Tag: Social Proof

Daniel Kahneman Answers

In one of the more in-depth and wide-ranging Q&A sessions on the freakonomics blog has run, Daniel Kahneman, whose new book is called Thinking, Fast and Slow, answered 22 questions posted by readers.

Three of the questions that caught my attention:

Q. As you found, humans will take huge, irrational risks to avoid taking a loss. Couldn’t that explain why so many Penn State administrators took the huge risk of not disclosing a sexual assault?

A. In such a case, the loss associated with bringing the scandal into the open now is large, immediate and easy to imagine, whereas the disastrous consequences of procrastination are both vague and delayed. This is probably how many cover-up attempts begin. If people were certain that cover-ups would have very bad personal consequences (as happened in this case), we may see fewer cover-ups in future. From that point of view, the decisive reaction of the board of the University is likely to have beneficial consequences down the road.

Q. Problems in healthcare quality may be getting worse before they get better, and there are countless difficult decisions that will have to be made to ensure long-term system improvement. But on a daily basis, doctors and nurses and patients are each making a variety of decisions that shape healthcare on a smaller but more tangible level. How can the essence of Thinking, Fast and Slow be extracted and applied to the individual decisions that patients and providers make so that the quality of healthcare is optimized?

A. I don’t believe that you can expect the choices of patients and providers to change without changing the situation in which they operate. The incentives of fee-for-service are powerful, and so is the social norm that health is priceless (especially when paid for by a third party). Where the psychology of behavior change and the nudges of behavioral economics come into play is in planning for a transition to a better system. The question that must be asked is, “How can we make it easy for physicians and patients to change in the desired direction?”, which is closely related to, “Why don’t they already want the change?” Quite often, when you raise this question, you may discover that some inexpensive tweaks in the context will substantially change behavior. (For example, we know that people are more likely to pay their taxes if they believe that other people pay their taxes.)

Q:How can I identify my incentives and values so I can create a personal program of behavioral conditioning that associates incentives with the behavior likely to achieve long-term goals?

A. The best sources I know for answers to the question are included in the book Nudge by Richard Thaler and Cass Sunstein, in the book Mindless Eating by Brian Wansink, and in the books of the psychologist Robert Cialdini.

Read what you’ve been missing. Subscribe to Farnam Street via Email, RSS, or Twitter.

From Daniel Kahneman Answers Your Questions

An Incredible Offer — But Wait…There’s More

You’ll never look at infomercials the same after reading this post.

Robert Cialdini calls But Wait…There’s More “A wholly fascinating account of a wholly fascinating industry.” If you’re interested in how late night TV infomercials use every psychology trick in the book, you need to read this.

Infomercials are powerful. A thirty-second commercial for Tide doesn’t ask you to do anything. The goal is for you to think about Tide and to associate it with something happy and clean so you’ll pick it up the next time you need washing detergent.

An infomercial, however, requires you take immediate action. One moment you’re sitting on the couch eating potato chips, the next you’ve decided there is really nothing you’d rather have than an ab-machine. How does that happen?

Everything about an infomercial is tested — Whether it’s the price, the number of freebies, the background music, or even the color of the model’s hair — with the sole goal of selling more product. Nothing is left to chance.

Along the way infomercial marketers have picked up an amazing amount of knowledge about how we behave as shoppers and what motivates us to make a purchase.

What can you learn from Ron Popeil, the master infomercial seller?

All the time-tested strategies were on display: he offered bonuses or freebies as incentives, and heightened tensions by warning people that he only had a certain number of units on hand (“supplies are limited!”). He assigned numbers to his customers—”You’re number eight, you’re number nine,” and so on—which gave them the impression that you had to get in line to take advantage of the great deal he was offering up. He employed the classic countdown technique, where he systematically lowered the price as he neared the end of the pitch. and when he was at the very end and started accepting cash, he avoided selling the item to the last batch of eager customers, instead launching into a fresh pitch. To get new people to come over and watch a demonstration, it requires that other people be standing in rapt attention. “Wait, there’s something else i want to show you before you take this home with you,” he might say.

Why does that steak knife cut through a shoe?

Perceived value also comes into play when a demonstrator slices a knife through an old shoe or cement block or uses a pair of shears to cut through a penny. Why would you need your steak knife to cut through a hammer, you ask? You wouldn’t. But in addition to proving to you that the knife is indestructible, it’s raising the perceived value of the product. Somewhere in the recesses of your subconscious, your brain is telling you that if for whatever reason you wanted to cut through a boot, you can rest assured that you have the knife that’s up to the task.

On marketing late at night

One of the early discoveries of infomercials was that they perform better when they were marketed late at night. “Airtime was cheaper, too,” but “viewers defenses started to topple as they grew sleepy.” Boredom also played a role. “When he placed sixty-second commercials during a hit show, the responses were unimpressive. When the programming was lousy, many more people purchased products.”

Reciprocation

“He threw in giveaway after giveaway. He suggested that he would only offer the Dehydrator at such a reasonable price point to people who promised to “tell a friend” about the incredible offer—a classic tactic designed to make the audience feel indebted to him for his act of generosity, which, naturally, they could reciprocate by making a purchase.”

What do infomercials sell?

…What all of these half-hour infomercials have in common, of course, is that they all offer some sort of cure. Late-night pitches aren’t in the business of offering us dresses, trash cans, CD players,or cans of roach spray. They’re in the business of presenting serious problems—and providing us with quick, easy, painless solutions. That blender isn’t just designed to make smoothies. It’s going to save you precious minutes everyday and give you more time with your loved ones. Don’t you want to be a decent human being and spend more time with your family?

There’s a good reason products advertised on infomercials are tied to our emotional well-being, our self-image, and our relationships with others. It gives us a powerful reason to pick up the phone and place an order.

Sex

One of the biggest problems with long-form shows is getting people to stop their channel changing long enough to tune in … A half-hour show requires you to bypass that episode of Cops, rerun of Seinfeld, … and actively watch someone try to sell you something you probably don’t need. That’s why many infomercials have some sort of hook, something that momentarily distracts views and gets them to move their finger off the up/down dial on their remote control.

Sex usually works. What buying real estate has to do with women with big boobs is unclear, but moneymaking products have long features cleavage-bearing babes.

Repetition

Research has demonstrated that subtle repetition is highly effective. In fact, studies have shown that because infomercials expose viewers to the sales message for an extended period of time and do not repeat the same message but go back and rehash the same material while making small changes to the script, the repetition is actually much more powerful.

On manufacturing pricing complexity

Infomercials thrive on complicating purchasing decisions for consumers by bundling items with free offers, bonuses, and rewards. A “but wait, there’s more!” suddenly muddles our perceptions and makes it harder to judge the offer that’s just been presented to us.

What about shipping and handling?

Cleverly, shipping and handling costs are often concealed from viewers until they call. … by the time you learn the amount, you’ve already made the mental decision to buy the toaster oven, you called the 800 number, and you’ve just spent five minutes on the phone placing your order. Are you going to hang up because the shipping was a few $ more than you anticipated?

What’s the deal with the host?

What’s most important is that the host communicates authority. It doesn’t have to be real authority, mind you. Just as TV doctors are used to pitch health-related products, it’s merely the perception of authority that matters most. Clothes matter. … A host with an accent isn’t accidental: Americans perceive English accents as more authoritative … Once you find a host for a show, the time-tested formula often requires the presence of a lackey, someone to play off against the pitchman. This is yet another form of social proof.

Wording matters

And every word counts: Greg Renker pointed out that his infomercials always say “when you call,” not “if you call.” The nuance matters. It suggests the viewer will call—it’s merely a matter of time. … Ever hear the line “if the lines are busy, please call back?” … the mere suggestion of a rush of callers sends people scurrying to the phone.

When you think about it, every element of an infomercial is designed to manipulate you into taking action.

But Wait… There’s More. Much More. For the next 15 minutes, Amazon.com is offering an irresistible special price on But Wait … There’s More!. Buy it. Read it.

Read what you’ve been missing. Subscribe to Farnam Street via Email, RSS, or Twitter.

Still curious? Try How Infomercials Persuade.

 

The Insidious Evils of ‘Like’ Culture

Most people thought the Internet represented a liberation from conformity where ideas, freedom of information, creativity ruled. But what role does our need to belong play? What role does the simple “like” button play in social approval? The WSJ article below argues that “As a result,” of the like button, “we can now search not just for information, merchandise and kitten videos on the Internet, but for approval.

Just as stand-up comedians are trained to be funny by observing which of their lines and expressions are greeted with laughter, so too are our thoughts online molded to conform to popular opinion by these buttons. A status update that is met with no likes (or a clever tweet that isn’t retweeted) becomes the equivalent of a joke met with silence. It must be rethought and rewritten. And so we don’t show our true selves online, but a mask designed to conform to the opinions of those around us.

Conversely, when we’re looking at someone else’s content—whether a video or a news story—we are able to see first how many people liked it and, often, whether our friends liked it. And so we are encouraged not to form our own opinion but to look to others for cues on how to feel.

“Like” culture is antithetical to the concept of self-esteem, which a healthy individual should be developing from the inside out rather than from the outside in. Instead, we are shaped by our stats, which include not just “likes” but the number of comments generated in response to what we write and the number of friends or followers we have. I’ve seen rock stars agonize over the fact that another artist has far more Facebook “likes” and Twitter followers than they do.

Because it’s so easy to medicate our need for self-worth by pandering to win followers, “likes” and view counts, social media have become the métier of choice for many people who might otherwise channel that energy into books, music or art—or even into their own Web ventures.

Continue Reading

Farnam Street: Mastering the best of what other people have figured out. Subscribe via twitteremail, or RSS.

The Colonel Blotto Game: How Underdogs Can Win

If you’ve ever wondered why underdogs win or how to improve your odds of winning when you’re the underdog, this article on The Colonel Blotto Game is for you.

***

There is a rich tradition of celebrating wins by the weak—while forgetting those who lost—including the biblical Story of David vs. Goliath. It is notable, that “David shunned a traditional battle using a helmet and sword and chose instead to fight unconventionally with stones and a slingshot,” says Michael Mauboussin.

Luckily, David was around before Keynes said: “It is better to fail conventionally than to succeed unconventionally.” Turns out, if you’re an underdog, David was onto something.

Despite the fact it is not as well known as the Prisoners’ Dilemma, the Colonel Blotto Game can teach us a lot about strategic behavior and competition.

Underdogs can change the odds of winning simply by changing the basis of competition.

So what exactly is the Colonel Blotto Game and what can we learn from it?

In the Colonel Blotto game, two players concurrently allocate resources across n battlefields. The player with the greatest resources in each battlefield wins that battle and the player with the most overall wins is the victor.

An extremely simple version of this game would consist of two players, A and B, allocating 100 soldiers to three battlefields. Each player’s goal is to create favorable mismatches versus his or her opponent.

According to Mauboussin, “The Colonel Blotto game is useful because by varying the game’s two main parameters, giving one player more resources or changing the number of battlefields, you can gain insight into the likely winners of competitive encounters.”

To illustrate this point, Malcolm Gladwell tells the story of Vivek Ranadivé:

When Vivek Ranadivé decided to coach his daughter Anjali’s basketball team, he settled on two principles. The first was that he would never raise his voice. This was National Junior Basketball—the Little League of basketball. The team was made up mostly of twelve-year-olds, and twelve-year-olds, he knew from experience, did not respond well to shouting. He would conduct business on the basketball court, he decided, the same way he conducted business at his software firm. He would speak calmly and softly, and convince the girls of the wisdom of his approach with appeals to reason and common sense.

The second principle was more important. Ranadivé was puzzled by the way Americans played basketball. He is from Mumbai. He grew up with cricket and soccer. He would never forget the first time he saw a basketball game. He thought it was mindless. Team A would score and then immediately retreat to its own end of the court. Team B would inbound the ball and dribble it into Team A’s end, where Team A was patiently waiting. Then the process would reverse itself. A basketball court was ninety-four feet long. But most of the time a team defended only about twenty-four feet of that, conceding the other seventy feet.

Occasionally, teams would play a full-court press—that is, they would contest their opponent’s attempt to advance the ball up the court. But they would do it for only a few minutes at a time. It was as if there were a kind of conspiracy in the basketball world about the way the game ought to be played, and Ranadivé thought that that conspiracy had the effect of widening the gap between good teams and weak teams. Good teams, after all, had players who were tall and could dribble and shoot well; they could crisply execute their carefully prepared plays in their opponent’s end. Why, then, did weak teams play in a way that made it easy for good teams to do the very things that made them so good?

Basically, the more dimensions the game has the less certain the outcome becomes and the more likely underdogs are to win.

In other words, adding battlefields increases the number of interactions (dimensions) and improves the chances of an upset. When the basketball team cited by Malcolm Gladwell above started a full court press, it increased the number of dimensions and, in the process, substituted effort for skill.

The political scientist Ivan Arreguín-Toft recently looked at every war fought in the past two hundred years between strong and weak combatants in his book How the Weak Win Wars. The Goliaths, he found, won in 71.5 percent of the cases. That is a remarkable fact.

Arreguín-Toft was analyzing conflicts in which one side was at least ten times as powerful—in terms of armed might and population—as its opponent, and even in those lopsided contests, the underdog won almost a third of the time.

In the Biblical story of David and Goliath, David initially put on a coat of mail and a brass helmet and girded himself with a sword: he prepared to wage a conventional battle of swords against Goliath. But then he stopped. “I cannot walk in these, for I am unused to it,” he said (in Robert Alter’s translation), and picked up those five smooth stones.

Arreguín-Toft wondered, what happened when the underdogs likewise acknowledged their weakness and chose an unconventional strategy? He went back and re-analyzed his data. In those cases, David’s winning percentage went from 28.5 to 63.6. When underdogs choose not to play by Goliath’s rules, they win, Arreguín-Toft concluded, “even when everything we think we know about power says they shouldn’t.”

Arreguín-Toft discovered another interesting point: over the past two centuries the weaker players have been winning at a higher and higher rate. For instance, strong actors prevailed in 88 percent of the conflicts from 1800 to 1849, but the rate dropped very close to 50% from 1950 to 1999.

After reviewing and dismissing a number of possible explanations for these findings, Arreguín-Toft suggests that an analysis of strategic interaction best explains the results. Specifically, when the strong and weak actors go toe-to-toe (effectively, a low n), the weak actor loses roughly 80 percent of the time because “there is nothing to mediate or deflect a strong player‘s power advantage.”

In contrast, when the weak actors choose to compete on a different strategic basis (effectively increasing the size of n), they lose less than 40 percent of the time “because the weak refuse to engage where the strong actor has a power advantage.” Weak actors have been winning more conflicts over the years because they see and imitate the successful strategies of other actors and have come to the realization that refusing to fight on the strong actor’s terms improves their chances of victory. This might explain what’s happening in the Gulf War.

In the Gulf War, the number of battlefields (dimensions) is high. Even though substantially outnumbered, the Taliban, have increased the odds of “winning,” by changing the base of competition, as they did previously against the superpower Russians. It also explains why the strategy employed by Ranadivé’s basketball team, while not guaranteed to win, certainly increased the odds.

Mauboussin provides another great example:

A more concrete example comes from Division I college football. Texas Tech has adopted a strategy that has allowed it to win over 70 percent of its games in recent years despite playing a highly competitive schedule. The team’s success is particularly remarkable since few of the players were highly recruited or considered “first-rate material” by the professional scouts. Based on personnel alone, the team was weaker than many of its opponents.

Knowing that employing a traditional game plan would put his weaker team at a marked disadvantage, the coach offset the talent gap by introducing more complexity into the team’s offense via a large number of formations. These formations change the geometry of the game, forcing opponents to change their defensive strategies. It also creates new matchups (i.e., increasing n, the number of battlefields) that the stronger teams have difficulty winning. For example, defensive linemen have to drop back to cover receivers. The team’s coach explained that “defensive linemen really aren’t much good at covering receivers. They aren’t built to run around that much. And when they do, you have a bunch of people on the other team doing things they don’t have much experience doing.” This approach is considered unusual in the generally conservative game of college football.

While it’s easy to recall all the examples of underdogs who found winning strategies by increasing the number of competition dimensions, it’s not easy to recall all of those who, employing similar dimension enhancing strategies, have failed.

Another interesting point is why teams who are likely to lose use conventional strategies, which only increase the odds of failure?

According to Mauboussin:

What the analysis also reveals, however, is that nearly 80 percent of the losers in asymmetric conflicts never switch strategies. Part of the reason players don’t switch is that there is a cost: when personnel training and equipment are geared toward one strategy, it’s often costly to shift to another. New strategies are also stymied by leaders or organizational traditions. This type of inertia appears to be a consequential impediment to organizations embracing the strategic actions implied by the Colonel Blotto game.

Teams have an incentive to maintain a conventional strategy, even when it increases their odds of losing. Malcolm Gladwell explores:

The consistent failure of underdogs in professional sports to even try something new suggests, to me, that there is something fundamentally wrong with the incentive structure of the leagues. I think, for example, that the idea of ranking draft picks in reverse order of finish — as much as it sounds “fair” — does untold damage to the game. You simply cannot have a system that rewards anyone, ever, for losing. Economists worry about this all the time, when they talk about “moral hazard.” Moral hazard is the idea that if you insure someone against risk, you will make risky behavior more likely. So if you always bail out the banks when they take absurd risks and do stupid things, they are going to keep on taking absurd risks and doing stupid things. Bailouts create moral hazard. Moral hazard is also why your health insurance has a co-pay. If your insurer paid for everything, the theory goes, it would encourage you to go to the doctor when you really don’t need to. No economist in his right mind would ever endorse the football and basketball drafts the way they are structured now. They are a moral hazard in spades. If you give me a lottery pick for being an atrocious GM, where’s my incentive not to be an atrocious GM?

Key takeaways:

  • Underdogs improve their chances of winning by changing the basis for competition and, if possible, creating more dimensions.
  • We often fail to switch strategies because of a combination of biases, including social proof, status quo, commitment and consistency, and confirmation.

Malcolm Gladwell is a staff writer at the New Yorker and the author of The Tipping Point: How Little Things Make a Big Difference, Blink, Outliers and most recently, What the Dog Saw.

Michael Mauboussin is the author of More More Than You Know: Finding Financial Wisdom in Unconventional Places and more recently, Think Twice: Harnessing the Power of Counterintuition.

How Con Artists Exploit Human Behaviour

Fascinating (read the PDF! summary below)

The seven principles of human behaviour that con artists exploit, according to the article:

 

  1. The distraction principle: While you are distracted by what retains your interest, hustlers can do anything to you and you won’t notice.
  2. The social compliance principle: Society trains people not to question authority. Hustlers exploit this “suspension of suspiciousness” to make you do what they want.
  3. The herd principle: Even suspicious marks will let their guard down when everyone next to them appears to share the same risks. Safety in numbers? Not if they’re all conspiring against you.
  4. The dishonesty principle: Anything illegal you do will be used against you by the fraudster, making it harder for you to seek help once you realize you’ve been had.
  5. The deception principle: Things and people are not what they seem. Hustlers know how to manipulate you to make you believe that they are.
  6. The need and greed principle: Your needs and desires make you vulnerable. Once hustlers know what you really want, they can easily manipulate you.
  7. The Time principle: When you are under time pressure to make an important choice, you use a different decision strategy. Hustlers steer you towards a strategy involving less reasoning.

See the PDF