Rory Sutherland - Permission to fail: why maverick bees can teach us all a valuable lesson

[Music] okay good morning standing-room-only so I think it speaks to our guest this morning and he is Fame and and interest in you Rory Rory Sutherland many of you will have seen Rory's TED Talks which now have achieved over seven million views I believe that that's the latest calc yeah I mean I've looked for you I don't think they can go down that's the good news yeah Rory which some of you may know is a very well-known figure in the behavioral science industry but really comes from the advertising industry is the vice chairman of egill V and was the founder of their behavioral science practice which is quite an interesting and unique offering which we'll talk about shortly he writes for The Spectator presents on BBC Radio 4 as well and in particular he has recently published a very very interesting book and we'll talk about that as well title being alchemy the surprising power of ideas that don't make sense and we're going to kind of dip into why not making sense makes a hell of a lot of sense so Rory welcome thank you for coming lunch yeah every time you and I've checked that I'm I'm thoroughly enjoyed like right out of route so I'm gonna dive right in and I'm gonna I'm gonna ask you to just talk about this behavioural science practice because the topic for today is behavioral science in 21st century organisations and the power of that and really kind of revolution and you've founded this practice in in Ogilvie give us a sense of what you do in your unit so the kind of briefs you get and in the commercial world so I'll give you a sample of one brief which transmuted into a completely different brief it was with kimberly-clark and it raised the question why nobody buys moist toilet paper okay now our theory would be good it's really listen because this is actually a cotton the fact that we're happy to clean our bottoms with dry paper is actually a cultural peculiarities of the West if you think about it in the Muslim world you will always have a hose pipe in any toilet cubicle because they assume use water in Japan of course you have a remote for some reason the toilets have a remote control I've never understood the meaning of that but a little proboscis comes in and actually cleans your bottom with water at a perfect temperature and so we started this perfect run and so it's a if you think about it you wouldn't it is an anomaly because you wouldn't go out into the garden to pot a plant get some mud on your hands again yeah I've got mud on my hands let me rub them very vigorously with some dry paper would you okay you use water to clean your hands for some reason your bum is in the West now our theory is not afforded the same consider reason no and in Stingley our theory was by the way quite simple which is that a large part of it is simply unconscious human decision-making which is when you go to buy loo paper there is an acre of dry paper and rolls on the shelf okay and then the moist paper they're like two little bits it's in blue and white packaging which makes it look medicinal and it's on the top shelf and so the instinctive human brain without making a conscious behavior the conscious decision basically goes it's probably for weirdos or people with a medical condition and so the first thing we did actually which they acted on is they've produced lots and lots of different scented variants so it takes up more space if that sounds strange that's more or less how for the Brits among you how Walkers crisps beat Golden Wonder okay they notice that more and more people were buying crisps in supermarkets rather than in corner shops they needed more and more people buying multi packs and they introduced a load of flavours not really because those flavours made sense on their own okay about 80% of people it's basically ready salted salt and vinegar cheese and onion then there are a few weirdos on the prawn cocktail side and then then there the nice crisps which not many people buy but the great value of the nice crisps was it meant that walkers by having more flavours occupies three times as much shelf space as golden wandered in so it was that they won in the same way that the first world war was won you know so you know a few inches at but anyway what was strange about this brief was and fascinating was police halfway through working on it Kimberly Clark suddenly came back and said actually we've got a much bigger problem than the Morris lavatory paper one which is factory safety and there's a notable problem which always happens in any if you think about it it's the sawmills they're a plateful company there are enormous rotating saws what always happens is quite rightfully you give people protective clothing but there's a small downside affective protective clothing which is it makes you feel invincible and so one of the things we were doing is experiments and how to improve factory safety and I'll give you two very interesting examples one of them which we're currently researching at the moment and seems to work is if you put the image of a skeleton or a human hand on the back of a protective glove it reminds people there's a hand inside and people are much more cautious it doesn't affect their behavior with circular circular saws because there's a scary anyway but with Stanley knives and box cutters it basically makes people feel more cautious if you just have the imprint of a human hand on the glove so cannot how did you come to that finding um we looked at there's a very very interesting there's a very very interesting literature on how a lot of perfect this is ideas that don't make sense perfectly logical ideas often create a kind of in psychology create a kind of counter force so the most famous one is it looks rather as though making drivers wear seatbelts doesn't really improve road safety all that much because people compensate by driving slightly more dangerously because the seatbelt makes you feel the helmets I would I would always said I'd always recommend brain protection but it does have a countervailing effect because people who wear helmets for cyclists who wear helmets in London tend to have more accidents well believe that although if you're going to have one it's good to have a helmet on and there is a debate whether that cyclists behavior that changes or motorist behavior which is that it may be so there are no helmets he's got a helmet they're just um and so this actually led to an extraordinary Canadian behavioral scientists thing that you should instead of making seatbelts compulsory you should ban seatbelts and all cars should be designed so there was a massive spike in the middle of the steering wheel pointing straight at the drivers chest making the point that although people would drive rather annoyingly slowly they would be very very safe okay now so yeah the other thing we looked at which is very interesting Korean Airlines had a massive problem in terms of its safety record partly because Korean culture and indeed the language itself is immensely differential power so you power distance ratio so what would happen is the junior pilot and then I'll call captain anymore that's pilot flying now they reason they created in pilot flying and pilot not flying is partly to get rid of this hierarchy in Korean culture you use actually different verb forms and different words to describe to talk to people who are higher status than you than you do to people who are lower status from you it pervades everything okay so in power distance top status terms it's the it's the most power distant culture in the world the least I think is New Zealand okay now in on Air New Zealand there's no powerlessness the stewardess can come into the cockpit you go you're going to crash the plane mate right okay and that's fine in New Zealand culture in Korean culture even though you can see the plane is headed for the ground the copilot or the junior person on the cockpit would say something literally like I think we have found the altimeter most useful today because that's the most roundabout way you can actually get but is anything more direct might be interpreted as criticism now it seems weird that we died to prevent committing a social embarrassment actually social embarrassment is an extraordinarily high driver of human behavior but I mean we see this in organizations every day absolutely the dysfunctional task behavior because no one says anything no what no one says no one says I do what was brilliant what they did actually they they made the pilot speak English in the cockpit not Korean but one of the other things they did which we which we used for factory safety is we created a kind of word that was a neutral word I think pickle in the factory and what it is if you see somebody else committing a safety violation if you go up to them and say you're committing a safety violation technically in this area you should be wearing a so-and-so so-and-so okay it's very difficult to do that without looking like a smoker bossy get okay so by having just a magic neutral word which anybody can say to anybody else you break that social embarrassment bound of you know the of the fear of kind of receiving what you get so those are the kind of things what's also interesting by the way and this is a really interesting for anybody familiar with a thing called triz which was a Soviet innovation one of the things that trees is very strong in is what we call lateral category analysis which is one of the things is actually if you've got a problem a complex problem someone's probably already solved it but in a different domain to yours and it's never occurred to you to transfer it over and so trees spotted this that actually most problems have already been solved but somewhere else and people aren't very good at making the linkage now I'll give you a lovely example of this um I obsess about trains quite a lot now if you think about train overcrowding right the definition of train overcrowding is simply anybody standing up on a train right now a that's a bit silly because if you're standing up for a short time it really doesn't matter that much also I'd argue that if you're resting your bum on a cushion at the end of a tube carries no one really Minds doing that for a short time so the definition isn't very good to start with but there's a more fundamental problem there in how we define train overcrowding which is it doesn't distinguish between a hundred people who have to stand ten percent of the time and ten people who have to stand 100 percent of the time I'm not talking about a four hour journey I'm talking about commuter rail okay and I said actually psychologically you can solve probably 80% of the psychological irritation caused by train overcrowding by simply running two trains a day at peak time in both directions which are exclusively for season ticket holders so basically if you've got an annual or quarterly season ticket you can travel on these trains if you haven't you can't the point about that is you know occasional travelers every ten percent of the time I travel on the tube I understand I don't care you know that's kind of just what I expected through the law of averages if I'd bought a season ticket and ended up standing every day I'd be livid and I suggested this now if you think about it it's much much cheaper to do that than it is to solve overall untargeted overcrowding which requires more trains more frequent trains faster trains and I pointed out this solution and someone says it'll be really interesting and it never occurred to me they said that already that's how airlines do it what well you don't have a season ticket on an airline they said no no but if you fly to Frankfurt in Economy you know 15 20 times in the air okay by about your tenth or eleventh flight you'll get put in the B a silver-level now you'll still be an economy seat but you're checking experience your luggage experience your boarding experience and your lounge will be that of a business class passenger so basically they upgrade the experience for more frequent people so what you're suggesting is and I went okay you're absolutely right and what was so strange they're not different industries okay it's rail travel flying you know they're both in the transportation industry but the norms of rail travel just assume the only way you could reward frequent rail use is through the price mechanism you give people a season ticket which gives them a discount the idea that maybe they should have preferential treatment while they're on the train which restaurants you go to a restaurant every week you'd expect a better seat wouldn't you right a better table and that's what's so fascinating about this that we're blinded when we move from one domain to another but it doesn't link to what we were discussing before we came in yeah which is the difference between singular experience and aggregated scale experiences and how human beings are very different to machines in that context so for example if if you're an individual as a human being is regularly using the Train then there changes the nature of the experience you expect but if you were a robot regularly using the trainer doesn't matter about the scale know exactly that so know you're obviously right so if you think about it economics is really bad on this because economics doesn't understand the difference between how humans experience life is overtime okay exact how economists look at the economy as in aggregate yeah now it's theoretically possible if you think about it to have a country where which is getting richer over time where everybody within that country individually is getting poorer and equally the opposite is also theoretically possible a country could be getting poorer and poorer over time but the individuals within it we're all increasing their salary by three percent every year now the weird thing might be that actually the second country might be happier than the first one I think about it I mean it's the same as the waiting-room example that we discussed at the hospital where you're making that's right if you keep getting put back in the same waiting room every time you see a huge difference in happiness if you go to A&E and you see the sort of triage nurse and the triage nurses right okay you'll have to wait a couple of hours for the consultant but he'll be in a couple of hours if she then shows you into a new waiting room you're totally happy with the experience if you're sent back to the original waiting room you'll live it massive difference in experience the objective experience is no different the duration of your weight is absolutely not the emotional outcome and this is where I think if you look at the world and understand that the individual life is lived is path dependent and non ergodic okay variance reduction is rational so economics tensity of view utility is an additive function you gain a bit you lose a bit and the order in which you gain or lose doesn't really matter whether you have three losses in a row or three gains that doesn't really matter all it is is that you know gains should exceed losses it's very naive you now if you think about that okay really good fortune is multiplicative because as you said if you've already won more in a casino you can gamble more ambitiously if you want to with people play more ambitiously with the house money okay life in most ways is highly path dependent and the difference between what's good in average and what's good over time is not very visible to human being so I would argue that financial crashes are probable only Peters at London laboratory's the guy you need to speak to here he published a paper with Murray gell-mann the physicists saying there's a fundamental error in economics which is it assumes that ensemble probability is the same as time series expectation if you think about it um in any multiplicative thing and I argued this is this is really interesting self-serving ad man's argument but this is what I talked earlier about economists don't really understand why people pay a premium for brands right my argument is what people are doing when they pay a premium for a brand is they're paying for variance reduction now we never when we taught the explain view okay because a lot of these terms all of you in the last year have been to McDonald's is that fair okay now you can all afford to go somewhere better okay right I'm not disputing for a second that there are better places doing the McDonald's the reason McDonald's is the most popular restaurant in the world is because it's got exceptionally low variance right you know exactly what you're gonna get you're not gonna get ripped off okay the loo is gonna be clean your kids will eat the food you'll find the food mildly enjoyable at worst and you won't get it okay now actually you can't say that about a Michelin star restaurant now McDonald's isn't gonna give you the best meal you've ever had in your life you know don't take someone on a date to McDonald's yeah that's what Nando's is for obviously but but but but at the same time if you want something where the chance the risk of downside is very low okay now here's really predictable he is releasing Krishna I had a friend who worked for Schroeder's years ago and everybody there was saying we'll surely we want to get our funding to the top for performing funds for this year and Schroeder's had a completely opposite view which was variance reduction they said no what we call a good fund is a fund that invoice being in the bottom half for ten years in a row and actually once you have compounding effects not being terrible for a long period is much more important than being brilliant once and yet if you think about how the financial industry is bonused and how its measured and rewarded you think about it it tends to encourage over-optimization well it can we pause on the case sorry but anyway I think that fair I'll take you because it really brings into view the the most critical lens that you bring to the commercial world which is gonna have a crack and summarizing what I think that lens is and if you can comment on its to say that we have you been using the wrong paradigm ya understand human experience in the commercial world because we are treating human beings as if they do not have psychological life and the rules are different when you understand that the people consuming the service producing the service making the product in innovating the product or living feeling people as opposed to machines and when you look at the rules from that point of view things seem irrational in Shaba absolutely right yeah an economist definition of irrationality is almost certainly not only wrong psychologically it's even mathematically wrong right just to be clear about that the whole of business particularly when it it became turbocharged by IT has spent much of the last 30 or 40 years trying to pretend that it's a science now that's fine by the way I'm entirely in favor of things becoming more scientific and I'm not opposed to the scientific method unfortunately the science they've all seized on which is what they think science looks like he's effectively Newtonian physics you know it's schoolboy science where there was always only one right answer and the opposite of a right answer was wrong and one of the things I have to argue about by the way in marketing is that the opposite of a good idea in psychology the opposite of a good idea can be another good idea okay so what the reason people love this sort of mathematical modeling they love AI they're desperate this stuff is when you provide someone with an unambiguous recommendation they can follow that recommendation and they won't get into any trouble this is where things we've got a really watching business decision-making because one of the most common behaviors in business is effectively no one ever got fired for buying IBM it's called defensive decision making you make just the decision not which is likely to be best you make the decision that's easiest to defend that won't get you any truck and we we work this is very interesting thing we discovered working with British Airways we couldn't understand why there are only two flights they're all business class and they only seat 48 people from London City to New York now we thought logically since so much of the traffic from London to New York is financial we thought the flight to be overbooked every day right weirdly it's now down to one fly today and they're wondering about canceling that there's brain sting because you're much close to the city in the RTG throw okay it's a really wonderful service what might be going on and this is what we suppose is this okay if you're a PA or your corporate travel agent you always put your boss on Heathrow JFK you don't try Newark you don't try London City you don't try Gatwick if you put your boss on a flight from Heathrow to JFK and back if anything goes wrong he blames British Airways if you do anything original or imaginative he might blame you you can't ring your PA and go what the hell do you think you're doing putting on a flight from the world's second busiest International Airport right but you can ring your PA from London City ago if you haven't booked me from this sodding toy town Airport I'd be in New York by now so the decision taken is not necessarily the best one for the passenger it's the best one for the intermediary and it's its spot I mean to give you a little bit of an insight or in a comments on some of the application of this inside our organization I'm gonna give it a maybe give it a little bit of a secret away okay you're in the UK we have this compliance training requirement based on the regulator and everyone in this room that's constantly getting these emails to say you've got to do your compliance training and you log on and you do your thing right right okay currently our we hit a 98 or 99 percent success rate in terms of people completing it by deadline prior to a particular intervention of behavioral science we were at 67 percent okay and I'm going to give it a linter vention that we did and it's a little secret and we were struggling and our compliance people came to came to myself and the team and said look we don't know how to get people to do this they are that are not doing if we send them threatening emails and so forth and what we said we said the following we said okay this goes to your a little bit of that understanding of a bit of psychology said okay look what you do is you do the following if someone isn't doing their train you send no don't just send them an email send a manager an email copping them and it says the following it says dear mr. Alma's manager your employee Simon and Simon is copied is now over deadlines if this is not remedy by this time both of you will be yes you've seen this a those of you that haven't done both of you will be reported to the Remco and this may affect both your variable reward that went from sixty-seven percent to 98 99 percent in a single month and why was that the case it wasn't because of the money it was because people are far more avoidant of upsetting their manager than they are of being threatened the idea that your manager is now on the hook for something you did and the speed at which the manager forwards the email to you and says look why don't you deal with us mobilizes people to to go ahead absolutely and it's a base and simple insights the most scary thing you can have in in the working world is your manager cross with you because you did something that affected him or her and actually similarly the most valuable thing a manager can often do is provide permission and air cover for people to as it were fly from London City - sure I mean because the second the guy says to his PA actually to be honest I prefer city and Gatwick she's totally fine to book from Gaffigan City and it always happens with me I get actually can we have some flights from the city and Gatwick please loads of gatherings city flights come back and I get on one of those the second I've I've instigated it there's no fear anymore at the variance thing by the way do you know that when you take penalty kicks to the side World Cup soccer games the person taking the penalty is more likely to score if he actually kicks the ball straight down the middle than if he tries for either side statistically and the reason this happens is the reason more people do is that if you kick the ball down the middle you're more likely to score but you look much stupider if you fail and the reason that works in the first place is the goalkeeper is disproportionately disposed to dive left or right because if you just stand still and the ball goes either side of him he looks kind of rubbish if you dive left and the ball goes right you're unlucky okay likewise vice-versa but if you stand in the middle of the ball goes either side or equal you're the person taking the kick and you kick it straight down the middle and the guy just picks up okay you look like a total dog so the avoidance of social embarrassment actually reduces people's propensity now what you have to do if you want to overcome that very simple the obviously I want everybody to came down the middle or they get wise to that I think after the third kick but what the manager could do is simply go to the second and the fifth person to take a penalty kick and go I'm telling you to kick it straight down the middle now at that point if that person fails he has plausible deniability because he can say manager told us to and five have to kick its permission to fail I mean you know masks you know in the states they would they say you know failure is not an option very American idea failure isn't an option otezla what they their primary directive is failure is an option I'm just right then that's Elon Musk because of this permission to fail allows for the possibility of very different application of of one's talents and outcomes and the degree to which there is permission to fail is proportional to the amount of innovation in a company and I think also you have to define areas where I think everybody should be judged on more than one metric which is okay this is where you're basically supposed to do your job and your job here is to do a low variance thing then you equally have some space where failure if failure is permitted because that's a space where I'm very interesting thing that bees do which I probably told you about this before about bees have this wonderful waggle dance system where they go back and inform the other bees where there is nectar and pollen and in which direction and how far away it is amongst the Battlement of people studying this about it varies but about 20% of bees or bee journeys ignore the waggle dance there is go off at random and at first this drove be scientists absolutely insane because they said well you'd think over 20 million years of B evolution we would have had B compliance officers who would have enforced higher levels of compliance with the waggle dance to bring him a nectar collection target in line with our forecast for the quarter 3 right ok this kind of thing that they say and then they modelled as a complex system down to your point if you look at it as a complex system over time in an unstable environment if every B obeys the waggle dance you get trapped in a local maximum and the hive starves to death because you become over dependent on what you already know and because you haven't traded off by investing in what you don't yet know and the point of the random B journeys is they need a very different ROI an obedient B journey must be you know energy recovered must be exceed energy expended in recovery so fairly straightforward sort of what you might call appraisal system for those obedient B's but then the other B's are kind of engaged in an R&D activity where most of their journeys are a total waste of time but on the other hand if they discover a completely new pollen source you know a fields just come into flower that information is actually worth thousands of times that of an individual obedient B journey and we don't do this we don't do this you have a bonus it covers your whole performance we do them other bonuses here's a bonus here's your obediently be nervous and here's your road being bonus I mean require no similar you know his step got recommended this is sort of like a period of work in which you do nothing your your your job description is ok X Y Z ABC today but a good percentage of what you do must not be defined and you should not yet work and why that is is because if there's a this is this disobediently if all the B's repeated also this is a really important point which is a large part of the future is unknowable ok and I argue this which is being a vice-chairman is a bit weird as a job title because you can define it as much as you like and one of the ways I describe my job title is I have to spend disproportionately large amounts of my time doing the kind of random things that no one else do you know occasionally I'll go to a conference and my Pierre will why are you going to that it's an actuary it's conference you know what are you going to that for I'd say well the thing is I go to marketing conferences they're full of advertising people so if a prospective client is there I probably won't even get to talk to them but if I go to an actress conference I'm the only advertising person they've ever thought they ever heard of now this is actually a really interesting point which is I think we become so instrumentalist in the way we justify business activity that we're preventing ourselves doing things which obviously work but for in undefinable reasons so if you only teenage sons right or teenage children daughters for that matter right they always go out on Saturday night don't they if you ask them why they basically say water I might get lucky that might mean sexually it might mean having a great time they don't really know in advance what they do know is if you stay home you won't get lucky and I said there's a perfectly good justification for advertising which is just the more famous you are the more likely you are to have lucky things happen to you lucky things that result from Fame are more likely to be positive than they are negative unless you're a crooked or company or get involved in the scandal okay so don't advertise if your chief executive is planning to have an affair with a goat okay it's better to be not famous under those circumstances right but if you're planning to be kind of you know honest decent you know fair dealing company make yourself famous because undefinable lucky things will happen to you more often now a lot of this will never be measurable right if you're a famous company I guess that your chief executive can ring all but thirty people on the planet of importance and they'll return his call okay now no one had heard of you the number of people would be I don't know we know 10% of that people come to you with good ideas because they've heard of you people work for you for a bit less because you're quite famous is better than the CV to work some weather it's a bit famous right right okay it's much easier to recruit really good people when I launched my book most extraordinary I never would have said look he just book about behavioral science and it's about it's partly about marketing partly about business it's you know it's not a very specifically business book but it's not a mass consumer book necessarily and I never will the first meal to do is get on the Chris Evans breakfast show because that would have been ludicrous right it so happened that Penguins publicity bumped into someone who was a friend of Chris Evans and I'm gonna on the breakfast show and for five days I was out selling the hungry little caterpillar I was like number seven on Amazon after I was on that show now that's never something you can plan for specifically it's something you can only plan for generally which is if you're a bit famous and make a lot of noise more people hear of you and some asymmetric upside will happen to you through luck if you talk to really successful businesses I was talking to the guy who founded box.com and he was basically being despised by his mother-in-law while running a business selling lavatory paper out of a garage okay when he happened to get on a TV program about his business which he was running out of a garrisoning blue paper online and weirdly the TV program then got picked up by someone else on national TV that was syndicated and he went through effectively as a result of that totally happy outand he went from working out of a garage maybe planning to get a second garage to a company worth a billion dollars if you talk to most billion-dollar companies a freak thing happens timing for example all those things also may mean being famous that you're actually given the benefit of the doubt more that's also impossible to quantify if we're only allowed to do things which we can predict specifically and quantify exactly one of the weird things weather is it prevents us from doing things which are just obvious so I mean I remember yeah I did if you use London Bridge station or Victoria and they want those quite nice wooden Scandinavian slatted seats they put in oh that's a really good idea proper seats in the station so if you gotta wait for your train you can actually sit down and they've got little tables so you can use a laptop or you can put your coffee down okay brilliant the obvious thing to do because part something else what will happen now is what tends to happen if a train is delayed is instead of getting out of the way and sitting down and doing something people stand like cattle in front of the departure board don't they go and they get in the way of all the people who are trying to catch a train I thought how the hell do they justify that how can they justify it the spending of money on the seats and they had some sort of seat budget but then at the bottom I saw they had to put in and we found that the addition of tables increase the sales of takeaway food by 17% now we've created a world where unless you can come up with a statistic like that you can't do something that's blindingly obvious like provide people at stations with a place to say I mean this is what you know drives me a little insane sometimes we get these very hardcore operationally minded lenses that say if it can't be measured you must do school theme you get people out of MIT coming and talking to us a video as to measure it otherwise it's not gonna happen oh you don't and you know I always sit there and I think you know it's good to measure stuff you do you know it's very useful to measure it but your teenage son would know if you had a chair something why are you going after Saturday night I might get lucky no no I'm sorry I need a key metric yeah okay what's the ROI I'd like you to spend on drink what's the value of a long-term life partner you hadn't even done the maths yeah what's the cost-benefit analysis of meeting a girl right teenagers don't need to do that because they go if I go out I might get lucky if I stay in one of your first TED Talks you give this wonderful story about the Eurostar and I'm not gonna paraphrase that I'd like you to just give it and then I want us to talk about the Gatwick example we met a couple years ago we discussed at Gatwick brief that your head so he's with you through on the security line but if you can give the Eurostar one and then we can apply mines to Gatwick as an example and then we can open so the bug is what gets measured gets managed is the famous phrase but there's a concomitant to that which is what gets missed measured gets mismanaged and if you're measuring and obsessing on the same metrics and if the only metrics you're allowed to use are what you might call scientific and objective not psychological I think you can get things badly wrong so I had before I realized they were going to build high speed one I had some issues with spending six to eight billion reducing the journey time and the Eurostar from London to Paris from I think it was three hours twenty two two hours forty five or something like that even though it was significantly slower than flying end to end everybody was travelling by train anyway and the reason everybody was taking the Eurostar rather than flying wasn't about duration was about the quality of the time cuz on a train you plunk yourself in a big comfy seat and you can walk about go to the loo have a meal okay and you stay there for about three hours twenty minutes until you arrive in central Paris and you get off so you have three hours which are either productive or enjoyable depending on what you want them to be on a plane the journey may only take two hours twenty but basically the problem with the plane travel is every twenty minutes you have to do something else you know you turn up with your luggage you check your luggage and you go to the security line then you go to the thing then you go to a shop then you go to the gate then for the gate you board the plane then the plane goes for a drive around Heathrow for twenty five minutes and then you take off fly for about 35 minutes and then the whole plane and the a stuff starts again at the other end okay so it's not surprising that people would much prefer the time and I said that the whole question of a reducing journey time is not always the deciding metric now Batman I'll be clear here okay this is particularly important that in your complex systems world of both psychology and complexity lots of things aren't linear so I'll make a big caveat here okay before the French introduced the TGV it was four hours from Paris to Leon Leon was being kind of France's second or third biggest city okay the TGV reduced that to two that is a really really big deal okay because now you can go to Liam for the day from Paris or vice-versa you don't need to stay in a hotel and there's a big difference between you know getting up at 7 o'clock in the morning arriving in Paris at 9:00 doing a day's work getting home at 7 o'clock versus the four-hour alternative in the case of say high speed 2 with Manchester I'll argue the difference between two hours and one hour 10 particularly when you factor in the overall end-to-end journey time isn't a game changer in the same way right because a trip to Manchester before high speed to will involve just as it does now a unit of time which we businessman technically call a day out of the office right okay and that's not gonna change whether it's an hour and 10 minutes to Manchester or whether it's two hours 10 as it is on Virgin Trains right you know maybe we get when we work with maybe all that happened as they'll make the meeting start a bit earlier okay because there's a faster train so as humans will benefit not at all right also I don't know if anybody else travels by train a bit but the journey my train is actually the most productive part of your whole week it's the meeting you're going to you there's a waste of time generally okay but my argument was very simply the look if the purpose of the train is to be better than the plane trying to compete on speed which is the one area where the plane will always win is to some extent amongst game you've already lost that battle if someone's in a desperate hurry they're already gonna fly so what you have to do is arguably I said okay you've got a budget of six billion pounds and you think the best use of six billion pounds is genuinely simply to reduce the journey time by about 17 to 18 percent right I said okay I could take one percent of that budget six billion was that sixty million why don't you just put Wi-Fi on the trains no I'm not I'm not making this up okay that's a far bigger comparative advantage over flying the ability to actually work with Wi-Fi for three hours uninterrupted is a far better way of competing with British Airways than trying to make it less slower than it was and it's one percent of the cost after they spent six billion building the new railway thing it was another twelve years before they actually introduced why found on the new trains they still haven't got it on the old ones I said if you really want to spend a billion pounds I said basically hire all of the world's top male and female supermodels get to walk up and down the train handing out free glasses of Chateau Petrus to all the passengers you'll have saved five billion pounds and people will ask for the trains to be slowed down that's that's the one but it's about that's alright that's okay and there's really interesting thing by the way about queueing which is fascinating the one of the there are four or five insights underpinning behavioral science one of which is that conventional economic logic is not a predictive guide to human behavior in the real world okay because humans are more complex than that they're not a kind of Newtonian thing the second one is that we don't genuinely know why we feel the way we do about things and the explanations we give tend to be post rationalizations not accurate descriptions okay so one of the strangest things about queueing which we only discovered laterally and I'd partly discovered it because I haven't accidentally experienced and then I googled it nobody would ever tell him why don't you like queuing and they always talk about the weight it's a waste of my time I really really hate you know just having to stand around like an idiot and a bit of that is true what nobody would tell you is a large part of the stress of being in a queue is the people behind you would you believe it because when you go through airport security your lizard brain is conscious of the fact that they're effectively 15 or 20 people looking at you and you're convinced that if you make the slightest mistake going through the x-ray machine there are 20 people getting dickens forgotten to take off his belt water what a loser right and I said the fear of social embarrassment is massive one of our most important findings with diarrhea is that men will never order a cocktail in a bar unless the menu has a picture of the glass in which the drink is served because if the male brain thinks there's a 1% chance it'll turn up at a pineapple with a sparkling umbrella he'll order a beer instead ok and when you think about it there are some really weird psychological things the most ridiculous drink in the world when you think about is the martini because in objective terms it's a seriously hardcore drink isn't it right it's basically neat spirit and yet they put it in a glass where unless you're auditioning for James Bond no guy will feel comfortable in a bar holding a martini glass so that's why they really clever innovation in hips tourism which is put it in a mason jar guys will drink anything out of it making sure right okay so that's a really clever idea the mason jar cocktail idea because it takes away that huge male anxiety oh please God don't let it be a pineapple okay so anyways sorry um but with gaps week the fascinating thing is that when you split people you know that business now where you tend to go through airport security and there's six of you in parallel with at most one person standing behind you the stress is totally diminished it's a really really weird thing the psychology of road rage is quite fascinating because if you think about it the guy in the car who's annoying you mostly has his back to you which unconsciously we perceive as a kind of insult the grace of it's a kind of aggressive grace and so a lot of these things are really fascinating because we know we basically know how we're feeling but the reason for the feeling yeah we know a tribute and so so note so that gadfrey experiment was fascinating because it was one of the first things you got to do is when psychology involves ask really dumb questions because nobody's asked them before okay so one of the questions asked was rail companies was why don't people like standing up on trains now that sounds really weird doesn't it okay but actually is it because they feel ripped off because they paid for a seat they don't know by the way you can own the experiment is it because part of the reason is when you got to stand on a train you got a hold on something to stop yourself falling over so now you've lost the use of one arm you can't read a book you can't look at your phone you're basically staring into space okay you're worried about your bag which is on the floor now I just said a very simple thing if you redesign trains so there's a trade-off between sitting and standing so when you stand you get a bum rest you get a table two USB charges and the view out of the window and the cup holder and I hope to put your bag you put the seats of the Train in the middle of the train so you don't get a view all you get is a cup holder and a place to put your bag you don't even get a table right standing actually becomes a choice not a compromise and you can actually make people happy this is a really important thing okay I say the opposite of a good idea can be another good idea that's because the way humans perceive things depends on context not on objective reality for years in Chinatown there was a restaurant called one key which was famous for being the rudest restaurant in London okay now normally being rude is a bad thing in a restaurant unless you're famous for it in which case guys on Friday night go hey let's get a one key they were really rude last time right and so I always call this the bus to the airport thing can a different story about something and a week that you can turn a weakness into a strength this gives back to Chaucer who Chaucer invented the phrase in English to make a virtue of necessity and humans like to do this if there's something that's a requirement we like if we can to tell a positive story about it the fantastic case you land in an airport and you're expecting an air bridge and then the plane stops the engines wind down you're still a mile from the terminal everyone on the plane here's our it's gonna be a bus and I'd always have this you know oh god I've been cheated I've been shortchanged and then this easyJet pilot said something ingenious he said I went some bad news and good news I won't be able to get you an air bridge because there's a plane blocking a blocking the gate but the good news is that the bus will drive you all the way to passport control so you went in front of walk with your carry-on bags we all know Jesus Edelman hold on that's always true isn't it yes mostly the noses weren't to where we just framed it as the poor man's average okay yeah right and we framed it is the inferior version to an average so it must be bad suddenly this guy had told a story which made me see it as a convenient as a conveyance not an inconvenience that's why people stand up the moment the seatbelt light goes off and then they stand all on top of each other and in fact it Stokey on its toes great book by Robert Cialdini called pre suasion he makes the point that the human brain disproportionately pays attention to what's new the way the human brain works is we disproportionately think importance that which we pay attention to and so when a new technology comes if you think about it it happened with the Kindle a bit right which is an interesting technology because it's kind of reversing in its popularity it hit a kind of asymptote of adoption and people are actually buying more books than they ever were again and probably the reason is when something's new we noticed the thing that's better about that thing than the old thing more than we noticed what might be worse okay so we go wow that's amazing because it allows me to do all these new things therefore those new things become very important we go wow this new thing is amazing in the process we forget what was perhaps better about the old thing now that obviously over time wants new changes and I always call this again in in cheddar cheese okay for a long time all cheese had rind on it and someone in the 1970s maybe the late 60s chopped off the ride and sold it at a premium was rind las' cheddar okay and about 20 years later everybody can't copy this and so all cheddar had no rind on it and someone left the rind on and called it like authentic farmhouse cheddar with added rind and charge for premium and so in a weird kind of way one of the reasons fashion is so strange is because of this weird human distortion of noticing and I think we do an awful lot of that we notice what's better about the new thing online shopping actually I think Amazon is hugely overvalued the natural assumption of people who sort of look at the growth of Amazon is that online shopping will be 60% of all shopping I don't think that's true III think it will actually hit her I think it will it will hit us out a sort of a threshold or a ceiling sooner than Amazon's investors well we've seen that we've seen that with books and you've seen it with cinema yeah because I mean I remember consulting to there's a kind of Barnes & Noble type shop she is really the one thing that did really die that time except aronia stepped in the sea but I've salmon you know you know with books it was the end of books was the digital book came out of course now we see more books being sold physical paper books people didn't before people wants a book cinema video was gonna kill cinema but it hasn't you've got a very particular type of cinema the novelty thing is also true with airports because I was when I was a kid the rich kids of my school they'd been to skip all then it was Changi then it was Dubai Airport they come it's amazing like there's shops and restaurants everything about Walkman you know what Walkman Frazee pants actually incredibly yeah I'm currently there's currently a Frankfurt Airport and they go on okay right and then something all airports became a shopping centers and they and some people so again London City it's brilliant there hardly any shops and you get through the whole thing in about ten minutes and now in 1970 London City would have been a crap Airport right because there weren't many shops and that's also interesting by the way the whole Airport design question is interesting because it the retail environment of an airport doesn't distinguish between a hundred people who fly once a year and ten people who fly ten times a year actually and actually that's a really interesting question because you know the people who fly 20 times a year do not want to buy luxury goods it's not a special occasion okay and so what's very interesting there is that aggregate information often sort of provides nobody with what they want because if you look at an airport it is actually two very different kind of customers if you know anybody anybody got a PA gold card they've now bypassed that whole you've got your own security Lane which takes you straight into the lounge because they basically realize that people who fly that frequently don't want to go shopping and so that's you know that's the kind of interesting thing which I think was developing it's partly the avoidance of downside risk because if you think about it if you take a risk with a 1 in 100 chance of dying and you take that risk a hundred times as you're quite likely to be dead okay so it's partly that we're calibrated for us taking a risk a series of times not once the other thing is very simply what only Peters would say is very simple thing okay this is the most childish maths in the world okay there's no difference between 3 plus 1 plus 3 plus 1 plus 3 plus 1 and 2 plus 2 plus 2 plus 2 plus 2 right there's no difference in fact between 4 plus naught plus 4 plus naught plus 4 plus nor 3 plus T of stability when you multiply 2 times 2 times 2 times 2 times 2 times 2 is a much bigger number 64 then 1 times 3 times 1 times 3 times 1 times 3 which is 27 so olay argues and we really need to know this because apparently it's really important in finance I think it's interesting in marketing because it explains why people pay a premium for brands they're not paying for the fact that the branded the Samsung TV is better they're paying for the fact that whereas when you buy a Samsung TV yep you pay $100 more but it's less likely to be terrible you know it's somewhere between good and really good whereas there may be a cheaper television which is somewhere between brilliant and gone and disastrous if you think about it ok who shops on eBay interesting Lee if you were totally logical right if someone had a 96 percent approval rating on eBay and was selling something for 20% less than somebody with a 100 percent approval rating in a completely rational world you go well there's a four percent chance he doesn't sell me my goods but I'm getting them an 80 percent of the price therefore I'm up on the deal for whatever reason nobody knows that if you got a 96 percent approval rating on eBay you can't sell anything to anybody even at half price you have to go lower than that okay so we had painted Lee calibrated in our approach to risk that essentially if you want to maximize the time average growth rate 2 times 2 times 2 times 2 times 2 a series of consistent long game it is better than a higher variance thing around the same mean stiffening mean in a geometric mean is that right okay but there isn't so the fact that humans essentially liked McDonald's well you know basically if I mean only there isn't done McDonald's at the airport now that sounds strange because you know I can claim from my field of the airport why don't I want to go to Jamie's plain food Marlon's reasonable I'm gonna be on a plane for nine hours and a pressurized metal tube the most important thing is I don't want to get food poisoning okay I don't want an Adam Bolton incident don't if any of you saw that I'm to attend our Park mandatory prison back to where we yes oh thanks well we have to do something I'm full circle so should that really have the wick Webster yeah I think berry big have to supply them yeah but anyway the the point is that there are many conditions were actually what you want is low variance constant growth rather than what appears to be a better average return but with a high level of variance and so to some extent you know he would argue that what behavioral scientists have called loss aversion and have labeled as a bias isn't a bias at all it's actually really really intelligent and so that has huge implications because apparently the distinction between time averaging and ensemble averages becomes really really acute in the financial system when there's a lot of a lot of credit available with very low and essentially when there's just loads of money loosening around because the difference between the two becomes more acute under certain circumstances so Rory thank you very much I think we're gonna have to bring it to a close now thank you to everybody for attending and Rory especially to you that's where the velocity [Applause] [Music] you [Music]

Channel: Investec

Views: 15,436

Keywords: #Investec, Rory Sutherland, Alchemy: The Surprising Power of Ideas That Don’t Make Sense, Marc Kahn, Investec, Investec Focus Talks, Focus Talks

Id: j4t-LY3q6wU

Length: 54min 34sec (3274 seconds)

Published: Fri May 29 2020