Alchemy
by Rory SutherlandProvocation for a too-rational world. Exploring why the best ideas don’t always make sense - they make you feel more than they make you think.
A knowledge of the human physique is considered essential in designing a chair, but a knowledge of human psychology is rarely considered useful, never mind a requirement, when someone is asked to design a pension scheme, a portable music player or a railway.
Universal Models of Behaviour
In our addiction to naïve logic, we have created a magic-free world of neat economic models, business case studies and narrow technological ideas, which together give us a wonderfully reassuring sense of mastery over a complex world. Often these models are useful, but sometimes they are inaccurate or misleading. And occasionally they are highly dangerous.
‘Context’ is often the most important thing in determining how people think, behave and act: this simple fact dooms many universal models from the start.
Logic requires that people find universal laws, but outside of scientific fields, there are fewer of these than we might expect.
Once you accept that there may be a value or purpose to things that are hard to justify, you will naturally come to another conclusion: that it is perfectly possible to be both rational and wrong. Logical ideas often fail because logic demands universally applicable laws but humans, unlike atoms, are not consistent enough in their behaviour for such laws to hold very broadly.
Have a contrarian mindset
The fatal issue is that logic always gets you to exactly the same place as your competitors.
Valuable discoveries don’t make sense at first; if they did, somebody would have discovered them already. And ideas which people hate may be more powerful than those that people like, the popular and obvious ideas having all been tried already.
If you never do anything differently, you’ll reduce your chances of enjoying lucky accidents.
Perhaps it is necessary to deviate from standard rationality and do something apparently illogical to attract the attention of the subconscious and create meaning
Meaning is disproportionately conveyed by things that are unexpected or illogical, while narrowly logical things convey no information at all.
Without these rogue bees, the hive would get stuck in what complexity theorists call ‘a local maximum’; they would be so efficient at collecting food from known sources that, once these existing sources of food dried up, they wouldn’t know where to go next and the hive would starve to death.
As I always advise young people, ‘Find one or two things your boss is rubbish at and be quite good at them.’ Complementary talent is far more valuable than conformist talent.
Unconscious Motivations
There are often two reasons behind people’s behaviour: the ostensibly logical reason, and the real reason.
People are much more comfortable attributing the success of a business to superior technology or better supply-chain management than to an unconscious, unspoken human desire.
For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.
People simply do not have introspective access to their motivations.
It is only when we abandon a narrow logic and embrace an appreciation of psycho-logical value, that we can truly improve things. Once we are honest about the existence of unconscious motivations, we can broaden our possible solutions. It will free us to open up previously untried spaces for experimentation in resolving practical problems if we are able to discover what people really, really want, rather than a) what they say they want or b) what we think they should want.
Sometimes human behaviour that seems nonsensical is really non-sensical – it only appears nonsensical because we are judging people’s motivations, aims and intentions the wrong way. And sometimes behaviour is non-sensical because evolution is just smarter than we are.
And so we have faster trains with uncomfortable seats departing from stark, modernist stations, whereas our unconscious may well prefer the opposite: slower trains with comfortable seats departing from ornate stations.
Revealed behaviours
Consumer behaviour, and advertisers’ attempts to manipulate it, can be viewed as an immense social experiment, with considerable power to reveal the truth about what people want and what drives them. What people do with their own money (their ‘revealed preferences’) is generally a better guide to what they really want than their own reported wants and needs.
The only way you can discover what people really want (their ‘revealed preferences’, in economic parlance) is through seeing what they actually pay for under a variety of different conditions, in a variety of contexts.
Social Signalling
Around 90 per cent of people have no idea what sort of aircraft they are travelling on or how a jet engine works but will infer a great deal about the safety and quality of the experience offered by an airline from the care and attention it pays to on-board snacks.
In general, people are impressed by any visible extra effort that goes into a product
Without a distinctive brand identity, there is no incentive to improve your product – and no way for customers to choose well, or to reward the best manufacturer.
The Soviets soon found that, without a maker’s name attached to a product, no one had any incentive to make a quality product, which pushed quantity upwards and quality downwards.
Add intricacy: simply adding coloured flecks to a plain white powder will make people believe it is more effective, even if they do not know what role these flecks perform.
Reciprocation, reputation and pre-commitment signalling are the three big mechanisms that underpin trust.
Context
The need to rely on data can also blind you to important facts that lie outside your model.
People are highly contradictory. The situation or place in which we find ourselves may completely change our perception and judgement.
It exhibits no sensitivity to context or to the varying priorities you may have. GPS devices know everything about what they know and nothing about anything else.
The GPS knows only what it knows, and is blind to solutions outside its frame of reference. It is completely unaware of the existence of public transport, and so will suggest that I drive into central London at eight o’clock in the morning, a journey only a lunatic would undertake.
Ergodicity
Many supposed biases which economists wish to correct may not be biases at all – they may simply arise from the fact that a decision which seems irrational when viewed through an ensemble perspective is rational when viewed through the correct time-series perspective, which is how real life is actually lived;
There is, after all, a reason why commuters are offered season tickets – commuting is not commutative, so 100 people will pay more to make a journey once than one person will pay to make it 100 times.
There is an inevitable trade-off between fairness and variety. By applying identical criteria to everyone in the name of fairness, you end up recruiting identical people.
Outliers
In fact, we derive pleasure from ‘expensive treats’ and also enjoy finding ‘bargains’. By contrast, the mid-range retailer offers far less of an emotional hit; you don’t get a dopamine rush from mid-market purchases.
It is a never-mentioned, slightly embarrassing but nevertheless essential facet of free market capitalism that it does not care about reasons – in fact it will often reward lucky idiots.
You are more likely to come up with a good idea focusing on one outlier than on ten average users.
Meanwhile your finance director, lovely guy though he may be, hates experiments involving alchemy because alchemy works erratically; he prefers small certain gains to those which on average will be higher but where the payoff is hard to calculate in advance.
Satisficing
Decision makers can satisfice either by finding optimum solutions for a simplified world, or by finding satisfactory solutions for a more realistic world.
Most darts players aim for the treble 20, because that’s what the professionals do. However, for all but the best darts players this is a mistake: if you are not very good, your best approach is not to aim at treble 20 at all, but instead to aim at the south-west quadrant of the board, towards treble 19 and 16. You won’t get 180 that way, but nor will you score 3. It is a common mistake in darts to assume that you should simply aim for the highest possible score – you should also consider the consequences if you miss.
An approach seeking to minimise variance or minimise downsides often involves behaviour that seems nonsensical to those who don’t understand what the actor is trying to do.
Blame, unlike credit, always finds a home, and no one ever got fired for booking JFK. By going with the default, you are making a worse decision overall, but also insuring yourself against a catastrophically bad personal outcome.
We will pay a disproportionately high premium for the elimination of a small degree of uncertainty – why this matters so much is that it finally explains the brand premium that consumers pay.
We are a herd species in many ways: we feel comfortable in company and like to buy things in packs. This is not irrational – it is a useful heuristic that helps avoid catastrophe.
The strongest marketing approach in a business-to-business context comes not from explaining that your product is good, but from sowing fear, uncertainty and doubt (now commonly abbreviated as FUD) around the available alternatives.
Changing Perception is easier than changing Reality
I think ‘psychological moonshots’ are comparatively easy. Making a train journey 20 per cent faster might cost hundreds of millions, but making it 20 per cent more enjoyable may cost almost nothing.
It’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality.
Their only conception of time-saving applies to time spent in motion – the means by which they aim to improve things are too narrowly defined.
The perception of certainty without being certain
If you want to look like a scientist, it pays to cultivate an air of certainty, but the problem with attachment to certainty is that it causes people completely to misrepresent the nature of the problem being examined,
However, we now unfortunately fetishise logic to such an extent that we are increasingly blind to its failings. For instance, the victorious Brexit campaign in Britain and the election of Donald Trump in the United States have both been routinely blamed on the clueless and emotional behaviour of undereducated voters.
Science seems to fall short of its ideals whenever the theoretical elegance of the solution or the intellectual credentials of the solver are valued above the practicality of an idea.
An attendant problem is that people who are not skilled at mathematics tend to view the output of second-rate mathematicians with an high level of credulity, and attach almost mystical significance to their findings. Bad maths is the palmistry of the twenty-first century.
There is no reason to assume that something is more important just because it is numerically expressible.
The more data you have, the easier it is to find support for some spurious, self-serving narrative. The profusion of data in future will not settle arguments: it will make them worse.
Choice helps, regardless of the choices
One characteristic of humans is that we naturally direct our attention to the upside of any situation if an alternative narrative is available, minimising the downside. By giving people good news and bad news at the same time, you can make them much happier than they would be if left with only one interpretation.
This is one reason why public services and monopolies, even when they do a good job objectively, are often under-appreciated – it is harder to like something when you haven’t chosen it.
Attention -> Behaviour -> Attitude
Never forget this: the nature of our attention affects the nature of our experience.
We think they are being irrational, but the reality is that they didn’t hear what we think we said. In the same way, you cannot describe someone’s behaviour based on what you see, or what you think they see, because what determines their behaviour is what they think they are seeing.
Conventional wisdom about human decision-making has always held that our attitudes drive our behaviour, but evidence strongly suggests that the process mostly works in reverse: the behaviours we adopt shape our attitudes.