Rory Sutherland: Human Behavior, Innovation, and Alchemy (EP.16) | Infinite Loops Podcast with Jim O’Shaughnessy

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Key Takeaways

  • “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” David Ogilvy
  • The role of Marketing in Innovation
    • You need the marketing function along the product function to spread innovations
      • A huge part in spreading the use of vaccines was convincing people to change their behaviors and get vaccinated
      • The technology of Nespresso did not take off until it was popularized as a lifestyle brand by George Clooney
      • Steve Jobs was a great marketer
  • In corporations, people often make decisions with the aim of avoiding blame
    • Quality of reasoning becomes more important than the outcome
  • “Math can give us a lot of confidence in our own wrongness” – Rory Sutherland
  • The way you frame a product totally changes consumers perception and behavior
  • Great marketers know that tiny improvements can achieve tremendous results

Key Products Mentioned

Intro

  • Rory Sutherland (@rorysutherland) is a best-selling author and Vice Chairman of Ogilvy Group, one of the largest advertising agencies in the World
  • Host – Jim O’Shaughnessy (@jposhaughnessy)
  • In this chat, Rory discusses the importance of marketing in innovation and the insights he learned by studying human psychology

Market Research and Human Behavior

  • You cannot rely on logic or on what people say for your market research
    • “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” David Ogilvy
    • Many billion-dollar businesses targeted markets that could have never been thought of by asking customers
      • Examples of Starbucks, Nespresso, Dyson, Uber
  • We think we can predict how we will behave, but we are wrong
    • Our behavior is mostly driven by our emotions
      • We don’t have accurate introspection about our emotions, but we think that we do
      • The brain thinks it is making decisions while it is only rationalizing them after the fact
        • It thinks it’s the President issuing executive orders
        • In reality, it is the Press Secretary confabulating plausible-sounding explanations for decisions taken somewhere else

Reason, Innovation and Marketing

  • In corporations, people often make decisions with the aim of avoiding blame
    • Quality of reasoning becomes more important than the outcome
      • You can’t be blamed if your decision was “reasonable”
    • This makes it impossible (except for entrepreneurs) to experiment with counter-intuitive solutions
      • In complex systems answers often are counter-intuitive
      • This explains why entrepreneurial companies innovate more
  • Innovation is a backward-process
    • Practitioners make the progress, which later is codified by scientists and academics
  • The role of Marketing in Innovation
    • You need the marketing function along the product function to spread innovations
      • A huge part in spreading the use of vaccines was convincing people to change their behaviors and get vaccinated
      • The technology of Nespresso did not take off until it was popularized as a lifestyle brand by George Clooney
      • Steve Jobs was a great marketer

Leveraging Selfish Reasons for Community Benefit

  • One of the main improvements in public health was that people wash regularly
    • Soap advertisements never encouraged people to wash themselves to prevent community disease
      • The message was that people who didn’t use soap would smell and be lonely
        • It doesn’t matter that people used soap for selfish reasons, it achieved the socially beneficial objective
  • Pure altruistic reasons sometimes get in the way of the success of social movements
    • They work on a few individuals but they don’t scale
  • Tesla cars appeal to people who don’t care about the environment

Human Have a Need for Certainty

  • We get very dissatisfied when we know we don’t have information
    • People feel less upset when you tell them their flight was delayed by 90 minutes, then if you just say it was delayed
      • Knowing how long they have to wait, they can arrange their time
  • Uber’s success leveraged our need for certainty
    • With Uber, you know exactly where your driver is and when it will pick you up

Framing Is Everything

  • The way you frame a product totally changes consumers perception and behavior
    • It’s a way to arbitrage human nature
  • Nespresso was able to sell because it made customers compare it to Starbucks, not home coffee
  • To convince his dad to buy Cable TV, Rory compared it to his daily newspaper expenditure
    • Once he showed that Cable would cost $0.66/day, against the $2 his dad was spending on newspapers, buying cable became a no-brainer

Beyond Determinism there’s Magic

  • “We are deterministic beings living in a probabilistic world” – Jim O’Shaughnessy
    • Aristotle’s influence contributed to making us so deterministic
      • Everything is either yes/no, on/off, black/white
        • But that’s not how the real world works
  • By being so deterministic, we lose the possibility for magic
    • We assume that to improve travel we must make the journey faster
      • Great marketers know that tiny improvements can achieve tremendous results
        • Virgin gained an edge by introducing the entertaining system for coach passengers
          • It was a small cost for the airline, but it totally shifted consumers’ perspective
  • Advertising may look least effective when it’s doing the most work
    • It takes time to change social norms
    • Early on, advertising may look like it’s not bringing results, while it is shifting people’s attitudes
      • Later advertising may look more effective
      • But its effectiveness may depend on the earlier campaigns

Why Business Decisions are More Affected by Bias

  • In personal decision-making, you don’t have to justify all your decisions
    • You can rely on heuristics and intuition which you don’t fully understand
  • In a business environment, we are forced to justify every decision on a spreadsheet
  • Learning to become comfortable with uncertainty allows you to take advantage of massive opportunities that you otherwise couldn’t pursue
    • “Doubt is certainly not a pleasant condition, but certainty is absurd” Voltaire

The Economy and Innovation

  • Unintentionally, markets allow for creativity to continue indefinitely
    • Many of the products we love the most sounded crazy before they were brought to market
      • Who could have thought that people would pay $700 for a Dyson vacuum cleaner?
      • Who could have predicted that Zoom could emerge against some of the biggest tech companies in the world (Google, Microsoft)?
  • “Capitalism is the world’s best-funded social science experiment” – Rory Sutherland

Stated Preferences and Virtue Signaling

  • **By virtue-signaling, people tend to not reveal their true preferences **
    • In the 2016 US election polls, many people didn’t reveal their preference for Donald Trump
    • People tend to adopt the most visible “environmentally friendly” measures to show-off
      • While they don’t adopt other important measures that can’t be easily seen from the outside
    • “Don’t tell me what you think, show me what’s in your portfolio” Nassim Taleb
  • The most passionate devotees of a cause tend to hurt it more than help it
    • They virtue-signal so much, they become an obstacle to the cause
      • Super-strict vegans make veganism less attainable for other people
        • Doing so they put off moderates and end up hurting their cause

Tweaking the Tax System to Reveal Preferences

  • Rory suggests turning tax cuts into optional tax rebates
    • People could decide whether to accept the full rebate or to donate part of it to a particular cause
      • This would increase donations because it’s easier to forego a benefit than to make a loss
    • Making the names of those who donate publicly available would create ‘skin in the game’ and reveal true preferences

On the Dangers of Math

  • “Math can give us a lot of confidence in our own wrongness” – Rory Sutherland
    • You can pick a certain statistic and state it out of context, and it can be presented as an undeniable fact
      • In reality, without more complete information, that fact may be incredibly misleading
  • The number of people who think they understand statistics is much larger than those who actually do
    • Most politicians are not experts in mathematics or statistics
  • “Inflation is the sneakiest tax in the world, because people don’t understand it” – Jim O’Shaughnessy

Additional Notes

  • We are mimetically driven
    • If you leave people to their own devices, they will copy other people
    • That’s why Zoom was so slow to take off until the pandemic
      • Everybody else was having physical meetings, virtual ones were considered “unusual”
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Notes By Giorgio Parlato

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