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

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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

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: 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
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Notes By Giorgio Parlato

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