Rory Sutherland - (VC, Ogilvy UK) Are We Creating a Culture Where it Pays to be Boring? (edited)

so our final presenter today I actually learned a little story while meeting Rory and he was talking with you guys don't mind if I share it the early days of Kent you actually when yob could give a demo and he was presenting to Rory and he thought it was all about information finding fact finding nothing really you know the company was really going in a different direction they went in and presented and Rory did the thing that every sales person in the world loves I'll take it they came back and worked that nag think was one of our first clients so what's that yeah so one of our first clients outside of Israel and now he's here he's the vice chairman of Ogilvy and he's going to be talking to us about are we creating a culture where it pays to be boring my wife would say have you created a relationship with me where you're boring but that being said let me bring up the vice chairman of Ogilvy Rory Sunim thank you very much need also I couldn't have asked for a better lead-in than the B video because I was going to start with it and so you can all go five minutes earlier through not having to have me present the B video first but if you think about it how the way the B is work you have 80% of them who are effectively you know they've been 20 million years of B evolution and as you said you would have expected be accountants to have evolved saying we want a greater level of compliance with the waggled arms to bring our nectar collection targets in line with our walkout for corn three and they'd do that for 80% of the bees it varies actually the ratio between creative bees and what you might call efficiency bees varies depending on the sort of the surrounding flora how close you are to the equator as well but there's always a trade-off between narrow short term optimization and something else and a narrow focus for too long on a single metric is nearly always disastrous and there are a variety of reasons why this is so I mean in many cases people there to gain the system the longer you stick with a particular metric of judgment people on the other end start gaming the system in the NHS you may have noticed when you ring your GP if you try and book an appointment next week they'll tell you to ring back at 8 o'clock in the morning okay the reason that is there's a metric for GPS which is how many patients they see on the day that an appointment was requested so they refused to let you book appointments in advance they hit 100% and then a great big brownie pod outside hospitals people are kept in ambulances in mobile for an hour before they're admitted to a hospital because there's a metric about how quickly patients are seen after they've been admitted and if they're sitting in a hospital car park technically they haven't been admitted so again you can game the system so that's one reason why metrics should always change the other reason why metrics should always change if you focus too heavily on one thing you create short-term efficiency gains at the price of long-term fragile ization and so what those bees are doing with the trade-off is they're essentially saying yep part of what we do the ROI is very simple nectar collected in energy value has to exceed the cost of collecting it but they take some of those gains for efficiency and kind of invest them in a sideline venture and the ROI for that sideline venture is very difficult different most of those journeys are a total waste of time but one in a thousand of them pays back ten thousand twelve you suddenly discover you go over the hill in an unfashionable direction and suddenly a whole field of flowers has burst into bloom and you go look at the nectar here and you go back and tell people about it and there's always has to be a trade-off I think between a narrow focus on short-term optimization and something else I'd also argue by the way there's an ethical problem we've got to watch with programmatic which is that algorithms don't really have a moral sense now I worked in an advertising agency for 28 years in meetings it's okay occasionally to suggest unethical things they were talking about a single page of ideas which you get promoted for suggesting them but fired for enacting them so I can confidently say if you had a meeting like my own strapline yesterday which was you know reduce knife crime carry a gun for example that's not going anywhere okay the reason we do that is it's okay in an ad agency to have a culture of silly that the principle value of an ad agency is that it's a culture in which you can make stupid suggestions and still get promoted and it's very important we maintain that culture I'm actually wondering about having sort of free speech codes enacted for the simple reason that sometimes the route to something new and different lies the bright Sun lit up light and the lands lie first by climbing Mount Slightly Stoopid yeah so you have to accept stupid suggestions and I'm sure if you sat on that agency and you had a booze brief someone would say why don't we advertise in meetings of Alcoholics Anonymous and everywhere we go very very funny but it's not a chance in hell we're doing that an algorithm will learn to do exactly that it will suddenly discover that converting X alcoholics to drinking is a hugely profitable activity it will learn that converting X gambling addicts to your poker sites is spectacularly lucrative and without knowing what it's doing that's what we'll do and we have to be really really scared about this because human beings are hackable to a degree and so an algorithm will simply find that a behavior is a blackbox algorithm will simply find that a behavior works in financial terms and it will look at nothing else it won't ask the how it will only ask the what algorithms may also turn out to be racist for example there are enormous areas I think for concern here it's particularly true because of the mobile age what happens if you want to give up an addiction if you if I'm not speaking to experience here if you're a former heroin addict one of the things you'll be told is that place where you used to buy your gear you can't even go within three blocks of that place for the rest of your life because exposing yourself to the context exposes you to temptation one of the reasons it's very difficult to give up those drugs is you've practically got to give up all your friends as well but people can give up bad habits by controlling their context if you used to be a gambling addict don't read the sports pages the racing pages of the newspaper for instance and don't don't go into bookmaker don't go into casinos the mobile phone makes context inescapable wherever you go whatever you're reading the algorithm will serve you temptation and I'm not comfortable with that I'm not comfortable with the world where people who want to give up an addictive or repetitive habit find it impossible to do so moral rant over but I do this just to make the pranic that although and by and large optimistic about advertising I'm not totally blind to some of its possible failings what I'm here to talk about is the optimistic side which is I think that there lies the possibility dotted all over the place for what you might call marketing moonshots those who from Google be familiar with it everybody knows the term you have alphabet X led by Astro teller their aim is to produce those rare one-off improvements where something is changed by an order of magnitude it's not an incremental improvement very much like the road be is in fact you know a percentage of your budget invented in those things which are total game changers you have a very high chance of failure you have a low chance of success but the upside from success is potentially absolutely massive and they're investing in X and it's called X of course it's called X partly because it sounds mysterious but it's also the Roman Acts ten times my contention is that doing this in engineering terms is increasingly hard doing this in Psychological terms is comparatively easy in many cases making a train 10 times faster making jet travel air travel ten times faster you're running up against the laws of physics making a train journey ten times more enjoyable on the other hand or ten times more productive or ten times more useful might be comparatively easy why am I so optimistic I'm optimistic because orderly we don't know very much about psychology and the opportunity for improvement is greatest in the areas where we know the least we already know quite a lot of that engineering we know quite a lot about physics so therefore it's the opportunity for 10x improvement exists we possibly know where it lies already and it's just a real bastard to do in the case of psychology we are so blind to our own psychology something several earlier speakers have already alluded to we're completely blind to the weird distorted way in which we see the world we're completely confined in many cases by very very narrow frames of reference in looking at things that the opportunity to discover something Wow is much greater so my challenge for marketers and this applies to marketers not just advertising agencies I think there are tons and tons of problems we could solve that we've never been asked to solve and we've partly made that mistake by calling ourselves marketers right being associated exclusively with communications rather than psychological insight and also as marketers using a wacko vocabulary which means it's impossible to be taken seriously on the sea sleeves the language of marketing is bit like there's one colleague of mine said spit like the language of astrology if you're talking to fellow believers it's fine if you're talking to anybody else you sound like a nut job okay going into the chief financial officer the chief operating officer and saying talking about brand iconography it's like going to the head of thoracic surgery at some Thomas's Hospital and saying we must trust to the healing power of the crystal okay now in a quest I think to be taken seriously we have obsessed about those parts of marketing which are highly measurable and highly quantifiable just because they're measurable and quantifiable doesn't mean them the most valuable things we could do they mean they're the safest things to do from a career point of view because no one ever gets fired for being for being too heavily quantified but an enormous amount of activity within business is actually when you're cynical about human motivation and I'll explain this later it's asked covering under the guise of rigor famous phrase David Ogilvy quoted often attributed to him bit unfair it was another Scotsman a philosopher many people use statistics the we're drunk uses a lamppost to support rather than illumination there are many many cases in advertising where people go off and research the efficacy of a campaign to the 17th decimal point but what they find doesn't affect what they do regardless of whether the ROI is 5 or 1.2 it doesn't change the amount of money they subsequently spend on that activity that's fairly good evidence I think that the reason for the research is to secure your own job not actually to change your behavior so very quickly I think what a moonshot is is where you change perception rather than reality now venomously phrase worth knowing one of the guys behind the Apollo program only learned its quote very recently he simply said that a change of frame a change of your frame of reference in looking at a problem is worth 80 IQ points something that you like quite a lot of successful entrepreneurs quite a lot of successful people in marketing actually appear to be quite stupid if they're good at changing the frame of reference it doesn't matter how good they are at maths it's a really really valuable talent on its own and nearly everything every problem is defined by people like economists by engineers by physicists it's defined in terms of what can be numerically expressed and measured because human perception is difficult to quantify there no SI units for a gret okay you know we have seconds we have meters we have you know bits bytes lots and lots of those things immeasurable there isn't a measurement for reputation there isn't a measurement for trust there isn't a measurement for anxiety and so these things get overlooked because the people who wanted to find the problem are trying to define the problem within a mathematical model at some point we have to go as marketers and go we don't know a lot about this but by god is this worth experimenting with this by the way is nature's most excel most valuable not there's there any first or most successful attempt to solve a problem through tinkering with perception not reality so the Chile finest plant on the planet in my opinion that is interesting is that the Renaissance actually happened in Europe and around the same time that chilies and tobacco arrived and what it does is it solves an inci problem how the hell can I be really really hot so that I think if any of us right palate that parents eat me that insects and mammals don't it wants to be propagated by parrots that's difficult to produce a successful plant that operates at 90 degrees centigrade you know no plants manage to do that what it does capsaicin in the chili to do is chili isn't hot at all it's not really burning you okay it's not hurting your mouth or other parts of your digestive tract all capsaicin does is it tinker's with your senses with your body's perception so that anything consumed in conjunction with capsaicin feels much hotter than it really is so it makes your body behave as though you're hot without actually being hot at all it's a total hack and my contention is I think we can do this in marketing don't don't change the reality we going to this one seems to have died here and on to the next slide ah yes this is the Austrian economist Ludwig von Mises now this explains something as marketers your finance department basically hates you and the reasonable Finance Department hates you is because most people in finance use as a mental model of the world economics economics achieves an extraordinary level of apparent mathematical certitude by attributing - human beings are spectacularly a new nuance mono directional view of human motivation it assumes that every single purchase every single decision we make as human beings is made in an atmosphere of perfect information and perfect trust an economics takes that as axiomatic before it starts demonstrating its mathematical models what you got to realize is that's why they hate you because in such a world perfect information perfect trust marketing wouldn't need to exist so in their mental model of the world marketing is a necessary it the worst is evil because it's distorting human preference at the best it's a cost to be minimized not a source of value creation the Estrin economist von Mises Hayek etc knew this was total bollocks the Austrians understood that the all value is subjective and is much a product of the context in which something is perceived as what something really is you can generate huge value by just changing a frame of reference who's done a Nespresso machine here ok got one myself love it like a child ok it is insanely expensive I'm sorry to disabuse you of this if you had to buy an espresso coffee in a jar like Nescafe or Maxwell House for an equivalent amount of coffee a jar of Nespresso coffee would cost about 45 pounds and you look at that and go check that's insane there's no way I'm paying that it would have gone nowhere if it had been sold as a job but it's not sold a jar it's sold in a pod we don't know what an individual Nescafe costs unless you're one of those sad people who puts individual portions and cling wrap and writes the price on each one death so when we use that 29 Peapod in an espresso machine our frame of reference is not necessary its Starbucks and we think works cos B 29 P will it cost me 2 pounds 30 of Starbucks this machine's practically paying for itself ok whether something is expensive or cheap entirely depends on our frame of reference rings Royce Maserati learnt this they stopped exhibiting their cars so heavily at car shows and started exhibiting them at boat and plane shows at a car show a three hundred thousand euro car looks really pricey when you've been looking at Lear Jets all morning it's an impulse buy okay now when leaders understood this that actually went by the man who sweeps the floor he explicitly means advertising and marketing that the value of the restaurant is a product I mean product in a proper sense of the food that you produce and the context in which it's consumed if you have a great product and you market it badly you fail that's probably the saddest thing you can do create something that has immense potential value and market it in such a way that people can't see the value or can't trust you or aren't brave enough to risk the social opprobrium which might come with making a bad decision now where are we going to find an example of a fantastic product terribly marketed now this is Australia to comedians and here goes oh I by way he shows they're pretty bad a newly associated with the rukon did four five edition don't have to be donut in the chain and we took one of the world's biggest the falling out kenta leaf loads on instead of an H here in Asia would anyone did a label with written a thigh and coming smell very dodgy looking at you a bit they were fair enough can we drift a me to that then Sadie looking's burka in charge of getting capital I'm a Sharon they want to hear it are like a here to the channel I thought big location can be appraisal I would I would come into if there was very big competencies able on this was going to be tough insurance if you want to paint a serum jaw where do we go finish your any emoji a man they also wear it not because if they don't still live a life without surveys we say mass actually pretty good value this poncho we had total lack of interest for a few minutes and based on time we should have on your vocal teacher yes our what FML ago CNN it up nation yes none I think one of the big hope is people think is here and the code word for the abroad to not be maintained what like that they just say my mother did she did she nearly got a level two particular Crockett suit on and that's all we don't get him coming here to the little boys the Friday ugh I say but we did not a still fight off if so what actually does they get the patient's I'm a quickly give you the go is that we closed you way to do interesting more recently all right here you go compliment your baby birthday Obama in shainsa second of the vapor to air within names of his gorgeous literally day any other side why you can sit on where you're feeling is as well but just one thought being a giant waste of everyone's time [Music] you want to see let's go to the upside of it I'll do the stood up goodbye okay I follow my partner about the idea there we go is your vision show is it really does all right oh joy no there's nothing good walk away where did he have to be laughs I'm standing on my opinion inline filter final fear not very many but you gotta do on to sit up there without bored I'm going to show you not absolutely not much but it'll do but yeah but if you look at out the two hours just when he premiered it and including some final hesitation you finally found a brave enough taken immediately [Music] [Music] I'm thinking about how people fall in life now by the way that's the funniest example of something that's a brilliant product but terribly marketed that's what you might call a ten times minus ten okay I genuinely believe there are plus tens dotted all around the place now I'll give you an example of this by the way we now know from behavioral science that people discount the future very heavily to be honest it's an evolutionary there's an eeveelution Airy reason for this but actually we probably discount it more than we should but give me one example of this to incentivize people to get a pension the government gives you a complete tax rebates on every pound you put into a pension starting at the age of say twenty twenty-five now what we know about psychology is that a benefit that's 20 or 30 years deferred has a very low perceived value because we just count something what it effectively says is get this pension now and we'll you'll get a little extra money when you're really old okay that costs the government 20 billion pounds a year and I would argue that the motivational effect of that incentive however rational it appears to economists is less than if you said get a pension and we'll give you a free iPad okay so if you don't believe there are 10x things where economics is diametrically wrong about what really motivates humans to think decide an act there are small ones there are really really big ones there are great products which are just unfortunate anybody have got a Philips airfryer nobody ah Judith fantastic yeah better the best museum of a boss right okay typically there's always one person in the audience there was agree it's the best thing they've ever bought it Fry's food not with fats with superheated air so you can produce crisp chips you can produce you know heat up pies so they're really crunchy and flaky has got intended but there's no fat involved in Asia they sell like crazy why does frying is cooking in Asia you don't really have an oven in Asia then they realized that as God intended the way to cook food is to fry it okay in Europe they call it the air fryer and so the kind of people who should be buying it go well we don't when we're trying not to eat any fried food aren't we okay it's exactly the wrong name it's also placed in shops right next to the deep fat fryers we're the kind of people should be buying it won't be going at all and someone came up job says I can't take credit for this and it's very easy when you want to sell the Philips airfryer just name it in French call it the air Souter's and people in John Lewis will be lining up around the block because if you call any cookery process in French do you remember nothing sous-vide so they remember you could achieve a sous-vide effect by effectively putting your food in a Sainsbury's bag stuffing it down your underpants of working around for a few hours on a hot day right but because it was French it was basically botulism in a bag right but it was French everybody was giving it a go okay what you call something really really matters now I'm going to recap a little bit on what an earlier speaker said the reason that is possible is because we don't see the world objectively in the first place why it is not not even a story interest to do so if eeveelution can make a trade off where it gets two percent extra fitness at the sacrifice of 20 percent of accuracy it's going to make that trade-off because evolution doesn't give a about objectivity it only cares about survival and reproductive fitness so the idea is Bob Trevor says that evolution has given us nervous systems which produce ever more accurate images of the world it's fundamentally deluded if evolution can misrepresent the world to us in a way that helps us make a decision a millisecond faster and therefore avoid that nasty snake that's what evolution is going to do and there's a black box in our head over which we have no conscious awareness or control which is basically distorting our view of reality all the time one thing that's really important in evolutionary survival is avoiding ambiguity because ambiguity causes you to dizzer and so in this case completely beyond our awareness a pitch to introspection the thing goes the brain goes it's weird I'm kind of seeing afar but I'm hearing bar more likely I've misheard that I've missed scene so we are asking permission it just overwrites the B with an F an eeveelution returns contrast is much more important than detecting contrast is much more important than detecting absolute values not much even loosening value to carrying a Pantone shaft around in our heads huge amount of evolutionary value in detecting something that doesn't quite blend with its background a snake for example you see the green swells and the blue swells they're exactly the same color similarly if you you've only seen the chessboard but just to rub it in if you put your fingers together that looks like a great thing hinge to a white thing what the brain is doing is compensating for an assumed shadow effect put your fingers together so you cover the join between the top of the bottom and you'll see that the top gray is objectively exactly the same as the volume gray and in everything we do remember value is just as much created by the man who creates the context as the person who creates the reality wine tastes better if you pour it to my heavier bottle painkillers are more effective if they're branded painkillers are more effective and wine is tastier if you tell people it's expensive okay that works blind that works if you it's really reported pain relief if you attach electrodes to people's heads and tell people this is a really expensive painkiller the pain goes away a lot more I'm the only person in Britain who complains that you can't buy expensive aspirin anymore okay this hasn't got to work it cost 39 pee for God's sake I haven't got a 39p headache I've got a 2.79 headache damn it okay I want to spend some money on the aspirin that's commensurate with the blood release all right now the trick here and this is a blasted sentence I'm half proud of it half ashamed of it I should be able to do better look for things which are objectively similar but subjectively different or look for things which are objectively different but subjectively similar uber mostly a psychological hack if you're a standard metrics taxi firm you'd look at how what the average wait time was in objective minutes and seconds okay really really difficult to reduce that you've got to have a lot of cab drivers driving around doing bugger all in order to reduce wait time let's do that it uses a map to reduce the psychological pain of waiting so the most successful thing the London Underground has done in terms of improving passenger satisfaction per pound spent isn't faster more frequent more comfortable trains its dot matrix displays on the platform we'd rather wait nine minutes for a train knowing it's nine minutes the wait six minutes for a train in the state of uncertainty here previously you ordered a cab they lied to you ten minutes after about eleven minutes you're walking around in the rain game maybe he's part round the corner where is he gone what's going on maybe he's already left okay no dignity no certainty behavior we really don't like it here you look at the map and even if the buggers late you just get always stuck at those traffic lights I'll have another pint okay you could also argue it contributes to ego I don't know if anybody else do this where you time your arrival on the pavement to coincide exactly with the arrival of the car which makes you feel like Keyser söze and the emcee the usual suspect okay it makes you feel like louis the xiv and then also by the way you don't pay with money and you don't get a paper receipt things you buy on a contactless credit card feel 15% cheaper than anything you buy on chip-and-pin alright remember that thing with Ed Sheeran they said let's drop the price every economist always says that don't drop the price make it feel cheaper for jobs now just to give you a few more ideas this is my favorite one by the way if you want a really good 10x psychological moonshot electronic cigarettes then basically work even if there's no nicotine well that's a psychological discovery which is what smokers are more addicted to is the behavior less the drug people should have known that already their experiment so if this only works for relatively heavy drinkers if you give a heavy drinker gin and tonic and then for the rest of the evening give him tonic water in a glass where the rim has been dipped in gin not only does the guy not notice he becomes pissed okay so his brain isn't waiting for the alcohol to take in it goes oh I've had eight gins and tonics so I've better behave like eight gin and tonics me and starts laying around and becoming mildly objectionable okay now when the electronic cigarettes what's interesting is the slight fear of the tobacco industry by the way it seems to me that the nicotine is less important than having a hot thing stimulate your trigeminal nerve somewhere at the back of the throat that's a 10x here's a 10x which is a work of genius from easy jet pilot Union London Airport and the plane engines wind down before you reach the terminal and you all get that thinking feeling of are it's going to be a bus right and you all hate the bus and everybody gets are it's going to be a bus and I've been doing that for 15 years and then this pilot says something now you know the Fox and the grapes this is supposed we should have known this this insight comes from ESOP it's 2500 years old for God's sake okay that we will try and minimize unhappiness if you give us a bit of good news and a bit of bad news we'll focus on the good news to minimize regret so never give someone something that is unqualified bad news always clip some sugar in it somewhere so wheel and the engines run down I'm just about to think oh it's going to be a bus I feel cheated I've kind of paid for a bridge an opponent says I've got some good news bad news very very soon psychologically by the way that trade-off feline it's automatically believable the brain kind of expects a trade-off look at a lot of the best advertising lines of all time reassuringly expensive good things come to those who wait we're number two so we try harder you either love it or you hate it fresh green capes naughty but nice with salman rushdie road by the way when he works is over me before he decided to squander his talent by writing Midnight's Children instead okay really those things kind of work because there's a bit of a kind of yes but I care deliberately make shopping a pain in the arse so that you think you're saving money through the experience rather than through the quality of the furniture if we don't get told a trade-off we assume one low-cost airlines went on and on about what you didn't get you don't get a bill you don't get a pre allocated seat you don't get your luggage checked in why because it made the heart the low-cost seemed under seemed comprehensible and believable if you see each other coming to the market and said we're just as good as British Airways for we're half the price the human brain does not go well that's brilliant it goes there's something wrong there that probably means you don't bother service in the engines and your pilots are all on day released from prison right now what the pilot said was there's some good news with some bad news the bad news is the good news the bad news is there's a plane blocking our gate so I won't be able to get you an air bridge the good news is that the bus will take you all the way to their passport control so you won't have far than walk with your bags oh I only thought that's always true but nobody had ever told us before try this victim on the plane and there's a bus stay to the person next to you ideally someone you know see they look weird actually I'm glad there's a bus because it drives you all the way to passport control so you don't have to walk through a larger version of Bluewater to reach the passport thing you've just synthesized happiness in everybody around you it's always true no one had ever told us so we haven't got the material with which to frame our positive around the bus with behavioral science i hunger time to describe their brilliant ideas where the reduction of the prescription of unnecessary antibiotics is achieved at no emotional cost to doctor or patients by encouraging doctors to offer post dated prescriptions when you give a prescription to antibiotics even if you say don't use these unless you're feeling really terrible the burger nips next door into boots pays eight quid to the antibiotics because they paid eight quid Suncoast bias means I better start using these four days later they probably started getting better of their own accord and once you start getting better of your own accord your appetite for taking drugs diminishes dramatically but secondly sixty seven percent of the people given a delayed prescription don't actually cash it in and a certain percentage of the people cash it in and don't even take them now given that of the remaining thirty three percent maybe fifteen or twenty percent should be taking the antibiotics because they're still ill that is almost an order of magnitude reduction in the provision of unnecessary antibiotics leading to you know that terrible problem of immune strains of bacteria effectively evolving there are psychological boon shops all over the place precisely because we're much more wrong about psychology than we are about physics the fact that we're ignorant about this stuff as a business person should make us optimistic why is the business person remember you're not academics if you're an academic if you're a scientist your job is to be right about something if you're a business person you've just got to be less wrong than the other bastard there's a whole business to be made in just being less wrong than the other guy so great way of describing marketing is simply the science of knowing what accountable economists are wrong about find out what economists would assume and then basically go well if that's bollocks and there's a very large chance that it is by the way okay now let me give you an example of this let's say now this is where I get on to my final point about are we being paid and encouraged to be boring I want you to imagine you're on a business meeting and someone says for 150 years coca-cola has been the most popular cold non-alcoholic drink in the world apart from water we want some of that action what do we do and the economists in the room will probably say something about this you just need to produce a drink that tastes nice and coke cost less than coke and comes in a really big can so people get great value for money now who's going to disagree with that okay it's all consistent with standard very narrow economic theory about what motivates human behavior utility cost volume okay or other measurable things to disagree with that you've got to be a real weirdo you put your sticking back above the parapet okay so there's a fundamental problem in all business settings which is that no one ever gets fired for pretending that economics is true if you went along and you produce a nicer tasting colder drink so most nicer tasting cheaper drink that came in really began and it failed everybody would attribute failure to the foibles of consumer behavior no one would ever blame you and yet what's the most successful attempt to compete with children 150 years it's this comes in a tiny can it costs a fortune and it tastes disgusting right when I say it tastes disgusting I'm not being I drink it myself they researched it with a company that only researches the tastes of carbonated beverages and they reported back and said this is the worst report we've had from respondents in the entire history of our company normally people say things like it's not my thing it's a bit too sweet it's more for kids they report some redbull and blind tastings things like I wouldn't drink this piss if you paid me to now I think there is a psychological way to understand it which is think about those trade-offs again right you remember those little things I was talking about I don't think the innate human unconscious believes something can have medicinal or psychotropic powers unless it tastes a bit weird that's my health food has to taste okay if you make delicious health food no one believes it the first brief we ever have is over we change someone rings up from Belgium and says we've produced these 20% lower fat biscuits and no one can tell the difference in blind tastings and yet we've put them on sale and the sales have fallen off a cliff and we didn't even it was like that was right the guy you know that thing quantico the FBI profilers there's a guy working there and someone rang him up and described the crime scene and he just replied without putting the phone down he just said look for the local with a cut hand okay right sure enough that's the guy in this case it was exactly the same without putting the phone down we said you didn't put 20% lower fat on the packaging did you is it across we did we spent millions of pounds reducing the fat we went to tell people about it if you put lower fat on the packaging the biscuits will taste like okay remember everything we perceive is a blurry mix of information formed into a coherent whole by unconscious processes if you want both anybody think you buy a new car don't bother okay take your existing car and have it really well Vallot it not only will it be cleaner it'll Drive better it'll be quieter it'll be more comfortable everything about that car becomes better when you have it validated because that perception is highly leaky we think we can separate what we hear from what we taste from what we know okay now first bit of advice and this is difficult advice to follow test counterintuitive things because your competitors won't there are only other bastards in business are testing the kind of things that make sense to an economist so by doing the same thing you won't learn very much do what an economist wouldn't do and you you may fail but if you succeed that's really starting valuable simplest bit of advice second if you've got a product that isn't selling put the price up ed sheeran part of the problem was it was implausibly cheap okay secondly what we're doing is when they finally persuaded the couple to go in they use any Robert Cialdini fan there must be one persuasion reflation and influence to know the group books everybody in this business should read okay web Sheldon University of Arizona just to get back they used they said it's gonna get pretty busy later on do you remember that better go that you only get 30 seconds that's trade off it's gonna get pretty busy later on and you only get 30 seconds all of those things were basically promoting scarcity value it was the Australian equivalent of those airline websites which say only five seats left at this price I spent twenty eight years studying this behavioral science stuff that sentence still works on me I know exactly what you're trying to do and I still click anyway okay now it's really really difficult to test counterintuitive things it's much much easier to get fired for being illogical than being unimaginative there is the solution to this at the first solution is to create a separate budget and a separate B space when you're in the eighty percent pollen collection following the waggled armed space the standard metrics of business should apply when you're in the twenty percent space you should have a far higher tolerance of failure you should merely look at the overall probabilistic gains if you have something where but by the way you can fail fast and cut off early and where the potential upside is huge do it so the problem is is that in the standard B space if you live only among the B's who are optimizers it's very very difficult to go off in a random direction because everybody thinks you're an idiot if you play a space to do it it becomes easier because you just say the R that's my fell away most successful large companies fail to innovate IBM produce the PC by sending their weirdest employee to Boca Raton in Florida deliberately 2,000 miles from head office in order for him to do something different that's why entrepreneurs succeed because actually they're essentially allowed they don't have to report to the same group of boring B's so very quickly this effect is amplified by what I think is probably the most very important concept your pepra psychologist oh I'm just bad guy okay so tell me if I'm wrong in anything anybody heard of Herbert Simon got the Nobel Prize for economics pioneer of general polymath pioneer of artificial intelligence pioneer of decision making under uncertainty now most of you when you think about making a decision or when you think about a consumer making a decision you're thinking it's an optimization problem a straight unambiguous optimization problem archery is a straight unambiguous optimization problem you own for the middle there's no way you'll get more than ten the way to aim for the tariff or forget ten is to aim for the middle if you just miss you'll get nine if you miss a bit more you'll get eight if you miss a bit more than that you'll get seven if you miss a bit more than that you'll get six there is no strategy and archery other than aim for the bastard in the middle which may explain why archery has never made it big as a televised sport I mean imagine being an archery commentator what you think he's going to do Barry I think your aim right to the middle of a target just like it has the last four thousand times right it's not really a game of deep strategy game theory and variation real-world decisions are not like archery most of the time they're a bit like darts do not by the way if you want to steal these slides you can I'm really happy I'm an evangelist don't use this slide in France I did it two weeks ago not a great dhating nation they got many virtues but their conception of darts is very very weak okay but the best thing you if you're not really good at darts ords the board's moving or if you're not sure or if you're drunk aim for the southwestern quadrant of the board you won't get triple 20 or you probably won't unless you're really bad at dot but you might get triple downs you get triple sixteen and you won't get a one or a five that kind of decision-making roughly speaking is called satisficing you're making a decision where you're trying to reduce the minimum as much as you're trying to increase the possible maximum now let's just look at this an eeveelution Airi terms it's really important nearly all decisions taken on the Savannah were probabilistic you didn't have perfect information you didn't have perfect trust so every decision you took involved a degree of uncertainty if you take your decision whether the uncertainty involved you have to consider two things you have to consider the average and the variance okay how good is this decision average if you only looked at the average you'd probably die because something with a high average but a high variance includes a one percent chance of extinction or death it's not worth climbing up a tree 200 feet to get 5% better cherries if it comes with a 2% chance of death so you have to consider two things how good is this on average and what's the worst that can happen and our brains have evolved to ask both those questions when we make a decision I'm tied it'd think of an example of a decision which is now okay this is the most successful restaurant of the world in a way because it's relatively low average very low variance okay so how many people have ever got the sarcastic observers good odds I question are freezing at McDonald's answer practically nobody sir I'm willing to have someone disagree okay how many of you will have the shit's operating at a michelin-starred restaurant somebody has you just not exactly okay now what I'm saying is that michelin-star restaurant have a higher average greater chance of disappointment greater chance of botulism greater chance of feeling ripped off there are whole motive potential negatives with the expensive restaurant that although it has a higher average the McDonald's we actually quite like a bit of a low variance and will pay a premium for it that's my theory by the way the main reason consumers pay a premium for brands is not because they think branded goods are better but because they think they're less likely to be sure if you've got a really really big investment in your reputation you have much more to lose from selling a bad product than someone I've never heard of so a brand is not a guarantee of high average but it's a guarantee of no the dollars is the first popular wrestler in the world not because it's very very good but because it's really really good at not being okay now once you understand that this colors decision-making even for example when you have penalty that penalty kickoffs to the side of World Cup final the players would be more likely to score on average when taking penalties if they kick the ball straight down the middle they're very reluctant to do this why not because you're less like your score you're more likely to score but you look much stupider if you fail so even when taking penalties to decide a World Cup quarter-final they're involved in disaster minimization more than score maximization we found this for example working with dodgy oh no man will ever restore during a cocktail in a bar unless the menu includes a picture or an illustration of the glass in which you served because if the male brain thinks there's a naught point zero one percent chance it arrives with a umbrella and a sparkler on a pineapple he'll order a beer instead that's what I mean about I meant to show the video of the cat with a cucumber but you can do it at home that you if you put a cucumber just outside your cat's field of view when it's eating when it turns round and captures first side of the cucumber and when it sees as a low down green thing with a pointy nose there's only 1% chances to snake why take the risk once you have YouTube on your phone I'm sorry I miss that out so once you understand disaster minimization as well as average optimization as in compression or a programmatic what product program attic works because it's making something better and better and what part works evolution remember works in both directions it works by killing off the worst and it works by sort of elevating the best which of those two things should you focus on most interesting question herd behavior social copying totally irrational according to economists totally rational if you're trying to avoid disaster do what everybody else does may not be the best decision you can make but it won't be terrible habit is a really really potent behavior I've done it lots of times before it's always been fine I'll stick with that and I'll had it better get stronger as we get older because we have more past experience to draw on and we have less future to benefit from experimentation so our kind of risk safety ratio shifts the bit as we as we age I'll end with a final thing I mean if anybody's dying I won't be offended really leaves disease really hot I've got a theory here this is a bearing exactly on what you said a peacocks tail is an advertisement to peahens that I'm a really fit peacock because I can afford to produce this spectacular decorative tail but it's actually disadvantage the peacocks an Israeli Israeli biologist or a matzo harvey who kind this the handicap theory of signaling that meaningful signaling generally involves cost bumblebees have evolved to prefer flowers that smell of a chemical that you need to have in order to produce nectar why because someone who can produce that smell patently has a lot of nectar because it's costly to produce that smell it uses a necessary chemical not an incidental one if you had a friend who had a horse and they said how do you think your horse is going to be on the race and stuff there they said oh it's definitely a win you basically ignore the information because it has no skin in the game if they took you to the bookmaker and you saw them place a 5,000 pound butt on the horse that's really significant information the guy who knows that horse best not only says it's going to win he genuinely believes it and the costs of the communication the cost doesn't just mean financial cost it could be effort it could be used of scarce resources craftsmanship talent humor good manners effort anything everything that's basically difficult scarce costly I would argue humans instinctively react more the most efficient way to invite someone wedding is by email you get all the information there it's free and it arrives instantaneously I would argue if you got invited to weddings on the same day and the only one arrived on a card which was embossed with a stamp and a handwritten envelope you'd go to that one the email invitation slightly stinks of cash part of me let's be honest there okay so we infer as humans I believe not only from what something says but the cost of saying it because proof of sincerity comes from having skin in the game we partly feel safe on an aeroplane because they make the pilots sit at the front okay the peacock the peahen it's a bloody great burden carrying that tail around it makes you visible to predators it's a hugely heavy thing but the peahen goes if not I can survive while still carrying that huge thing around for purely decorative purposes when it serves no survival function he must be a pretty fit bird and I wouldn't mind some of his DNA okay think relat you know if women were attracted to men who owned expensive vehicles they don't chase lorry drivers and coach drivers those don't work for signalling purposes because they're actually economically useful having a two-seater sports car in London on the other hand that really shows you've got resources because you can waste them so conspicuous inefficiency is a form of communication I would also argue and this is where programmatic gets really problematic the conspicuous long terminus really matters to human instinct now here's a bit of game theory right when people win the future value of a relationship outweighs the one-off gain of cheating someone that's where it pays to be honest therefore instinctively by proxy humans should have evolved an instinct that people who have a long time horizon are going to be better people to do business with than people with a short time horizon if you're invested in at home in mobile assets like it's a bab shop you're more trustworthy in the kebab van the command van can poison everybody on the tan and merely drive 30 miles the kebab shop had release it has equipment it has lots and lots of reasons to play a longer-term game the third TripAdvisor most tourist restaurants were totally because they knew they were only going to see you once there was no incentive to be any better than legally required simply because you weren't coming back anyway okay so I think we instinctively look at behavior that is costly where the cost only makes sense in within the framework of a long-term continuously repeating relationship I think we automatically see that as attractive and trustworthy now let me give you an example of this an engagement ring upfront expense proof of long-term intention okay you notice however rich the guy is it's got a cost in the amount of money that really hurts okay there's no ceiling on engagement rings okay it's got to cost you amount of money that hurts and it is evidence of your sincerity and intense and belief in the long-term possibilities of the relationship no one's going to buy one of those to get a one-night stand because there are cheaper alternatives this is a reliable sign of commitment one of the reasons for the way women like being brought jewelry and flowers is precisely because men aren't interested in jewelry and flowers so there's if you think about it it's an entirely sacrificial to menstruate evacs it's an act of pure generosity without any other consideration of motive why think about it okay if your females in the room if your boyfriend buys you jewelry or flowers for Christmas he's thinking of you if he buys you a drone for Christmas there's the possible suspicion of self-interest so you know darling it's the quadbikes you always wanted easily really what you under here under isthmus day okay so I think we instinctively know this when five guys gives us the extra flies you will know that but you want to swear medium or large they fill the tip up to the top as they're legally required to do then they take a massive extra scoop and they Wang it in your bag that is evidence because it comes post-purchase just like them you know the mints you get with your bill it evidence of well I want an inference I've got in touch with evolutionary biologists and they stole it continuation probability so we'll use that to avoid trading creating ambiguity Amazon doesn't understand it Selfridges does anybody bought anything from Selfridges you get now what you've already paid right now Selfridge is online I think he's great actually I think we both benefit because to be able to honest it means I don't have to travel to London and they don't have a fat middle-aged Welshman wandering around their store ruining their user imagery so I think we both win from this okay all right but when this happens after you've paid the price or rose in a fantastic box the box is lined with gorgeous shininess the selfies logos on the box there is strike yellow and white paper and a fantastic varying sticker that says something like you know you just found something else amazing at Selfridges you get an email the second it arrives to say I hope you like it but all of that is discretionary effort which is continuity probability signaling okay we wouldn't be doing this if we were just out to tell you one thing so we're clearly on the right-hand of game theory the right-hand of that thing where we're looking to make money from long repeated interactions I might argue an expensive launched advertising campaign is exactly the same as an engagement ring if you didn't believe your product was going to be widely and repeatedly popular you wouldn't spend the money committing it to it and your point about there was a whole degree of commitment in advertising back in our day you're only 40 I'm 51 but back in the back in the day there was a whole level of commitment effort creativity by the way is just another form of costly signaling that poetry is more meaningful than prose because it's more difficult to write it's more difficult to say something creatively than it is boringly and therefore we see that at the mark of sunk cost effort in the communication if you're getting married and you haven't a lot of money okay and you can't afford to do the whole embossed wedding invitation that's fun you can do it in an email but it's got to be really creative remember that okay if you just put the pair absorb invite you to and send the email right you can do it by email but it's going to be really crazy if you have no imagination whatsoever do the expensive thing and send it by FedEx right creativity and media cost in some sense and multiplicative in terms of communicating the sincerity of communication so for yourself oh I think they made it more sense 15 quid used to get unlimited free delivery for a year so here's a little question how much of marketing is the cost is taking a long time horizons continuation probability the way we currently measure digital advertising think about it it's all about what's easy to measure what's easy to measure is what you do before and in the immediate run-up to the purchase nobody's investing anything after the purchase because it's harder to justify and it's harder to measure so we're and combine this with the shareholder value movement which prioritizes short-term profit maximization over anything else and we are creating businesses that look like Psychopaths to the people who do business with them because the obsession with measurement means that the only communications you produce are essentially self-interested if consumers didn't notice the difference between self-interested and not self-interested that wouldn't matter my contention is they really really do a classic example luxury goods okay anybody again mainly a female example if you've spent where is the threshold of fashion spending one hundred and fifty quid two hundred where the bastards have to give you a rope handle bag what is the point then we know are with cosmetics yeah over a certain amount they're going to chuck in a little fear sample the significance of the rope hammer bags are worse than polythene bags in practical terms the reason they mean so much is because they cost more and its continuity probability signaling that after you've made the purchase they don't stop being nice so there you go I'll end on one final slide why is it so bloody hard in business now you remember that thing I told you about about Reisen that we're always asking the question instinctively not just how good is this on average but what's the worst that could happen now my individual consumers that's a pretty good way to operate okay I don't I think satisficing is a rational way to operate at a very very simple level tell me if I'm wrong here by the lake is your proper psychologist okay but you can very very simple model of understanding human decision-making is regret minimization do whatever well and that explains prospect theory and a few other things do whatever will minimize the chance of regret when you put people in a business that changes because it's no longer regret minimization but is there interest on to line with the interests of the employer it turns into blame minimization not regret mineralization so as a result everybody wants to do the bog-standard economic standard approach which the computer model suggests because if you follow an algorithm you don't get blamed because you haven't put your neck on the line any exercise of subjective judgment is career-threatening because now you're the person who gets blamed not the algorithm not the committee not the not the net economic model so being subjective in business is really really scary because the upside is net rate and we call this the Heathrow effect and I'll explain this you can fly a business class 38 seats London City Director New York there used to be two flight today there's now only one British Airways have trouble filling it it's a fantastic thing it takes you about 15 minutes to board you clear customs in Ireland so you don't have to wait at the other end it's a brilliant service and yet it's nearly empty why is that if you ask the travelers the travelers love it but it's all business class so it's not booked by the travel it's booked through an intermediary typically a PA typically a travel agent let's suppose the PA and the travel agent do once you understand they're trying to avoid a 1 and a 5 they're not trying to hit a triple 20 what they do is very simple they always book your flight from Heathrow to JFK okay now overly New York is much closer to Newark I that's close to the Gatwick in London City doesn't matter it's always Heathrow jacket why that's the no one ever got fired for buying IBM answer okay if I book my boss on Heathrow to JFK and something goes wrong he blames British Airways you can't ring me up and go what the were you thinking but you know booking on a flight from their world second busiest International Airport are you mad right you can't get angry at someone who goes Heathrow JFK because it's the default the second you deviate from the default if anything goes wrong you blame me I would have been in New York by that if you hadn't booked me out of this tight an airport so in business people will do almost anything to avoid blame a huge amount of research is merely ass covering dressed up as rigor it doesn't affect what people subsequently do it's simply there for support rather than illumination and once you understand that safety bias there are ways you can manage around it but instinctively one of the reasons economics is so powerful one of the best things you can do okay if something isn't selling put the price up if you put the price down and you still don't sell you did what you're supposed to do sigma-1 shouts at you if you put the price up you might discover you sell more and at a higher price it often happens but if it doesn't work people will shout at you that's why by the way there are only four big accounting firms a point price waterhouse if everything goes wrong everybody blames price waterhouse a point a small boutique firm it might be better faster and cheaper but if everything goes wrong now they'll blame you so once you understand that satisficing when applied to business decisions basically rewards the form of cowardice then you understand how first of all wire entrepreneurial businesses are different that you also understand why big businesses need to change the way they look at risk and reward if they aren't going to get bored into a total tedious conformity I hope that was useful I'm sorry to keep you so long and thank you very much what

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Length: 66min 58sec (4018 seconds)

Published: Tue Jul 11 2017