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Alchemy:

My Alchemy Highlights
  • Rory’s Rules of Alchemy The opposite of a good idea can also be a good idea. Don’t design for average. It doesn’t pay to be logical if everyone else is being logical. The nature of our attention affects the nature of our experience. A flower is simply a weed with an advertising budget. The problem with logic is that it kills off magic. A good guess which stands up to observation is still science. So is a lucky accident. Test counterintuitive things only because no one else will. Solving problems using rationality is like playing golf with only one club. Dare to be trivial. If there were a logical answer, we would have found it.
  • There is a simple premise to this book: that while the modern world often turns its back on this kind of illogic, it is at times uniquely powerful.
  • Unfortunately, because reductionist logic has proved so reliable in the physical sciences, we now believe it must be applicable everywhere
  • Engineering doesn’t allow for magic. Psychology does.
  • We should never forget that our need for logic and certainty brings costs as well as benefits.
  • When you demand logic, you pay a hidden price: you destroy magic. And the modern world, oversupplied as it is with economists, technocrats, managers, analysts, spreadsheet-tweakers and algorithm designers, is becoming a more and more difficult place to practise magic – or even to experiment with it. In
  • This is an important metaphor for the contents of this book: if we allow the world to be run by logical people, we will only discover logical things. But in real life, most things aren’t logical – they are psycho-logical. There are often two reasons behind people’s behaviour: the ostensibly logical reason, and the real reason.
  • My assertion is that large parts of human behaviour are like a cryptic crossword clue: there is always a plausible surface meaning, but there is also a deeper answer hidden beneath the surface.
  • My word to describe the way we make decisions – to distinguish it from the artificial concepts of ‘logic’ and ‘rationality’ – is ‘psycho-logic’. It often diverges dramatically from the kind of logic you’ll have been taught in high school maths lessons or in Economics 101. Rather than being designed to be optimal, it has evolved to be useful.
  • I have chosen psycho-logic as a neutral and non-judgemental term. I have done this for a reason. When we do put a name to non-rational behaviour, it is usually a word like ‘emotion’, which makes it sound like logic’s evil twin.
  • Yet we experience emotions for a reason – often a good reason for which we don’t have the words.
  • In the real world, social context is absolutely critical. For instance, as the anthropologist Pierre Bourdieu observes, gift giving is viewed as a good thing in most human societies, but it only takes a very small change in context to make a gift an insult rather than a blessing; returning a present to the person who has given it to you, for example, is one of the rudest things you can do.
  • Similarly, if you expose every one of the world’s problems to ostensibly logical solutions, those that can easily be solved by logic will rapidly disappear, and all that will be left are the ones that are logic-proof – those where, for whatever reason, the logical answer does not work.
  • you could make equally strong cases that the Remain campaign in Britain and Hillary Clinton’s failed bid for the American presidency failed because of the clueless, hyper-rational behaviour of overeducated advisors,
  • Perhaps most startlingly of all, every single one of the Remain campaign’s arguments resorted to economic logic, yet the EU is patently a political project, which served to make them seem greedy rather than principled, especially as the most vocal Remain supporters came from a class of people who had done very nicely out of globalisation. Notice that Winston Churchill did not urge us to fight the Second World War ‘in order to regain access to key export markets’.
  • The need to rely on data can also blind you to important facts that lie outside your model. It was surely relevant that Trump was filling sports halls wherever he campaigned, while Clinton was drawing sparse crowds.
  • The Nobel Prize-winning behavioural scientist Richard Thaler said, ‘As a general rule the US Government is run by lawyers who occasionally take advice from economists. Others
  • Our business consultants, accountants, policy-makers and think-tank pundits are all selected and rewarded for their ability to display impressive flights of reason.
  • There are many problems which are logic-proof, and which will never be solved by the kind of people who aspire to go to the World Economic Forum at Davos.* Remember the story of those envelopes.
  • We could never have evolved to be rational – it makes you weak.
  • Irrational people are much more powerful than rational people, because their threats are so much more convincing.
  • A rational leader suggests changing course to avoid a storm. An irrational one can change the weather. Being slightly bonkers can be a good negotiating strategy: being rational means you are predictable, and being predictable makes you weak. Hillary thinks like an economist, while Donald is a game theorist, and is able to achieve with one tweet what would take Clinton four years of congressional infighting. That’s alchemy; you may hate it, but it works.
  • If you are wholly predictable, people learn to hack you.
  • the single worst thing that can happen in a criminal investigation is for everyone involved to become fixated on the same theory, because one false assumption shared by everyone can undermine the entire investigation. There’s a name for this – it’s called ‘privileging the hypothesis’.
  • Unfortunately, it is difficult for such people to avoid the trap of assuming that the same skills that can explain the past can be used to predict the future.
  • 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.
  • Evolution, too, is a haphazard process that discovers what can survive in a world where some things are predictable but others aren’t. It works because each gene reaps the rewards and costs from its lucky or unlucky mistakes, but it doesn’t care a damn about reasons. It isn’t necessary for anything to make sense: if it works it survives and proliferates; if it doesn’t, it diminishes and dies. It doesn’t need to know why it works – it just needs to work.
  • And what is the single most important finding of the advertising industry? Perhaps it is that ‘advertisements featuring cute animals tend to be more successful than ads that don’t’. I’m not joking.
  • For instance, viewed through the lens of evolutionary psychology, the effectiveness of cute animals in advertising should not shock us. Advertising exists to be noticed, and we have evolved, surely, to pay attention to living things.
  • Evolution is like a brilliant uneducated craftsman: what it lacks in intellect it makes up for in experience.
  • I am not quite sure of the existence of God, but I would be reluctant to disparage religion as nonsense, as some people do.
  • Religion feels incompatible with modern life because it seems to involve delusional beliefs, but if the above results came from a trial of a new drug, we would want to add it to tap water. Just because we don’t know why it works, we should not be blind to the fact that it does.*
  • Almost all good advertising contains some element of non-sense. At
  • Once you accept that there may be a value or purpose to things that are hard to justify, you will naturally come to another conclusion: that it is perfectly possible to be both rational and wrong.
  • It is impossible for human relations to work unless we accept that our obligations to some people will always exceed our obligations to others. Universal ideas like utilitarianism are logical, but seem not to function with the way we have evolved.
  • And in reality ‘context’ is often the most important thing in determining how people think, behave and act: this simple fact dooms many universal models from the start.* Because in order to form universal laws, naïve rationalists have to pretend that context doesn’t matter.
  • The Opposite of a Good Idea Can Be a Good Idea
  • Logic requires that people find universal laws, but outside of scientific fields, there are fewer of these than we might expect.
  • For instance, there are two equally potent, but completely contradictory, ways to sell a product: ‘Not many people own one of these, so it must be good’ and ‘Lots of people already own one of these, so it must be good.’
  • As the brilliant Robert Cialdini highlights in Influence: The Psychology of Persuasion, the principles of selling and behaviour change are imbued with contradictions.
  • While in physics the opposite of a good idea is generally a bad idea, in psychology the opposite of a good idea can be a very good idea indeed: both opposites often work.
  • What had emerged was that there were two ways to sell this product: with a very long letter – which was reassuring because it was long, and with a very short letter – which was reassuring because it was very short.
  • In fact, we derive pleasure from ‘expensive treats’ and also enjoy finding ‘bargains’. By contrast, the mid-range retailer offers far less of an emotional hit; you don’t get a dopamine rush from mid-market purchases.
  • The success of the brilliant engineer-alchemist James Dyson in selling vacuum cleaners seems to arise from a similar mental disparity. Vacuum cleaners used to be a grudge buy that was only necessary when your old one had broken. Dyson added a degree of excitement to the transaction. Before he invented them, there was no public clamour for ‘really expensive vacuum cleaners that look really cool’,
  • Context Is Everything
  • The situation or place in which we find ourselves may completely change our perception and judgement.
  • Even our politics seems to be context-dependent. For instance, ostensibly right-wing people will engage – at a local level – in behaviour that is effectively socialist.
  • In his book Skin in the Game (2018), Taleb includes what might be the most interesting quotation on an individual’s politics I have ever read. Someone* explains how, depending on context, he has entirely different political preferences: ‘At the federal level I am a Libertarian. At the state level, I am a Republican. At the town level, I am a Democrat. In my family I am a socialist. And with my dog I am a Marxist – from each according to his abilities, to each according to his needs.’
  • This book is an attempt not only to create them, but also to give them permission to act and speak more freely. I hope it will free you slightly from the modern rationalist straitjacket, and help you understand that many problems might be solved if we abandoned the rationalist obsession with universal, context-free laws.
  • After all, no big business idea makes sense at first. I mean, just imagine proposing the following ideas to a group of sceptical investors: ‘What people want is a really cool vacuum cleaner.’ (Dyson) ‘. . . and the best part of all this is that people will write the entire thing for free!’ (Wikipedia) ‘. . . and so I confidently predict that the great enduring fashion of the next century will be a coarse, uncomfortable fabric which fades unpleasantly and which takes ages to dry. To date, it has been largely popular with indigent labourers.’ (Jeans) ‘. . . and people will be forced to choose between three or four items.’ (McDonald’s) ‘And, best of all, the drink has a taste which consumers say they hate.’ (Red Bull) ‘. . . and just watch as perfectly sane people pay $5 for a drink they can make at home for a few pence.’ (Starbucks)
  • can never be fired for being logical. If your reasoning is sound and unimaginative, even if you fail, it is unlikely you will attract much blame. It is much easier to be fired for being
  • The fatal issue is that logic always gets you to exactly the same place as your competitors.
  • Americans aren’t terribly good at designing roundabouts, or ‘traffic circles’ as they call them, simply because they don’t have much practice.* In one instance, a British team was able to reduce the incidence of accidents on a traffic circle in Florida by 95 per cent by placing the painted lines differently.
  • So there are logical problems, such as building a bridge. And there are psycho-logical ones: whether to paint the lines on the road or not.
  • The Four S-es
  • There are five main reasons why we have evolved to behave in seemingly illogical ways, and they conveniently all begin with the letter S.* They are: Signalling, Subconscious hacking, Satisficing and Psychophysics.
  • Why We Should Ignore Our GPS
  • It will confidently instruct you to take a particular route, based on a perfect understanding of a very narrow set of data points and a simplistic model of your motivation. It exhibits no sensitivity to context or to the varying priorities you may have. GPS devices know everything about what they know and nothing about anything else.
  • if I am on holiday, I may wish to take a longer, more scenic route. If I am commuting home, I may prefer a slower route that avoids traffic jams.
  • whenever I drive to the airport, I often ignore my GPS. This is because what I need when I’m catching a flight is not the fastest average journey, but the one with the lowest variance in journey time – the one with the ‘least-bad worst-case scenario’.
  • It is completely unaware of the existence of public transport, and so will suggest that I drive into central London at eight o’clock in the morning, a journey only a lunatic would undertake.
  • To understand this book you have to realise that there is a duality in the human brain that is rather similar to the relationship between the logic of the GPS and the wider wisdom of the driver, between logic and psycho-logic. There is the unambiguously ‘right’ answer, where certainty is achieved by limiting the number of data points considered. The downside of this is that, in the wrong context, it can be hopelessly wrong. Then there is the pretty good judgement of psycho-logic, which considers a far wider range of factors to arrive at a not-perfect-but-rarely-stupid conclusion.
  • The reason we don’t always behave in a way which corresponds with conventional ideas of rationality is not because we are silly: it is because we know more than we know we know.
  • Just as your GPS has not yet been configured to understand a wider set of human motivations, our conscious brain has not evolved to be aware of many of the instinctive factors that drive our actions. A fascinating theory, first proposed by the evolutionary biologist Robert Trivers and later supported by the evolutionary psychologist Robert Kurzban, explains that we do not have full access to the reasons behind our decision-making because, in evolutionary terms, we are better off not knowing; we have evolved to deceive ourselves, in order that we are better at deceiving others.
  • When a hare is being chased, it zigzags in a random pattern in an attempt to shake off the pursuer. This technique will be more reliable if it is genuinely random and not conscious, as it is better for the hare to have no foreknowledge of where it is going to jump next:
  • The late David Ogilvy, one of the greats of the American advertising industry and the founder of the company I work for, apparently once said, ‘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.’*
  • If it helps us to perceive the world in a distorted fashion, then evolution will limit our objectivity. The standard, naïve view, as Trivers observes, is to assume that evolution has given us senses which deliver an accurate view of the world. However, evolution cares nothing for accuracy and objectivity: it cares about fitness. I may know rationally a snake is harmless, but instinctively I’m still unnerved by the slithery bastards.
  • Research will never tell you this; if surveyed, we would insist that the objective health measures are all we care about, and we would believe what we are saying. But the truth is that ancillary details have a far greater effect on our emotional response, and hence our behaviour, than measured outcomes.
  • For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.
  • Nature cares a great deal about feelings, and feelings largely drive what we do, but they do not come with explanations attached – because we are often better off not knowing them.
  • ‘Why do people go to restaurants?’, say. ‘Because they are hungry,’ comes the answer. But if you think about it a little, someone merely hungry could satisfy their urge to eat far more economically elsewhere. Restaurants are only peripherally about food: their real value lies in social connection, and status.
  • The reason we do not ask basic questions is because, once our brain provides a logical answer, we stop looking for better ones; with a little alchemy, better answers can be found.
  • Part 1: On the Uses and Abuses of Reason
  • Food has become remarkably inefficient, and the pill-promoting futurists of the 1960s would be astonished to see how wrong they were. People spend hours preparing it, eating it and watching television programmes about it. People cherish local ingredients, and willingly pay a premium for foods produced without chemical fertilisers. By contrast, when we made the food industry logical, we lost sight of the reasons we value food at all.
  • I would like to see the improvement we have enjoyed in food over the last three decades applied to other fields.
  • It will free us to open up previously untried spaces for experimentation in resolving practical problems if we are able to discover what people really, really want,* rather than a) what they say they want or b) what we think they should want.
  • 1.1: The Broken Binoculars
  • For the last fifty years or so, most issues involving human behaviour or decision-making have been solved by looking through what I call ‘regulation-issue binoculars’. These have two lenses – market research and economic theory
  • The first lens is market research or, to give it a simpler name, asking people. However, the problem with it is that,
  • People simply do not have introspective access to their motivations. The second lens is standard economic theory, which doesn’t ask people what they do and doesn’t even observe what they do.
  • by focusing on a theoretical, one-dimensional conception of what it believes humans are trying to do.
  • Generally, it is safe for anyone making business or policy decisions to act as though everything seen through these binoculars is accurate – not least because everyone else they work with – and everyone who might hire, promote or fire them – sees the world through the same binoculars.
  • Logic and psycho-logic do overlap frequently, as you would expect.
  • However, we still need a new set of lenses; as I explained at the beginning of the book, stubborn problems are probably stubborn because they are logic-proof.
  • All progress involves guesswork, but it helps to start with a wide range of guesses.
  • ask yourself which message on a flight departure board would distress you more: BA 786 – Frankfurt – DELAYED or BA 786 – Frankfurt – DELAYED 70 minutes. The second message is a bit of a pain – but at least you are in control of the situation.
  • Unfortunately we are unable to distinguish between these two emotions: you don’t say, ‘I am unhappy because inadequate information has left me powerless’; you say, ‘I’m angry because my bloody plane’s late.’ In such cases, neither lens of the binoculars will present you with a solution.
  • the same techniques which can solve minor problems can also be deployed to solve much larger ones. For instance, the technique which might solve the problem of appointments for heating engineers may reduce people’s reluctance to save for their pension.* One of the reasons I believe there is genuine value to the study of behavioural science is that the same patterns recur: a solution which at a relatively trivial level helps encourage people to apply for credit cards might also be used to make people less reluctant to have medical tests.
  • 1.2: I Know It Works in Practice, but Does It Work in Theory? On John Harrison, Semmelweis and the Electronic Cigarette
  • If you would like an easy life, never come up with a solution to a problem that is drawn from a field of expertise other than that from which it is assumed the solution will arise.
  • In a sensible world, the only thing that would matter would be solving a problem by whatever means work best, but problem-solving is a strangely status-conscious job: there are high-status approaches and low-status approaches.
  • If a problem is solved using a discipline other than that practised by those who believe themselves the rightful guardians of the solution, you’ll face an uphill struggle no matter how much evidence you can amass.
  • In 1847, when Ignaz Semmelweis decisively proved that hand-washing by doctors would cut the incidence of puerperal fever, a condition that could be fatal during childbirth, he was spurned. 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.*
  • The scientific establishment has been right to be sceptical about e-cigarettes – we still do not know for sure what the long-term consequences of this technology might be. But the invention of a delivery device for nicotine that recreates much of the feeling of smoking without the carcinogens which accompany burning tobacco is clearly a significant idea, and something that should be given open-minded consideration. However, from the first moment this technology appeared, the opposition was out in force. Many countries banned the devices immediately, and the World Health Organization and anti-smoking groups worldwide clamoured for their use to be banned wherever smoking was banned. Weirder still, they were also banned in many Middle Eastern countries which have almost no prohibitions on smoking. The question being asked seemed to be, ‘Yes I know it works in practice, but does it work in theory?’
  • The same problem is widespread in medicine. Surgeons felt challenged by keyhole surgery and other new, less invasive procedures that can be carried out with the support of radiographers, because they used skills different from those that they had spent a lifetime perfecting. Similarly,
  • As the psychologist Jonathan Haidt has shown, most moralising works in this way. We react instinctively, before hastily casting about for rationalisations. For instance, most Britons feel it is repulsive to eat dogs or even horses. If you ask them why, they will contrive a series of arguments to defend what is really a socially constructed belief, just as people with a distaste for vaping seize on the argument that non-smokers will take up e-cigarettes and then migrate to real cigarettes. The gateway effect would make sense, were the evidence for it not somewhere between negligible and non-existent. The traffic seems to flow in the opposite direction – from smoking to vaping to
  • A few years ago, a High Court judge was driving home from his golf club after five or six double gin and tonics when he was pulled over by the police and breathalysed. When the machine barely registered an amber light, the police let him go – at which point, he drove back to the club and demanded that the head barman be fired for watering down the drinks.
  • 1.3: Psychological Moonshots
  • A moonshot is an incredibly ambitious innovation; instead of pursuing change by increments, it aims to change something by a factor of ten.
  • I hope X is successful but think that their engineers will find it difficult. We are now, in many cases, competing with the laws of physics.
  • By contrast, I think ‘psychological moonshots’ are comparatively easy. Making a train journey 20 per cent faster might cost hundreds of millions, but making it 20 per cent more enjoyable may cost almost nothing.
  • Put simply, it’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality.
  • Let me give a simple example. The Uber map is a psychological moonshot, because it does not reduce the waiting time for a taxi but simply makes waiting 90 per cent less frustrating.
  • I am willing to bet that there are ten times as many people on the planet who are currently being paid to debate why people prefer Coke or Pepsi than there are being paid to ask questions like ‘Why do people request a doctor’s appointment?’, ‘Why do people go to university?’ or ‘Why do people retire?’ The answers to these last three questions are believed to be rational and self-evident, but they are not.
  • 1.4: In Search of the ‘Real Why?’ Uncovering Our Unconscious Motivations
  • If you want to solve the problem of unnecessary doctor’s visits or simply to set up a system to prioritise who gets seen by the doctor first, it is vital that you factor in unconscious motivations alongside post-rationalisations.
  • The strange thing is that everyone is much happier pretending that the post-rationalised reason for visiting the doctor, to get better, is the only one that counts. If you
  • 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.
  • Whether we use logic or psycho-logic depends on whether we want to solve the problem or to simply to be seen to be trying to solve the problem.
  • Would you prefer to think of yourself as a medical scientist pushing the frontiers of human knowledge, or as a kind of modern-day fortune teller, doling out soothing remedies to worried patients? A modern doctor is both of these things, though is probably employed more for the latter than the former.
  • 1.5: The Real Reason We Clean Our Teeth
  • There is one example of a human behaviour which has both an ‘official’ medical purpose and a deep psychological explanation, and which I think is helpful in showing how a logical, rational explanation for our behaviour may drown out the unconscious, evolutionary one. It starts with another childish question, ‘Why do people clean their teeth?’
  • Obviously it is to maintain dental health and to prevent cavities, fillings and extractions. What possible other answer could there be? Well, in fact, if we look at adult behaviour – when we choose, buy and use toothpaste – we see patterns of consumption that entirely contradict this logical explanation. If we were really interested in minimising the risk of tooth decay, we would brush our teeth after every meal, yet almost nobody does this. In fact, the times when people are most likely to clean their teeth occur before those moments when we are most frightened of the adverse social consequences of visible stains or bad breath.
  • After eating ice cream, or when you’re going on a date?
  • If you don’t believe this, ask yourself one question: why is almost all toothpaste flavoured with mint? A recent trial proved that there were no dental-health benefits to the practice of flossing.
  • Even stranger than our teeth-brushing behaviour is our preference for stripy toothpaste.
  • There are two explanations: 1) simple childish novelty and 2) psycho-logic. Psychologically, the stripes serve as a signal: a claim that a toothpaste performed more than one function (fighting cavities, tackling infection and freshening breath) was thought to be more convincing if the toothpaste contained three visibly separate active ingredients.
  • The reason toothpaste is an especially interesting example is because, if an unconscious motivation happens to coincide with a rational explanation, we assume that it is the rational motive which drives the action.
  • Nowadays, if someone started flinging faeces around, we would describe him as a public-health hazard, while in the eighteenth century they would have called the practice ‘ungodly’ and in the fifteenth they might have burned him at the stake.
  • So the dislike of faeces was not originally based on sound reasoning – it was rather a sound instinct the reason for which had not yet been discovered.
  • 1.6: The Right Thing for the Wrong Reason
  • You would be more likely to survive and reproduce if you had a strong aversion to poo, and so almost all of us are descended from people who disliked
  • 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. Sometimes the emotion is not appropriate – for instance, there is no reason for Brits to be afraid of spiders, since there are no poisonous spiders in the UK – but it’s still there, just in case.
  • if asked why it was a good idea to create a space outside a town for the burial of the dead, a modern commentator might point to the risk of infection or pollution of the water supply. However, as I said above, we have only known about germs for a little over a hundred years, so why did towns build cemeteries away from their settlements long before this? Again it was an instinctive behaviour enshrined in a spiritual belief.
  • In trying to encourage rational behaviour, don’t confine yourself to rational arguments.
  • If you confine yourself to using rational arguments to encourage rational behaviour, you will be using only a tiny proportion of the tools in your armoury.
  • What people do with their own money (their ‘revealed preferences’) is generally a better guide to what they really want than their own reported wants and needs.*
  • 1.7: How You Ask the Question Affects the Answer
  • One of the great contributors to the profits of high-end restaurants is the fact that bottled water comes in two types, enabling waiters to ask ‘still or sparkling?’, making it rather difficult to say ‘just tap’.
  • 1.8: ‘A Change in Perspective Is Worth 80 IQ Points’
  • So said Alan Kay, one of the pioneers of computer graphics. It is, perhaps, the best defence of creativity in ten words or fewer. I suspect, too, that the opposite is also true: that an inability to change perspective is equivalent to a loss of intelligence.
  • The psychological complexity of human behaviour is reduced to a narrow set of assumptions about what people want, which means they design a world for logical rather than psycho-logical people. And so we have faster trains with uncomfortable seats departing from stark, modernist stations, whereas our unconscious may well prefer the opposite: slower trains with comfortable seats departing from ornate stations.
  • Strangely, as we have gained access to more information, data, processing power and better communications, we may also be losing the ability to see things in more than one way; the more data we have, the less room there is for things that can’t easily be used in computation. Far from reducing our problems, technology may have equipped us with a rational straitjacket that limits our freedom to solve them.
  • Reasoning is a priceless tool for evaluating solutions, and essential if you wish to defend them, but it does not always do a very good job of finding those solutions in the first place.
  • Yet bad maths can lead to collective insanity, and it is far easier to be massively wrong mathematically than most people realise – a single dud data point or false assumption can lead to results that are wrong by many orders of magnitude.
  • To put it crudely, when you multiply bullshit with bullshit, you don’t get a bit more bullshit – you get bullshit squared.
  • it suggests that many supposed biases which economists wish to correct may not be biases at all – they may simply arise from the fact that a decision which seems irrational when viewed through an ensemble perspective is rational when viewed through the correct time-series perspective, which is how real life is actually lived; 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.
  • To explain this distinction using an extreme analogy, if you offered ten people £10m to play Russian roulette once, two or three people might be interested, but no one would accept £100m to play ten times in a row.
  • 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.
  • One of our clients at Ogilvy is an airline. I constantly remind them that asking four businessmen to pay £26 each to check in one piece of luggage is not the same as asking a married father of two* to pay £104 to check in his family’s luggage.
  • 1.9: Be Careful with Maths: Or Why the Need to Look Rational Can Make You Act Dumb
  • Remember that every time you average, add or multiply something, you are losing information. Remember also that a single rogue outlier can lead to an extraordinary distortion of reality – just as Bill Gates can walk into a football stadium and raise the average level of wealth of everyone in it by $1m.
  • But let me come back to my previous point. 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.
  • 1.10: Recruitment and Bad Maths
  • If you were only allowed to eat one food, you might choose the potato. Barring a few vitamins and trace minerals, it contains all the essential amino acids you need to build proteins, repair cells and fight diseases – eating just five a day would support you for weeks. However, if you were told you could only eat ten foods for the rest of your life, you would not choose ten different types of potato. In fact, you may not choose potatoes at all – you would probably choose something more varied. The same applies to hiring – we are much more likely to take risks when hiring ten people than when hiring one.
  • The quandary is that you can either create a fairer, more equitable society, with opportunities for all but where luck plays a significant role, or you can create a society which maintains the illusion of complete and non-random fairness, yet where opportunities are open to only a few – the problem is that when ‘the rules are the same for everyone’ the same boring bastards win every time.
  • At Ogilvy we now recruit creative talent through an internship scheme called ‘The Pipe’. Applicants don’t have to be graduates; they don’t have to be young; they don’t have to have any qualifications at all – in fact, we recruit them blind for the first few stages.
  • Remember, anyone can easily build a career on a single eccentric talent, if it is cunningly deployed. As I always advise young people, ‘Find one or two things your boss is rubbish at and be quite good at them.’ Complementary talent is far more valuable than conformist talent.
  • 1.11: Beware of Averages
  • When you designed a cockpit for an average man you were designing a cockpit not for everyone, but for a surprisingly rare, or even non-existent, body-type. Not a single pilot of the 4,000 measured was within the average range on all ten bodily measures.* 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.
  • The sandwich was not invented by an average eater. The Earl of Sandwich was an obsessive gambler, and demanded food in a form that would not require him to leave the card table while he ate.
  • By contrast, it is perfectly possible that conventional market research has, over the past fifty years, killed more good ideas than it has spawned, by obsessing with a false idea of representativeness.
  • 1.12: What Gets Mismeasured Gets Mismanaged
  • One great problem with metrics is that they destroy diversity because they force everybody to pursue the same narrow goal, often in the same narrow way, or to make choices using the exact same criteria.
  • As any game theorist knows, there is a virtue to making slightly random decisions that do not conform to established rules. In a competitive setting such as recruitment, an unconventional rule for spotting talent that nobody else uses may be far better than a ‘better’ rule which is in common use, because it will allow you to find talent that is undervalued by everyone else.
  • 1.13: Biased about Bias
  • The advertising industry at present is obsessed with gender ratios and ethnic composition; it is perfectly reasonable to look at these figures, but the industry seems completely blind to another bias, which is that it is extraordinarily prejudiced in favour of hiring physically attractive people.
  • Some evolutionary psychologists, most notably Robert Kurzban, believe that racial prejudice is a relatively weak force in human psychology since for most of evolutionary history we wouldn’t have encountered people of a different ethnicity.
  • This suggests that the prejudice we apply against a lone black candidate or a lone female candidate might also apply to a lone ‘anything’ candidate.
  • 1.14: We Don’t Make Choices as Rationally as We Think
  • The psychologist and behavioural economist Dan Ariely was one of the first people to highlight the famous decoy effect* in the decision process – the phenomenon whereby consumers tend to have a specific change in preference between two options when also presented with a third option that is more desirable than one, but less desirable than the other.
  • Estate agents sometimes exploit this effect by showing you a decoy house, to make it easier for you to choose one of the two houses they really want to sell you. They will typically show you a totally inappropriate house and then two comparable houses, of which one is clearly better value than the other. The better value house is the one they want to sell you, while the other one is shown to you for the purpose of making the final house seem really good.
  • Tiny things that you discover when selling bars of chocolate can be relevant in how you encourage more consequential behaviour. Usually someone has often already found an answer to your problem – just in a different domain.
  • 1.15: Same Facts, Different Context
  • When most people buy a house, the order of search is as follows: 1) set a price band, 2) define location, 3) define number of bedrooms, 4) set other parameters – garden size, for example. Architectural quality comes low on the list – and is further devalued because it isn’t quantifiable. If you can convince yourself to value something which other people don’t, you can enjoy a fabulous house for much less.* I had decided before we moved that I wanted to live somewhere interesting, placing more emphasis on the architecture than on the precise location or the number of bedrooms. This eccentric approach certainly minimises status envy. Occasionally we visit insanely expensive houses owned by friends. ‘What did you think?’ my wife will ask as we drive home. ‘Well it’s certainly big,’ I reply, ‘but I couldn’t help thinking the architecture was a bit rubbish.’
  • There are two lessons to be learned here. Firstly, it doesn’t always pay to be logical if everyone else is also being logical.
  • But when choosing things in scarce supply* it pays to be eccentric.
  • The second interesting thing is that we have no real unitary measure of what is important and what is not – the same quality (such as not having a lift) 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.
  • 1.16: Success Is Rarely Scientific – Even in Science
  • Reason is a wonderful evaluative tool, but we are treating it as though it were the only problem-solving tool – it isn’t.
  • For all we obsess about scientific methodology, Geim knows it is far more common for a mixture of luck, experimentation and instinctive guesswork to provide the decisive breakthrough; reason only comes into play afterwards.
  • Here is the brilliant American physicist Richard Feynman, in a Lecture in 1964, describing his method: ‘In general, we look for a new law by the following process. First, we guess it . . . Then we compute the consequences of the guess, to see what, if this law we guess is right, to see what it would imply and then we compare the computation results to . . . experience, compare it directly with observations to see if it works . . . In that simple statement is the key to science. It doesn’t make any difference how beautiful your guess is, it doesn’t matter how smart you are, who made the guess or what his name is . . . If it disagrees with the experiment, it’s wrong. That’s all there is to it.’
  • And yet, in the search for public policy and business solutions, we are in the grip of an obsession with rational quantification.
  • We should test counterintuitive things – because no one else will.
  • 1.17: The View Back Down the Mountain: The Reasons We Supply for Our Experimental Successes
  • Imagine you are climbing a large mountain that has never been climbed before. From the bottom, it is impossible to tell which slopes are passable, because much of the terrain is hidden behind the lower foothills. Your climb involves a great deal of trial and error: routes are tried and abandoned; there is frequent backtracking and traversing. Many of the decisions you take may be based on little other than instinct or good fortune. But eventually you do make it to the summit, and once you are there, the ideal route is apparent. You can look down and see what would have been the best path to have taken, and that now becomes ‘the standard route’. When you describe the route you took to your mountaineering friends, you pretend it was the route you took all along: with the benefit of hindsight, you declare that you simply chose that route through good judgement.
  • As Alfred Hitchcock once said, ‘drama is just real life with the boring bits edited out’.
  • 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 judgement 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.
  • Even mathematicians, it seems, accept that the process of discovery is not the same as the process of justification.
  • our tendency to attribute our successes to a planned and scientific approach and to play down the part of accidental and unplanned factors in our success is misleading and possibly even limits our scope for innovative work.
  • It is time to ask another stupid question: What is reason actually for? This may seem absurd, but in evolutionary terms it is far from trivial.
  • it is unlikely that we could have produced many of our technological and cultural successes without it. But, in evolutionary terms, these must be a by-product, because evolution does not do long-term planning.*
  • One astonishing possible explanation for the function of reason only emerged about ten years ago: the argumentative hypothesis* suggests reason arose in the human brain not to inform our actions and beliefs, but to explain and defend them to others.
  • We may use reason to detect lying in others, to resolve disputes, to attempt to influence other people or to explain our actions in retrospect, but it seems not to play the decisive role in individual decision-making.
  • Understanding this theory seems important, first of all because it might help us see what human reason can and can’t do well.
  • In the physical sciences, cause and effect map neatly; in behavioural sciences it is far more complex. Cause, context, meaning, emotion, effect.
  • 1.18: The Overuse of Reason
  • One explanation for why apparently logical arguments may be ineffectual at changing people’s minds, and why they should be treated with suspicion, is that it is simply too easy to generate them in the real world.
  • The more data you have, the easier it is to find support for some spurious, self-serving narrative. The profusion of data in future will not settle arguments: it will make them worse.
  • 1.19: An Automatic Door Does Not Replace a Doorman: Why Efficiency Doesn’t Always Pay
  • The problem arises because opening the door is only the notional role of a doorman; his other, less definable sources of value lie in a multiplicity of other functions, in addition to door-opening: taxi-hailing, security, vagrant discouragement, customer recognition, as well as in signalling the status of the hotel. The doorman may actually increase what you can charge for a night’s stay in your hotel.
  • Today, the principal activity of any publicly held company is rarely the creation of products to satisfy a market need. Management attention is instead largely directed towards the invention of plausible-sounding efficiency narratives to satisfy financial analysts, many of whom know nothing about the businesses they claim to analyse, beyond what they can read on a spreadsheet.
  • Has business abandoned its traditional and socially useful role, where competing businesses tested divergent theories of how best to satisfy customer needs, with the market passing judgement on their efforts? It sometimes seems to have been reduced to a kind of monotheistic religion of efficiency where, provided you can recite the approved managerial mantras about economies of scale and cost savings to your financial overlords, no further questions will be asked.
  • You can be a certifiable lunatic with an IQ of 80, but if you stumble blindly on an underserved market niche at the right moment, you will be handsomely rewarded. Equally you can have all the MBAs money can buy and, if you launch your genius idea a year too late (or too early), you will fail. To people who see intelligence as the highest virtue, this all seems hopelessly unmeritocratic, but that’s what makes markets so brilliant: they are happy to reward and fund the necessary, regardless of the quality of reasoning.
  • The missing metric here is semi-random variation. Truly free markets trade efficiency for market-tested innovation that is heavily reliant on luck.
  • Over time, she learned something that defied conventional economic rules; it seemed that if you sent out an email promoting a play or musical, you sold fewer tickets if you included an offer for reduced-price tickets with the email. Conversely, offering tickets at the full price seemed to increase demand.
  • No one wants to spend £100–£200 on tickets, a meal, car-parking and babysitting, only to find that you would have had more fun watching television at home; in avoiding discounted theatre tickets, people are not being silly – they are showing a high degree of second-order social intelligence.
  • Part 2: An Alchemist’s Tale (Or Why Magic Really Still Exists)
  • 2.1: The Great Upside of Abandoning Logic – You Get Magic
  • It taught us that you can’t create a valuable metal out of a cheap one, or that you can’t create energy in one place or form without destroying it somewhere else. While all this is perfectly true in the narrow sphere of physics, it is hopelessly wrong when it comes to the very different business of psychology. In psychology these laws do not apply: one plus one can equal three.
  • Yet magic does still exist – it is found in the fields of psychology, biology and the science of perception, rather than in physics and chemistry. And it can be created.
  • 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.
  • Sadly, no one in public life believes in magic, or trusts those who purvey
  • 2.2: Turning Lead into Gold: Value Is in the Mind and Heart of the Valuer
  • This was a false assumption, because you don’t need to tinker with atomic structure to make lead as valuable as gold – all you need to do is to tinker with human psychology so that it feels as valuable as gold. At which point, who cares that it isn’t actually gold? If you think that’s impossible, look at the paper money in your wallet or purse; the value is exclusively psychological.
  • 2.3: Turning Iron and Potatoes into Gold: Lessons from Prussia
  • To fund the war effort against France, Princess Marianne appealed in 1813 to all wealthy and aristocratic women there to swap their gold ornaments for base metal, to fund the war effort. In return they were given iron replicas of the gold items of jewellery they had donated, stamped with the words ‘Gold gab ich für Eisen’, ‘I gave gold for iron’. At social events thereafter, wearing and displaying the iron replica jewellery and ornaments became a far better indication of status than wearing gold itself.
  • Gold jewellery merely proved that your family was rich, while iron jewellery proved that your family was not only rich but also generous and patriotic.
  • One eighteenth-century monarch, Frederick the Great, used the same magic in the promotion of the potato as a domestic crop, transforming something worthless and unwanted into something valuable through the elixir of psychology.
  • The problem was that the peasants weren’t keen on potatoes;
  • So, having given up on compulsion, Frederick tried subtle persuasion. He established a royal potato patch in the grounds of his palace, and declared that it was to be a royal vegetable, that could only be consumed by members of the royal household or with royal permission.
  • Curious Prussians found they could sneak into the royal potato patch and could steal, eat and even cultivate this fabulously exclusive vegetable for themselves.
  • 2.4: The Modern-Day Alchemy of Semantics
  • Dishonest as it may seem, Lentz’s action in fact sits within a long tradition of rebranding seafood. Monkfish was originally called goosefish, orange roughy was once called slimehead, and sea urchins were once whore’s eggs.
  • Merely adding a geographical or topographical adjective to food – whether on a menu in a restaurant or on packaging in a supermarket – allows you to charge more for it and means you will sell more.
  • Never forget this: the nature of our attention affects the nature of our experience.
  • 2.5: Benign Bullshit – and Hacking the Unconscious
  • The department devised a plan, aimed at luring in female students and making sure they actually enjoyed their computer science initiation, in the hopes of converting them to majors. A course previously entitled ‘Introduction to programming in Java’ was renamed ‘Creative approaches to problem solving in science and engineering using Python’.* The professors further divided the class into groups – Gold for those with no coding experience and Black, for those with some coding experience.* They also implemented Operation Eliminate the Macho Effect, in which males who showed off in class were taken aside and told to desist. Almost overnight, Harvey Mudd’s introductory computer science course went from being the most despised required course to the absolute favourite. That was just the beginning. Improving the
  • The invention of the ‘designated driver’ was an even cleverer use of semantics and naming to create a social good.
  • Create a name, and you’ve created a norm.*
  • 2.6: How Colombians Re-Imagined Lionfish (With a Little Help from Ogilvy and the Church)
  • When Hurricane Andrew hit the south-eastern US in 1992, it was the worst hurricane in US history.
  • In South Florida, the hurricane burst a large coastal aquarium tank, releasing an unwelcome species of fish into the Gulf of Mexico and the Caribbean. The lionfish comes from the tropical waters around Indonesia. Though beautiful to look at, it is a voracious predator of other fish, and is able to eat as many as 30 in half an hour. Furthermore, one female lionfish can produce over two million eggs per year,
  • The decimation of local species threatened the environment and the economics of Colombia, much of which depends on
  • The simplest and most cost-effective way to rid Colombia’s waters of lionfish was to encourage people to eat them, which would encourage anglers to catch them. The agency recruited the top chefs in Colombia and encouraged them to create lionfish recipes for the best restaurants.
  • Some 84 per cent of Colombians are Roman Catholic, so they asked the Catholic Church to recommend lionfish to their congregations on Fridays and during Lent. That additional element – recruiting the Catholic Church – was the true piece of alchemy. Today, indigenous fish species are recovering and the lionfish population is in decline.*
  • 2.7: The Alchemy of Design
  • Good designers know to create objects which work well with our evolved physique, even if those parts of our bodies originally evolved for entirely different purposes; we did not evolve hands to hold car steering wheels, nor did we develop sticky-out ears in order to stop our spectacles falling off, but good designers know that such features can be useful for purposes other than those for which they were selected.
  • This is why a door handle is better than a door knob: it allows you to open a door with your elbow
  • OXO Good Grips is a highly successful manufacturer of kitchen utensils that applies this principle to the wider world: Sam Farber started the company because his wife suffered from arthritis and had difficulty using kitchen implements
  • If there is a mystery at the heart of this book, it is why psychology has been so peculiarly uninfluential in business and in policy-making when, whether done well or badly, it makes a spectacular difference.
  • 2.8: Psycho-Logical Design: Why Less Is Sometimes More
  • In market research, the Walkman aroused very little interest and quite a lot of hostility. ‘Why would I want to walk about with music playing in my head?’ was a typical response, but Morita ignored it. The
  • Any ‘rational’ person would have advised Morita to go with the engineers’ advice, but according to multiple accounts, Morita vetoed the recording button. This defies all conventional economic logic, but it does not defy psycho-logic.
  • In the same way that McDonald’s omitted cutlery from its restaurants to make it obvious how you were supposed to eat its hamburgers, by removing the recording function from Walkmans, Sony produced a product that had a lower range of functionality, but a far greater potential to a change behaviour. By reducing the possible applications of the device to a single use, it clarified what the device was for.
  • 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.
  • Similarly, Twitter’s entire raison d’être came from the arbitrary limitation on the number of characters it allowed.
  • The desire to make good decisions and the urge not to get fired or blamed may at first seem to be similar motivations, but they are, in fact, never quite the same thing, and may sometimes be diametrically different.
  • Part 3: Signalling
  • 3.1: Prince Albert and Black Cabs
  • I mentioned earlier in this book that there are five main reasons why human behaviour often departs from what we think of as conventional rationality. The first of these is signalling, the need to send reliable indications of commitment and intent, which can inspire confidence and trust. Cooperation is impossible unless a mechanism is in place to prevent deception and cheating; some degree of efficiency often needs to be sacrificed in order to convey trustworthiness or to build a reputation.
  • Medieval guilds existed for this reason. Trust is always more difficult to gain in cities because of the anonymity they afford, and guilds help to offset this problem. If it is costly and time-consuming to join one, the only people who enter are those with a serious commitment to a craft.
  • 3.2: A Few Notes on Game Theory
  • Many things which do not make sense in a logical context suddenly make perfect sense if you consider what they mean rather than what they are. For instance, an engagement ring serves no practical purpose as an object. However, the object – and its expense – make it highly redolent with meaning; an expensive ring is a costly bet by a man in his belief that he believes – and intends – his marriage to last.
  • 3.3: Continuity Probability Signalling: Another Name for Trust
  • In game theory, this prospect of repetition is known as ‘continuation probability’, and the American political scientist Robert Axelrod has poetically referred to it as ‘The Shadow of the Future’. 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 transactions.
  • This theory, if true, also explains some counterintuitive findings in customer behaviour: it has long surprised observers that, if a customer has a problem and a brand resolves it in a satisfactory manner, the customer becomes a more loyal customer than if the fault had not occurred in the first place.
  • The same applies in interpersonal relations; being rude isn’t so different from being polite, but it requires less effort. Politeness demands that we perform hundreds of little rituals, from opening doors to standing up when someone enters the room, all of which are more effortful than the alternative. By such oblique means we convey that we care about their opinion – and about our reputation.
  • 3.4: Why Signalling Has to Be Costly
  • Bits deliver information, but costliness carries meaning. We do not invite people to our weddings by sending out an email. We put the information (all of which would fit on an email – or even a text message) on a gilt embossed card, which costs a fortune. Imagine you receive two wedding invitations on the same day, one of which comes in an expensive envelope with gilt edges and embossing, and the other (which contains exactly the same information) in an email. Be honest – you’re probably going to go to the first wedding, aren’t you?*
  • 3.5: Efficiency, Logic and Meaning: Pick Any Two
  • It is hardly surprising that we have evolved to invest more significance in unusual, surprising or unexpected stimuli and signals than to routine, everyday ‘noise’. As a result, like any social species, we need to engage in ostensibly ‘nonsensical’ behaviour if we wish to reliably convey meaning to other
  • he thinks that the human taste mechanism has been calibrated not to notice the taste of water, so it is optimally attuned to the taste of anything that might be polluting it. If
  • 3.6: Creativity as Costly Signalling
  • A handmade birthday card can be cheaper and yet still more moving than an expensive bought one – but it has to involve a level of effort.
  • The meaning in these things derives from the consumption of some costly resource – which, if not money, may be talent, or effort, or time or skill or humour or, in the case of risqué humour, bravery.* But it has to contain something costly, otherwise it is just noise.
  • Quite simply, all powerful messages must contain an element of absurdity, illogicality, costliness, disproportion, inefficiency, scarcity, difficulty or extravagance – because rational behaviour and talk, for all their strengths, convey no meaning.
  • Colin Kaepernick,
  • meaning is conveyed by the things we do that are not in our own short-term self-interest – by the costs that we incur and the risks we take.
  • One of the most important ideas in this book is that it is only by deviating from a narrow, short-term self-interest that we can generate anything more than cheap talk. It is therefore impossible to generate trust, affection, respect, reputation, status, loyalty, generosity or sexual opportunity by simply pursuing the dictates of rational economic theory.
  • 3.7: Advertising Does Not Always Look Like Advertising: The Chairs on the Pavement
  • few years ago, a coffee shop opened on a fairly busy road a mile or so from my house. There were about twenty seats inside, and a few benches on the pavement outside. It wasn’t a bad coffee shop, but in time it failed. Some new people took over, following what seemed to be an identical formula, but they failed too.
  • they bought more attractive chairs and tables, and placed them outside at the start of the day, as well as a waist-level gauze fence which surrounded the chairs, making a kind of terrace. This was less efficient than the old benches, since this moveable (and therefore thievable) furniture had to be stored away at the end of each day, and replaced every morning. However, I think it was precisely this change that was the reason for the new shop’s success.
  • ‘Oh, come on,’ I hear you say. ‘This is all very well in theory, but nobody driving down an A-road consciously calculates the probability that a café is open by assessing the portability of the furniture outside.’
  • it is thinking without thinking that we are thinking.
  • Our brains did not evolve to make perfect decisions using mathematical precision – there wasn’t much call for this kind of thing on the African savannah. Instead we have developed the ability to arrive at pretty good, non-catastrophic decisions based on limited, non-numerical information, some of which may be deceptive.
  • And more than that, it frightens me to think how many perfectly worthwhile businesses have failed that might not have done if they’d implemented a few trivial signals.
  • Relatively small businesses that might not be able to afford to advertise in any conventional sense, could transform their fortunes by paying a little attention to the workings of psycho-logic. The trick involves simply understanding the wider behavioural system within which they operate.
  • Pizza delivery firms could differentiate themselves in a crowded market by agreeing to deliver tea, coffee, milk and toilet paper alongside a pizza. Restaurants might increase sales by allowing the kerbside collection of take-away meals – or by adding a sign which says ‘parking at rear’.*
  • I will now take my idea one step further. Not only would we reliably infer from the presence of tables and chairs that the café is open, I also believe we go deeper still – I think we subliminally deduce that any place that goes to the trouble of erecting chairs on the street will serve coffee that, at the very least, is unlikely to be terrible.
  • For a start, someone who invests in new chairs and goes to the trouble of placing them on the pavement every day is not lazy, and has also invested in their business. Furthermore, they seem to expect their business to be a success
  • The business owner who buys the windbreak and the chairs has probably also invested in a decent Gaggia machine, proper milk and coffee beans – and in training his staff.
  • If this emphasis on advertising seems excessive and self-serving, I sympathise – in fact, I thought this myself. However, it all depends how you define advertising; in nature, it is often necessary for something to present a persuasive message, and in a way that can’t be faked. Information is free, but sincerity is not, and it isn’t only humans who attach significance to messages in proportion to the costliness of their creation and transmission; bees also do it.*
  • 3.8: Bees Do It
  • When signalling their enthusiasm for a potential nesting site, bees waggle about in an exponential relationship to its quality; the amount of energy they expend in the signalling of a potential nest site is proportional to their enthusiasm for it. But they also make use of expensive ‘advertising’, in order to decide where to devote their time and attention. The advertisements which bees find useful are flowers – and if you think about it, a flower is simply a weed with an advertising budget. Flowers spend a great deal of their resources convincing customers that they are worth visiting. Their target audience is bees, or other insects, birds
  • But this nectar is kept out of sight – how can the flower, at a distance, convince the bee of the existence of a reward which it cannot verify until it has already exerted time and effort?
  • A plant which has sufficient resources to produce petals and scent is clearly healthy enough to produce nectar, but using its resources for distinctive display will only really pay off if bees visit more than once, or if they encourage other bees to join them – there is no point in advertising heavily up front if you only make one sale.
  • It also requires that the plant use their resources on being distinctive as well as noticeable.
  • If all flowers looked and smelled alike, any incentive they offered to the bee – more nectar, perhaps – would be ineffective,
  • I have used marketing jargon here, because what flowers need to establish in the minds of bees is, effectively, a brand.
  • It is not any more irrational for human consumers to pay a premium for heavily advertised products than it is for bees to prefer to visit heavily ‘advertised’ flowers. It seems unlikely that a company would spend scarce resources advertising a product they believed to be bad – it would simply lead to the unpopularity of a bad product spreading more quickly. Moreover, a company with a long-established reputation for high-quality products has much more to lose from customer disappointment than a company with no reputation.
  • In advertising, a large budget does not prove a product is good, but it does establish that the advertiser is confident enough in the future popularity of the product to spend some of his resources promoting it.
  • 3.9: Costly Signalling and Sexual Selection
  • The idea of signalling and its role in sexual selection is necessary to explain many evolutionary outcomes, but it didn’t always seem that way, not even to Charles Darwin. In a letter to a friend, Darwin remarked that ‘the sight of a feather in a peacock’s tail’ made him ‘physically sick’.
  • It might be a good rule of thumb for animals to avoid eating brightly coloured animals, since something that doesn’t need to adopt camouflage has clearly survived through some strategy other than concealment, and hence it might be best avoided. Here again, we have a case where doing something ostensibly irrational conveys more meaning than something that makes sense.
  • being highly visible but not poisonous is a mimicry strategy adopted by certain non-venomous snakes, for instance. What makes it risky is that, if any predator learns to tell you apart from the dangerous species you are imitating, he stands to make a killing – at your expense. Wearing gold jewellery in South Central LA as a man is a doubly costly signal: it requires that you have the money to acquire the jewellery, but also conveys that you are hard enough to display it in public without fear of theft.
  • 3.10: Necessary Waste
  • It was to explain his theory of sexual selection, and to defend his conception of the origin of species through natural processes rather than intelligent design, that Darwin wrote his second major book, The Descent of Man.
  • The idea is simple, but not obvious. For a gene to persist, the body that carries it needs not only to survive but to reproduce – otherwise the gene will die out.
  • In humans, females are naturally constrained in the quantity of offspring to which they can give birth, and so cannot obtain much advantage through mating indiscriminately;
  • creature that survives long enough to reach a great size or age clearly has what it takes to survive.
  • There is a problem, however: what starts off as a reliable indicator of fitness can turn into an arms race. If you are a fit bullfrog, how long should you keep up your mating call?
  • My contention is that, once you understand unconscious motivation, the widespread conviction that humans could be content to live without competing for status in an egalitarian state is nice in theory, but psychologically implausible.
  • Different forms of status seeking have effects on the wider populations that range from the highly beneficial to the downright disastrous.
  • However, the theory of sexual selection was a truly extraordinary, outside-the-box idea, and it still is; once you understand it, a whole host of behaviours that were previously baffling or seemingly irrational suddenly make perfect sense.
  • In the early stages of any significant innovation, there may be an awkward stage where the new product is no better than what it is seeking to replace. For instance, early cars were in most respect worse than horses.
  • The appeal of these products was based on their status as much as their utility. The tension between sexual and
  • natural selection – and the interplay between them – may be the really big story here.
  • other words, as Geoffrey Miller says, might sexual selection provide the ‘early stage funding’ for nature’s best experiments?
  • Most people will avoid giving credit to sexual selection where they possibly can because, when it works, sexual selection is called natural selection.
  • Yes, costly signalling can lead to economic inefficiency, but at the same time this inefficiency establishes valuable social qualities such as trustworthiness and commitment – politeness and good manners are costly signalling in a face-to-face form.
  • Why are people happy with the idea that nature has an accounting function, but much less comfortable with the idea that it also has a marketing function? Should we despise flowers because they are less efficient than grasses?
  • 3.11: On the Importance of Identity
  • Without identity and the resulting differentiation, a breed of flower would give away extra nectar for no gain, as the next time, the bees would simply visit the less-generous-but-identical-looking flower next to
  • Over time, flowers would end up in a ‘race to the bottom’, producing as little costly nectar as possible and relying on their similar appearance to other,
  • We need to consider whether the same process occurs in business, as well as in nature. Are brands essential to making capitalism work?
  • 3.12: Hoverboards and Chocolate: Why Distinctiveness Matters
  • By this, I mean the Hover Board.
  • The board is an interesting product, and I’m sure many of you may instinctively have wanted to try or buy one, but you didn’t, did you? First of all, you didn’t know which one to buy – some had lights or Bluetooth speakers,* some had larger wheels and some had a higher or lower price. And in the absence of recognisable brands, it was impossible to make sense of the category – as neuroscientists have observed, 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.
  • Without the brand feedback mechanism, there was no incentive for any one manufacturer to make a safer, better version of the board, since they were not positioned to reap the gains.
  • In many ways, expensive advertising and brands arise as a solution to a problem identified by George Akerlof in his 1970 paper ‘The Market for Lemons’ in the Quarterly Journal of Economics. The problem is known as ‘information asymmetry’,
  • This lesson was learned the hard way in Eastern Bloc countries under communism; brands were considered un-Marxist, so bread was simply labelled ‘bread’. Customers had no idea who had made it or whom to blame if it arrived full of maggots, and couldn’t avoid that make in future if it did, because all bread packaging looked the same. Unhappy customers had no threat of sanction; happy customers had no prospect of rewarding producers through repeat custom. And so the bread was rubbish.
  • she wasn’t to buy it at all. Without the feedback loop made possible by distinctive and distinguishable petals or brands, nothing can improve.
  • This matters, because conversations about the marketing of brands tend to focus on hair-splitting distinctions between fairly good products. We often forget that, without this assurance of quality, there simply isn’t enough trust for markets to function at all, which means that perfectly good ideas can fail. Branding isn’t just something to add to great products – it’s essential to their existence.
  • Evolution solved the problem of asymmetric information and trust for flowers and bees back when our ancestors were still living in trees.
  • Part 4: Subconscious Hacking: Signalling to Ourselves
  • 4.1: The Placebo Effect
  • Placebos have no direct medical efficacy, but their effect on our psychology may be just as significant as a medical effect in some cases, especially if the condition – chronic pain, say, or depression – is more psychological than physiological.
  • We used aspirin to reduce pain for a century without having the faintest idea of why it worked.
  • 4.2: Why Aspirin Should Be Reassuringly Expensive
  • It is impossible to buy expensive aspirin in the UK, yet it is a waste of this wonder drug to sell it for 79p in drab packaging, when you could make it much better by packaging it lavishly, colouring the pills red* and charging more. Sometimes I have a £3.29 headache rather than a 79p one. I try to stockpile the pricier brands I buy in the US, because I find they work better. Yes, I know it’s bullshit but, as we’ve already seen, placebos work even if you tell people they are placebos.
  • The placebo effect, like many other forms of alchemy, is an attempt to influence the mind or body’s automatic processes.
  • This means that we often cannot alter subconscious processes through a direct logical act of will – we instead have to tinker with those things we can control to influence those things we can’t or manipulate our environment to create conditions conducive to an emotional state which we cannot will into being.
  • To ensure your survival, it is much more reliable for evolution to give you an instinctive fear of snakes at birth than relying on each generation to teach its offspring to avoid them. Things like this aren’t in our software – they are in our hardware.
  • In the same way, we all accept the fact that there are large areas of bodily function that we cannot control directly:
  • For perfectly sensible evolutionary reasons, the regulation of these functions does not impinge on consciousness.
  • 4.3: How We Can ‘Hack’ What We Can’t Control
  • The truth is that you can control the gearbox of an automatic car, but you just have to do it obliquely. The same applies to human free will: we can control our actions and emotions to some extent, but we cannot do so directly, so we have to learn to do it indirectly – by foot rather than by hand.
  • But the trick is to accept that driving an automatic is much more creative than driving a manual: with a manual you merely tell the gearbox what to do, but when you are driving an automatic, you have to use seduction.*
  • It is this oblique hacking of unconscious emotional and physiological mechanisms that often causes suspicion of the placebo effect, and of related forms of alchemy. Essentially we like to imagine we have more free will than we really do, which means we favour direct interventions that preserve our inner delusion of personal autonomy, over oblique interventions that seem less logical.
  • 4.4: ‘The Conscious Mind Thinks It’s the Oval Office, When in Reality It’s the Press Office’
  • Our conscious mind tries hard to preserve the illusion that it deliberately chose every action you have ever taken; in reality, in many of these decisions it was a bystander at best, and much of the time it did not even notice the decision being made.
  • Despite this, it will still construct a story in which it was the decisive actor. For
  • we believe we are issuing executive orders, while most of the time we are actually engaged in hastily constructing plausible post-rationalisations to explain decisions taken somewhere else, for reasons we do not understand.
  • An article in New Scientist in 2012 examining the nature of the placebo effect described new evidence from a model that offered a possible evolutionary explanation. It suggested that the immune system has ‘an on-off switch controlled by the mind’, an idea first proposed by psychologist Nicholas Humphrey a decade or so earlier.
  • 4.5: How Placebos Help Us Recalibrate for More Benign Conditions
  • the human immune system has over time been calibrated to promote survival in conditions far harsher than those of today. Previously,
  • So, as Humphrey explained, much of the paraphernalia and practice of the military – flags, drums, uniforms, square-bashing, regalia, mascots and so forth – might be effectively bravery placebos, environmental cues designed to foster bravery and solidarity.
  • The strangest aspect of it is that we all spend a considerable amount of time and money essentially signalling to ourselves: many of the things we do are not be intended to advertise anything about ourselves to others – we are, in effect, advertising to ourselves.
  • 4.6: The Hidden Purposes Behind Our Behaviour: Why We Buy Clothes, Flowers or Yachts
  • invent my brutally honest slogans to make the point that most products have both an ostensible, ‘official’ function and an ulterior function. The main value of a dishwasher, I would argue, is not that it washes dirty dishes, but that it provides you with an out-of-sight place to put them. The main value of having a swimming pool at home is not that you swim in it, but that it allows you to walk around your garden in a bathing costume without feeling like an idiot.
  • the fact that no money changes hands during a trip is one of the most powerful – it makes using it feel like a service rather than a transaction.*
  • Since the only possible purpose of a ‘door close’ button is to make impatient people relax, perhaps it makes no difference whether it achieves this end through mental or mechanical means.*
  • Let’s apply this insight to something more momentous. If we know that people hate uncertainty, and that men are disproportionately reluctant to undergo medical testing, how can we combine the two insights and come up with a solution? What if the reason men hate undergoing certain tests is that they are unconsciously averse to the uncertainty they experience while waiting for the results? They can’t tell us this, because they don’t know – remember the lenses in the broken binoculars? Logic won’t tell us this, either, but we can test – by seeing what happens if we make a promise: ‘If you have this test, we will text you the results within 24 hours.’ To date, nobody has thought that kind of promise might be relevant: nobody considered that the uncertain delay between having the test and getting the result might influence the human propensity to undergo the test in the first place.
  • simple thought experiment might help here. If there were a medical device whereby you could press a button and get an immediate reading with an early warning of prostate cancer, I suspect most men would been keen on the idea. By contrast, our willingness to book an appointment, meet a phlebotomist and wait two weeks for a result is very low.
  • 4.7: On Self-Placebbing
  • * It seems likely that a significant part of what you’re doing when you spend two hours on self-grooming is self-administering a confidence placebo to produce emotions that you can’t generate through a conscious act of will.
  • Men have equivalent placebo vices, of course: of these, a love of cars and gadgetry, as I mentioned above, funds and accelerates the development of useful products.
  • 4.8: What Makes an Effective Placebo?
  • One of Nicholas Humphrey’s rules about what makes an effective placebo is that there must be some effort, scarcity or expense involved.
  • ‘If we position the product as a night-time cold and flu remedy, the drowsiness isn’t a problem – it’s a selling point. It will not only minimise your cold and flu symptoms, but it will help you sleep through them too.’ Night Nurse was born: a masterclass in the magic of reframing.
  • 4.9: The Red Bull Placebo
  • Red Bull is among the most successful commercial placebos ever produced – its powers at hacking the unconscious are so great that it is repeatedly studied by psychologists and behavioural economists all over the world, including the great Pierre Chandon at INSEAD, one of the
  • After all, it shares many of the features of a great placebo: it’s expensive, it tastes weird and it comes in a ‘restricted dose’.
  • The results showed a clear trend: although everyone had drunk exactly the same drink, the ‘vodka Red Bull group’ reported feeling much drunker, took more risks than the others and were more confident when it came to approaching women.
  • 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.* Is almost everything a mood-altering substance?
  • 4.10: Why Hacking Often Involves Things That Don’t Quite Make Sense
  • at some level, perhaps it is necessary to deviate from standard rationality and do something apparently illogical to attract the attention of the subconscious and create meaning. Cathedrals are an over-elaborate way of keeping rain off your head. Opera is an inefficient way of telling a story. Even politeness is effectively a mode of interaction that involves an amount of unnecessary effort. And advertising is a hugely expensive way of conveying that you are trustworthy.
  • People want cheap, abundant and nice-tasting drinks, surely? And yet the success of Red Bull proves that they don’t.
  • At some point, we have to ask a vital question: do these various things work despite the fact that they are illogical, or do they work precisely because they are?
  • Meaning is disproportionately conveyed by things that are unexpected or illogical, while narrowly logical things convey no information at all.
  • Part 5: Satisficing
  • 5.1: Why It’s Better to Be Vaguely Right than Precisely Wrong
  • Most of the decisions we face have something missing – a vital fact or statistic that is unavailable, or else unknowable at the time we make the decision. The types of intelligence prized by education and by evolution seem to be very different.
  • The question of how to get to Gatwick is what you might call a ‘wide context’ problem. It allows for vagueness and multiple right answers, and it doesn’t demand absolute adherence to any precise rules. There is no formula for the solution, it allows scope for all kinds of possible ‘right-ish’ answers and all kinds of information can be taken into account when coming up with an answer.
  • Blurry ‘pretty good’ decision-making has simply proven more useful than precise logic.
  • The problems occur when people try to solve ‘wide’ problems using ‘narrow’ thinking.
  • Like bees with flowers, we are drawn to reliable signals of honest intent, and we choose to do business where those signals are found.
  • It seems silly to regard this behaviour as irrational when it is really rather clever. My late mother knew absolutely nothing about cars, but had an eagle eye for people.* It would have been interesting to set her the task of buying ten cars based on her instincts about the people selling them, while at the same time tasking ten automotive engineers with acquiring ten cars at auction. I’m confident the cars my mother bought would have been every bit as reliable as the cars chosen by the engineers, perhaps more
  • 5.2: (I Can’t Get No) Satisficing
  • In any complex system, an overemphasis on the importance of some metrics will lead to weaknesses developing in other overlooked ones. I prefer Simon’s second type of satisficing; it’s surely better to find satisfactory solutions for a realistic world, than perfect solutions for an unrealistic one.
  • 5.3: We Buy Brands to Satisfice
  • The idea, most simply expressed, is this: ‘People do not choose Brand A over Brand B because they think Brand A is better, but because they are more certain that it is good.’
  • They may unconsciously be deciding that they prefer Brand A because the odds of its being disastrously bad are only 1 per cent, whereas the risk with Brand B might be 2.8 per cent.
  • why this matters so much is that it finally explains the brand premium that consumers pay.
  • The more reputational capital a seller stands to lose, the more confident I am in their quality control. When people snarkily criticise brand preference with the phrase, ‘you’re just paying for the name’, it seems perfectly reasonable to reply, ‘Yes, and what’s wrong with that?’
  • The primary reason why we have evolved to satisfice in our particularly human way is because we are making decisions in a world of uncertainty, and the rules for making decisions in such times are completely different from those when you have complete and perfect information.
  • is no good judging things on their average expectation without considering the possible level of variance.
  • This example illustrates that, when we make decisions, we look not only for the expected average outcome – we also seek to minimise the possible variance, which makes sense in an uncertain world. In some ways, this explains why McDonald’s is still the most popular restaurant in the world.
  • For instance, a cricketer catching a high-flying ball does not calculate its trajectory using quadratic equations, but instead uses a rule of thumb known as the ‘angle of gaze’ heuristic, looking upwards at the ball and moving towards it in such a way that the upward angle of their gaze remains constant.
  • 5.4: He’s Not Stupid, He’s Satisficing
  • It isn’t always clear which heuristic rules are learned and which are innate, but everyday life would be impossible without them. A truck driver reversing an articulated lorry into a narrow driveway achieves what seems like a spectacular feat of judgement through the use of heuristics, not by calculation. We drive our cars heuristically, we choose our houses heuristically – and we probably also choose our partners heuristically.
  • 5.5: Satisficing: Lessons from Sport
  • As a friend of mine once remarked, had tennis been given the same scoring system as basketball it would be tedious to play and even worse to watch: if you glanced at your TV and saw Djokovic leading Murray ‘by 57 points to 31’, you would shrug and change channels to something more exciting.
  • A 6–0 set counts as a set, just as a 7–5 win does. This means that the losing player is never faced with an insurmountable mountain to climb.
  • This jeopardy may explain why darts is an enjoyable spectator sport, while archery isn’t. In archery the scoring is concentric. You simply aim for the bullseye, which scores 10, and if you narrowly miss you get 9. Miss the 9 and you get 8, and so on. The only strategy of the game is to aim for the 10 and hope – it is a perfectly logical scoring system, but it doesn’t make for great television. The dartboard, by contrast, is not remotely logical, but it’s somehow brilliant. The 20-point sector sits between the dismal scores of 5 and 1.
  • By the same token, to someone who assumes that holidaymaking is a lifelong quest to find new experiences, returning annually to the same resort may seem ridiculous; it is on the other hand an extremely good approach if you want to avoid a bad holiday. Habit, which can often appear irrational, is perfectly sensible if your purpose is to avoid unpleasant surprises.
  • 5.6: JFK vs EWR: Why the Best Is Not Always the Least Worst
  • By going with the default, you are making a worse decision overall, but also insuring yourself against a catastrophically bad personal outcome. In his book Risk Savvy (2014), the German psychologist Gerd Gigerenzer refers to this mental process as ‘Defensive Decision-Making’ – making a decision which is unconsciously designed not to maximise welfare overall but to minimise 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 satisficing instinct – repeating a past behaviour or copying what most other people do may not be optimal, but is unlikely to be disastrous.
  • For example, preferring a definite 5 per cent gain in sales to a 50 per cent chance of a 20 per cent gain. Why else do you think Management Consultancies are so rich?
  • Part 6: Psychophysics
  • 6.1: Is Objectivity Overrated?
  • You may have never heard the term ‘psychophysics’, which is essentially the study of how the neurobiology of perception varies among different species, and how what we see, hear, taste and feel differs from ‘objective’ reality.
  • More importantly, our different senses – though we don’t realise this – act in concert; what we see affects what we hear, and what we feel affects what we taste.*
  • ‘Time flies when you are having fun’ is an early piece of psychophysical insight. To your watch, an hour always means exactly the same thing, regardless of whether you are drinking champagne or being waterboarded. However, to the human brain, the perception of time is more elastic.*
  • In other projects, like designing a train service or a tax system, or in painting the lines on roundabouts, it is impossible to define success except in terms of human behaviour. Here there is generally some potential for alchemy, since perception, rather then reality, is what determines success. Even giving a tax a different name can have a colossal effect on whether people are willing to pay it.*
  • 6.2: How to Buy a Television for Your Pet Monkey
  • But yellow on television is a big fat lie. It may look yellow, but it isn’t really – it’s a mixture of red and green light, which hacks our optical apparatus to make us think we are looking at something genuinely yellow.
  • Purple does not exist at all: indigo and violet are in a rainbow, but magenta isn’t – the colour exists only in our heads.
  • the case of purple, which occurs when the red and blue sensors but not the green ones are triggered, the brain creates a colour to fill the gap.
  • TVs are designed around how we see, not what they show. There is a lot of clever engineering involved in making a television,* but the real genius in it is psychological alchemy, not technology – without an understanding of how humans perceive colour, making one would be almost impossible.
  • Moreover, just as with the colour purple, we should remember that if you design something in a certain way, people can perceive something which doesn’t exist in reality.*
  • 6.3: Lost and Gained in Translation: Reality and Perception as Two Different Languages
  • Emotions are stranger still and, like magenta, are produced in the mind.
  • The job of a designer is hence that of a translator. To play with the source material of objective reality in order to create the right perceptual and emotional outcome.
  • 6.4: Mokusatsu: The A-Bomb, the H-Bomb and the C-Bomb
  • Perception may map neatly on to behaviour, but reality does not map neatly onto perception.
  • 6.5: Nothing New under the Sun
  • Study the Parthenon, and you’ll notice that there is barely a straight line in it; the floor curves upwards in the middle, the sides bow out and the columns swell in the middle.* This is because it is not designed to be perfect – it’s designed to look perfect to a human standing a hundred yards or so downhill.
  • Nature spends a great deal of resources on what might be called ‘perception hacking’ or, in business terminology, marketing. Berries and fruits that want to be eaten develop a distinctive colouration and an attractive taste when they ripen. By contrast, caterpillars that don’t want to be eaten have evolved to taste disgusting to their predators. And some butterflies produce what look like eyes on their wings because many animals react more cautiously in their presence. Such are examples of how nature is able to hack perception rather than changing reality.
  • 6.6: When It Pays to Be Objective – and When It Doesn’t
  • In the physical sciences we quite rightly prefer these to warped perceptual mechanisms: it does not matter whether a bridge looks strong – we need to know that it really is strong.
  • in the human sciences, just as in TV design, what people perceive is sometimes more important than what is objectively true. In medicine,
  • The purpose of this book is to persuade the reader that alchemy exists whether we like it or not, and that it is possible to use it for good; besides, if people are more aware of its existence, they will be better at spotting its misuses.
  • 6.7: How Words Change the Taste of Biscuits
  • ‘There’s your problem,’ I said. ‘It doesn’t matter what something tastes like in blind tastings, if you put “low in fat” or any other health indicators on the packaging, you’ll make the contents taste worse.’
  • 6.8: The Map Is Not the Territory, but the Packaging Is the Product
  • The Polish-American academic Alfred Korzybski (1879–1950) is perhaps most famous for his dictum that ‘The map is not the territory.’ He created a field called general semantics, and argued that because human knowledge of the world is limited by human biology, the nervous system and the languages humans have developed, no one can perceive reality, given that everything we know arrived filtered by the brain’s own interpretation of it. Top man!
  • Mac & Cheese,
  • So they removed the artificial yellow dye and added paprika, turmeric and other natural replacements – and then kept silent about it. Practically no one noticed a thing – until they announced the change retrospectively, under the headline ‘It’s changed. But it hasn’t.’
  • 6.9: The Focusing Illusion
  • Daniel Kahneman, along with Amos Tversky, is one of the fathers of behavioural economics; ‘the focusing illusion’, as he calls it, causes us to vastly overestimate the significance of anything to which our attention is drawn.
  • It is fair for Kahneman to say that the focusing illusion plays a huge part in marketing, but I would argue that it is not actually an illusion at all but is rather an evolutionary necessity. Furthermore, rather than marketers ‘exploiting’ the focusing illusion, it is the illusion which makes marketing necessary. Nevertheless, one way you can improve your happiness is by learning that such an illusion exists, and by controlling what you pay attention to. I have a soft spot for the religious practice of saying grace before a meal, since paying attention to good things that one might easily take for granted seems a good approach to life – a pause to focus attention on a meal should add to its enjoyment.
  • 6.10: Bias, Illusion and Survival
  • It is thus in our evolutionary best interests to be slightly paranoid, but it is also essential that our levels of attention vary according to our emotional state.
  • It is wrong to consider such illusions as things that should be corrected or avoided – it is worth understanding them and the role they might play in distorting our behaviour, but the idea that it is better not to experience them is highly dangerous.
  • If the smoke alarm goes off when you burn your breakfast, it’s a false positive and annoying, but a false negative can be fatal; the last kind of smoke detector you would want is one that only activates when the flames are licking at its edges. We
  • In the same way, facial recognition software must make the same trade-off in order to work. If it never recognises a face mistakenly, it is too insensitive – such high standards would mean that it would fail to recognise faces at a slight angle, or if one eye were closed, which would render it useless. As a result, facial recognition algorithms experience exactly the same pareidolic illusions as humans and some form of calibration is always necessary when dealing with imperfect or ambiguous information. What this all means is that no living creature can evolve and survive in the real world by processing information in an objective, measured and proportionate manner. Some degree of bias and illusion is unavoidable.
  • 6.11: How to Get a New Car for £50
  • The next time you are thinking about replacing your car, don’t. Instead, wait at least a year, or maybe two or three. In the meantime, rather than selling it, take it to a good valet service from time to time and have it thoroughly cleaned, inside and out. This will cost you about £50–£100 each time, but you will have a much better car. Not just a cleaner car, but a better car – as well as looking nicer, it will drive more smoothly, accelerate more quickly and take corners more precisely. Shiny cars are also simply much more enjoyable to drive. Why? Because of psychophysics.
  • 6.12: Psychophysics to Save the World
  • 6.13: The Ikea Effect: Why It Doesn’t Pay to Make Things Too Easy
  • However, despite the many benefits of this miracle product, it did not sell well, and even the Betty Crocker name could not convince anyone to buy it. General Mills brought in a team of psychologists to find out why consumers were avoiding it. One of their explanations was guilt: the product was so damned easy to make compared to traditional baking that people felt they were cheating. The fact that the cake tasted excellent and received plaudits didn’t help – this simply meant that the ‘cook’ felt awkward about getting more credit than they had earned. In response to these results, General Mills added a little psychological alchemy – or ‘benign bullshit’. They revised the instructions on the packaging to make baking less convenient: as well as water, the housewife was charged with adding ‘a real egg’ to the ingredients.
  • 6.14: Getting People to Do the Right Thing Sometimes Means Giving Them the Wrong Reason
  • I mentioned earlier, the human brain to some extent automatically assumes that there are trade-offs in any decision. If a car is more economical, its performance is assumed to be more sluggish; if a washing powder is kinder to the environment, it is assumed to be less effective.
  • Put bluntly, if you have two bins in your kitchen, you’ll separate your recyclable rubbish and recycle quite a lot, but if you have only one bin you probably won’t. Under the slogan ‘One bin is rubbish’ we focused our campaign entirely around encouraging people to have more than one bin in their household – avoiding the issue of how to convert people to be card-carrying members of the green movement.
  • Behaviour comes first; attitude changes to keep up.
  • Part 7: How to Be an Alchemist
  • 7.1: The Bad News and the Good News
  • Then the pilot made an announcement that was so psychologically astute that I felt like offering him a job at Ogilvy. ‘I’ve got some bad news and some good news,’ he said. ‘The bad news is that another aircraft is blocking our arrival gate, so it’ll have to be a bus; the good news is that the bus will drive you all the way to passport control, so you won’t have far to walk with your bags.’
  • 7.2: Alchemy Lesson One: Given Enough Material to Work On, People Often Try to Be Optimistic
  • describes what happened when the University of Chicago Economics Faculty was required to move to a new building. These people are, in theory, the most rational in the world,
  • Some of them suggested an auction, but this idea was quickly rejected –
  • I suggested to Professor Thaler that there might have been a simpler way to solve the problem by using a little psychological alchemy: why not rank both the offices and the faculty parking spaces between 1 and 100 in order of desirability before allocating them by lottery, with the people who received the best offices receiving the worst parking spots, and vice versa? Under these conditions, people allocate greater importance to the part of the lottery in which they have come out best, while those in the middle reframe the result as being a happy compromise.
  • Robert Cialdini has observed that, as you are closing a sale, the admission of a downside oddly adds persuasive power: ‘Yes, it is expensive, but you’ll soon find it’s worth it,’ seems to be a strangely persuasive construction – explicitly mentioning a product’s weakness enables people to downplay its importance and accept the trade-off, rather than endlessly worrying about the potential downside. If you are introducing a new product, it might pay to bear this in mind.
  • Imagine if cheap airlines instead claimed: ‘We’re just as good as British Airways, but at a third of the price.’ Either nobody would believe them, or else such a claim would raise instant doubts:
  • 7.3: Sour Grapes, Sweet Lemons and Minimising Regret
  • 7.4: Alchemy Lesson Two: What Works at a Small Scale Works at a Large Scale
  • The taxation we give to the government doesn’t provide us with the opportunity to create a narrative that might make us happy about what we pay. Taxes, like parking fines, are seen as wholly bad, but a little alchemy could solve this problem quite easily. In ancient Rome, wealth taxes were levied to fund military campaigns or public works, and since the names of the people who paid them were displayed on a monument, with the money dedicated to a specific end, rich people were happy to pay, with those initially deemed too poor to be liable volunteering themselves, saying ‘Actually I’m much richer than you think.’
  • If you allowed people to tick a box on their income tax form whereby they paid 1 per cent extra to improve healthcare, many people would happily do so.
  • Thaler and Benartzi’s ‘Save More Tomorrow’ pension worked differently: you signed up for a pension at a certain rate (let’s say 20 per cent) but instead of starting immediately, your contributions would only represent a proportion of any future wage rises.
  • The idea worked: compared to the control group, twice as many people were willing to participate in the scheme and, of those who did, the average contributions after seven years were roughly double.
  • No less significant was the success of the UK Government in creating pension-saving by default when they introduced auto-enrolment. As a
  • 7.5: Alchemy Lesson Three: Find Different Expressions for the Same Thing
  • 7.6: Alchemy Lesson Four: Create Gratuitous Choices
  • For a few pounds a month you could divert calls to another number or subscribe to ‘Call Waiting’, which let you know if someone else was trying to reach you when you were on the line. To explain the new services, we sent letters to customers and invited them to subscribe.
  • they wanted to send out the letters and simply list a phone number as the only mode of response.
  • People seem to like choice for its own sake.
  • It completely mystifies me why most online retailers do not offer you a choice of couriers to deliver your goods. People would vastly prefer this and it would have the additional benefit that they would not wholly blame the retailer if the goods were late or failed to arrive.
  • 7.7: Alchemy Lesson Five: Be Unpredictable
  • Most of business is run according to conventional logic. Finance, operations and logistics all operate through established best practice – there are rules, and you need to have a good reason to break them. But there are other parts of a business that don’t work this way, and marketing is one of them: in truth, it’s a part of business where there’s never best practice, because if you follow a standard orthodoxy your brand will become more like your competitors’, thus eroding your advantage.
  • As Bill Bernbach observed, conventional logic is hopeless in marketing – as you end up in the same place as your competitors.
  • 7.8: Alchemy Lesson Six: Dare to Be Trivial
  • Acting on Spool’s advice, the site’s designers fixed the problem simply – they replaced the ‘Register’ button with a ‘Continue’ button and a single sentence: ‘You do not need to create an account to make purchases on our site. Simply click Continue to proceed to checkout. To make your future purchases even faster, you can create an account during checkout.’
  • The number of customers completing purchases increased by 45 per cent almost immediately, which resulted in an extra $15 million in the first month; in the first year, the site saw an additional $300 million attributable simply to this change. So,
  • there’s a stranger aspect to this story, which is that most of the site’s customers (90 per cent or so) who chose to ‘continue as guest’ were subsequently happy to register as customers once they had made their purchase – the very people who had baulked at registering before completing the purchase were only too…
  • Typing your address in order to confirm where your new washing machine should be delivered feels like a good use of your time; performing the same task when all you seem to be doing is adding your details to a customer database feels like a waste of your time. The same thing in a different…
  • 7.9: Alchemy Lesson Seven: In Defence…
  • As any devotee of Sherlock Holmes will tell you, paying attention to trivial things is not necessarily a waste of time, because the most important clues may often seem irrelevant and a lot of life is best understood by observing trivial details. No one complained that Darwin was being trivial in comparing the beaks of…
  • The mind of the alchemist understands that the smallest change in context or meaning can have…
  • Conclusion: On Being a Little…
  • No one would doubt that it is possible to have too much randomness, inefficiency and irrationality in life. But the corresponding question, which is…
  • think we should absolutely consider what economic models might reveal. However, it’s clear to me that we need to acknowledge that such models can be hopelessly creatively limiting. To put it another way, the problem with logic is that it kills off magic. Or, as Niels Bohr* apparently…
  • Remember, if you never do anything differently, you’ll reduce your chances of…
  • The conventional answer is that we deploy more rigour and structure to our decision-making in business because so much is at stake; but another, less optimistic, explanation is that the limitations of this approach are in fact what makes it appealing – the last thing people want when faced with a problem is a range of creative solutions, with no means of choosing between them other than their subjective judgement. It seems safer to create an artificial model that allows one logical solution and to claim that the decision was driven by ‘facts’ rather than opinion: remember that what often matters most…
  • Solving Problems Using Rationality Is Like Playing Golf…
  • You will improve your thinking a great deal if you try to abandon artificial certainty and learn to think ambiguously about the peculiarities of human psychology. However, as I warned at the beginning of this book, this will not necessarily make life easier – it is much…
  • Finding the Real Why: We Need to Talk about Unconscious Motivations
  • Rebel against the Arithmocracy
  • My friend, the advertising expert Anthony Tasgal, coined the term ‘the arithmocracy’ to describe a new class of influential people who believe that their superior level of education qualifies them to make economic and political decisions. It includes economists, politicians of all types, management consultants, think tanks, civil servants and people much like me. I do not believe that these people form a conspiracy and I think most of what they do is intended for the common good. However, they’re dangerous because their worship of reason leaves them unable to imagine improvements to life, outside a narrow range of measures.
  • The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”’ A huge cast of well-paid people, from management consultants to economic advisors, earn their entire salaries by ripping out ‘Chesterton’s fences’.
  • Product A appears to offer more features than Product B, and is also offered at a lower price. To an economist, the decision is easy: with a higher utility and a lower cost, everyone should buy Product A. However, since a customer is making the decision without perfect knowledge of the two products and their reliability, they might assume that there must be a reason why the price of the ostensibly superior Product A is not higher. The most likely outcome, I suspect, would be for them to buy neither. Whatever economic logic might dictate, the manufacturer of Product A would be better off asking for a slightly higher price than the manufacturer of Product B.
  • Yet as The Big Short (2010) by Michael Lewis demonstrated, the people who predicted (and bet on) the failure of the global economy did exactly that – they spoke to estate agents and visited housing developments. Why do we have more faith in a theoretical mathematical model than in what we can see in front of us?
  • Always Remember to Scent the Soap
  • Soap was sold on its ability to increase your attractiveness more than on its hygienic powers, and while it contained many chemicals that improved hygiene, it is worth remembering that it was also scented to make it attractive – supporting the unconscious promise of the advertising rather than the rational value of the product. The scent was not to make the soap effective, but to make it attractive to consumers.
  • Back to the Galapagos
  • Whether or not UBI is economically feasible,* it is interesting as a thought experiment – partly because it is surprisingly popular with people on the political right as well as on the left. Milton Friedman supported the idea, as did Richard Nixon.
  • Perhaps protests against wealth redistribution are essentially, like most political opinions, merely an attempt to add a rational veneer to an emotional predisposition. People on the right instinctively dislike most welfare programmes, but UBI is paid equally and indiscriminately to all, which means there is no incentive for claimants to exaggerate their own misfortunes in order to benefit. UBI also preserves differential incentives to work: if one man lies in bed all day and his neighbour goes out to a job every morning, the worker will be richer than the layabout in proportion to his effort. Finally, UBI does not allow the ruling political party to bribe its own supporters at the expense of people who don’t vote for it.

Table of Contents

Intro

What if, as an investment opportunity, I offered you a stake in a beverage business that had one drink as their product and that the drink possessed a taste that everyone hated. Would you invest in that? Probably not, right? And why? Because it wouldn’t be logical.

But what if I offered you a stake in the same business, but in this instance I told you the business was Red Bull? How about now? Would you invest?

As human beings we are often shackled by our beliefs and indeed, need for things to fit into neat, logical reasoning. We search for validation for our decisions based on mathematical models; if the spreadsheet says it will be successful, then, logically, it must be.

By contrast, some of the most innovative products ever to grace our markets were developed using everything but. Logic simply never came into it. They were the product of imagination and daring and luck, and often in fact, despite this, those truly innovative products were at first rubbish. The first cars were certainly no better than horses, and the first airplanes were nothing more than flying death traps. Would you have invested in those businesses when those products were first invented? Few would, because there was no logical argument to support doing so. Yet now, those same products are revered in our society and their markets are worth billions. If we had of applied logic to the business cases when they were first developed, those two products alone would probably still be sitting on the scrap heap, and no one would have wanted a stake. No one would buy a plane that had a high propensity for killing its passengers, and certainly no one would want a car that was slower than a horse.

Some of man’s most noble achievements have been the product of imagination, daring to dream and in some cases, pure luck. Or so says Rory Sutherland.

I stumbled across Rory Sutherland on a podcast discussing a press release about the recently refurbished London St Pancras Station, which promoted the station’s champagne bar as ‘The Longest in Europe’. Sutherland’s curiosity was piqued when this bizarre fact seemed to resonate with journalists, who all faithfully reported the news. Most people wouldn’t think twice about a statement like that, but to Rory it was pure ‘Alchemy’.

Sutherland noted ‘Generally, people don’t care all that much how long champagne bars are. No one has ever, I think, asked the question ‘I feel like going to a champagne bar – can you tell me some nearby places – ordered in declining order of length.’ But to human perception, that sentence was a burst of pure green light. Because in one sentence it conveyed that this station was not a mere utilitarian transit hub – it was a place of entertainment; a destination in its own right.” Rory sees things most people don’t. He understands the foibles of human nature on a much deeper level. Curiosity and thinking are his calling cards.

If there’s such a thing as the ‘Charlie Munger of Advertising’, Rory Sutherland’s it. Rory is the Vice Chairman of Ogilvy, and co-founded a behavioural science practice within the agency. Like Munger, Rory draws on an immense catalogue of disciplines. In his recent book ‘Alchemy’, Sutherland shows us that the answers to many of our problems won’t be found in science and logic, but instead through an alchemy drawing on observation, psychology, human nature, evolution, trial and error - a process he refers to as psycho-logic.

The book contains an abundance of useful analogies and mental models. Upon completing the read, you’ll have another perspective to observe the world. Little wonder, it’s recommended reading by some of the world’s most successful investors - Rajiv Jain, James O’Shaughnessy and Clifford Sosin - to name a few.

“Looking around you is the most important skill.” Nicholas Sleep

The book’s usefulness stems from the many stories it contains about the seemingly irrationality of human behaviour, businesses and life which can be explained through psycho-logic. I’ve collected some of my favourite extracts below. While they only just scratch the surface of the book’s wisdom, hopefully they provide a glimpse into a different type of seeing and thinking.

Logic

The models that dominate all human decision-making today are duly heavy on simplistic logic, and light on magic - a spreadsheet leaves no room for miracles.”

The economy is not a machine - it is a highly complex system. Machines don’t allow for magic, but complex systems do.”

“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.”

Entrepreneurs are disproportionately valuable precisely because they are not confined to doing only those things that makes sense to a committee. Interestingly, the likes of Steve Jobs, James Dyson, Elon Musk and Peter Thiel often seem certifiably bonkers.”

“When you demand logic, you pay a hidden price: you destroy magic.”

The human mind does not run on logic any more than a horse runs on petrol.”

“Logic is what makes a successful engineer or mathematician, but psycho-logic is what made us a successful breed of monkey, that has survived and flourished over time.”

“We have faster trains with uncomfortable seats departing from stark, modernist stations, whereas our unconscious may well prefer the opposite; slower trains with comfortable seats departing from ornate structures.”

Emotions Rule

“Think about it. There are some phrases that just wouldn’t appear in the English language:

‘I chose not to be angry.’ ‘He plans to fall in love at 4.30pm tomorrow.’ ‘She decided that she was no longer to feel uneasy in his presence.’ ‘From that moment on, she determined no longer to be afraid of heights.’ ‘He decided to like spiders and snakes.’”

Data

More data leads to better decisions. Except when it doesn’t.”

The need to rely on data can also blind you to important facts that lie outside your model.”

“Strangely, as we have gained access to more information, data, processing power and better communications, we may also be losing the ability to see things in more than one way, the more data we have, the less room there is for things that can’t easily be used in computation.”

“Bad maths can lead to collective insanity, and it is far easier to be massively wrong mathematically than most people realise - a single dud data point or false assumption can lead to results that are wrong by many orders of magnitude.”

Just a few wrong assumptions in statistics, when compounded, can lead to an intelligent man being wrong by a factor of about 100,000,000 - tarot cards are rarely this dangerous.”

A single rogue outlier can lead to an extraordinary distortion of reality - just as when Bill Gates can walk into a football stadium and raise the average level of wealth of everyone in it by $1m.”

We should at times be wary of paying too much attention to numerical metrics. When buying a house, numbers (such as number of rooms, floor space or journey time to work) are easy to compare, and tend to monopolise our attention. Architectural quality does not have a numerical score, and tends to sink lower in our priorities as a result, but there is no reason to assume that something is more important just because it is numerically expressible.”

Our brains did not evolve to make perfect decisions using mathematical precision - there wasn’t much call for this kind of thing on the African savannah. Instead we have developed the ability to arrive at pretty good, non-catastrophic decisions based on limited non-numerical information, some of which may be deceptive.”

The risk with the growing use of cheap computational power is that it encourages us to take simple, mathematically expressible part of a complicated question, solve it to a high degree of mathematical precision, and assume we have solved the whole problem.”

We fetishise 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 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.”

To use the analogy of the needle in the haystack, more data does increase the number of needles, but it also increases the volume of hay, as well as the frequency of false needles — things we will believe are significant when really they aren’t. The risk of spurious correlations, ephemeral correlations, confounding variables, or confirmation bias can lead to more dumb decisions than insightful ones, with the data giving us a confidence in these decisions that is simply not warranted.”

In reality, all valuable information starts with very little data - the lookout on the Titanic only had one data point .. ‘Iceberg ahead,’ but they were more important than any huge survey on iceberg frequency.”

“The data might suggest people won’t pay £49 for a jar of coffee and that’s true, mostly. However people will pay 30p for a single Nespresso capsule which amounts to a similar cost - without understanding human perception it is unable to distinguish between the two. Big data makes the assumption that reality maps neatly on to behaviour but it doesn’t. Context changes everything.”

We should also remember that all big data comes from the same place: the past. Yet a single change in the context can change human behaviour significantly. For instance, all the behavioural data in 1993 would have predicted a great future for the fax machine.”

It is possible to construct a plausible reason for any course of action, by cherry-picking the data you choose to include in your model and ignoring inconvenient facts. The more data you have, the easier it is to find support for some spurious, self-serving narrative. The profusion of data will not settle arguments: it will make them worse.”

Innovation

“Metrics, and especially averages, encourage you to focus on the middle of a market, but innovation happens at the extremes.”

If you look at the history of inventions and discoveries, sequential deductive reasoning has contributed to relatively few of them.”

“A good guess which stands up to observation is still science. So is a lucky accident.”

“Business and politics have become far more boring and sensible than they need to be.”

Most valuable discoveries don’t make sense at first; if they did, somebody would have discovered them already.”

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.”

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. In reality almost everything is more evolutionary than we care to admit.”

It is surprisingly common for significant innovations to emerge from the removal of features rather than the addition. Google is, to put it bluntly, Yahoo without all the extraneous crap cluttering up the search page. Similarly, Twitter’s entire raison d’etre came from the limitation on the number of characters it allowed. McDonalds deleted 99% of items from traditional American diner repertoire; Starbucks placed little emphasis on food for the first decade of its existence.”

In the early stages of any significant innovation, there may be an awkward stage where the new product is no better that what it is seeking to replace. For instance, early cars were in most respects worse than horses. Early aircraft were insanely dangerous. Early washing machines were unreliable. The appeal of these products was based on their status as much as their utility.”

More Logic

To solve logic-proof problems requires intelligent, logical people to admit the possibility 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. When I told one economist that you can often increase the sales of a product by increasing its price, the reaction was one not of curiosity, but of anger.”

It is perfectly possible to be both rational and wrong. Logical ideas often fail because logic demands universally applicable laws but humans, unlike atoms, are not consistent enough in their behaviour for such laws to hold very broadly.”

“Imagine you are a company whose product is not selling well. Which of the following proposals would be easier to make in a board meeting called to resolve the problem? a) ‘We should reduce the price’ or b) ‘We should feature more ducks in our advertising.’ The first of course - and yet the second could, in fact, be much more profitable.”

The fatal issue is that logic always get you to exactly the same place as your competitors. Our mantra is, ‘Test counterintuitive things, because no-one else ever does.'"

Stubborn problems are probably stubborn, because they are logic proof.

All progress involves guesswork, but it helps to start with a wide range of guesses.”

If a problem is solved using a discipline other than that practised by those who believe themselves the rightful guardians of the solution, you’ll face an uphill struggle no matter how much evidence you can amass… Surgeons felt challenged by keyhole surgery and other less invasive procedures that can be carried out with the support of radiographers, because they used skills different from those that they had spent a lifetime perfecting.”

Human behaviour is an enigma. Learn to crack the code.”

Real life is not a conventional science - the tools which work so well when designing a Boeing 787, say, will not work so well when designing a customer experience or a tax programme. People are not nearly as pliable or predictable as carbon fibre or metal alloys, and we should not pretend that they are.”

“Hillary thinks like an economist, while Donald is a game theorist, and is able to achieve with one tweet what would take Clinton four years of congressional infighting. That’s alchemy; you may hate it, but it works.”

“The single worst thing that can happen in a criminal investigation is for everyone involved to become fixated on the same theory, because one false assumption shared by everyone can undermine the entire investigation. There’s a name for this - it’s called ‘privileging the hypothesis.’

If science did not allow for such lucky accidents, its record would be much poorer - imagine if we forbade the use of penicillin, because its discovery was not predicted in advance. Yet policy and business decisions are overwhelmingly based on a ‘reason first, discovery later’ methodology, which seems wasteful in the extreme. Evolution, too, is a haphazard process that discovers what can survive in the world where some things are predictable but others aren’t. It works because each gene reaps the rewards and costs from its lucky or unlucky mistakes, but it doesn’t give a damn about reasons.”

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.”

Models

“The models of human behaviour devised and promoted by economists and other conventionally rational people are wholly inadequate at predicting human behaviour.”

Notice that ordinary people are never allowed to pronounce on complex problems. When do you ever hear an immigration officer interviewed about immigration, or a street cop interviewed about crime? These people patently know far more about these issues than economists or sociologists, and yet we instead seek wisdom from people with models and theories rather than actual experience.”

“If this book provides you with nothing else, I hope it gives you permission to suggest slightly silly things from time to time. To fail a little more often. To think unlike an economist.”

“The 2008 financial crisis arose after people placed unquestioning faith in mathematically neat models of an artificially simple reality.”

“In any complex system, an overemphasis on the importance of some metrics will lead to weaknesses developing in other over-looked ones. It’s surely better to find satisfactory solutions for a realistic world, than perfect solutions for an unrealistic one.”

New Ideas

“After all, no big business idea makes sense at first. I mean, just imagine proposing the following ideas to a group of skeptical investors .. ‘What people want is a really cool vacuum cleaner’ (Dyson), ‘And best of all the drink has a taste which consumers say they hate.’ (Red Bull), ‘.. and just watch as perfectly sane people pay $5 for a drink they can make at home for a few pence’ (Starbucks).”

Reasoning

“The evolutionary psychologist Robert Kurzban, explains that we do not have full access to the reasons behind our decision-making because, in evolutionary terms, we are better off not knowing, we have evolved to deceive ourselves, in order that we are better at deceiving others.”

If you want to change people’s behaviour, listening to their rational explanations for their behaviour may be misleading, because it isn’t the real why.”

“We consciously believe our actions are guided by reason, but this does not mean that they are - it may simply be evolutionary advantageous for us to believe this.”

“One astonishing possible explanation for the function of reason only emerged about ten years ago: the argumentative hypothesis suggests reason arose in the human brain not to inform our actions and beliefs, but to explain them and defend them to others. In other words, it was an adaption necessitated by our being a highly social species. We may use reason to detect lying in others, to resolve disputes, to attempt to influence other people or to explain our actions in retrospect, but it seems not to play the decisive role in individual decision-making. In this model, reason is not as Descartes thought, the brain’s science and research and development function - it is the brains legal and PR department.”

The fact that we can deploy reason to explain our actions post-hoc does not mean that it was reason that decided on that action in the first place, or indeed that the use of reason can help obtain it.”

Customers

“Just as we infer a great deal about an air carrier from their on-board catering, while neglecting to care about the $150m aircraft or make of the engines, we are just as likely to be unhappy with a hospital because the reception area is neglected, the magazines are out of date and the nurse didn’t spare us much time. The truth is that ancillary details have a far greater effect on our emotional response, and hence our behaviour, than measured outcomes.”

For a business to be truly customer-focused it needs to ignore what people say. Instead it needs to concentrate of what people feel.”

Short Term Optimisation

A company pursuing only profit but not considering the impact of its profit seeking upon customer satisfaction, trust or long-term resilience, could do very well in the short term, but its long term future may be perilous. There is a parallel in the behaviour of bees, which do not make the most of the system they have evolved to collect nectar and pollen. Although they have an efficient way of communicating about the direction of reliable food sources, the waggle dance, a significant proportion of the hive seems to ignore it altogether and journeys off at random. In the short term, the hive would be better off all bees slavishly followed the waggle dance, and for a time this random behaviour baffled scientists, who wondered why 20 million years of bee evolution had not enforced a greater level of behavioural compliance. However, what they discovered was fascinating: without these rogue bees, the hive would get stuck in what complexity theorists call ‘a local maximum'; they would be so efficient at collecting food from known sources that, once these existing sources of food dried up, they wouldn’t know where to go next and the hive would starve to death. So the rogues bees are, in a sense, the hive’s research and development function, and their efficiency pays off handsomely when they discover a fresh source of food. It is precisely because they do not concentrate exclusively on short-term efficiency that bees have survived so many million years. If you optimise something in one direction, you may be creating a weakness somewhere else.”

Silly Questions

The reason we do not ask basic questions is because, once our brain provides a logical answer, we stop looking for better ones: with a little alchemy, better answers can be found.”

To reach intelligent answers, you often need to ask really dumb questions.”

“Perhaps advertising agencies are largely valuable simply because they create a culture in which it is acceptable to ask daft questions and make foolish suggestions.”

How You Ask Questions

“One of the great contributions to the profit of high-end restaurants is the fact that bottled water comes in two types, enabling a waiter to ask ‘still or sparkling?’, making it rather difficult to say ‘just tap.’”

Change

An inability to change perspective is equivalent to a loss of intelligence.”

Efficiency Doesn’t Always Pay

I rang a company’s call centre the other day, and the experience was exemplary: helpful, knowledgeable and charming. The firm was a client of ours, so I asked them what they did to make their telephone operators so good. The response was unexpected: ‘to be perfectly honest, we probably overpay them.’.. The staff weren’t regarded as a ‘cost’ - they were a significant reason for the company’s success. However, modern capitalism dictates that it will only be a matter of time before some beady-eyed consultants pitch up at a board meeting with a PowerPoint presentation entitled ‘Rightsizing Customer Service Costs Through Offshoring and Resource Management.’ or something similar. Soon nobody will phone to place orders because they won’t be able to understand a word they are saying, but that won’t matter when the company presents its quarterly earnings to analysts and one chart contains the bullet point: ‘Labour cost reduction through call centre relocation/downsizing.”

“Today the principal activity of any publicly held company is rarely the creation of products to satisfy a market need. Management attention is instead largely directed towards the invention of plausible sounding efficiency narratives to satisfy financial analysts, many of whom know nothing about the businesses they claim to analyse, beyond what they can read on a spreadsheet.”

Psychology

“In psychology, one plus one can equal three.”

“We don’t value things we value their meaning. What they bare 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 notice this by now.”

Nearly all really successful businesses, as much as they pretend to be popular for rational reasons, owe most of their success to have stumbled on a psychological magic trick, sometimes unwittingly. Google, Dyson, Uber, Red Bull, Diet Coke, McDonalds, Just Eat, Apple, Starbucks and Amazon have all deliberately or accidentally happened on a form of mental alchemy.”

“According to research from the University of Illinois, descriptive menu labels raised sales by 27% in restaurants, compared to food items without descriptors.”

“So much for economic orthodoxy - in fact, it is not uncommon for premium priced products to have a high market share, as any of those financial analysts might have realised had they reached into their pockets to find an I-phone or the key to an Audi.”

If there is a mystery at the heart of this book, it is why psychology has been so peculiarly uninfluential in business and in policy making when, whether done well or badly, it makes a spectacular difference.

“If a customer has a problem and a brand resolves it in a satisfactory manner, the customer becomes a more loyal customer than if the fault had not occurred in the first place.”

“Much of the paraphernalia and practice of the military - flags, drums, uniforms, square-bashing, regalia, mascots and so forth - might be effectively bravery placebos, environmental cues designed to foster bravery and solidarity.”

“People want cheap, abundant and nice tasting drinks, surely? And yet the success of Red Bull proves they don’t.”

Hiring

I have never seen evidence that academic success accurately predicts workplace success.”

“It is now common practice in British firms to interview people with an upper second-class degree or above, a criterion that is applied with no evidence but simply because it is logical.”

An unconventional rule for spotting talent that nobody else uses may be far better than a ‘better’ rule which is in common use, because it will allow you to find talent that is undervalued by everyone else.”

Diversity

“As I always advise young people, ‘Find one or two things your boss is rubbish at and be quite good at them.’ Complementary talent is far more valuable than conformist talent.”

Summary

Every investor needs an edge and seeing things that others don’t can be one of those. Building a latticework of mental models provides more tools. As Charlie Munger warns, ‘to a man with a hammer, every problem looks like a nail.’ One of my favourite mental models is Sutherland’s observation about the bees and the waggle dance. There’s a real analogy here for investors. If you keep doing the same things, buying the same types of investments, you might risk missing the changing world. In our portfolio we’ve started to experiment with very small positions in businesses we’d likely have overlooked a few years ago. We make an effort to read and listen to investors in adjacent disciplines like venture capital and private equity. We keep pushing into broader intellectual fields to identify lessons and mental models we can incorporate in our own investing. And we listen to investors we disagree with who test our long held assumptions about how we define successful investing. We’re hoping, like the bees and the waggle dance, it will help us survive and flourish over the long term.

Sources: ‘Alchemy’ by Rory Sutherland. 2019. Harper Collins

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