The best thinkers are those that are able to cross disciplines, deploying theories from one area into others. One man who does this exceptionally well is Rory Sutherland. As Vice Chairman of Ogilvy in the UK he is an ad-man. But he is also a student of behavioural economics, evolutionary psychology and complexity economics, which he prospects for ideas to help him understand consumer behaviour.
He recently spoke in London to launch his latest book Alchemy, The Surprising Power of Ideas That Don’t Make Sense, and I went to hear him.
Sutherland’s theme is that as a society we are too much in the thrall of logic. While useful at tackling many problems, not least in the physical sciences, raw reason is not the best way to deal with problems of human behaviour. That’s because people aren’t rational. We are a product of evolution, and evolution seeks to optimise for fitness not for objectivity. Human features like self-delusion and over-optimism arguably provide evolutionary benefits even though they impede objectivity. In a trade-off evolution would sacrifice 20% accuracy for even a 1% pick-up in fitness.
And yet most decision making, including at national level, is made by professionals – like economists and engineers – whose models are predicated on rational principles. Sutherland argues that we have created an institutional class that is obsessed for being logical, sustained through an education and power system that selects and rewards on the ability to display reason. Such is the dominance of logic-based professionals that creative types typically need to seek their approval for projects – but never the other way around. Creative solutions that defy traditional logic – even if they work – are seen as cheating, somehow lacking in purity, which is why marketing gets such a bad press.
Of course, many solutions do require a rational solution. Sutherland says, ‘I don’t want a conceptual artist in charge of air traffic control’. However, he argues that in decisions where the definition of success involves some element of human perception, the solution has to allow for that.
He illustrates his idea with a look at HS2, the UK government project to build a high-speed railway running from the north to the south of England. The cost of the project is £60bn and he thinks it’s a vast waste of money. The government’s case is twofold: that the new railway will save time by allowing new, faster trains and that it will increase capacity. Sutherland’s case is that passengers don’t necessarily mind how long they spend on a train – their productivity doesn’t collapse to zero when they board a train and it may even go up. It’s the waiting around they don’t like, and that, as well as capacity issues, can be resolved with cheaper app-based solutions. But the engineers running the project see it as an engineering problem rather than one of passenger experience. They claim a monopoly on finding a solution to the problem and in so doing they fall into the trap of defining improvement too narrowly.
Sutherland’s interest in HS2 follows the interest he once had in Eurostar. He spoke about it in his TED talk in 2009. At the time he argued that rather than spend £6bn making the Eurostar faster in order to compete with air travel, why not address all the other dimensions where air travel cannot compete. The train already benefited from less stages of “dicking around” but introduce wi-fi, add desks, even get all the world’s top supermodels to walk up and down the aisles handing out free Château Pétrus, and the train company would save money and passengers may even ask for the trains to be slowed down. His suggestion was treated as absurd on the basis that any perceived improvement would be psychological, which would render it somehow unreal. But, according to Sutherland, ‘in human behaviour psychological improvements are the only thing that matters, because we don’t make decisions objectively’.
It’s not just from trains that Sutherland finds examples of the curious ways in which humans operate. His razor-sharp sense of observation provides him with a rich source of anecdotes on which to draw. His collection rivals that of Richard Thaler who outlined a list, in his book Misbehaving, of things people do that are inconsistent with the economists’ model of rational choice.
- Sutherland asks why patients in an accident and emergency ward prefer to go into a new waiting room after seeing the triage nurse rather than return to the waiting room they initially entered. He concludes that they like the feeling of moving along a process and that hospitals would do well to note that patients ‘care about how they are treated just as much as they care about how they are treated’.
- He speculates that the collapse in trust of banks has less to do with banks themselves and more to do with people not knowing their fellow customers. In days gone by, when banks where the embodiment of trust, customers from the same local community knew and trusted one another. What’s more the bank manager knew that they knew each other. If something went wrong – if the bank quietly put up its fees, say – someone in the group would notice and alert the others. It’s the reason antelope stay with the herd. Alone they could find better grazing, but they would need to spend more time on the lookout for predators; in the group they need only pay heed to the most neurotic member. There is a basic network effect in human decision making which can be lacking in economists’ models. As an aside, this analysis leads Sutherland to think that the future of financial services may be employer-provided.
- He wonders why nobody will pay $2 for a private audience with Ed Sheeran in Melbourne when tickets to his concerts typically sell for hundreds of dollars and which people would queue for hours to buy. Check it out here. The reason is context, something economists’ models don’t adequately factor in.
- He questions whether people use toothpaste for dental hygiene, or whether they really use it to maintain fresh breath – the reason why the vast majority of the toothpaste sold in the world is mint-flavoured. JP Morgan once said, ‘A man always has two reasons for doing anything: a good reason and the real reason.’ Sutherland extrapolates that huge social benefits can be garnered by appealing to people’s selfish instincts. The widespread adoption of soap hundreds of years ago fostered all the benefits of public hygiene and cleanliness but at the individual level it was adopted by people because it made them smell nice. By the same token concern about polar bears today may cut it for 10% of the population, but the majority want to see some personal upside from adopting more environmentally conscious behaviours.
Most of the oddities of human behaviour that Sutherland identifies can be explained via four concepts – Signalling, Subconscious hacking, Satisficing and Psychophysics. Each of them falls outside the realm of objective analysis. Sutherland has described them before in his TED talks and on podcasts and he opens a spigot of real-world examples in his book.
- Signalling is the idea that humans attach significance to a communication proportional to the cost of generating or transmitting it. An expensive or well-designed wedding invitation will command more attention than an e-card. The sunk cost of expensive advertising signals a brand’s permanence.
- Subconscious hacking is the idea that a situation can be framed to provoke a different outcome. The movie Vice touches on how the words ‘climate change’ elicit a different response in the public than the words ‘global warming’; the same between ‘estate tax’ and ‘death tax’. Sutherland wonders if the outcome for Nick Clegg and his Liberal Democrat Party in the UK would have been different had he framed ‘university tuition fees’ as a ‘graduate tax’.
- Satisficing is the observation that when people make decisions in an uncertain setting, they care not only about the expected outcome but also the possible variance. They are prepared to pay a premium not only for something better, but to ensure that it is not terrible. This is the reason people buy brands.
- Psychophysics is the study of the neurobiology of perception and how what we see, hear, taste and feel differs from ‘objective’ reality. It explains how TV screens are able to show us a full range of colours even though they are only capable of producing blue, green and red photons. It explains why we think the Parthenon has straight columns when closer inspection will reveal that it doesn’t.
Sutherland’s ideal model of the world is the one practiced by bees. In order to share information about the location of pollen and nectar, bees perform a waggle dance. Yet around 20% of bees typically ignore the dance and go off in their own direction. Sutherland jokes that after 20 million years of bee evolution it is a surprise that bee compliance officers haven’t evolved to ensure that all the bees hit target. The reason the rogue bees exist though is because bees knows that their lives are not like a “maths GCSE” where there is a single right answer, and that their model of the world is always temporary and imperfect. That model may be the best they have, but every now and again it is worth investing in exploring things that are unknown. Most of the rogue bee journeys tend to be wasted, but every now and again they discover a new source of nectar. Complexity theorists have shown that without the rogue bees, the hive gets trapped in a local maximum and starves to death. A trade-off between exploitation and exploration/experimentation is critical to flourish.
The title of the book, Alchemy, is a reference to the alchemist’s trick not in understanding universal laws, but in spotting the many instances where those laws do not apply. Sutherland suggests that what he and his team do at Ogilvy is the ‘science of knowing what economists are wrong about’. He invites his readers to defend against logical overreach and inject more alchemy into their lives. Here are his rules:
For more on Rory Sutherland, watch his TED talks, listen to his podcast appearances on the Knowledge Project and Real Famous, read Mike Dariano’s notes here and David Perell’s notes here. And read the book!