The Case for Magic w/ Rory Sutherland

[Applause] so I suppose one of the things I take issue with is attempts to make everything look scientific and one of the reasons for that is if you think about it as soon as you give people in business or in public policy the idea that what they're doing should be scientific they immediately harken back to their time at school and they think I remember science it was the time when unlike English or history everything had a single right answer and if you weren't right it was wrong and I'm increasingly comes the idea that trying to make real life things purely scientific in that same way may be leading us badly astray and part of the reason for that is not only I would argue in many many marketing or psychological areas is there not a single right answer it's even weirder than that that sometimes in physics the opposite of right is wrong okay broadly speaking in solving problems in terms of human psychology weirdly the opposite of a good idea may not be wrong it may be another good idea because depending on the frame depending on the context we bring to bear to anything something could be good or bad not dependent on what it is but simply on how we perceive it now a lot of people by the way I would have just warning of this a lot of people get really uncomfortable with this because they think it's cheating okay and it kind of is cheating in a funny kind of way you can call it cheating or you can call it magic you can frame it either way and sometimes the person who introduced me to this strange given that I work in advertising was actually my brother who's an astrophysicist and he said Miller no there are two things you can do if you want to sell a car you can either have cloth seats okay and replace them with leather seats and charge more for the car or you can charge more for the car keep the cloth seats and Rud an advertising campaign that convinces people that cloth seats are cool okay and he said as long as you accept that values subjective they're both equally valid you might argue by the way interesting that the second one is environmentally more friendly than the first interesting to you that I mentioned cloth seats because Daniel Kahneman is seemingly obsessed with cloth seats he's convinced that leather is simply I'm not sure he's right on this I did take issue with Daniel conovan Nobel Prize winning economist though here's on the on the grounds of leather versus cloth seats saying yes cloth seats you're obviously right Daniel they are superior to leather in many many ways but if you've had a child vomit on cloth seats you discover the benefits of leather very quickly and Dean I don't think Dan accountants in the business of vomiting in his own car I think those days are behind him but it's an absolutely fair point and this is why it gets so complicated so my case against rationality starts in the book with a very very simple thought experiment about how a rational person might think about competing with coca-cola and you'd sit in the room and you go okay for about a hundred and twenty years or so cokes been the best selling cold non-alcoholic drink in the world apart from water okay how can we get a bit of that action and the three four logical people sitting in the room would say well it seems to me what we need to do is we need to produce a drink that tastes nicer than coke cost less than coke and comes in a really big counts if people get great value for money now no one will get fired if you tried that and failed because you never get fired for being logical it's a fundamental bias in business decision making if you do something logical and it fails you keep your job okay if you do something illogical it fails you're dead okay so there's a very very strong bias in business not towards taking good decisions but towards taking decisions that are very easy to defend and so the natural inclination of anybody in a business meeting unless you have someone like me in there who's feeling mischievous and has permission to cause trouble is to say okay we want this drink it needs to taste nicer than cost less than code and come in a really big kennel bottle and everybody would not along and you'd go and research it and people would say yes this tastes very good in fact I might even say it tastes nice and coke any problem is that no one's actually succeeded with that approach in a hundred years on the other hand the most successful attempt to compete with coca-cola by miles it's Red Bull and it comes in a tiny can it costs a fortune and it tastes disgusting okay now when I said tastes disgusting that's not a subjective opinion they researched it and they went to a company which only researches I promise this exists it only researches the taste of carbonated drinks and they ask people what do you think of this drink we're thinking of launching this drink what do you think and normally the research would come back with a failed product they actually said this is the worst drink we have researched in the entire history of our company normally research respondents would say something like no it's a bit sweet for me it's more for kids bit cloying not really my thing you know in this case they came back with phrases like I wouldn't drink this piss if you paid me again and yet weirdly the drink is so successful that they can basically run a Formula One team you know on the profits for the laws okay that's how successful it is now what I mean by that is the opposite of a good idea is sometimes another good idea that's what's weird about psychology that actually the way we perceive the world is neither linear nor is it necessarily monotonic it's highly contradictory now let me explain why I think Red Bull successful it's a post rationalization but there's some evidence were conducted by INSEAD to support this which is it isn't actually a drink in the sense that Fantas a drink it's actually a kind of placebo or you could say it's a drug which also is a kind of drug now if you think about it if you want a nice drink you wanted to taste nice that's why Fantas quite popular tastes like orange we probably have a strong evolutionary propensity to drink things that tastes a bit like oranges okay on the other hand once you frame it as something with psychoactive or psychotropic powers all the rules change all the things that are a disadvantage is a drink a restraint as a placebo okay it's expensive it comes in a small measured dose which suggests to our own it's really really potent and it tastes weird now if you think about it nearly all drugs taste weird in fact you know nobody wants to be given some sort of prescription for say you know what would an example of a prescription for a serious condition be asked you know do you want the black currant or the strawberry flavor right we kind of believe that things that have medicinal powers should taste weird and as a result I think Red Bulls are very very disastrously bad drink but it's an incredibly potent placebo if you think about it now the small cannon says you know they actually had to dose this out and especially small cans if you have the full three hundred and thirty milliliters you'd probably go postal you know that's that's the culinary implication okay it even has the most fantastic placebo effect in the UK which is you can't buy it if you're under 16 now if there's a way to 1/5 make 15 year-olds want something it's to basically allow it only to be sold to people over a certain age and I don't know if anybody remembers that did this ever exist in Canada a thing called sanitation which was a tonic wine it existed in the UK and my childhood it was a very very sweet tonic wine now I think a tonic wine really existed for people who were sort of Presbyterians but mildly alcoholic and could get away with it by pretending to be ill to me that that's one suspicion okay but the interesting thing is the last ingredient they added to this very sweet tonic wine was a weird chemical the only purpose of which was to taste not very nice and the argument for this was if we don't make it tastes a bit weird okay no one will believe it's medicinal um if you're abused by the way by the coexistence of Diet Coke and Coke Zero there's something similar going on which is the reason you have to have zero and Diet Coke is Coke Zero is designed to taste pretty much exactly like normal coke okay Diet Coke has to be made to taste a little bit more bitter than ordinary coke because otherwise people don't believe it's a diet drink and these weird mental inferences unconscious mental inferences are basically all over the place I'll give you a few examples wine tastes better if you pour it from a heavier bottle wine tastes better we tell people it's expensive painkillers are more effective if they're branded I'm and painkillers more effective as they're expensive by the way or if you tell people they're expensive I'm the only person in the UK who campaigns against the fact that you can't buy expensive aspirin any more because we've entirely genericized the production of aspirin there's no branded aspirin a my argument is this isn't your work I've got an 89 pee headache I've got a 3 pounds 50 headache for God's sake right funnily enough um the makers of nurofen got into huge trouble with these boring people at the Australian Competition Commission because they were charging a premium for nurofen which was chemically identical to the ordinary urethane but was more expensive because the packaging made a promise that it was effective against a more specific kind of condition so there was neurofen for period pain nurofen for cold and flu nurofen for something else and they charge more for these even though chemically the active ingredients were no different for bog-standard urethane now I was willing I wasn't called upon to give evidence I was willing to support them in this complete fraud on the grounds that tragic but true rioting neurofen for period pain on the packaging and charging a bit more for it would make the drug more effective against period pain yeah I actually said they weren't going far enough I said they should have had I've lost my car keys nurofen and you're a friend for people whose neighbours like reggae you know I thought you could have gone you could have gone much deeper with this whole idea of specific annoyances but actually if you say it's for a specific thing on the packaging and you charge a bit more for it the placebo effect means that actually it's a more effective painkiller so yes to some extent there was a degree of deception going on but they were only deceiving your conscious mind your unconscious was weirdly happy to play along with the deception and so I suppose I became weirdly an accidently famous because of a TED talk I gave in about 2007 where I just made this point about how when you're trying to improve something generally there's an engineering solution and there's a psychological solution and we tend to regard the engineering solution as honest decent and fair because it improves objective metrics and we regard the psychological solution as a bit of a calm and my view is that taken to extremes this is a very dangerous and false dichotomy and it all started with a kind of joke which was at the time the UK was planning to spend 6 billion pounds creating fast railway lines between London and the coast at Folkestone to reduce the Eurostar journey time between Paris and London for about 3 hours and 10 minutes down to about two hours and 40 and I simply made the point that yes you could do this you could have a budget of 6 billion and you could sort of improve the Eurostar experience a bit by making it faster and that's what every engineer would do they'd say we have to improve the objective characteristics of this journey speed distance capacity all those kinda things and I said that isn't necessarily true I said you could take 1% of that budget and you could just put Wi-Fi on the trains no I argue that that wouldn't reduce the duration of the journey but it would massively transform the usefulness of the time or indeed the level of entertainment at the time you might be working on the train if you're going to a business meeting you might be watching a film it doesn't really matter ok now the fact that humans do not react to time objectively I think he's actually proved linguistically we have phrases like it was the longest 10 minutes of my life you know or for example time flies when you're having fun that our perception of time is not app that of a metronome or a ticking clock you know whether something feels like a long time or something feels like a short time is dependent on lots of things including the mood we're in ok and so I took that a bit further and said if you think adding Wi-Fi to the trains is too boring and inexpensive I said why don't you just take another billion pounds from your 6 billion budget employ all of the world's top male and female supermodels get to walk up and down the train serving 3 glasses of chateau to all the passengers I said not only will you still have saved 5 billion pounds compared to the engineering solution but people asked for the trains to be slowed down and it's very very interesting because if you think about it we're trying to improve the world engineers will always try and improve the world objectively on the assumption that an objective improvement is a subjective improvement and I think quite often that's actually wrong first of all I think the subjective improvement might be a lot cheaper it might be a lot easier it might be more environmentally friendly by the way because generally making people cheerful and Langland to watch films on a train is going to use less non-renewable resources than making a train faster or building new trains but also of course it's worth remembering that our enjoyment of the world isn't really much dependent beyond a certain point on things like how long a train journey is how comfortable the seat is is probably a more important consideration for instance or is there a table on the train so I can actually have a cup of coffee and use a laptop those things start to get more and more important particularly as you near the limits of reasonable train speed because you're up against the laws of physics and as you know it's not that difficult to get a train that can go 30 to go 60 but in a train to gain from a hundred and fifty miles an hour to 300 is pretty damn difficult because of course you have lots of things which are you know the square of air resistance or whatever it may be and at that point the case for psychological solutions versus physical or engineering solutions I think becomes very strong it's worth remembering course that all SI units with one exception I think all scientific units of time distance weight etc are independent of human perception there's one exception below which is the lumen which is the unit of luminosity where they realized that merely measuring how much how many photons a light source gave out wouldn't be very good unless you weighted it in favor of the visible spectrum interestingly there was debate when they introduced a unit of temperature to say that actually we should actually give similar consideration to human perception now you know there's American weather forecasts where they go you know it's 73 degrees feels like 68 okay that's an acknowledgment that what a temperature is and how it feels to us aren't quite the same thing depending on wind chill humidity and a load of facts and there was weirdly a debate about temperature for a time at least ambient atmospheric temperature rather than scientific temperature that said we should do the same thing as with the lumen we should actually factor in things that actually affect in how we felt not just pure temperature but they lost that one and nearly every scientific unit is as perceived by an objective measuring device not as perceived by a human and the way we perceive things is hugely different to what they are and that point I made that actually you know in many cases the opposite of a good idea is another good idea the opposite of the logical solution may also present you with really interesting possibilities but nobody ever tries them and those of you who are familiar with marketing will know the story about Betty Crocker cakes which was an instant cake mix where you simply added water put the mix on a baking tray winding in the oven and a cake appeared and they couldn't sell it nobody would buy it and some psychologists suggested it's too easy you don't feel you're cooking you feel you're cheating you need to create an added degree of difficulty which makes people feel they've actually put something of themselves into the cake and so the famous cake slogan for Betty Crocker cakes was just add an egg and it required you to add an egg which made people feel I mean American people of the 1960s obviously had a pretty shallow idea of what cooking was but when they were actually adding an egg they actually felt they were a bloody on MasterChef basically as opposed to just mixing something with water and putting it in the oven the addition of an egg which is sort of wholesome or organic completely transform the perception of the thing and so counter-intuitively making something a bit more difficult sometimes makes it better our email would be better as it weren't instantaneous I believe okay that actually it never occurred to anybody in Silicon Valley that building in a bit of a buffer there's nothing worse than trying to get through your emails only to have some bastard reply to the emails you've just replied to you I'm trying to get down to you know the word kind of strange you know sludge at the bottom lion blocks and these bastards keep replying to me you know in many ways actually emails should probably be deferred you know you should be able to send an instantaneous email but the default should not be instant okay um and I think by the way I think there are a lot of cases where Silicon Valley it's worth looking at because they they Silicon Valley just actually unintentionally deeply ideological that they will always assume that fast is better than slow they will always assume that that that free is better than expensive they will always assume that no friction is better than more friction and actually um I'm not sure they're right and I think the driverless car has the potential to be a disaster right because if driving isn't slightly irritating okay right who's going to spend all that time in the car answer people who with no sense of urgency who have a lot of time to spare so retired bridge players basically are just gonna sit in Toronto going round and round in circles not giving a clogging up all the roads and anybody who's got a meeting to go to it's gonna be completely stuffed now if you think of the driverless cars aren't going to pose a problem I can prove it by the way because I've been to India now in India they already have driverless cars now they don't actually right but in India a driver is cheaper than the car so everybody with a car has a driver which effectively means it's driving this car I don't know if into India but the one thing you won't say if you've been to India his hey those guys have really got the congestion problem dragged right you do not say that after three hours stationary in Mumbai traffic you don't go wow this is the future right so Silicon Valley actually makes those assumptions and it's very easy to make logical assumptions do you never get into any trouble if you're wrong okay if your logical you never get into any trouble if you're wrong and so an example was I was having a chat with Dan Ariely the wonderful book called predictably irrational and we discovered that everybody working for some pharmaceutical companies tries to make pills as easy to take as possible as small as possible as infrequent as possible as easy to swallow as possible and both of us said whoa there's a potential problem there one you're minimizing the placebo effect possibly because you might want to add a degree of difficulty but actually with a lot of pills the most important thing about them is that you remember to take them really regularly and actually we said in many cases you should probably add a bit of a ritual to the preparation of the medicine every evening so that you don't forget and also so that you there's never any ambiguity about whether you've taken your medicine or not so actually having medicine which you had to grind up and dilute maybe in some cases a better solution IKEA's by the way very interesting Lee also understands this reverse psychology Kamprad who founded IKEA believes I think some justification that if you're selling cheap furniture if you make it really easy for people to buy quite nice furniture that's really cheap they'll tend to assume there's something wrong with the furniture but if you make it a right royal pain in the ass to buy the stuff and an absolute balls ache of an afternoon assembling the stuff then you'll see that the low cost plus the effort D stigmatizes the low price but also he believes that we value the furniture more because of the effort we've invested in both acquiring it and assembling it that actually that there's no because it's a company by a feeling of accomplishment we don't just treat it lightly or assume that the low cost means that there's something wrong with it and I think Kim I think it's just really important to say that this attempt to make everything look scientific may be quite problematic because one of the things I've noticed in business in the last 15-20 years particularly since the invention of the spreadsheet is you can't do anything unless you have an exact case in advance what's going to happen and how it's gonna work and to what extent it'll pay off okay the only problem with that in a complex and unknowable world with a high degree of uncertainty is it completely prevents you from doing anything which is probabilistically worthwhile but not predictable or measurable in advance or not attributable in hindsight okay now let me give an example of this kind of behavior and I made an argument that there's a perfectly good reason for advertising and that we don't have to get into all this business of ROI and cost-benefit analysis and all the other stuff there's a really good reason to advertise and it's as simple as this okay um if you're famous more lucky happens to you than if you're obscure now we can't predict in advance what form that luck will take nor can we attribute in retrospect all the good luck that actually arose because of our fame we can't attribute that to a specific marketing activity but since opportunity and fortune tend to be more positive than negative it makes sense to maximize them now let me explain someone who understands this if I ask my daughters these aren't my daughters are they're just some random teenagers but there you go okay first my daughters I'm 53 and I got two daughters they're twins they're 18 and they insist on going out on a Saturday night okay and this is bloody annoying if you're 53 cuz if you're 53 your idea of a great Saturday night is just watching the Discovery Channel in your pants basically okay but when you're 18 this is not your idea of a good Saturday night for some reason you want to go out to a party and if I ask my daughters why do you insist on going out every evening particularly on Saturdays they basically reply because I might get lucky now that the luck might be sexual romantic it might be they make a new friend they get invited on a holiday they get told about a really good job opportunity they learn some exciting gossip it might be they get invited to another even better party the following weekend okay they don't know they couldn't do a cost-benefit analysis they couldn't do a spreadsheet saying okay cost of going to party X benefits and lists some quantifiable benefits but they know something perfectly true which is that if you go out left might happen to you and if you stay home it won't simple as that okay right you know you're not gonna stay at home I have some sort of weird supermodel bang on the door saying I've been looking for you right nothing really positive is going to happen if you stay at home on a Saturday night and my daughter those teenagers and of course in Darwinian terms at an age where you have a strong instinct to maximize opportunity okay um they instinctively know that and equally when you do get lucky at a party because you end up with a nice job or you end up inviting a little holiday or inva and I've invited to a better party you can't really attribute that to any specific party you went to can you you just go well because I'm a bit out there I've met a lot of people some fortunate shits happened to me right but you can't actually necessarily reverse engineer or reverse explain fortune yeah this happened by the way with my book a very fascinating case Department my book a moment is you should advertise just because when you're famous okay if you're a famous company when you're chief executive rings somebody up they call back okay feel the chief executive of say rolls-royce or Royal Bank of Canada okay you can ring pretty much anybody in the world who isn't a president or prime minister and they'll call you back right if you work for you know Zog Incorporated nobody calls you back okay um if you're famous people come and want to work for you they work for you for less money because they want a famous brand on their CV people come to you with opportunities people come to you and propose partnerships people come to you with good ideas right none of which will ever happen if they've never heard of you now the fact is nobody ever says thanks to our marketing campaign that guy called me back there for our marketing campaign has been worth eight million pounds because if they hadn't called me back we wouldn't have got this contract okay but that's how it works and it's very thing because I said look this is a purely probabilistic justification of indiscriminate mass marketing and I presented it to Keith weed who is the marketing director of Unilever and he said you know the weird thing about that is I think you're right he said but the weirder things still is I worked you know I've done my job for 25 years nobody has ever presented that justification to me they always say the perp your advertising is to achieve this specific predefined objective not and when I produced my book by the way the one thing there's a guy called Chris Evans the Brits here will know who he is he runs a thing called the Virgin breakfast show which is about 2 million listeners by complete fluke one of the press releases from the publisher went to a guy who worked on this show I never would have sat down said it's a behavioral economics book by a marketer about you know consumer psychology and you know and you know in a bit of evolutionary psychology we need to get on the Chris Evans show but I you know it's ridiculous objective in advance but if you make a lot of noise the odds of some lucky random crap like that happening multiplies by a factor of 5 or 10 and sure enough I get invited on the show he likes the book I didn't hear this I was somewhere else but the next day he kept babbling on about this book the only reason I realized something weird was going on was because for about 5 days it was number 8 on the amazon bestsellers chart it was actually outselling the hungry little caterpillar which what do you think about it if you've got a child that's actually compulsory buying the hungry little caterpillar it was out selling in the UK the highway code which you have to buy if you want to learn to drive now there's a really interesting point going on here which is if we try and make everything quantifiable and we make everything predictable and we make everything measurable one of the things we're denying ourselves is just the chance to get lucky and if you think about it this is very strange because I just feel on Twitter this afternoon and it was very snart you know I'm by the way 50/50 on brexit just in case you ask ok I'm pretty mad about it to be honest ah but there are loads of people to go if we in if we leave the European Union our GDP will fall by 2.70 3 percent you know year on yeah and if someone else comes in and they said this is total bollocks the idea that you can know the future to that level of accuracy is ludicrous if you did you'd already be a billionaire if you really could predict that level of accuracy but the other point I made is that it's a stupid thing anyway because costs are much easier to quantify than opportunities are because costs come out of something we know and can recognize and opportunities basically come out of the blue right so one of the reasons I think large corporations are really really bad at innovating is they're really really good at working out the costs of things but when something's unquantifiable like an opportunity they immediately run away because once there's a degree of uncertainty even if probabilistically doing something is quite a good idea once this is real uncertainty once you can't quantify the benefit business loses interest completely because you can't put it on a spreadsheet and so there's a really really important point here which is that we you know human behavior is a massively complex system there are feedback loops there are inter dependencies there are emergent properties more or less anywhere I mean one of the strangest things I had as a discussion with the same talib was the point that one of the reasons capitalism is a really good system is it rewards lucky right now this is ok nobody who's rich ever says I'm lucky ok they always write a back story where their own genius foresight and peculiar qualities or determination led to their extraordinary level of wealth but a very large amount of wealth is by the way the product of luck I mean if you look at gates jobs and Ellison they were all born without about six months of each other ok if you know not saying that Gates is not a genius for example but if he'd been born three years earlier he would have ended up working for IBM if he'd been born three years later he would have ended up working for Steve Jobs okay if you wanted me one of those tech Titans there was a very very narrow window geographical and chronological in which you had to be born you know the same person born on the other side of the world wouldn't have stood a chance okay but what are the seams interesting points is that that's pretty that that is a necessary feature of a really effective market economy because you have to reward people who are successful regardless of their reasons for being successful because someone who through total luck or indeed in some cases by the way total stupidity I mean some business people who are very successful are actually either willfully or accidentally stupid which for a certain percentage of them is a huge advantage because they either don't understand or never grasp the rules of the category and end up doing something randomly different which one time in a hundred actually proves massively successful but is it's in a place where nobody else is trying to be and the same pointed out to me that actually a system which doesn't reward lucky is very effective you have to have a mechanism where if somebody stumbles onto a good idea through total idiocy and good fortune the good idea is rewarded and allowed to flourish and replicate regardless of the quality of thinking that actually led to it because if you can only reward good ideas that are well thought out you're probably only rewarding about 10% of the world's good ideas 90% of the world's good ideas I mean okay if you're looking a bit anxious but I'll put it another way okay should we refuse to use penicillin because it was discovered by luck okay they're actually a system that basically rewards good fortune is actually essential to the efficient workings of the system I've been chatting away this is one of the problems we have and this is a Richard Thaler quote the Nobel Prize winning economist the United States government is run by lawyers who occasionally take advice from economists others interested in helping the lawyers out need not apply all right one of the huge problems we have in the world is that the influence of economists is woefully excessive because it's to be honest it's predictive power is somewhere between like water divining and palmistry okay and yet because economists provide people with unambiguous certainty however inaccurate it may be they're incredibly popular in policymaking because they can provide a definitive answer to what should be treated as a murky problem and I think the problem you have to understand is that one of the reasons I really hate economics is because I work in marketing and if you like psychological solutions if you believe that value can be created in the head just as much as it can be created in the factory what you discover when you anybody here studied economics there must be a few okay once you discover is that in order to produce mathematically neat more of human behavior they assume that everybody makes decisions in an atmosphere of perfect information and perfect trust with stable transitive preferences ok then effectively everybody already knows exactly what they want they know exactly how much utility they'll derive from buying it they therefore know exactly how much money it's worth spending to buy that thing and that the value of the thing is unaffected by anything other than what the thing itself is ok now if you think about it if that's your weird fantasy world in which your brain which your brain inhabits you created a world in which marketing wouldn't need to exist there's no role for persuasion there's no role for branding there's no role for positioning there's no role for framing the only way you could improve something is either making it materially better or dropping the price because nothing else would improve human wellbeing and I think large companies and government are dangerously infected by this belief that the only way that improves something is either making the train faster or dropping the price of a ticket ok and my argument would be actually making a train journey more enjoyable probably costs a tiny fraction of either of the other two alternatives but if you take an economists view on how to improve the world that does not show up also you would define something very narrowly by the way that the purpose of a train is to get you from A to B to Amazonas in my case that's not true at all if ever I'm invited to give a speaking engagement in Newcastle my PA goes where are you going to that it's an actuary conference I go yeah no but it's a three hour train journey in both directions I can actually get somebody work done right because being on a train now is like being in the office except people don't interrupt you with dumb questions so you can actually get some stuff done okay and so one of the things that's also dangerous is whenever you have a model as an approximation of the world it gets worse the more it's used so the more widely it's used and the more repeatedly it's used and the longer and longer it gets used something happens which is at first a model tells you things you didn't know in the end it ends up convinced of things you shouldn't believe and as time goes on the value from looking at the model and asking what does this model tell you I think Falls and Falls and Falls and in its place the value of asking what's this model wrong about becomes higher and higher and higher because it's more and more people effectively rely on the model the distortions of the model become more important than its accuracies and I'll give you an example of what is perhaps the you know the perfect cognitive model something that makes something that's very complicated mentally accessible mentally available and it's the London Tube map designed by a guy called Harry Beck Harry Beck was originally electrical engineer so he modeled the the tube it's actually a schematic diagram nor a map okay on wiring diagrams and in a way it's very very good because you can look at it at a glance now assuming you're trying to get from one tube station to another tube station probably 90% of the time it does quite a good job okay ah it's better now the interesting thing is however it has fairly significant biases because one it's not remotely faithful to distance or geography not a bit its whole purpose is to be schematically accurate not to be geographically accurate this creates for the way really weird behavioral distortions so the red line there which is the central line that's grossly overused as a line why because on the map it's a straight line so people look at it and go that's a straight line going east to west I want to get from east to west therefore I'll take the red line okay the blue line the light blue line here is a massive wiggle now the reason of that is simply that it was quite late to be built and so the Tube map already existed and they had to draw it over a pre-existing Tube map it's actually a pretty straight line but the words to Peter on the map is a ludicrous Wiggly curve because it has to fit into the existing schematic okay now it's actually the best tube line I think Joe will agree with me it's probably the best tube line in London it's very very fast very very frequent it's grossly under used because mentally it's not a salient solution to any problem it looks like the wiggly in fact it's so unsanitary I realize you could get from Victoria Station to Euston station on that line and when I discovered it it was complete revelation then there are other biases by the way the most common um tourist journey undertaken on the Tube map is Leicester Square to Covent Garden which is one tube stop it's a distance above ground which you could probably throw a tennis ball if you're reasonably athletic okay but people that were it's tube stop I better take the tube okay ludicrously close together when Ogilvie it was Lancaster House there was a woman who used who used to come into Charing Cross I don't know that's right she used to come in on the central line and change to Charing Cross on the Northern Line every day for a whole year okay without realising that the two stations are about 100 yards apart okay there are there but the vital thing that happens is that there are other distortions by the way if you want to get from Paddington - let's say Bond Street on the red line okay this looks as if it's a straight north/south line actually between Paddington and Notting Hill Gate you're going a long way West in the wrong direction but the map doesn't show that because it's schematic okay the best way to get from Paddington to there is actually to walk to Lancaster Gate which is Queens Way Lancaster Gate there now Paddington Langosta gate looks like a massive distance on the map it's actually a few hundred yards walk okay so after a time what unfortunately happens is people stop even treating the Tube map as a two-member they stop treating as a map of London and then things go really seriously wrong because first of all virtually none of the tubers in South London so North London's have no clue how people in South London get to work I think they think they put their possessions in a white and red spotty handkerchief and tie them to a stick to be able to arrest the rail network of South London which is huge extensive above ground and pretty fast doesn't appear on the map we moved to Blackfriars which is just here and loads of my stuff I was asking them how do you know how's your journeys work and they go oh it's terrible really because I and pancreas and I have to go all the way around the circle line and then I have to walk across the bridge then what the hell are you talking about there's a railway line called Thameslink which goes from some pancreas to within 50 yards of our front door yeah oh I didn't know I mean what the hell we employees complete morons for but my first reaction and then I realized that since my day in the late 80s Thameslink is no longer on the Tube map it's a really really good frequent railway line with trains every three minutes but because London Transport doesn't make any money from Thameslink journeys they there's a fit of pique they took it off the map the hold of the South London rail network is knotted and one starts after I tell my staff ok buying having the staff who can't afford to live in London ice it's really really easy if you want to find a place where you can afford to live in London get a Tube map and find out what isn't on it because I said everybody else all your contemporaries again I want to live near to the tube because that's all I know ok I said go and find a place next to a railway line in South London that's 15 minutes away from the office and you'll find yourself a bargain so just in case you think this is crazy two friends of mine move from Fulham now anybody know full of in London the people who live in Fulham are convinced they live in central London because it's on the tube it's basically a suburb of Oxford I don't know what the hell they think they're thinking ok but because it's on the tube everybody who's on the tube think so it's really central right they moved to a place called Herne Hill which isn't on the tube but it's right next to a really good railway network in South London and because it wasn't on a tuber because it had a hill in the name they were basically expecting deliverance to be up stay honest when they move that right and to their complete amusement on their first day at work after they'd moved they discovered that their commute took half as long as it did from Fulham and their Jenny couldn't get their heads around the stall because the entire mental idea is that the Tube map is what is central and fast and good and everything that isn't on the tube is basically the work of Beelzebub himself and so this is what starts to happen with economics it starts off as a map of a very simplified model of the world and then eventually people start solving the problem for the model not solving the problem for reality and they think that if you've solved the problem on the model you solved the problem in real life and that's what's happened with economics it's just become grotesquely overused to a point where if you suggest anything in business which is consistent with economic theory nobody really - you test it today nobody ever says well we our product product isn't selling very well so we'll drop the price nobody says well you need to test that because it's consistent a theory you'll never get fired doing anything instances of a theory despite that the dropping the price of a product you're selling is the worst thing you can possibly do you're effectively bribing people to buy what you sell it's the most expensive way of selling a product or most certainly is to drop the price and yet it's the standard default behavior of business you should by the way before you drop the price of anything that isn't selling try putting the price up now let's get a drive you crazy isn't it I did this with KFC in South Africa and they had a product that wasn't selling and I said who tried putting the price up how's that gonna work I said well it probably won't work but it mean it does work it's a hell of a lot more valuable than discovering that putting the price down works right and they tried it weirdly demand went up a lot now I think there's a reason for that by the way very simply thinking about it how many people here a KFC fans no one no one oh is that a Canadian local alternative I'm sorry okay the point is I think you've over KFC for two reasons I think you go for a bargain or you go for a treat and if something's priced in the middle it's neither a bonyen nor a treat so this is what I mean about sometimes the opposite of a good idea is a good idea I went bedding shopping with my wife once and after I'd been looking at various bits of bedding for about 25 minutes I said can I make a deal with you and she said what's that I said can we spend one of two amounts of money on the shop please nothing or a lot and I wanna hell do you mean why would you want to do that as well I'm not that bothered about our existing bedding it doesn't like hurt me or pain me in any ways I'm fine with it right okay so if we should have nothing I can go home and I'm perfectly happy with this existing bedding I've saved 200 quid and maybe I can go buy a drone or something right okay I don't mind spending nothing because the okay I said what I don't want to spend is 200 pounds so I've spent 200 pounds and the beddings no better than our existing bedding what's part of that sit on the other hand I said being a bit of a nerdy bloke if we spend 500 pounds I can get nerdily excited by things like thread counts Egyptian cotton actually I'm in Canada now you you you're really into tog values aren't you and stuff like that here okay I get really excited about down right I get really excited about feathers you know Oxford pillowcases all that stuff but maybe even wait for it a mattress topper okay now there I felt 500 quid but at least I've got an endorphin rush right okay well as we spent 200 quid on 200 quid poorer and I've got no endorphin rush I always say that Bowie that's the problem with mid market retail isn't it you don't get an endorphin rush from mid market retail you get a thrill at TK Maxx and you get a thrill buying something that's more expensive than you should but if you buy something in the middle it's kind of meh okay so what all these things are kind of weird you know that as I said you can't go around assuming economics is true because life's just more complicated than that there are weird things there it's worth remembering that most of human life is emergent okay it hasn't been designed and therefore things don't necessarily serve an absolutely clear purpose there's a great concept in conservatism called the Chesterton's fence from GK Chesterton who made the point that there's a very strong human urge where if you're walking around and you see something that doesn't make sense there's a fence there and you don't understand what the fence is for you knock it down and chest and said that's the opposite of what you should do you should first of all find out why someone built the fence and then if you're convinced then that that reason is no longer valid not the fence down but don't knock something down simply because it doesn't appear to make sense because it may have an evolutionary purpose within the system that you don't understand and the classic example of this is actually it's good example in Canada is the monarchy okay it's a bit like the human appendix it's totally useless most of the time but occasionally it serves a useful purpose there's great definition of other way the value of having a monarchy which is it's like the king in chess which is its value lies not in what it does but in the squares it denies to the other pieces and the best reason to have a monarchy is you don't want your Prime Minister living in a palace who seen what happens in France right they get the president they put him in a palace three years later they all go bonkers right okay it's a really bad idea having large amounts of national bling attached to elected officials it's much better having someone totally arbitrary doing that stuff because it takes our Roman politics also if you think about it the very fact that they're totally gratuitous individual who exists purely through fluke is exactly the strength of the system in the United States every time you have an election now 48% of the population feel they've lost their country okay if you've got a monarchy however arbitrary and stupid and ridiculous it is and however tokenistic it is you don't feel the same thing so just because something looks a bit stupid okay doesn't mean that your instinct to get rid of it is necessarily healthy there are things which look pointless and which in the short term you can probably remove with impunity actually the human appendix interesting the lately having long believed it was entirely pointless it's nothing of the kind it's because when you have a bad batch of the shit's your appendix effectively keeps a sample of your gut bacteria which can repopulate your gut once you get a bit better okay so it's a bit like those you know miners used to carry sourdough a live culture around their neck in a little pouch okay it you know it's a living thing that preserves a particular sort of gut microflora balance even when you have very bad and a certain hospital illnesses you're much better off having an appendix actually most of the time though it's useless if you look at you know the monarchy in Spain okay it was decisive at one point when Franco died he wanted the power to pass the monarch without the monarch saying nope this is going to be a democracy you wouldn't have achieved it okay the very fact that the person's arbitrary the Catalans I think you're making a big mistake they want a Catalan Republic okay to be honest if you're prepared to just retain the monarchy you can have a huge degree of autonomy without it seeming like a major identity crisis is for the Spanish because you've kept some symbolic link at the very top so I've always wanted to ask it antique catalogs here although I've always wanted to ask why they're so insistent on the Republic idea because it seems to make the whole thing more difficult than it would be otherwise and so what we've done is we've created this mcnamara fallacy anyway where everything has to make sense everything has to be measurable everything has to be quantifiable and that's based on the assumption that life is like physics where all the important metrics that determine the outcome of something are numerically available and that you have all the information required to understand the condition and it can all be expressed in one or two or three units and their interrelation and as Hayek discovered in his Nobel Prize acceptance speech if you think about human behavior okay there are hugely important things in human behavior which don't have a unit they don't have a mathematical expression there isn't an SI unit of irritation or annoyance or regret or you know disdain or insult any of those things which might drive our behavior okay they aren't mathematically expressible so the idea that you can create this totally stupid mathematical model of human behavior as though humans were like atoms is basically absurd and it's known sometimes as the quantitative fallacy it's sometimes actually called the McNamara fallacy because during the Vietnam War this guy who came from industry wanted to fight the Vietnam War quantitatively and he was obsessed with having a numerical metric and Rob tragically the metric he decided on was the kill count and it was the kill ratio now that was bad in two ways it's bad because it's a horrible metric to have in the first place the horrible objective was also bad because if you're fighting a guerrilla war if you kill someone unjustifiably you probably create three volunteers for every one person you kill so in many ways it was a it was actually a it was actually a diametrically wrong metric to choose but there wasn't a metric for hearts and minds there wasn't a metric for winning over emotional support so you're forced to basically pick whatever happens to me numerically available which may be an appalling thing to choose and so I wasn't described when I said that the Tube map after a time it's more interesting knowing what it's wrong about than while it's right about I'd often say that there's a science of knowing what economics and logic is wrong about because if we overused logic and we overuse economics at some point there's a lot of value to be determined in saying if everybody else thinks this where does this cause problems I've also argued that in business it's different from science in science you're trying to be right but in business you don't actually have to be right you just have to be less wrong than your competition okay and so I'll just give a few examples one of the interesting things that fascinates me is that if you look at a business it's only the marketers within the business who are really looking at what does this business seem like when viewed through a customer's eyes over time if you don't have if you're trying to change human behavior or you're trying to change the world or trying to build it build a popular business or you're trying to grow a business and you don't spend some time looking at something through the consumers eyes you can basically do really really dumb things and this have to be this came this actually happened to me about a month ago okay so a bunch of economists and completely rational people decided to encourage people to get electric cars in the UK they'd subsidize electric cars to the tune of about 5,000 pounds and they also decided that to encourage people to get electric cars it would help if there was a subsidy if you got one of those seven kilowatts charging posts at home so instead of costing for five hundred pounds to install it you'd only have to pay 250 so I think all this is looking pretty good so I go to my electric car dealership and sound like to buy an electric car they go look here's one here you get a subsidy go great yeah okay but before I buy that car I better go home and make sure I can get one of those electric charging points because I don't want to spend the next three years where the bloody cable coming out of my bath from window so I ring up the charging point people they go yeah you got a subsidy I said oh no I heard about this already 250 pounds to go yeah so instead of crossing 500 pounds you can install a seven kilowatt fast charger for any 250 I said Sam yup I'm right there they said you got to prove you got an electric car then no one in the Department of Transport has read catch-22 okay but the other weird thing when you think about it is this I said as a marketer you don't actually need to subsidize the electric car because if you could persuade someone spend 200 pounds getting a charging point installed on their house the next car they buy is bound to be electric isn't it because imagine this okay you've just spent 250 pounds you've got this nice seven kilowatt charger on the wall of your house well you're gonna feel a bit of a buying a diesel aren't you really okay so I said a marketer would say the most important thing is to get people to install a charging point have a subsidy which reduces overtime so everybody has a real hurry to install their charging points once everybody's got a charging point at home selling the buggers a car is actually a piece of cake but no one outside the marketing viewpoint understands path dependency or order effects because they just get we subsidize the car we've subsidized the charging point therefore we've solved the problem if you want to solve problems psychologically we have in the NHS a lot of debates back home about waiting times and of course waiting times are measured objectively how long did the person have to wait before they store all the specialists who could treat their condition now my cousin who's a consultant in A&E and the Northington points out that actually how people emotionally react to waiting to see a doctor in accident and emergency in a hospital can be completely transformed by a tiny little bit of alchemy it's a tiny little trick when the person comes in with whatever their condition is you see them quite quickly there's a triage nurse something similar who goes okay you'll need to see the specialist and so-and-so and it may take a few hours now here's the decisive moment if you say come and wait for the specialist and you show them into a different waiting room they're completely happy sitting there for three hours if you send them back to the original waiting room they go batshit insane after about 35 minutes them argument is look why do we have as a metric time when actually the metric we're trying to reduce is irritation and it's again it's the McNamara fallacy we're trying to have a metric which is objective when the only thing that really matters isn't how long someone has to wait it's how bloody irritating the wait is and so this obsession with being objective prevents us from deploying really useful cheap and easy psychological solutions but funnily enough I sort of knew about this because KPMG the consultancy firm in London you go into their reception and if they're expecting you they show you through into a completely different reception which has an espresso machine and a load of comfy chairs and magazines and the weird thing was you know I had to with for some reason they were running really gonna have to wait half an hour now had I been left in the downstairs reception I would have been really pissed off after 20 minutes to be honest once they take me through to the slightly nicer room I was happy as Larry for the next 45 ok I don't know why it works either it's weird your own Canadian chappie I believe it's the co-inventor of uber is that right apparently one day one afternoon he was watching Goldfinger anybody knows that the whole inspiration for uber came from the film Goldfinger where bond is following Olek Goldfinger through the Swiss Alps and his Aston Martin has a tracking device in the dashboard with a dot on a on a scrolling map and your fellow Canadian was watching this one afternoon possibly under the influence of some substance rather and said that's what should happen when you order a taxi uber is an extraordinarily clever piece of ingenious psychology in that it doesn't reduce the time you wait for a cab so much has massively reduced the frustration you feel ordering one and they're about seven tricks I could list if I'm going into the whole Birbal thing I can point seven really ingenious things it does which you may not even notice the first one which no one notices is by giving you an estimate of wait time before you commit it manages your expectation so if it says who estimated waiting time 17 minutes you know that's a bit long and then you go book and the car says I'll be there in 13 you don't go oh Christ it's 13 minutes you go where it's faster than I expected okay because a huge amount of human happiness is nothing to do with reality it's to do with comparison with expectation okay um the coolest hotel I think I've ever stayed in it was an amnesty International Conference and if your amnesty you know him amnesty international you know campaigning against injustice and stuff you know or very Canadian and obviously if you haven't seen that you can't just take over like a blinged up five-star hotel so they had this conference in a former my goodness in a former police station in East Berlin and the rooms were cells okay and I'm probably I'm not making this up okay you're the rooms were so small that your bed was actually on a platform above your shower the walls were concrete there was a basic sort of rug on the floor there might have been a small wall hanging on the concrete wall you know a bit like it Isis video you know right there was a black-and-white TV in your room it only had one channel and the channel I'm not making this up to this day only ever shows one thing which is the big lebowski in continuous loop okay now the interesting thing about this was if you turned up at this hotel then you'd want very clever thing they had a brilliant 24 hour hipster coffee shop in the middle of the hotel which so pretty much the best coffee I've ever had in my life okay very clever thing if you're gonna do everything in a minimalist way you've got to do one thing brilliantly well as a kind of look well you know this isn't all misery but then I thought about this I thought what was amazing about this is if you turned up expecting the Marriott it would have been the worst evening of your life basically if you'd expect in a conventional hotel if you are told this is nice Berlin hipster hotel in a former police station it was absolutely bang on the money whether something's good or bad is to some extent expectation plus or minus reality it's not actually a function of what it is it's a function of what you were promised and what you get which is why it's sometimes a really good idea to gratuitously add something that people weren't expecting those I don't know if you're fans of five guys I know it's not Tim Hortons I know I do you know I'm actually followed by Tim Hortons on Twitter which I'm told is basically pathway to citizenship pretty much okay but um five guys if you notice when they give you fries they fill the cup small medium or large and then they actually give you a whole scoop of extra fries in the bottom of the bag that's a brilliant thing which says this isn't just transactional capitalism this is relational capitalism we're giving you a little bit extra that you weren't expecting anybody who stayed at a Double Tree Hotel with those cookies anybody done this they have an oven underneath the check in there that I'm a Brit bear in mind and so I turn up they go to welcome you to the Doubletree Chicago here's a bag of our signature deviltry a little Brit I got you know what's this crap about but actually the weird thing is they're actually hot from an oven and you take them up to the room and they're actually delicious now apparently I talked to someone who worked at the Doubletree the finance director has been trying to kill the cookies for the last ten years there's an unnecessary cost but the point is I haven't stayed in a double tree for 15 years it's the law it's the only thing I remember and if my PA ever came to me and said do you want to stay at the Hilton courtyard garden or whatever it is or do you want to stay at the Doubletree 15 years later I go cookies Doubletree okay apparently the marketing director by the way is so pissed off of the finance director that last time he tried to kill the cookies she just made them 50% bigger to face him off but that's what it's gratuitous but the very fact that it's gratuitous unexpected none promised it's kind of what makes it special you know if you think about manners all human politeness consists of slightly unnecessary effort you know it's slightly gratuitous effort which shows you're actually going out of your way for someone rather than treating them in a kind of in a transactional one-off way and so um very interesting me my point is there are loads of problems which if you just reframe them psychologically you can solve them really really cheaply the problem is that no one even tries because we give the problems to economists and engineers and the only way they know how to solve a problem is by changing the objective reality they haven't got any conception of using a bit of alchemy or a few mind tricks so this is this weird thing we have in the UK 60 million pounds it's gonna take 10 15 20 years to build a high-speed rail link between London and Manchester which will be about an hour and five minutes instead of two hours and ten now I won't go into the whole verbal stuff about it but I merely pointed out to these people that the two purposes of this new railway line costing 60 million pounds and taking 10 15 20 years to build was to reduce journey time between London and Manchester and to increase the capacity of the network okay and I made the simple point that if they wanted to do that I could do that for them for 2 and 1/2 million pounds and would cost about take about six months and they said that's absolutely rubbish you can't do that I said yes ok I said I'll just redefine what reducing journey time means every time I travel to Manchester I buy a thing called an advance tickets a bit like low-cost airlines ok that means you can only travel on a specified train but if you don't buy an advance ticket it cost about a million pounds so you buy an advance ticket ok and then you're frightened of missing that train so you turn up at Euston station to take your train to Manchester about 45 minutes early to leave a safe margin of error in case you missed the train during that time two trains leave half empty 40 minutes and 20 minutes before the one you're allowed to travel on but all you need is to have an app that says pay five pounds and you can join the earlier train and you can sit in seat je8 right once you've done thereby allowing people to pay to take an earlier empty train is you've reduced their journey time by 40 minutes or 20 minutes because it trained three trains an hour early from Manchester ok and you've increased the capacity of the network because allowing people to travel on emptier empty seats is a good yield management practice I don't wanna get into the whole nerdiness of this but if you think about if you want to get as many people from one place to another okay you let you try and fill the train with each iteration when you saw the Americans leaving the Saigon embassy okay they didn't say no you're booked on the helicopter in 20 minutes today they said get as many people on as we can okay they didn't you know now in the same way if you want to maximize the capacity of a train network you let people get on as soon as they turn up because then that frees later seats for someone else turns up later now I'm not saying my solution was save as much time or indeed increased capacity to the same extent they're spending 60 billion pounds but why would you spend 60 billion pounds before you even bothered to implement my suggestion I just asked the second thing is my suggestion reduces the totally wasted part of the journey which is hanging around in the station waiting for your train to leave there 60 billion solution reduces the duration of the best part of the journey which is the time you're sitting on the train which is actually quite useful and when I say there's a kind of blind spot where people are incapable of spotting psychological solutions to problems and resort to kind of economic or engineering solutions before they've even asked the question of what do people actually care about what do you think about it we designed chairs to fit the human body okay but we should design the experiences to fit the human brain we shouldn't ask the question is this experience long or short we should ask what sort of duration does the human brain like there's some evidence by the way which I was talking about this very subject and in a confident economists came to me and said there's quite a lot of evidence I don't if anybody else believes me that people actually prefer not to live that close to work does that does anybody else find that believable that actually there's an optimal distance people like to have a kind of mental bridge between when I'm at work and when I'm at home and living next door to the office is actually something people deep down when you look at actual behavior people don't want to do it so actually you can have a commute which is too short which seems completely weird but as I said that in psychology in physics the opposite of right is wrong but actually in psychology the opposite of right can be another good idea this is why it's it's so strange it's completely nonlinear and the other vital thing to understand is that whether something's good about what economics is done is its created this idea that all marketing knows is a little bit of magic fairy dust tiny little bit of added value my contention is no no you can have the most brilliant product in the world if you don't market it well if you don't present it to people in a way they can understand in a way that conveys conviction plausibility trustworthiness okay it doesn't matter how good your product is economics assumes trust it assumes perfect knowledge okay in reality if you haven't sorted out the trust and you haven't sorted out the marketing you can have the best product in the world and no one will buy it and I wanted to prove that with the experiment which took a really good product and market it really badly and obviously no one would agree to do that okay but then I found two Australian comedians weirdly done the experiment for me [Applause] see you know I'm still 20 wrinkly JBOX got an issue here just notice trilling that you want a box plots her face Thank You Man thanks she's putting the value despite drawing we had a ton of life of interest for over 30 minutes it's been some time we should I think one of the big problems is people think it's sheer it's a code word for a new drug for 30 second people they just say hey dude she ain't really got two bucks you took a look crossing to Han and that's why we're not getting people coming in it's a fraud I get your engineering peach J box sitting on a stool by your song if someone actually does think it's a page show am i quickly give you the go-ahead to take away your clothes you really to do that thank you cannot be recently all right yeah you know a couple of months ago maybe but yeah men shameless just ashamed of the same thing to a our znd and famous bridge is literally sitting on the stage why do you turn on us we were feeling it as well but just native children likes to everyone's fun you guys like it here you love it here two butts hey it's kind of sitting on stars your name - that's good good question - that's good 30 seconds on my phone now we both you on here here we go he's your patient he's easy we've done no choice no she did this mouthing busy later on - max 30 seconds I think you guys can come if you're just too much everything's about polish I can assure you not absolutely not like I guarantee what it'll do but yeah facing us and after two hours 23 minutes including some final hesitation we finally found people brave enough to take it [Music] [Music] but the interesting thing about that is that if you think about it if you'd actually just put a single half by let's say a half page ad in the Millburn age I think it's called isn't in the elbow of a newspaper okay half page on the Millburn age you could have chanced $200 for that new erotic you going around the block okay people actually expect something to be advertised with the expense commensurate with the significance of the product now actually if you under mark it a good product it doesn't make sense to people because they think well if this is really as good as you say it is you'd be making more noise about it than you are and if you think about it flowers understand marketing because a flowers basically a weed with an advertising budget okay and what they understand is that bees know that it's costly for flowers to produce petals it makes you very obvious to herbivorous animals okay it takes quite a lot of resources to produce the color and the size of these petals therefore the only reason you'd go to this effort of displaying your wares is because you've probably got a reliable source of nectar there because if there wasn't any nectar then bees would only visit you once and it's not worth spending all that money to get one visit and so it's a reliable signal because it's costly it's like betting on your own horse everybody says their own horse is gonna win if there's a horse race if you actually visibly bet on your own horse with your own money now that's information that any gambler will use because they know you genuinely believe it because you're putting money behind what you claim and in the same way really good ideas that aren't marketed enough just don't seem like good ideas to humans now you could argue that's an inefficiency and maybe it is for a purely economic standpoint but in a world where you need to convince someone of the value of something before they can confidently act that's a necessity you have no choice but to spend some money promoting something in order for people to believe that what you have is as significant as you claim it is and so looking at that business it's only when you understand the world through someone else's eyes it's only when you understand the world through a bee's eyes that you understand flowers okay it's only when you understand the world through the eyes of a human being that you really understand what's going on and typically what economics does it doesn't look at the world as experienced by an individual over time it looks at aggregates it looks at averages it looks at information added up now one of the most crazy distortions in the whole media landscape over the last 50 years true as Trend cameras is in the UK is rising property prices were for about forty years portrayed as a good news story one they good news house prices have gone up okay now it's true that when house prices go up aggregate wealth increases on the other hand if you look at it through the eyes of an individual for 90 percent of your adult life you want property prices to stay the same we even go down a bit why because if you're buying a first home a property price rise means it's now more expensive if you're moving from a smaller home to a bigger home the gap between the old house to the new house is getting bigger when property prices go up the only people firm property price rises are a good good news are people planning to downsize at the end of the life or people planning to kill their parents okay so for 80% of view of the population at any one time you actually want stable property prices but in economic world rising property prices are good news because you're not looking at the human experience you're looking at the aggregate and this is actually a really interesting thing in mathematics can't get a bit nerdy just for a second I learned this from this guy only Phillips who only Peters who's a mathematician at the London mathematic laboratory he published a paper with Murray Gelman who's a Nobel Prize winning physicist with the claim that economics has been completely wrong in its idea of human decision-making and behavior for the last hundred years and the reason that economics has been completely wrong is it assumes that utility is additive it's something you add not something you multiply now if you look at human fortune there's something multiplicative about human fortune the one thing you don't want in your life is three bad events in quick succession that's much worse than three bad events that are spaced out okay now this is the mathematical demonstration of how what happens to the world on average isn't the same as what individuals experience right so if you're trying to improve something like GDP which is an average measure that actually has no bearing really on the individual experience of any given individual as they live their life over time don't you even have a world where everybody's getting richer and where GDP is going down I know that sounds weird but I promise you that's true okay you can have a world where GDP is going up everybody is getting poorer and this is an interesting bet okay imagine you have this bet where everybody starts with a hundred pounds and there's a guy standing next to them who repeatedly tosses a coin and the deal is every time that heads comes up you get 50% richer every time that tails comes up you get 40% poorer now most you'll go that sounds like a pretty good bet to me half the time I get 50% richer the other half the time I only get 40% poorer so on average I'm going to be 5% richer every time the coins tossed okay and that is sort of true except the word average is meaningless when applied to an individual because you don't enjoy the average gains you only enjoy what happens to you so that's just so an example of this kind of fascinates me this okay so everybody tosses the coin once two of them get heads cheer them get tails two of them have 150 quit they're better off two of them before he pans worse off okay it's 50/50 and actually the total wealth has gone up from 400 pounds to 420 that's 5% gang shilling that's a great bet keep tossing that coin I'm off to Barbados for the winnings said let's look what happens when you toss the coin just twice okay one guy ends up with a stack of money he's got 225 pounds the remaining three are worse off than when they started okay two of them have now got 90 pounds which means effectively they're worse off than the hundred they started with the fourth guy is seriously skinned this guy now has to throw three heads in a row just to get back his original stake now I know this is a very nerdy mathematical distinction but the fact that what we experience over time is fundamentally different to the ensemble average outcome of ten people's outcome all added together an average is apparently where economics went wrong and it causes economics to obsess about the collective outcome like overall people are getting richer because property prices going up rather than the time series outcome which is oh every time I'm trying to move or get an extra bedroom it's costing me more and more money which is by far the more common human experience over time in a lived life and what it means is I think sorry absolutely what this is called is ergodicity and it's something is only ergodic if the average ensemble outcome is the same as the time series outcome okay in real life it's very rare that things are what this explains is a hell of a lot about human decision-making because we're not trying to optimize in many ways we're trying to reduce variance because under this is getting bitten early I apologize for this under multiplicative dynamics okay low variance is better than high variance in additive dynamics there's no difference between two plus two plus two plus two and three times one times three sorry three plus one plus three plus one on the multiplicative dynamics two times two times two times two two times two is a much bigger number what is that 64 is a much bigger number than 27 which is 3 times 1 times 3 times 1 times 3 times 1 okay and they argue that a very large part of human instinct if this mathematical model of theirs is right and the economists model is wrong a large part of human instinct is towards doing something which means that we'd much prefer that something that's between okay and pretty good than something that could be brilliant or might be terrible okay and so a large part of our instinct is to avoid any potentially catastrophic outcome now I would argue all right and only actually kind of agrees with me fascinatingly this explains why McDonald's is the most popular restaurant in the world so not because it's really really good it's because it's really good at not being terrible anybody know what Hussein Bolt eats for the two weeks before he competes in the Olympics chicken McNuggets yeah now you're gonna go what dude this babs body is a temple okay who sent bolts argument is very simple and completely correct okay I am basically the best runner in the world therefore if nothing up I will win there are only two things I need not to up one lots of protein - I don't get ill now say what you like about the girl launches but I've had the shit's eating at michelin-starred restaurants much more often than I have eating at McDonald's okay the actual downside risk of a michelin-star restaurant is quite high right the biggest Ebola would not like boner sorry the biggest ecoli outbreak in in britain that ever happened happened at a Michelin 3-star restaurant which was the fat duck in Bray okay and actually a large part of human instinct is going you know actually the difference between good and great is nice it's interesting now do me wrong if you're trying to show off you know if you're dating someone you don't take them to do not McDonald's okay that's what Nando's is for after all okay but some but if you're if you're a symbol and your basic thing is I don't want Enda I get cross because Heathrow Terminal five now got so poncey there isn't a McDonald's there and my argument is this annoys me because I'm about to spend ten hours in a pressurized metal container at 35,000 feet I'm not really that interested in having a great meal I just don't wanna get ill yeah what they haven't Heathrow is a sodding Oyster Bar okay if there's one thing you don't want it's food poisoning at 35,000 feet right now I would also argue taking this further that's because if you copy each other it may not be optimal but it won't be catastrophic because what everybody does is somewhere between okay and pretty good but it's very rarely terrible okay it's also why we maintain habits because if you do the same thing as you've done before there's less chance of significant downside risk than if you try something new okay I'd also argue that's why we pay a premium for brands because brands and this was an extraordinary sentence which happened in a discussion happened in Chicago in about 1955 1960 between David Ogilvy and JAL Rafelson where Joel raphelson said to David I don't think people buy brand a over brand B because they think it's better I think they bought because they're more certain that it's good and I would argue that brand preference is a heuristic humans deploy to buy something which they know brand can guarantee that it's always gonna be the best thing okay Samsung and not clever enough to say we will always have the best television for fifteen hundred dollars nobody's that good the reason we buy a brand is whether in terms of you know social reputation risk or in terms of reliability if you buy a branded TV okay it will be somewhere between pretty good and very good if you buy a TV you've never heard of it might be a bit of a bargain but the risk that it's significantly awful is much much higher and we basically see brands as a reliable indicator of non crapless and therefore fascinatingly for advertising people buying them isn't irrational and I'll end on this very quickly is I've got to do the QA but I'm just gonna talk very quickly through one more subject if that's okay now one of the reasons why what I think is so important about psychological solutions needs to be considered is not only as economics is wrong and we need to understand where economics is driving us astray because I genuinely think the obsession with quantitative Metrix the obsession with what economists think of as objectively important measures of success is an extraordinary wasteful focus of attention compared to actually creating a life that people genuinely enjoy okay designing life around human perception and human happiness seems to be more important than trying to always improve metrics like speed time duration cost that's the first point the second point I make is that so much that's important now in life if we want to change behavior there's got nothing to do with economics at all so this is my wash basin okay it broke six months ago the reason I haven't repaired the wash basin is not economic okay if I could wave a contactless credit card over the wash base and pay 300 pounds and have it instantly repair itself I would have done that within five seconds of the accident occurring okay the reason I haven't done it is basically because the pain in the arse business of finding a day when you're free when there's a plumber available agreeing with your wife which taps to get on the new wash basin deciding which colour the wash basin has to be basically getting all those things decided at once is almost impossible so the reason I failed to do this is not because I don't want to do it or that it's too expensive to do it's because the choice architecture but which I have to undergo in order to solve the problem is too convoluted into complex now why is my wash basin so important because I'd argue the same applies also to environmentalism I think passionate environmentalists have tried everything and very passionately what they really want people to do is to give up everything simultaneously it's never gonna happen if you presented people I don't think people have a lack of will in terms of changing their lives to present far less of a deleterious carbon footprint on the planet I don't think there's a lack of will in the developed world at all I don't think there's really a lack of belief for the most part okay what there hasn't been is no one has been presented with a clear decision path that gets them from where we are here to where we need to be in a way that individuals can sensibly adopt now what I would like to see happen here now let me explain what would solve my wash base of the problem first okay does anybody work for TaskRabbit or anybody used one of those online services where you get home handyman it suddenly occurred to me about six weeks ago that they get it wrong they asked what you need done now I know what I need done I need a plumber to replace my wash basin know if you change the order of the questioning where you said when's the next day you're going to be at home all day and I work from home on Fridays I go a week on Friday I'm going to be at home all day and then they could say a week on Friday you're at home all day during that time we can spray with a plumber a carpenter a guy he'll put up flat screen TVs a bloke he'll replace wash basins I might get three of them done okay they're doing it the wrong way around they're saying what do you need done that's not helping my problem I know that already okay if they could say the next day you're going to be at home all day here are the people we can provide now you've actually solved the coordination problem if the United Nations basically went to the developed world and said here are 10 behaviors that really make a difference adopt veganism for six months of the year refuse to fly for eight months of the year okay don't own a car install solar panels right yeah add a few more if you want to you know for example what other things could you do don't own a car always travel by train for any journey under four hours or six hours or whatever okay I don't think you'd have any trouble getting everybody to pledge to adopt three of them now the interesting thing about human behavior is once you've got a significant number of people adopting all these behaviors it becomes easier for everyone to adopt them you only need about 20% of people to be vegan for every restaurant have to offer a vegan option now if you notice I notice is in Canada when every restaurant has two vegan offer options and two vegetarian ones the ratio of meats dishes to vegetarian dishes now means that loads of people who would perhaps eat meat quite often end up with a vegetarian meal now by contrast I remember having friends my daughter's vegetarian 25 years ago in the UK being vegetarian engaged restaurant basically meant you had one choice you know the rather sad looking thing that was cheaper and didn't taste very good okay once people say I can't fly for six months of the year next time oh girl he has a board meeting five people will say I can't fly to the board meeting cuz it's in New York and I don't fly in November what does that mean it means they've got to install a decent video conferencing alternative for people to attend remotely or if you're a Swedish person to sail there in an ocean-going yacht because unfortunately Sweden doesn't have very good broadband in the United Nations has no video conferencing equipment I didn't have a bit of a grumble about that because it set an example right but set an example that other people can follow right I can't really say to Ogilvy if you want me to go to that meeting in New York I demand an ocean-going yacht right okay now but the point I'm making is once you get 10% of the people to adopt anything what's the biggest predictor by the way of anybody drinking Guinness when they enter a pub the biggest determinant is whether someone's already drinking Guinness in the pub okay I suggested to get this you could actually employ people to stand in pubs drinking Guinness and they would probably pay and then you would have no shortage of applicants for those jobs but they didn't seem very interested in this okay what's the single biggest determining whether you have so whether you install solar panels in your house whether a near neighbor has them you don't need to get from nought to a hundred in human behavior if you can get from nought to ten ten to a hundred often proves surprisingly easy provide everybody with ten options get them to choose three provided that everybody chooses some of them what you'll find is that the behavioural change then spreads completely naturally through networks through willing behavior not through compulsion and it exploits a very simple human bias by the way we like things we've chosen we hate things that are imposed on us even if they're the same thing okay the very fact that we've chosen something makes us like it and so as I said video conferencing lots and lots of things like this there nothing to do with economics we need more people to videoconference you can't say it's an economic problem it's not technological the technology is really good it's not economic it's practically free okay the reasons people aren't doing this a cultural there to do is we need a 10% of people who insist on doing things by videoconference and then suddenly you've broken that social awkwardness of saying no I don't want to fly in November okay and all these things I think are really important because if you give them to economists they'll come up with magic free answers because the whole basis of economics by trying to make something look like physics you've created a science where there's no magic the fantastic thing about psychology is this magic all over the place this TV produces all those colors no it doesn't your head produces them the TV is only producing three colors the reason is that the TV is designed for higher primate perception the human eye is sensitive to three parts of the light spectrum the TV by producing only those three colors can force your head by varying the ratio of those three colors will force your brain to produce the other billion colors no one's tried to make an objective television it will cost a fortune you'd need to have literally every pixel capable of producing every single thing on the spectrum it's entirely a brain hack okay now nobody says a TV is immoral because it's not reproducing the light spectrum accurately so I would argue that something that makes a journey feel shorter isn't cheating simply because it makes the journey feel shorter without reducing its objective duration I'm basically I'm kind of cool with mine tacks but I'll end on this just to prove my point by telling a different story about something you can make good things bad ed sheeran for example okay you can also make bad things good simply by changing what the human brain pays attention to simply by changing the frame of reference you know the business where you land an airport you're about a mile from the terminal building and you hear the engines wind down and everybody on the plane has the same thought which is oh it's gonna be a bus right and we always feel that don't we if it's not an air bridge we go they've cheated us again they've robbed us off with a sodding bus and I'd always felt like this I'd always really resented the bus and then one day we land and the easyJet pilot he says some now he said I've got some bad news and some good news now he waited till we landed you don't want to hear that at a 30,000 feet okay and you know I've got some bad news and some good news the bad news is we won't be able to get you an air bridge because there's a plane blocking our gate the good news is said the bus will take you all the way to passport control so you won't have far to walk with your bags and I look to my companion since that's weird cuz come to think of it that's always true isn't it the bus drops you off right next to passport control so you don't have to walk for sort of three-quarters of a mile past loads of Toblerone stands just to get back to your luggage and what he done has he'd reframed the bus from being an inconvenience to being a conveyance because we were looking at the journey from the plane to the airport and in there getting from the plane to the airport the air bridge is better but in getting out of the airport actually the bus is better and by just changing what we think about you can turn a weakness into a strength and that's what green advertising often does the top line avis is number two and render cast that's sad for hurts right says that Avis won't have as many cars won't have as many outlets probably be more expensive you won't have as much choice of different car models okay but you had the human dimension you flip it from being an operational consideration to an attitude on consideration so we try harder now it's not for Avis okay if you look at some of the world's great and end lines that shading knowledge a weakness Guinness was good things come to those who wait it's the most tediously slope or bar staff hate it right okay it takes ages to wait for your Guinness good things come to those who wait is basically turning a bug into a feature fresh cream cakes naughty but nice that was Salman Rushdie when he worked for Ogilvy & Mather reassuringly expensive for Stella Artois okay a lot of the great advertising end lines are actually exactly that they're saying this is a product weakness until you look at it differently when it actually becomes an advantage and that's the vital thing about psychology because perception is relative I'm going to end with this one film I hope that's okay because perception is totally relative okay if you change the context you change the perception you don't have to change reality to change what people think about something you just have to change the context the frame or the comparative set in which they consider that thing how many people have an espresso machine okay now if you had to buy that coffee in a jar like Nescafe it would cost you for an equivalent amount of caffeine it'll cost you about $50 for a jar of Nespresso coffee thing is you don't burn the jar dear you buy it in the pod and you don't know what an individual Nescafe costs or an individual maxwell house right so when you put the $0.49 pod into your Nespresso machine your frame of reference isn't Nescafe its Starbucks you think that's 49p would it cost me $3 at Starbucks this machine's basically saving me money okay I've saved all I have to save $2 50 by buying this really expensive coffee Rolls Royces Maserati again started exhibiting their cars not at car shows but at boat and plane shows because if you looking at Lear Jets all afternoon a $300,000 car is an impulse buy okay right whether something's expensive or cheap anybody feel guilty buying expensive tea the weird thing is if you buy insanely expensive tea really really expensive tea and you make it with tap water it's a cheaper drink than bottled water but you feel guilty buying the tea because it's more expensive than cheap tea so depending on what your frame of reference is the same thing would be cheap or expensive I persuaded my father to get sky for years he refused to get any kind of premium television he was 88 he depend mostly is life you know only paying the TV license fee in the UK and then I said well it's not 17 pounds a month I said it's basically 60p a day here's what difference that make is it you spend two pounds down newspapers said she spent two pounds their newspaper it's not that weird spending 60 P on 200 channel oh I suppose you're right he's now become this complete advocate going what marvelous value for money it is and he can't understand why my brother won't get it so genuinely whether something's even cheap or expensive isn't an absolute it's entirely the product of comparative framing so we'll take just a few questions I had some prepared I think probably the audience has better questions then I had so many burning questions there that anybody wants to ask if not I'll start with mine okay yes over here you mentioned earlier that things are either a bargain or a treat yeah how do you identify bargaining over time since it's very interesting question because one of the definitions in nudging in behavioral economics about what's an acceptable nudge is something that people don't regret with hindsight in other words if you persuade someone to do something which with hindsight they were glad they did that's considered an acceptable nudge now the only problem with that definition is that we tend not to regret what we do anyway so we have a thing called adaptive preference formation and someone actually told me this from retail they said when you think about it okay this is a terrible truth but it's true you never regret your extravagances dear okay in fact you are more likely to enjoy a play if you buy more expensive tickets not because you have better seats but be you're more reluctant to admit that you didn't enjoy it okay and so there is I mean undoubtedly luxury goods enjoy an extraordinarily easy ride when you look at them now there are there are really interesting debates about by the way about luxury goods and fashions so if you look at the amount the world spends on fashion and beauty products it's actually more than three trillion dollars a year which is more than the world spends on education and much of that I would argue is kind of rival hrus that in other words we don't really have a choice about how I mean particularly true of women I think it's fair to say isn't it men can opt out of fashion politically Canadians because you've got the Canadian tuxedo have knew that fantastic triple denim option but one of the things that one of the things that does duck does concern me is that if you're a woman and you'd actually don't care about fashion it's very difficult for you not to make an effort isn't it I mean the social pressure imposed on you to basically participate in fashion is much higher and likewise cosmetics if you think about it I'm going to talk about this industry with my daughters and they go but if I go out without makeup on I feel crap it's not about other people it's essentially that I'm you know it's almost self-medicating by putting this stuff on there's an emotional effect of doing it um but no the strange thing about extravagances is that when you buy something that's extravagant or when you take an extravagant holiday you're less likely to regret it in fact precisely because you spend a lot of money on it and so when that retail it was actually a fashion retailer who said that to me you never regret your extravagances anybody else anybody have one to admit to actually admit to regretting and extravagance well they bought a really expensive TV and wish they hadn't or bought oh really and nobody does till they really so I mean there is something really strange and adaptive preference formation is interesting because what it means is that if you can get people to choose something they'll generally decide they like it so one of the one of the ways I suggest you could play that trick by the way with adaptive preference formation is if you have something which is either good or bad the people who are in the bad state can't tell themselves a story about how they're glad they're in that state okay now let me give an example of this standing on trains okay as the way trains are designed someone asked how do you reduce train overcrowding and I said well there's another answer to that question which is how do you stop people minding standing up because if people don't mind Stan I'm not talking about for our journeys I mean I know in Canada you know I'm not talking about standing from Toronto to Medicine Hat or something that would be deeply annoying okay right but what I'm about is 30-minute commuter journeys now the way it currently works is if you sit on a train you get a few out of the window you get a table you get a plug you get a place to put a laptop you get a place to put a cup of coffee you can put a bag underneath the table okay you get everything if you stand on a train you're in the middle of the aisle you get no view you get no table there's nowhere to put your coffee there's no one to put your bag and in addition you've got to hold on to something so you can't even read a book or use a mobile phone okay so it's basically sitting is brilliant standing is shite okay there's no capacity for adaptive preference formation to kick in now I said if you redesign a train so the seats are inboard and you get a seat but you don't get a table you just get a cup holder you don't get a view okay all you get is a place to sit and if you stand you get lots of Leaning posts along the windows of the Train with a small ledge for a laptop or a tablet you get two USB chargers you get a hook to hang your bag on the wall of the train people will actually choose to stand or people forced to stand can tell themselves a story about actually I'm glad I'm standing cuz I can get on some work on my laptop right so if you design a train around two trade-offs rather than win lose you can actually increase the sum of human happiness because people in both states can tell themselves a story about how they're glad it turned out the way it did does that sound like cheating or does anybody else agree with me here I I had this insight because when I went to college the first year everyone he was allocated a room that was about equal then we had a student ballot and you could be anywhere between number one and number two hundred and the person who's number one got the first pick of rooms in the second year and the person who was newt number 200 ended up bloody miles away in a okay but in the third year it reversed so the person who was number 200 then became number one now the weird thing I noticed was that every single person was glad about how they had it turned out for them because they just tell themselves a different story they said actually it's much more important to have a good year in the third year because that's exam yeah or they get we don't have a bad room in your second year because you know if you have a bad you're in your second year you're miles away you see where's all the rumors in the third year kind of okay and then the people who are in the middle went well it's great I'm glad I'm in the middle because I don't get a crap room either yeah okay and what was fascinating about that is because there was a trade-off between the two everybody could simply select their frame of reference and choose the frame in which they came out best therefore maximizing the net sum of happiness whereas if you if you had it where of course it was the same both years running the people at the bottom would have basically gone into revolution wouldn't they they would have gone insane so actually I think there's a clever way in which you can actually use adaptive preference formation to make more people happy but I mean psychological things are really weird like that and they're some of the things I gen you don't understand so someone asked me about road pricing and having premium lanes on roads okay now it's very important if you're trying to get to Heathrow Airport in the UK and you have to traverse the southwest section of the m25 if there's a bad traffic jam it's a disaster you miss your plane then here's a weird thing okay if you just had a premium Lane and if there was a traffic jam you could pay 25 pounds driving the Premium Lane and jump the queue most people will regard that is socially totally unacceptable wouldn't they and I think I would even you know track in a Bentley just you know whizzing past all weirdly if you did it differently so that you had to book the day before and you paid five pounds as insurance and if there was a jam you're 5 pounds insurance entitle you to drive in the in the faster lane to get you throw weirdly we wouldn't see that was unfair will be so one of the things is that you know they often said road pricing is considered totally unacceptable again an economist will say all that matters is how much you pay okay but actually how you charge has a huge effect on whether people think that something is fair or unfair coca-cola created a massive scandal the guy almost had to resign because he suggested having Coke machines where the price of a coke went up in hot weather and people went bananas and my joke about that was if you just said the price of a coke drops in cold weather everybody know that's great idea so how you describe something is more important than what it is that's the really strange thing any any other questions yes aha this is what I call the big double standard in business decision-making which is I'm not suggesting for a second both a creative people should be allowed to just wander off on policed okay I'm flying back to London on Sunday as I said I don't want to think that the people at Pearson Airport in air traffic control a wildly creative experimental people you know I don't want to think the people who test the wheel that's on the plane are going hey let's try anti-clockwise this time just you know just for the lawls right okay so it's very important I don't think it's ridiculous that creative people have to present their ideas for some by some sort of validation to people more rational and sensible than them okay I don't think that's wrong well is wrong is it never happens the other way around if you have an engineer and Wrekin amidst who comes up with a perfectly rational suggestion to something then that gets enacted without any kind of what you might call creative sense checking or crazy validation so if you take something for example like the pension tax credit system in the UK it's a case of something which is economically logical and in marketing or persuasive terms uh turley useless so we spend in the UK twenty five billion a year in tax rebates for pension contributions to give you a measure of that that's about a fifth of the cost of the National Health Service now as a way of persuading people to have a pension effectively paying tax rebates in real time into the pension fund is as an appalling a use of money as an incentive as you could possibly imagine because you've never walked past a mobile phone shop and it says sewn up to this tariff now and we'll give you a great handset in 2045 of you right okay no marketer would ever say do this now and you'll be rewarded in thirty years time okay because we discount future games um now at the same time as we're spending twenty five billion I've asked 20 people in marketing I said which is more effective complete tax rebates for the rest of your life on all your pension contributions versus you sign up to a pension which increases at three percent every year throughout your life and you get a free iPad okay and all but one of the marketers thought free iPad will be more motivating than the 24 billion we spend on that now I'll give you another example of this I shall try for Canadian audience okay how many of you if I gave you 500 Canadian dollars and said you can keep that provided you've paid five hundred dollars into your pension before you get home this evening how many of you would know how to do it that's interesting one one two people that you work in finance by the way don't you you know columnist okay now I asked it I promise I'm not making this I asked that same question translated 2 pounds in the UK to an audience exclusively if people who worked in financial services one person knew how to do it and they work for gulp of sacks ironically okay now nobody think of this okay now a very sensible thing if anybody gets a windfall would be to put half your windfall into your pension okay we're really sensible thing to do nobody does why because it's impossible because I'd have to go home this is I'd have to pay 500 pounds into my pension right I have to go home ask my wife to find retrieve something from a filing cabinet I've got a clue where it is okay I had to find an address write a check for 500 pounds I have no idea what my checkbook it is I haven't written a check for six months find an address to post it to I think in Bristol write and write a letter with a load of account numbers explaining what I wanted to do how would I know they got the money they wouldn't write and say thanks for the money now I'd have to remember in six months time when I got my pension statement to check that they've credited the extra five hundred pounds okay now the reason that's catastrophic that should be an app that should be literally how much do you want to add to your pension this month okay if the government's giving spent 25 billion on incentivizing a pension they could spend you know half a million pounds on an app that makes it really easy to do you know words okay this month you actually haven't spent all your money you've got five hundred pounds left over do you want to put any of it into your pension three hundred pounds Bing right I've just turned it into five hundred or whatever with a taxed no you can't do that now there two things about it one nobody does it cuz it's difficult to there's a second order problem in human psychology which is because it's difficult we assume we're not supposed to do it okay we go if this was a normal behavior someone would have made this easy so the fact that I've got to do all this paperwork basically means I'm a weirdo it's like using monster toilet paper right everybody should use my toilet paper agreed right thank you the Japanese they're absolutely spot on any Japanese there there must be but Muslims on the Japanese quite rightly recognized that a toilet should come equipped with some sort of water supply right you wouldn't go out in the garden and get mud on your hands repotting a plant yeah oh yeah I got mud on my hands let me rub them now the interesting thing there is we are as we asked this question then when you think about it okay you go to the shop your unconscious brain looks at the toilet paper aisle and there's an acre of dry toilet rolls and then there's one thing of moist on the top shelf and it's blue and white so it looks medicinal and it's on its own and you think that's probably for perverts and people with a medical condition right but the second you give it a moment's thought right you realize that using something moist to clean your bum is so obviously logical that it's weird that we don't do it it's like solar panels the reason we don't have solar panels is to our neighbors don't have them the reason we don't have moist it's not a it's not a rational thing it's not an economic thing we're a herd species you know we feel disproportionately uncomfortable doing things that people around us don't do and you know so our behavior is hugely conditioned that's why the guy standing there with a pint of Guinness is permission for everybody coming into the pub to order a Guinness and so once you understand those kind of network effects you realize there are loads of things we're solely economic incentives aren't going to work one of the most potent things I think the financial services by the way very marine financial services um is actually for the employer to become the supplier of financial services why because we feel comfortable with an investment product which is the same product as everybody else we work with why is that okay well to lope the reason they graze in herds isn't because you get better grass that way you get better grass if you wandered off on your own but if you wander off on your own you can spend you spend 20% of your time grazing and 80% of your time looking out for lions right whereas if you're in a herd of antelope you can spend 95% of your time grazing and 5% of your time you just keep an eye on the most neurotic antelope and if if the most neurotic antelope seems relatively relaxed you can probably chill and get on with a bit of grazing now in the same way okay if everybody in Ogilvie has the same pension to be honest if they put the charges up if it starts underperforming I'm never gonna notice right but some sad bugger in the finance department will notice and I'll get to hear about it and so selling financial products collectively just creates a kind of confidence in people that selling them individually doesn't do and then what economists have done is they've created huge amounts of choice in financial services which they think benefits people because they assume where an individual optimiser not a collective satisficer okay and the huge amounts of choice mean that everybody has different pension for everybody else so everybody's frightened about it and so you know there are arguments where the government could step in and say basically we're only going to accept these are the 10 pensions ok and if anything bad happens to one of those 10 pensions you're probably going to hear about it ok so that's you know if you think about it what choice does in financial services products is it allows financial services providers to play kind of divide and rule you know because there's no collective information mechanism that's why everybody in 1950 the reason everybody trusted their bank was because everybody knew the bank manager the bank manager knew everybody but there was a third dimension which is the bank manager knew that everybody knew everybody else so he only had to get caught out cheating one person on their home contents insurance and his reputation was toast in the whole town so he couldn't afford to deviate the second bank became something that operated 200 miles away and you were account holder 109 733 that basic mechanism of human solidarity keeping people in power honest breaks down do you only get a bit brexit II for a second if you think about it there's no mechanism in a unit of 27 countries where you could ever speaking about 23 different languages where you could ever get a Democratic Movement to kick out the people in power because the 27 different countries are too ill connected to actually whatever you think about okay about American politics okay every four or eight years they completely purge the governmental class don't they they have a change in mood they go these people have run out of ideas they become corrupt everybody goes okay it's never gonna happen in Europe because they're 25 different languages they're 25 different media there's no capacity for a collective mood going okay we've had enough of these people we want different people and so the people in power can then play divide and rule between those different cells and what you stoppin is you know the bank manager couldn't play device rule because there was a an unconscious solidarity between all their customers where they collectively kept him honest and so it's only when you understand me you know I by the way as I said I'm 50/50 on the brexit question but the idea that there are no reasons to object to the European Union is just as ridiculous as the idea that it's wholly evil and badly intentioned as a democratic mechanism it's it's deeply flawed because there isn't that self correction mechanism in it and by the way American is the best one by the way is American as you go you're ridiculous choosing brexit I go you wouldn't impair tax on tea you ungrateful bastards okay so anyway save any Americans you know come across the bill anti brexit just remind them of that one all right Greg so I think we'll leave it there so please join me in thanking Rory for showing up and fir pleasure thank you absolute pleasure [Applause]

Channel: August

Views: 33,810

Rating: 4.9213481 out of 5

Keywords: Alchemy, rory sutherland, ogilvy

Id: --CjFS0owMM

Length: 116min 7sec (6967 seconds)

Published: Tue Nov 12 2019