Transcription
What I'm talking about a little bit here is the behavioral science of behavioral science, which is why it's so difficult to sell behavioral science solutions within business, or government, or policy making.
And the reason I refer to the placebo. I think there's a parallel in medicine. If you look at medicine, when you give someone a treatment, you give them a drug. There's the medicinal chemical effect of the drug, and there's also the placebo effect of the drug, which seems to be somehow visceral or psychological, but it nonetheless aids healing. In fact, developing breakthrough drugs seems to be getting more difficult because, for some reason they don't understand, the placebo effect seems to be getting stronger.
And the strange thing when you look at it is that what medical testing does is it tries to subtract the placebo effect from the overall effect of the drug plus the placebo, by dint of having a randomized trial to prove the efficacy of the drug itself in isolation. Okay, now think about this for a second. This is a little strange because if the placebo effect works and the drug works, then the most efficacious treatment is surely drug plus placebo. And you should devote quite a lot of research to maximizing the placebo effect, just as you dedicate research to increasing the pharmacological power of the drug itself.
But science is so uncomfortable with the placebo effect because it can't wholly explain it. There are theories which attempt to explain it simply, that the body is triggered by certain stimuli into investing more heavily in the immune response. That's why you possibly get ill more in the winter than the summer, because your body is more conservative in its investment in immune response in the winter, when you could starve to death or freeze to death at night. Whereas in the summer, when food tends to be abundant and the evenings tend to be warm, the body's happier to let the immune system kind of kick up to 11, to the max.
But the strange thing about medicine is it spends all its time trying to subtract a healing effect from another healing effect, whereas logic would suggest you make them as powerful as they possibly can be in combination. They may even have multiplicative effects rather than additive effects. We don't fully know, by the way.
But just to give you a few examples, um, painkillers are more powerful if they're red. Sleeping pills are more effective if they're blue, except in Italy. Do you know this? And the theory is that you, the color blue is associated with your national sports teams, the Azzurri. And so, whereas for the rest of us blue is a kind of soporific color, for you it actually gets you into passion and excitement. That strikes me as a bit of a post-rationalization, but we'll park that for the moment. Okay, painkillers are more effective if you tell people they're expensive. Painkillers are more effective if they're branded. There are loads and loads of contextual effects like this. Um, food will taste sweeter if it's rounder. When Cadbury's changed the shape of their individual chunks to make the bars more fun, they were bombarded with complaints saying they'd changed the formulation of their chocolate. They hadn't. If you change the shape of something, you change the taste. It may explain why children's lollipops tend to be round. Uh, the Chupa Chups logo designed by Salvador Dalí, by the way. Interesting bit of trivia. The Chupa Chups is round because children just want something that's bonkers sweet. As you get a bit more sophisticated, you probably don't want that anymore.
Um, a few other examples. Wine tastes better if you tell people it's expensive. Wine tastes better if you pour it from a heavier bottle. And of course, the strongest effect of all, your car. When you have it validated or cleaned, isn't just a cleaner car, it's a better car altogether, isn't it? It drives better, it's quieter, smoother, the ride's improved. Everything about it gets better.
But I had a friend who was an engineer, and he was really uncomfortable with this business that every time he got his car cleaned, it seemed to be a much better car. And he refused to believe it was psychological. So he developed lots of bizarre theories, like the act of cleaning the car tortons the body panels, so there's less vibration. Complete rubbish. It's entirely psychological.
Okay, if you change the story about something, you change its meaning. If you change the meaning, you change its our visceral response to it. And if you change our visceral response to it, you basically change our evaluation of it. It becomes a different thing.
Okay, so things are not things. We don't actually respond to things. We respond to things in a context from which we derive meaning. The meaning drives an emotion, the emotion drives the behavior, and the behavior then drives an act of furious post-rationalization. That's essentially how decision-making works. Slightly different in B2B, of course. In consumer decision making, we're trying to minimize the risk of regret. And in business to business decision making, we're trying to minimize the risk of blame.
"Okay, no one ever got fired for buying IBM" is probably the most insightful B2B sentence ever written. That's the deep down motivation. Those who don't know much about this, good gigarensa risk savvy, for example, is a fantastic writer on this subject of defensive decision making.
And if you think it's a problem in business decision making, it's a problem in medicine because instinctively doctors know they can be sued for doing nothing, but they won't get sued for doing something. And so doctors have an inherent bias towards over-intervention for fear that you're the one in the hundred person case where they tell you to go away and it's nothing, and it turns out to be something serious. So that leads to effects in France, for example, where something like 35% of the people in France in hospital are there principally because of over-medication. I mean, it helps that they're a bunch of hyper-contracts as well, but, um, but nonetheless, it's also a product of defensive decision making.
Now, the interesting thing is, I think we do exactly the same thing with economic value. We instead of saying, let's multiply the perceptual value and the intrinsic value, we try and subtract the one as though it doesn't count. And I think this all goes back to a wrong turn that economics took.
This is a quote, a fascinating quote from Ludwig von Mises, who is, I suppose, from not far from here. He's one of the founding fathers of the Austrian school of economics. The Austrian school of economics, interestingly, believed that value was simply something constructed in the mind. And their definition of value was, value existed when someone, for whatever reason, was prepared to pay some money for it. And they didn't ask any questions about whether that value was intrinsic or whether it was psychological, because they didn't think the decision was meaningful in terms of human behavior.
And when von Mises says this, the other people in the Austrian school would include Schumpeter, Hayek, um, and, um, Schumpeter, by the way, was best friends with Peter Drucker's dad. So Peter Drucker, the marketing writer, is effectively an Austrian school economist. That's why he says things like, um, "There are only two sources of value creation in a company: there's innovation and there's marketing. Everything else is a cost." Okay.
Now, a non-Austrian wouldn't say that. When Ludwig von Mises writes this, "There's no sensible distinction to be made in a restaurant between the value created by the man who cooks the food and the value created by the man who sweeps the floor." He explicitly means by the man who sweeps the floor, he means marketing. The man who cooks the food, manufacturing. The man who sweeps the floor, marketing. The Austrians believed that just as I would say, look, if you can maximize the placebo effect, what's the problem?
Okay. Now, interestingly, the people who make Nurofen got into trouble in Australia because a bunch of killjoys of the Australian Competition Commission said that what they were doing was wrong. They were charging more for Nurofen, which was chemically identical, but they were putting it in fancy packaging and they were giving it a claim that it worked for a specific reason. Nurofen for period pain, for example. Okay. And it was identical to standard Nurofen. It cost more, and the packaging made a specific claim. Now, tragically, of course, making it more expensive made it a better placebo. And claiming it served a specific purpose also made it work more effectively against period pain. But this, according to the Australian Competition Commission, is cheating because the two products were chemically identical, even if they were psychologically different.
I don't think they went far enough. I would have had, I've lost my car keys Nurofen, and Nurofen for people whose neighbors like reggae. I think you could have taken the whole concept much further. But no, the Australian Competition Commission stamped on it. I'm the only person in Britain who complains that you can't get expensive aspirin anymore. Aspirin isn't protectable, it's not copyrightable, so it's sold as a generic and it costs about 89p. Sorry, something that costs 89p isn't going to work on my headache, right? I haven't got an 89p headache. I've got a three pounds 50 headache.
Okay. Now, what he's saying is the psychological value, essentially created by the man who sweeps the floor, he creates the context in which you eat the meal. And there's manufacturing value in the guy who cooks the food. But it's a senseless exercise to try and separate the two because if they result in someone paying for something, then by definition, that's value creation. You can, by the way, if you serve Michelin-starred food in a restaurant that smells of sewage, nobody will enjoy the meal. I think we can agree with that. Okay.
Similarly, you can actually take KFC, put it on a white china plate, and dress it up with a lot of fresh vegetables. And you take it to an organic food fair in the Netherlands because they've done this, and everybody goes, "Oh, it's marvelous. You can taste the authenticity." Right. That actually, our perception is hugely affected by context. And the Austrians would say, "Great. What's wrong with that? It's a really efficient, and I might add, environmentally friendly way of creating economic value because you don't have to make anything, you don't have to chop anything down, you don't have to burn anything. You've just got to tell a story around a pre-existing something or other, and you create economic value." Great. What's the problem? Again, the placebo effect. What the hell's the problem? Right. It's good.
Okay. But unlike the Austrians, most of economics took a wrong turn. That isn't Brian May of Queen, just in case you wondered. It's actually Isaac Newton. Um, but what mainstream neo-liberal economists tried to do is they tried to model economics on physics and they tried to make it perfectly mathematically tractable with universal, generalizable laws that apply to everybody, in every species, indeed to everything, with the idea of basically utility maximization.
If you notice, okay, this chap had the second law of thermodynamics: energy cannot be created or destroyed, it can just take its separate form. Milton Friedman gets on the act with, "There's no such thing as a free lunch." In other words, in Milton's world, it's like a Newtonian world. You can't create value out of nothing. It has to be manufactured. It has to involve labor or raw materials or something of that kind. And if you've wondered any marketers in the room, why your finance department hates you, this is why. Okay? Because if you've been taught standard mainstream economics, you are taught first of all that value is intrinsic in the product, and that the way in which you present the product, or the way the person perceives the product, should have no effect on its value. Secondly, you're taught that everybody, okay, is possessed in your model of perfect information and perfect trust and stable preferences. There are a lot of other assumptions as well. Transitive preferences, for example, that's an assumption of economics. Okay?
Now, I don't know if you spotted this, but in that imaginary world, where you have Homo economicus who populates all economic models, perfect information, perfect trust, stable preferences, okay, there'd be no need for marketing to exist. In fact, it would be pointless because people already know what they want, they know how much utility they'll derive from buying it, therefore they know how much they're prepared to pay for it. And therefore, the only exercise is to try and find the lowest possible cost. Okay?
Now, that explains why people in finance hate marketing because they're not Austrian in their view of the world. Marketing is a necessary evil. It's a cost to be minimized, not a source of value creation. So the finance model and the economic model of the world sees marketing activity not as a source of incremental value. It sees it essentially as an inefficiency. It's something of which you do as little as is strictly possible. And that belief, by the way, also affects cultures like Silicon Valley. It affects engineering cultures. It affects finance cultures. But it's a widespread thing that marketing, like the placebo effect, is a purity, is an impurity to be disposed of, not a source of value.
Just to be clear about this. My grandfather was a doctor in the 1920s and 30s in a mining town in South Wales. And he said, to be absolutely honest, before penicillin, before antibiotics came in, if you're a general practitioner, the majority of what you did was placebo. It was shamanism. It was reassuring people. It was making people feel confident, making them feel cared for, making them feel comfortable. The medicinal part of your job, up to antibiotics, unless you're a surgeon, was actually the whole pharmacopoeia you had access to was mostly pretty useless, to be absolutely honest.
And so in this world where you, nothing can be created or destroyed, there's no room for magic. And if you don't believe in magic, you don't look for magic. And when people present you with magic, you don't believe it. In fact, you explain it away. And this, to me, causes a huge loss in the potential for value creation because the simple thing, very, very simple thing about the human mind, and not only the human mind, the primate mind, is we don't perceive things objectively. We don't value things objectively. In fact, the context of something determines our reaction to it. Therefore, if you want to make something more valuable, you can either change the thing itself, or you can change the context. Right?
If you think about it, there are only two ways to produce a valuable product: innovation and marketing. One of them is finding out what people really, really want, to quote the Spice Girls, and working out a really clever way to make it. The other way is to find out something you can make and find out a way to make people want it. Okay? And there's no sensible distinction to be made between doing it in one direction or doing it in the other.
Now, just to prove this, experiment that I want to mention to you is our fairness study. And so this, this became a very famous study, and there's now many more because after we did this about 10 years ago, it became very well known. And we did that originally with capuchin monkeys. And I'm going to show you the first experiment that we did. It has now been done with dogs and with birds and with chimpanzees. Um, this, but with Sarah Blossom. And we started out with capuchin monkeys.
So what we did is we put two capuchin monkeys side by side. Again, these animals, they live in a group, they know each other. We take them out of the group, put them in a test chamber. And there's a very simple task that they need to do. And if you give both of them cucumber for the task, the two monkeys side by side, they're perfectly willing to do this 25 times in a row. So cucumber, even though it's really only water in my opinion, but cucumber is perfectly fine for them.
Now, if you give the partner grapes, the food preferences of capuchin monkeys correspond exactly with the prices in the supermarket. And so if you give them grapes, it's a far better food. Then you create inequity between them. So that's the experiment we did recently. We videotaped it with new monkeys who never done the task, thinking that maybe they would have a stronger reaction, and that turned out to be right. The one on the left is a monkey who gets cucumber. The one on the right is the one who gets grapes. The one who gets cucumber, note that the first piece of cucumber is perfectly fine. The first piece he eats. And then she sees the other one getting grape. And you will see what happens.
So she gives a rock to us. That's the task. And we give her a piece of cucumber. And she eats it. The other one needs to give a rock to us. And that's what she does. And she gets a grape. And she, the other one sees that. She gives a rock to us. Now gets again cucumber. [Laughter] [Applause] [Laughter] She tests the rock now against the wall. She needs to give it to us. And she gets cucumber again. So this is basically the Wall Street protest that you see here.
Now, you can use this effect. There's a monkey perfectly happy. It likes, likes the trainer. It goes, "This is a fair deal. Every time I give it a rock, I get some cucumber." Change the context. So there's a monkey alongside that's getting grape. And suddenly this person goes from being a friend to an enemy. Okay? You can use that effect negatively. In fact, if you want to make people in a queue unhappy, okay, there are a whole load of psychological things about queues which have nothing to do with the length and duration of the wait. Disney knows this. If you put numbers, "five minutes to go, four minutes to go, three minutes to go" in a queue, people are happier. If the queue keeps moving, people are pretty happy. If the queue grinds to a halt, people get really, really distressed. Okay? If the end of the queue is out of sight, people are less happy than if the end of the queue is visible, which is why that bloody terminal at JFK is such a pain. Okay? Because you can't see what's happening, you're in a tunnel. Okay?
Um, and there's a fantastic one. If you really want to piss people off your queuing, have another queue alongside theirs which is moving faster than their queue. Then that drives them insane. Okay? Now, you can use this psychology to annoy people. You can use that psychology to make people happy. I've often wondered, actually, that if you just paid actors to stay in a stationary queue, whether you could partly solve the problem of check-in times at airports. Okay?
But you can also use it. My my cousin, I used to be a consultant in accident and emergency in hospitals. The NHS is obsessed with waiting times. But there's some really interesting findings about this. If you go in with some sort of interesting medical condition and you're seen by a triage nurse, okay, and the nurse says, "You do need to see the specialist, but there's going to be a wait of about two and a half hours." Right? You'd think their reaction to a two and a half hour wait would be pretty much context-independent. Okay? No. If you show them through to a new waiting room, they're really, really happy. If you send them back to the original waiting room, they get pissed off, really, really quickly. And that's because if you think of it from a chimp's point of view, if you like. Chimps, and for that matter, the human brain doesn't come equipped with a stopwatch. It's not annoyed in direct proportion of the duration of the wait. If you're moved through to another room, you feel you've been upgraded. If you're sent back to the original room, you feel you've been rebuffed. Okay? And that feeling is more important to the resultant emotion than the duration of the weight itself.
So the objective measure that government always uses, which is time, is actually of secondary importance to something else. But the problem with government and the problem with business is it's obsessed with flaming objective measures. Okay? So we'll always measure the things that are that are that can be put on a spreadsheet, the things that can be averaged, the things that are accessible to measurement. And the way it measures those things is typically an SR units. Okay? Wait time, duration, all those things, speed. Okay? We're obsessed with improving the world objectively, as we are in medicine, and we discount successful ways in which you can improve the world subjectively.
This is a problem called the McNamara fallacy, also known as the quantitative bias, that McNamara took the awful decision to fight the Vietnam War using numbers, and he used the kill count. Now, in World War I, that might have been an okayish measure. Okay? In a guerrilla war, it's catastrophic because every time you kill someone in a guerrilla war, you bring in one and a half new volunteers. If you kill someone unjustly, which the kill count incentivizes you to do, you bring in four new volunteers. So this is why eventually the Vietnam War had to devolve to a discussion of hearts and minds rather than discussion about munitions and statistics.
But the whole point of scientific measures is precisely grams, meters, seconds, okay, is precisely that their objective, not subjective. There's one exception. The lumen is the only metric in the whole canon of scientific measurement which pays any attention to specifically human perception. It's the only one that's brain-friendly. And the reason is that they realize that if you're measuring the efficacy of light bulbs, you could claim that you were producing a spectacular amount of light at a very low cost, while all the light was produced in the ultraviolet or infrared spectrum. Okay? Now, that wouldn't be that great because although your light bulbs will be very efficient and procurement would buy them in huge quantities, everybody would be bumping into the furniture after dark because the human eye can't pick up things in those parts of the spectrum. So the lumen is actually weighted to human perception. No other scientific measure is.
Right. There was a debate about ambient temperature because when they started talking about, those of you who are American are familiar with the fact that the weather forecast will occasionally say, "75 Fahrenheit feels like 71." Okay? Now, that's an important distinction because how the human body perceives temperature and weather is a product of lots of different things. Part of it is the temperature. Part of it is whether there's sunshine or not, because it feels warmer if the sun's shining. In fact, in Britain, by definition, if the sun's shining, it's a nice day. Okay? Humidity has a very big effect. When it hit 100 degrees in London last summer, I stayed at home because I couldn't stand going out. But I wander around Scottsdale, Arizona, in 110-degree weather, and I'm perfectly happy because, as everybody laughs about people in Arizona, it's a dry heat. But actually, it is a dry heat, and it's completely tolerable. Okay? Breeze completely changes your perception of temperature. If there's a breeze, particularly at face height, right? A large amount of the perception of temperature, I would also argue, is expectation.
This morning, to my amusement, as a Brit, everybody was going to work in Milan dressed in puffer jackets and Canada Goose arctic wear because it had dropped all the way down to about 15 degrees. Okay? You go to Athens in the winter, and you're sitting outside as a Brit in a t-shirt, and the locals are wearing fur coats. Okay? And so a large part of your perception of weather is also expectation. I was in Johannesburg in the winter, and I came out of the hotel to see a sky with not a single cloud on the horizon. And the people from Johannesburg met me from the Ogilvy agency, then said, "I'm sorry you had to come during such terrible weather." And I burst out laughing. I thought they were joking. And they said, "No, no, it's terrible weather." What it means is terror weather. Is sunny. Very ungrateful bastards. Right? Okay. How can you possibly say it's bad weather when it's sunny? You're an idiot. And they said, "No, no, it actually, we had some frost last night. This is terrible." Apparently, the whole of the winter in Johannesburg, you never get a cloud. So they didn't consider it particularly good weather because it was cold. I was there basically, you know, I'm like, I'm not quite as bad as the Swedes, where if it goes above 40 degrees and the sun comes out, they go naked and dance about. But I was thinking, what a fantastic day. This is a gorgeous sunny day. And they're going, "Oh, no, it's terribly cold." So your perception of weather is a very complicated mixture of context, past experience, and a whole lot of factors, not excluding temperature, but by no means, no, not exclusively temperature.
If you're too stingy to buy an air conditioning unit, by the way, buy a dehumidifier. Apparently, it's a much cheaper alternative and has some of the same effects.
Now, the way we perceive the world, as I said, is complex. We did not evolve for objectivity. Robert Trivers makes this fantastic point, okay? If the human perceptual mechanism can gain one or two percent in fitness at the cost of 10% loss in accuracy, it will make that trade-off every time. Evolution only cares about fitness. It does not care about accuracy. Right? So if by distorting our view of the world in some way, it can give us a small evolutionary fitness advantage, it doesn't care what accuracy is sacrificed on the altar of fitness. Which is why we, as humans, this is probably also true of, of higher primates, we're disproportionately inclined to see faces in things because in terms of survival, it's disproportionately important to recognize anything with two eyes and a nose.
This was a perfectly serious church designed by a serious architect who failed to notice he was thinking, "Lovely roundel windows." And then we've got, um, we've got, we've got, we've got a lovely little, you know, sort of little corn corner sing here, nice bit of quantity. Of course, it's not known as the lovely church for the roundel windows in Florida. It's known as the chicken church. Okay? You