With this 28th edition of Outside In, I am re-iterating the 2nd new genre of articles called ‘What I Read (WIR)’ which will cover curated snippets of compelling stuff from truly global content that I have read myself – from books, reports, knowledge papers, presentations, social posts and the like.
In this week’s WIR piece, let us deep dive into the key takeaways of Rory Sutherland’s well acclaimed book ‘Alchemy – The Surprising Power of Ideas That Don’t Make Sense’. I believe these are must-read snippets about how to influence people’s choices – even when they don’t make rational sense. The best ideas don’t make rational sense: they make you feel more than they make you think. Here we go…
Foreword and Introduction Section
We discovered that problems almost always have a plethora of seemingly irrational solutions waiting to be discovered, but that nobody is looking for them; everyone is too preoccupied with logic to look anywhere else. We also found, rather annoyingly, that the success of this approach did not always guarantee repeat business; it is difficult for a company or indeed a government, to request a budget for the pursuit of such magical solutions, because a business case has to look logical.
It’s true that logic is usually the best way to succeed in an argument, but if you want to succeed in life it is not necessarily all that useful; entrepreneurs are disproportionately valuable precisely because they are not confined to doing only those things that makes sense to a committee.
It’s important to remember that big data all comes from the same place – the past.
In theory, you can’t be too logical, but in practice, you can. Yet we never seem to believe that it is possible for logical solutions to fail. After all, if it makes sense, how can it possibly be wrong?
To solve logic-proof problems require intelligent, logical people to admit the possibility that they might be wrong about something, but these people’s minds are often most resistant to change – perhaps because their status is deeply entwined with their capacity for reason. Highly educated people don’t merely use logic; it is part of their identity.
A rational leader suggests changing the course to avoid a storm. An irrational one can change the weather. Being slightly bonkers can be a good negotiating strategy: being rational makes you predictable, and being predictable makes you weak.
There are two separate forms of scientific enquiry – the discovery of what works and the explanation and understanding of why it works. These are two entirely different things, and can happen in either order.
David Ogilvy quote: The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.
Trivers and Kurzban explained the evolutionary science behind that conundrum: we simply don’t have access to our genuine motivations, because it is not in our interest to know.
Bill Bernach quote: Human nature hasn’t changed for a million years. It won’t even change in the next million years. Only the superficial things have changed. It is fashionable to talk about the changing man. A communicator must be concerned with the unchanging man – what compulsions drives him, what instincts dominate his every action, even his language too often camouflages what really motivates him.
Evolution does not care about objectivity – it only cares about fitness.
We would all benefit if we learn to accept the fact that our unconscious motivations and feelings may have remarkably little to do with the reasons we attribute to them.
For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.
1) On The Uses and Abuses of Reason
Science seems to fall short of its ideals whenever the theoretical elegance of the solution or the intellectual credentials of the solver are valued above the practicality of an idea. All too often, what matters is not whether an idea is true or effective, but whether it fits with the preconceptions of a dominant cabal.
Novelist Upton Sinclair once remarked, ‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’
As the psychologist Jonathan Haidt has shown, most moralizing works in this way. We react instinctively, before hastily casting about for rationalizations.
It seems likely that the biggest progress in the next 50 years may come not from improvements in technology but in psychology and design thinking. Put simply, it’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality.
Logic tends to rule out magical improvements of this kind, but psycho-logic doesn’t. We are wrong about psychology to a far greater degree than we are about physics, so there is more scope for improvement. Also, we have a culture that prizes measuring things over understanding people, and hence is disproportionately weak at both seeking and recognizing psychological answers.
If you want to change people’s behaviour, listening to their rational explanation for their behaviour may be misleading, because it isn’t ‘the real why’. This means that attempting to change behaviour through rational argument may be ineffective, and even counterproductive.
There are many spheres of human action in which reason plays a very small part. Understanding the unconscious obstacle to a new behaviour and then removing it, or else creating a new context for a decision, will generally much more effectively.
Instincts are heritable, whereas reasons have to be taught; what is important is how you behave, not knowing why you do. As Nassim Nicholas Taleb remarks, ‘There is no such thing as a rational or irrational belief – there is only rational or irrational behaviour.’ And the best way for evolution to encourage or prevent a behaviour is to attach an emotion to it.
What happens on average when a thousand people do something once is not a clue to what will happen when one person does something a thousand times. Nearly all pricing models assume that ten people paying for something once is the same as one person paying for something ten times, but this is obviously not the case.
In maths, 10 x 1 is always the same as 1 x 10, but in real life, it rarely is. You can trick ten people once, but it’s much harder to trick one person ten times. But how many other things are predicted on such assumptions?
Imagine you have ten roles to fill, and you ask ten colleagues to each hire one person. Obviously each person will try to recruit the best person they can find – that’s the same as asking one person to choose the best ten hires he can find, right? Wrong. Anyone choosing a group of ten people will instinctively deploy a much wider variance than someone hiring one person. The reason for this is that with one person we look for conformity, but with ten people we look for complementarity. We are much more likely to take risks when hiring ten people than when hiring one. Complementary talent is far more valuable than conformist talent.
Don’t design for average. Metrics and especially averages, encourage you to focus on the middle of a market, but innovation happens at the extremes. You are more likely to come up with a good idea focusing on one outlier than on ten average users.
It doesn’t always pay to be logical if everyone else is also being logical. Logic may be a good way to defend and explain a decision, but it is not always a good way to reach one. This is because conventional logic is a straightforward mental process that is equally available to all and will therefore get you to the same place as everyone else.
We have no real unitary measure of what is important and what is not – the same quality can be seen as a curse or a blessing, depending on how you think of it. What you pay attention to, and how you frame it, inevitably affects your decision-making
We constantly rewrite the past to form a narrative which cuts out the non-critical points – and which replaces luck and random experimentation with conscious intent.
I am not suggesting that we try to solve problems completely at random, with no plan as to where we want to go, and nor do I mean that data and rational judgment play no part in our deliberations. But, in coming up with anything genuinely new, unconscious instinct, luck and simple random experimentation play a far greater part in the problem-solving process than we ever admit. I used to feel bad about presenting ideas as though they were the product of pure inductive logic, until I realized that, in reality, everything in life works this way. Business. Evolution by natural selection. Even science.
People’s motivations are not always well-aligned with the interests of a business: the best decision to make is to pursue rational self-justification, not profit. No one was ever fired for pretending economics was true.
2) An Alchemist’s Tale (Or Why Magic Really Still Exists)
We don’t value things; we value their meaning. What they are is determined by the laws of physics, but what they mean is determined by the laws of psychology.
Companies which look for opportunities to make magic, like Apple or Disney, routinely feature in lists of the most valuable and profitable brands in the world; you might think economists would have noticed this by now.
Wine tastes better when poured from a heavier bottle. Painkillers are more effective when people believe they are expensive. Almost everything becomes more desirable when people believe it is in scarce supply, and possessions become more enjoyable when they have a famous brand name attached.
Sadly, no one in public life believes in magic, or trusts those who purvey it. If you propose any solution where the gain in perceived value outweighs the attendant expenditure in money, time, effort or resources, people either don’t believe you, or worse, they think you are somehow cheating them. This is why marketing doesn’t get any credit in business – when it generates magic, it is more socially acceptable to attribute the resulting success to logistics or cost-control.
Ethically principled as it may sometimes seem, this aversion to magic brings huge problems; the ingrained reluctance even to entertain magical solutions results in a limitation in the number of ideas that people are allowed to consider
We make far more positive comments about a dish’s appeal and taste when it is garlanded with an evocative description: ‘A label directs a person’s attention towards a feature in a dish, and hence helps bring out certain flavours and textures’. Never forget this: the nature of our attention affects the nature of our experience.
Advertising often also works in this way. A great deal of the effectiveness of advertising derives from its power to direct attention to favourable aspects of an experience, in order to change the experience for the better.
The term ‘affordance’ refers to the perceived and actual properties of the thing, primarily those fundamental properties that determine just how the thing could possibly be used. Affordances provide strong clues to the operations of things. Plates are for pushing. Knobs are for turning. Slots are for inserting things into. Balls are for throwing or bouncing. When affordances are taken advantage of, the user knows what to do just by looking: no picture, no label, or instruction needed.
It is always possible to add functionality to something, but while this makes the new thing more versatile, it also reduces the clarity of its affordance, making it less pleasurable to use and quite possibly more difficult to justify buying. The world is full of invisible intelligence of this kind.
Google is, to put it bluntly, Yahoo without all the extraneous crap cluttering up the search page, while Yahoo was, in its day, AOL without in-built internet access. In each case, the more successful competitor achieved their dominance by removing something the competitor offered rather than adding to it.
3) Signalling
Reciprocation, reputation and pre-commitment signalling are the three big mechanisms that underpin trust.
It is agreed by both game theorists and evolutionary biologists that the prospects for cooperation are far greater when there is a high expectation of repetition than in single-shot transaction. In game theory, this prospect of repetition is known as ‘continuation probability’.
There is the ‘tourist restaurant’ approach, where you try to make as much money from people in a single visit. And then there is the ‘local pub’ approach, where you may make less money from people on each visit, but where you will profit more over time by encouraging them to come back. The second type of business is much more likely to generate trust than the first.
Bits deliver information, but costliness carries meaning.
To quote a Caribbean proverb: Trust grows at the speed of a coconut tree and falls at the speed of a coconut.
We don’t so much choose brands as use them to aid choice. And when a choice baffles us, we take the safe default option – which is to do nothing at all.
Reputation Reflex Instinct – Though largely unconscious, it is perfectly rational, because we intuitively understand that someone with a reputable brand identity has more to lose from selling a bad product than someone with no reputation at risk.
4) Subconscious Hacking: Signalling to Ourselves
The psychologist Nicholas Humphrey argues that placebos work by prompting the body to invest more resources in its recovery. He believes that evolution has calibrated our immune system to suit a harsher environment than the current one, so we need to convince our unconscious that the conditions for recovery are especially favourable in order for our immune system to work at full tilt.
We all spend a considerable amount of time and money essentially to ourselves: many of the things we do are not to be intended to advertise anything about ourselves to others – we are, in effect, advertising to ourselves. The evolutionary psychologist Jonathan Haidt refers to such activities as ‘self-placebbing’. Once we understand the concept, a great deal of bizarre consumerism will make more sense. In fact, much luxury goods expenditure can only be explained in this way – either people are seeking to impress each other, or they are seeking to impress themselves.
One of Nicholas Humphrey’s rules about what makes an effective placebo is that there must be some effort, scarcity or expense involved.
5) Satisficing
Keynes once said, ‘It is better to be vaguely right than precisely wrong’, and evolution seems to be on his side.
We fetishize precise numerical answers because they make us look scientific – and we crave the illusion of certainty. But the real genius of humanity lies in being vaguely right – the reason that we do not follow the assumptions of economists about what is rational behaviour is not necessarily because we are stupid. It may be because part of our brain has evolved to ignore the map, or to replace the initial question with another one – not so much to find a right answer as to avoid a disastrously wrong one.
Satisficing, combining the words ‘satisfy’ and ‘suffice’ is often used in contrast with the word ‘maxmimizing’ which is an approach to problem-solving where you obtain, or pretend to obtain, a single optimally right answer to a particular question.
Someone choosing Brand A over Brand B would say that they thought Brand A is ‘better’, even if really they meant something quite different. They may unconsciously be deciding that they prefer Brand A because the odds of its being disastrously bad are only 1 percent, whereas the risk with Brand B might be 2.8 percent. This distinction matters a great deal, and it is borne out in many fields of decision science. We will pay a disproportionately high premium for the elimination of a small degree of uncertainty – why this matters so much is that it finally explains the brand premium that consumers pay.
The same sort of mental calculus explains why it is so difficult to get people to move their current account from one bank to another paying a higher rate of interest, or to shift their broadband provision. A 1 percent chance of a nightmarish experience dwarfs a 99 percent chance of a 5 percent gain.
Defensive Decision-Making – Making a decision which is unconsciously designed not to maximize welfare overall but to minimize the damage to the decision maker in the event of a negative outcome. Much human behaviour that is derided as ‘irrational’ is actually evidence of a clever satisfacing instinct – repeating a past behaviour or copying what most other people do may not be optimal, but is unlikely to be disastrous. We are all descended from people who managed to reproduce before making a fatal mistake, so it is hardly surprising that our brains are wired this way.
6) Psychophysics
This distinction – the gap between the message we intend to send and the meaning that is attached to it – matters a great deal. Often we are baffled by people’s behaviour. ‘I told him this, and he did that.’ We think they are being irrational, but the reality is that they didn’t hear what we think we said.
In the same way, you cannot describe someone’s behaviour based on what you see, or what you think they see, because what determines their behaviour is what they think they are seeing. This distinction applies to almost anything: what determines the behaviour of physical objects is the thing itself, but what determines the behaviour of living creatures is their perception of the thing itself.
Big data makes the assumption that reality maps neatly on to behaviour, but it doesn’t. Context changes everything. Perception may map neatly on to behaviour, but reality does not map neatly onto perception. We should also remember that all big data comes from the same place: the past.
Every day, companies or governments wrongly make highly simplistic assumptions about what people care about. Two major US retailers, JC Penney and Macy’s, both fell afoul of this misunderstanding when they tried to reduce their reliance of couponing and sales, and instead simply reduced their permanent prices. In both cases, the strategy was a commercial disaster. People didn’t want low prices – they wanted concrete savings. One possible explanation for this is that we are psychologically rivalrous, and like to feel we are getting a better deal than other people. If everyone can pay a low price, the thrill of having won out over other people disappears; a quantifiable saving makes one feel smart, while paying the same low prices as everyone else just makes us feel like cheapstakes. Another possible explanation is that a low price, unlike a discount, does not allow people any scope to write a more cheerful narrative about a purchase after the event – ‘I saved $33’ rather than ‘I spent $45’
It is worth remembering that costly signalling may also play a role in this: certain things need to be expensive for symbolic reasons. A $200 dress reduced to $75 is fine, but women may not feel happy wearing a $75 dress to a wedding.
Economic logic is an attempt to create a psychology-free model of human behaviour based on presumptions of rationality, but it can be a very costly mistake. Not only can a rational approach to pricing be very destructive of perceived savings, but it also assumes that everyone reacts to savings the same way. They don’t, and context and framing matter.
The map is not the territory – Alfred Korzybski dictum: Because human knowledge of the world is limited by human biology, the nervous system and the languages humans have developed, no one can perceived reality, given that everything we know arrived filtered by the brain’s own interpretation of it.
Dog Cookies Experiment with Students – Nice biscuit with a white wrapper, Retching with a dog’s pictures & words ‘dog cookies’ – People don’t just eat food, but also words, and that the taste of the former is often outdone by the taste of the latter.
The Focusing Illusion: It causes us to vastly overestimate the significance of anything to which our attention is drawn. Nothing is as important as we think it is while we are thinking about it.
The Betty Crocker Effect/The IKEA Effect: Addition of consumer effort to increase someone’s estimation of value.
Behaviour comes first; attitude changes to keep up.
It is only the behaviour that matters, not the reasons for adopting it. Give people a reason and they may not supply the behaviour; but give people a behaviour and they’ll have no problem supplying the reasons themselves.
7) How to be an Alchemist
One characteristic of humans is that we naturally direct our attention to the upside of any situation if an alternative narrative is available, minimizing the downside. By giving people good news and bad news at the same time, you can make them much happier than they would be if left with only one interpretation.
We are a herd species in many ways: we feel comfortable in company and like to buy things in packs. This is not irrational – it is a useful heuristic that helps avoid catastrophe. We would rather make a suboptimal decision in company than a perfect decision alone. This is also sensible, even if it isn’t conventionally ‘rational’ – a problem is much less worrying when shared.
People seem to like choice for its own sake. This is one reason why public services and monopolies, even when they do a good job objectively, are often under-appreciated – it is harder to like something when you haven’t chosen it.
Remember that what often matters most to those making a decision in business or government is not a successful outcome, but their ability to defend their decision, whatever the outcome may be.
In Conclusion
Checkout the stunning Visual Synopsis of Alchemy by Dani Savekar