you solve that problem, you can synthesize an extraordinary amount of human joy—admittedly, mostly in the wealthier 50 percent of the populace. Thus, there is an interesting question, which is, people instinctively seem to think that framing is a dishonest activity—but can it help?
There was a very interesting finding fairly recently that Germans who go from being unemployed to being retired enjoy a very significant gain in happiness, even though their material state doesn't change at all. Simply by rebranding themselves retired rather than unemployed, they enjoy a gain in happiness that is equivalent to the gain and happiness enjoyed by newlyweds. Now, that has to be important, doesn't it? If you believe, as economists seem to do, that happiness can only depend on objective and financial conditions, you may be woefully wrong.
First and foremost, let me give you a business example. The single best thing the London Underground did in terms of improving passenger satisfaction per pound spent wasn't faster, more frequent, later running trains, it was putting dot matrix display boards on the platform to tell you how long you were going to have to wait for your next train. There's something about the human brain, for whatever reason, which hates uncertainty. That's an interesting case because if you research how can you improve the Underground, most people would have said, "I want faster trains. I want more frequent trains." They would not have said, "I want less uncertainty."
Uber, the taxi-booking app, and Hailo, the British equivalent, are not that revolutionary in absolutely objective terms. You've always been able to book a cab by phone. You could pick up the phone and book a taxi. Big deal, okay. What makes Uber different is that when you phone for a taxi, in between that phone call and the taxi arriving, you enter the Twilight Zone of uncertainty. "Where is he? Why isn't he here yet? They said five minutes. I can't see him. Maybe he's outside. Should we go outside and have a look? What if he's left?" With Uber you watch the cab approach in real time on your map. And you go "Oh, look, he's stuck at those traffic lights. I'll make myself a cup of tea while I'm waiting." And you're both happier, you make better use of the time but you're also vastly less stressed in that period. Now, simply knowing that is really, really important. We don't like uncertainty.
Now, nobody in market research goes on about this much. Economists wouldn't understand this at all. They'd be entirely clueless about the effects of uncertainty, just as it's clueless about the effects of regret or fear of regret. But let's take this a step further, okay? If we know this and we also know that men are disproportionately reluctant to undergo certain kinds of medical testing, I can guarantee that quite sensibly and under the influence of good behavioral science, quite a lot of people have said, "Well, one way to get men to get tested for cancer more regularly is to make it easier and to use lots of nudges where you book appointments, you confirm appointments by text messaging and all that stuff." Absolutely true. And I commend that work, by the way.
There's another thing you can do which is interesting, and no one has tried this, which is to say, "If you have this test, we will give you the results in 24 hours." Because nobody's thought that's relevant. Nobody thought the delay between having the test and getting the result is relevant to the human propensity to have that test. Credit card companies discovered this by accident. The credit card people have discovered, they often said in the credit card ad "Apply now and you can get your approval within 12 hours." They clearly found, through testing or accident or experimentation or whatever, that this made a difference to people's propensity to respond. If you were simply using market research or simply using neoclassical economic assumptions, neither of those two things would tell you that time spent in a state of uncertainty might be an important factor. This is why I'm saying become a capitalist anthropologist, look at the behavior of consumers in small trivial money-grubbing ways. It's kind of like the Galapagos Islands for studying behavioral quirks.
Why do we prefer stripy toothpaste? When you think about it, once you put the toothpaste in your mouth, you mix it all up. Why does it need to be stripy? The strangest thing on the web is, there are hundreds of articles saying how do they make the stripes in toothpaste but there's no articles saying why. All those materials, the red, and the blue, and the white get mixed up in your mouth. It's completely pointless. Why do you do it? Something about the human brain just thinks if there are three different colors, it's easier to believe that that toothpaste is doing three different things: bamishes plaque, freshens breath, eliminates cavities. Because there are three colors, I find it easier to believe that this thing is doing three totally different things. As a greedy anthropologist, use these funny behaviors that are clearly part of our brain mechanism to solve bigger problems.
At this point, I'm excited because I genuinely believe you can synthesize happiness. Better choice architecture, better information, better structure of choices, fewer choices that are completely past-dependent and irreversible. You can improve things. I'll give you one more example just to prove that this isn't just flash-in-the-pan nonsense.
Don't give people 24 white pills. If you want them to finish their antibiotics, don't give them 24 white pills. Give them 18 white pills and six blue ones and say, "When you finish the white pills, take the blue ones." The pills can, frankly, be identical, okay? People will simply be more likely to finish a course of treatment if it comes in two sequential colors. Fact. That's the mental equivalent of cars having steering wheels, not nose steering. It's just the way our brains work. Whether it's notionally rational or not is irrelevant.
This Thing For Which We Have No Name
A Conversation with
Rory Sutherland [5.12.14]