December 8, 2020

Rory Sutherland – The Psychology Of Irrationality #255 | Modern Wisdom with Chris Williamson

Check out the Modern Wisdom Podcast Page & Episode Notes

Key Takeaways

• “To be brilliant you have to be irrational” – Rory Sutherland
  • Nearly all disproportionately successful businesses obtained their success because of, not despite, some seemingly irrational component in their offering
  • “Conventional marketing approaches probably encourage us to make products that are kind of ok” Rory Sutherland
• The Adult Entertainment industry has adopted many technologies well before other businesses
• If people don’t behave according to our theory, it’s likely that the theory is wrong, not people’s behavior
  • Human behavior is the result of thousands of years of evolution
• If you’re selling a product online, don’t overwhelm customers with too many choices

Key Products Mentioned

• Rory’s book: Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life

Intro

• Rory Sutherland (@rorysutherland) is a best-selling author and Vice Chairman of Ogilvy Group, one of the largest advertising agencies in the World
  • Check out these podcasts notes from Rory’s appearance on the Infinite Loops Podcast
• Host: Chris Williamson (@ChrisWillx)
• In this chat, Rory and Chris discuss the many ways in which irrationality influences the world we live in

Tik Tok’s Success and The Paradox of Choice

• Tik Tok is like video Twitter
  • Everybody wants to make music videos of their own lives
  • Tik Tok makes it very easy and manageable
• It’s useful to see Tik Tok, Facebook, and Twitter through the lens of choice reduction
  • Myspace gave you too much choice, most pages ended up looking like crap
  • Facebook and Twitter imposed an aesthetic constraint, limiting the variables you need to pay attention to
  • Tik Tok is doing that in a different way, making music video creation really easy and dependent on a few variables
• The paradox of choice
  • Conventional wisdom says that the more choice you have the better off you are
  • In reality, if you give people too many choices they’ll end up being less happy
    • Resentment and doubt will kick in
• If you’re selling a product online, don’t overwhelm customers with too many choices

The Value of Paper and Why Vote in Person

• Compared to digital, there are some things that benefit from being done on paper
• Paper gives a higher degree of trust
  • If in a hotel or a cab you see the rate written on paper, you can trust that it’s the same rate being applied to all customers
  • If it’s written digitally, you may worry that the cab driver just increased the price for you
• Paper can be faked individually but not massively
• If the voting system were digital, it could potentially be hacked and be totally meaningless
  • Such a massive issue could not arise with paper
  • It is very important that the democratic process be seen as honest
    • When you have digital or postal voting the honesty of the process starts to be doubted
• In the long-term, the practice of wide-spread postal voting might get concerning
  • People at home might be coerced to vote for someone
  • Privacy may not be there
  • Physically going to the voting booth makes people realize the importance of their action

Credit Cards and Design Failures

• Credit cards are a big design failure
  • Initially, they were not designed for the numbers to be read, they were only meant to be swiped
  • Somehow many cards maintained their old design style, with hard to read numbers and CVV code that blurs off
• Most products are designed by 27 years old working on large monitors on their desks
  • What looks good on their screen, doesn’t necessarily look good in real life

Are Social Sciences A Scam?

• Nassim Taleb argues that social sciences are unfalsifiable and thus not to be trusted
  • Rory’s career is built on insights from behavioral psychology and he’s good friends with Taleb
• Rory sees social science as an area of inquiry, but not one to create rules
  • Social sciences broaden the range of possible explanations for human behavior
• Taleb gets annoyed when we use the theory to infer how people should behave and then try to nudge them to behave that way
  • If people don’t behave according to our theory, it’s likely that the theory is wrong, not people’s behavior
    • Human behavior is the result of thousands of years of evolution
  • “You’re giving your model far too much credence if you start blaming the person before you start blaming the model” – Rory Sutherland
  • Economics would expect more young people to invest in their pension
    • Their model doesn’t account for the fact that young people are much more concerned with finding a life partner than worrying about their pension

The Interesting Side of the Adult Entertainment Industry

• The Adult Entertainment industry has adopted many technologies well before other businesses
  • Online payment mechanisms
  • Video streaming
  • Video conferencing
• Another interesting aspect of this industry is its decentralized nature
  • Until now there hasn’t been a “winner take all” tendency in the market

How can We Improve The Public’s View of COVID Restrictions?

• Rory is not yet sure on this, as it is a very complex issue
  • Decisions need to consider epidemiological, ethical, behavioral aspects
    • For example, if you lock down too early and people don’t have time to prepare, you’ll cause chaos
• It needs to be visible when someone breaks the rules
• He’s generally favorable to mask-wearing
  • Masks act as the bottle-neck of transmission, protecting the ones wearing them and those around them
  • But masks should not be the only focus
    • We should look more at ventilation, indoor air filters, ultra-violet lights, and sprays that kill viruses
• Rory is sympathetic with the government’s challenges
  • “The only people who know exactly what we should have done are all working in journalism” Rory Sutherland
  • Most of the time we don’t know what we’re doing, but we pretend we know
    • We will actually know what we should have done in 2 years

Why do People Pay 10x the Price of a Book For a Course?

• There might be several components playing a role in this
• “Nespresso Effect”
  • Nespresso’s branding had people compare it to Starbucks, not to home coffee
  • The course is compared to a training program, which seems more valuable than a book
• People value the feeling of a community of people working on the same thing
• People are willing to pay more if they think it took more resources to produce a product
  • We know that the marginal cost of printing a book is almost zero
  • In some cases, the course creator has to put time and effort beyond the creation of the course
• Courses feel like they will are more likely to help you achieve your outcome
• Paying a higher price for it, helps you commit to actually finish the course and implement its lessons

The Value of Irrationality

• “To be brilliant you have to be irrational” Rory Sutherland
• Nearly all disproportionately successful businesses obtained their success because of, not despite, some seemingly irrational component in their offering
• Assume that in the 80s you analyzed the market to see if there was room to introduce a $700 vacuum cleaner
  • Vacuum cleaners were seen as a necessary but not pleasant purchase
  • Competing products were sold for a maximum of $300
  • No customer would have shown willingness to buy it
• “Conventional marketing approaches probably encourage us to make products that are kind of ok” Rory Sutherland
• We lack metrics for human emotions
• We try to improve emotional states by optimizing variables that don’t correlate to emotions at all
  • We work on engineering problems assuming that they will solve emotional problems
  • For example, we only try to improve the train journey by making faster trains
  • Uber’s success is not due to faster cars or shorter wait time
    • Uber reduced the uncertainty of calling a cab because you know exactly where it is and when it will pick you up

Bull or Bear Game

• A game that Chris plays with guests where he mentions a topic and the guest has to say whether he is bullish or bearish about it
• QR Codes in restaurant menus
  • Bear
  • Creates an unnecessary level of friction
• Sex-Robots
  • Something that Rory doesn’t quite understand yet
  • Bearish, but he doesn’t think they would reach large market “penetration”
• Smoking and Vaping
  • Bullish on nicotine, bearish on smoking
    • There might be some mental benefits that we have failed to acknowledge
• Fast-Fashion
  • The tragedy of fast fashion is that they give a quick endorphin kick, for a small amount of money

Additional Notes

• It’s an absurd assumption of economics to assume that utility is additive
  • A lot of things in human life are more multiplicative than additive
• Biggest Lesson from 2020
  • The importance of network effects and our lack of vision in technology adoption
    • The value of Zoom only became apparent once everyone was forced to use it

Modern Wisdom : behavioral economics, marketing, psychology
Notes By Giorgio Parlato