
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
- If people don’t behave according to our theory, it’s likely that the theory is wrong, not people’s behavior
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
- Decisions need to consider epidemiological, ethical, behavioral aspects
- 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
- Bullish on nicotine, bearish on smoking
- 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
- The importance of network effects and our lack of vision in technology adoption