Rory Sutherland: Perspective is everything
Summary
TLDRIn this humorous and insightful talk, the speaker explores the power of perception in shaping our happiness and decision-making. He uses the example of electronic cigarettes to illustrate how reframing activities can change our feelings about them. The speaker critiques classical economics for focusing too much on reality and not enough on psychological factors, such as the importance of control and meaning in our lives. He advocates for a balanced approach to problem-solving that considers both technical and psychological solutions, using examples like the Eurostar and Google to highlight the success of psychological insights in business.
Takeaways
- 🚬 The invention of the electronic cigarette has brought happiness to the speaker, not just due to nicotine, but also because it allows for a socially acceptable form of solitude at social events.
- 🎭 The power of reframing can significantly alter perceptions and feelings about the same activity, turning an antisocial act into a philosophical one.
- 🧐 Classical economics is criticized for being too focused on reality as a measure of happiness, which the speaker argues is not always the best indicator.
- 👴 Happiness is influenced more by the perception of control over life circumstances rather than the actual circumstances themselves, as illustrated by the comparison between pensioners and the unemployed.
- 🏖️ Rebranding, such as the upper-middle class in England referring to unemployment as 'a year off,' can change societal perceptions and attitudes towards certain life stages.
- 🐶 An experiment with dogs in boxes demonstrates the importance of control over one's circumstances for mental well-being, with one dog having control over pain and the other experiencing helplessness.
- 💰 The speaker suggests that the level of control over tax money may be as important as the level of taxation itself in determining public satisfaction.
- 🏥 The framing of costs, such as paying for health care versus endowing a hospital ward, can change how individuals perceive and react to those costs.
- 🤔 The speaker advocates for a balance between technical and psychological solutions, criticizing the current overemphasis on the former.
- 🚄 The Eurostar example highlights the potential benefits of psychological solutions, such as adding Wi-Fi or enhancing the travel experience, over purely time-saving engineering solutions.
- 🚦 The use of countdown timers on red traffic lights in Korea is a practical application of psychological insight, reducing impatience and accidents.
- 💊 A suggestion to improve antibiotic adherence through 'chunking' by giving patients a set of pills to take in a specific order to create a sense of accomplishment.
Q & A
What is the speaker's opinion on electronic cigarettes since their invention?
-The speaker finds electronic cigarettes to have brought them untold happiness, attributing a little of it to nicotine but more significantly to the ability to enjoy social events without the stigma associated with smoking.
Why does the speaker feel that classical economics is flawed in its approach to human happiness?
-The speaker believes that classical economics is overly focused on reality and fails to consider the importance of perception and the psychological aspects of human happiness.
What is the difference in perception between a pensioner and a young unemployed person according to the speaker?
-The speaker suggests that pensioners are happier than the young unemployed because they perceive their status as a choice, whereas the unemployed feel it was forced upon them.
How does the speaker describe the rebranding of unemployment among the upper-middle class in England?
-The speaker explains that the upper-middle class in England has rebranded unemployment as 'a year off,' which changes the social perception and makes it seem like a positive experience, especially if it involves travel.
What psychological experiment is referred to by the speaker involving dogs in a box with an electric floor?
-The experiment involves two dogs in a box with an electric floor; one dog has a button that stops the shock when pressed, giving it control over the situation, while the other has no control. This experiment illustrates the impact of control on happiness and mental state.
What is the significance of the speaker's mention of the difference in perception between paying taxes and donating to a hospital ward?
-The speaker uses this example to highlight how the perception of the same amount of money can drastically differ based on the context and the perceived value or purpose of the payment.
What is the speaker's critique of the way we prioritize technical solutions over psychological ones?
-The speaker criticizes the imbalance in favoring technical, numerical solutions over psychological ones, suggesting that we often overlook the power of perception and the importance of emotional satisfaction in problem-solving.
Can you explain the 'chunking' method the speaker proposes for improving antibiotic adherence?
-The 'chunking' method involves giving patients a set of pills in two different colors, instructing them to take all the white pills first before moving on to the blue ones. This creates a milestone in the treatment process, increasing the likelihood of completion.
What is the concept of 'goal dilution' as mentioned by the speaker in relation to Google's success?
-The concept of 'goal dilution' suggests that people perceive a product or service that focuses on one task to be better at that task than a multifunctional product. Google's success is partly attributed to this insight, as they focused solely on search, leading to the perception of being a superior search engine.
How does the speaker use the example of a toll crossing to illustrate the importance of framing in economics?
-The speaker suggests that offering an express lane at a toll crossing for a higher fee could be seen as creating unnecessary delays for profit. However, if the extra money goes to charity, the public's perception and willingness to pay change, showing the power of framing in economic decisions.
What is the Austrian School economist Ludwig Von Mises' view on the relationship between economics and psychology?
-Ludwig Von Mises, an Austrian School economist, believed that economics is a subset of psychology and that the study of human choice, action, and decision-making (praxeology) is a prior discipline to economics.
Outlines
🚬 The Power of Perception and Reframing
The speaker humorously discusses the impact of the electronic cigarette on his life, highlighting the psychological benefits beyond the nicotine. He contrasts the social perception of smoking at a party with the isolation felt when banned, illustrating how the same activity can be seen as either antisocial or philosophical depending on context. He critiques classical economics for focusing too much on reality rather than perception, using examples such as pensioners being happier than the unemployed despite similar circumstances. The speaker emphasizes the importance of control over one's life for happiness, referencing an experiment with dogs in boxes to illustrate the point. He concludes by suggesting that how we frame experiences, costs, and things greatly affects our reactions and well-being.
🤔 The Undervaluation of Psychological Solutions
The speaker advocates for a more significant role of psychological insights in problem-solving, critiquing the traditional preference for technical and engineering solutions. He points out the lack of a comprehensive model for human psychology compared to well-established models in other fields. Using the example of the Eurostar, he argues that a small investment in improving the passenger experience could have a more significant impact than a large investment in reducing travel time. He also discusses the importance of considering psychological factors in decision-making, such as the difference in satisfaction from waiting with a countdown clock versus an uncertain wait. The speaker calls for a balanced approach to problem-solving that equally values psychological, emotional, and rational ideas.
💡 The Psychological Impact of Design and Marketing
The speaker explores the power of design and marketing in shaping perceptions and solving problems that may not be immediately apparent. He uses Google as an example of a company that leveraged psychological insights to succeed, focusing on the idea of 'goal dilution' to position itself as a superior search engine. He suggests that psychological strategies, such as chunking antibiotics into different colored pills, can improve outcomes. The speaker also discusses the economic implications of perception, such as the willingness to pay for an express lane to avoid delays, and how changing the frame can lead to different public reactions. He emphasizes the importance of understanding that the value of money is not only in its amount but also in its perceived destination and use.
🏛 The Austrian School and the Holistic View of Value
The speaker delves into the Austrian School of economics, particularly the work of Ludwig Von Mises, who viewed economics as a subset of psychology. He discusses the concept of praxeology, the study of human action and decision-making, as a foundational discipline for economics. The speaker challenges the traditional distinction between real value and perceived value, using Von Mises' analogy of the French physiocrats to illustrate the point. He argues that all aspects of a service or product, from the primary offering to the environment in which it is delivered, contribute equally to its value. The speaker concludes by emphasizing the importance of perception in value creation, suggesting that understanding and leveraging this can transform the effectiveness of marketing and economic policies.
Mindmap
Keywords
💡Electronic cigarette
💡Reframing
💡Classical economics
💡Perceived value
💡Control
💡Taxation
💡Psychological value
💡Praxeology
💡Goal dilution
💡Chunking
💡Perception and reality
Highlights
The invention of electronic cigarettes has brought untold happiness, not just due to nicotine but also because it allows for moments of solitude at social events.
The power of reframing can significantly alter one's perception and emotional response to the same activity.
Classical economics' focus on reality may not be the best guide to human happiness, as illustrated by the differing happiness levels of pensioners and the unemployed.
The sense of control over one's life can be more important to happiness than the actual circumstances.
The level of control over tax money can influence people's attitudes towards taxation.
Framing can change people's reactions to the same event, such as the bailout of Greece versus the bailout of banks that lent to Greece.
The importance of psychological value and the need for a psychological model alongside models of engineering and economics.
The imbalance in prioritizing technical solutions over psychological ones in problem-solving.
The psychological impact of reducing uncertainty in waiting times, as seen with countdown clocks on trains and traffic lights.
The importance of considering psychological, emotional, and rational factors equally in decision making.
Google's success is attributed not only to technological innovation but also to psychological understanding of user preferences.
The psychological technique of 'chunking' can improve medication adherence by providing visual milestones.
The economic and psychological implications of toll crossings and the potential for 'charitable yield management'.
The Austrian School's perspective on economics as a subset of psychology and the importance of praxeology.
The concept that marketing and perceived value are as important as the actual creation of a product or service.
The impact of perception on the perceived and actual value of services, such as the example of the post office's success rate.
The 'leakiness' of perception and its influence on the effectiveness of branded products and services.
Transcripts
Translator: Timothy Covell Reviewer: Morton Bast
What you have here
is an electronic cigarette.
It's something that, since it was invented a year or two ago,
has given me untold happiness.
(Laughter)
A little bit of it, I think, is the nicotine,
but there's something much bigger than that;
which is, ever since, in the UK, they banned smoking in public places,
I've never enjoyed a drinks party ever again.
(Laughter)
And the reason, I only worked out just the other day,
which is: when you go to a drinks party and you stand up
and hold a glass of red wine and you talk endlessly to people,
you don't actually want to spend all the time talking.
It's really, really tiring.
Sometimes you just want to stand there silently, alone with your thoughts.
Sometimes you just want to stand in the corner and stare out of the window.
Now the problem is, when you can't smoke,
if you stand and stare out of the window on your own,
you're an antisocial, friendless idiot.
(Laughter)
If you stand and stare out of the window on your own with a cigarette,
you're a fucking philosopher.
(Laughter)
(Applause)
So the power of reframing things
cannot be overstated.
What we have is exactly the same thing, the same activity,
but one of them makes you feel great
and the other one, with just a small change of posture,
makes you feel terrible.
And I think one of the problems with classical economics is,
it's absolutely preoccupied with reality.
And reality isn't a particularly good guide to human happiness.
Why, for example, are pensioners much happier
than the young unemployed?
Both of them, after all, are in exactly the same stage of life.
You both have too much time on your hands and not much money.
But pensioners are reportedly very, very happy,
whereas the unemployed are extraordinarily unhappy and depressed.
The reason, I think, is that the pensioners believe
they've chosen to be pensioners,
whereas the young unemployed feel it's been thrust upon them.
In England, the upper-middle classes have actually solved this problem perfectly,
because they've re-branded unemployment.
If you're an upper-middle-class English person,
you call unemployment "a year off."
(Laughter)
And that's because having a son who's unemployed in Manchester
is really quite embarrassing.
But having a son who's unemployed in Thailand
is really viewed as quite an accomplishment.
(Laughter)
But actually, the power to re-brand things --
to understand that our experiences, costs, things
don't actually much depend on what they really are,
but on how we view them --
I genuinely think can't be overstated.
There's an experiment I think Daniel Pink refers to,
where you put two dogs in a box
and the box has an electric floor.
Every now and then, an electric shock is applied to the floor,
which pains the dogs.
The only difference is one of the dogs has a small button in its half of the box.
And when it nuzzles the button, the electric shock stops.
The other dog doesn't have the button.
It's exposed to exactly the same level of pain as the dog in the first box,
but it has no control over the circumstances.
Generally, the first dog can be relatively content.
The second dog lapses into complete depression.
The circumstances of our lives may actually matter less to our happiness
than the sense of control we feel over our lives.
It's an interesting question.
We ask the question -- the whole debate in the Western world
is about the level of taxation.
But I think there's another debate to be asked,
which is the level of control we have over our tax money,
that what costs us 10 pounds in one context can be a curse;
what costs us 10 pounds in a different context, we may actually welcome.
You know, pay 20,000 pounds in tax toward health,
and you're merely feeling a mug.
Pay 20,000 pounds to endow a hospital ward,
and you're called a philanthropist.
I'm probably in the wrong country to talk about willingness to pay tax.
(Laughter)
So I'll give you one in return: how you frame things really matters.
Do you call it "The bailout of Greece"?
Or "The bailout of a load of stupid banks which lent to Greece"?
(Laughter)
Because they are actually the same thing.
What you call them actually affects how you react to them,
viscerally and morally.
I think psychological value is great, to be absolutely honest.
One of my great friends, a professor called Nick Chater,
who's the Professor of Decision Sciences in London,
believes we should spend far less time looking into humanity's hidden depths,
and spend much more time exploring the hidden shallows.
I think that's true, actually.
I think impressions have an insane effect on what we think and what we do.
But what we don't have is a really good model of human psychology --
at least pre-Kahneman, perhaps,
we didn't have a really good model of human psychology
to put alongside models of engineering, of neoclassical economics.
So people who believed in psychological solutions didn't have a model.
We didn't have a framework.
This is what Warren Buffett's business partner Charlie Munger calls
"a latticework on which to hang your ideas."
Engineers, economists, classical economists
all had a very, very robust existing latticework
on which practically every idea could be hung.
We merely have a collection of random individual insights
without an overall model.
And what that means is that, in looking at solutions,
we've probably given too much priority
to what I call technical engineering solutions, Newtonian solutions,
and not nearly enough to the psychological ones.
You know my example of the Eurostar:
six million pounds spent
to reduce the journey time between Paris and London
by about 40 minutes.
For 0.01 percent of this money, you could have put wi-fi on the trains,
which wouldn't have reduced the duration of the journey,
but would have improved its enjoyment and its usefulness far more.
For maybe 10 percent of the money,
you could have paid all of the world's top male and female supermodels
to walk up and down the train handing out free Château Pétrus
to all the passengers.
(Laughter)
You'd still have five million pounds in change,
and people would ask for the trains to be slowed down.
(Laughter)
Why were we not given the chance to solve that problem psychologically?
I think it's because there's an imbalance,
an asymmetry in the way we treat creative, emotionally driven psychological ideas
versus the way we treat rational, numerical, spreadsheet-driven ideas.
If you're a creative person, I think, quite rightly,
you have to share all your ideas for approval
with people much more rational than you.
You have to go in and have a cost-benefit analysis,
a feasibility study, an ROI study and so forth.
And I think that's probably right.
But this does not apply the other way around.
People who have an existing framework --
an economic framework, an engineering framework --
feel that, actually, logic is its own answer.
What they don't say is, "Well, the numbers all seem to add up,
but before I present this idea, I'll show it to some really crazy people
to see if they can come up with something better."
And so we -- artificially, I think -- prioritize
what I'd call mechanistic ideas over psychological ideas.
An example of a great psychological idea:
the single best improvement in passenger satisfaction
on the London Underground,
per pound spent,
came when they didn't add any extra trains,
nor change the frequency of the trains;
they put dot matrix display boards on the platforms --
because the nature of a wait is not just dependent on its numerical quality,
its duration,
but on the level of uncertainty you experience during that wait.
Waiting seven minutes for a train with a countdown clock
is less frustrating and irritating
than waiting four minutes, knuckle biting, going,
"When's this train going to damn well arrive?"
Here's a beautiful example of a psychological solution
deployed in Korea.
Red traffic lights have a countdown delay.
It's proven to reduce the accident rate in experiments.
Why?
Because road rage, impatience and general irritation are massively reduced
when you can actually see the time you have to wait.
In China, not really understanding the principle behind this,
they applied the same principle to green traffic lights --
(Laughter)
which isn't a great idea.
You're 200 yards away, you realize you've got five seconds to go,
you floor it.
(Laughter)
The Koreans, very assiduously, did test both.
The accident rate goes down when you apply this to red traffic lights;
it goes up when you apply it to green traffic lights.
This is all I'm asking for, really, in human decision making,
is the consideration of these three things.
I'm not asking for the complete primacy of one over the other.
I'm merely saying that when you solve problems,
you should look at all three of these equally,
and you should seek as far as possible
to find solutions which sit in the sweet spot in the middle.
If you actually look at a great business,
you'll nearly always see all of these three things coming into play.
Really successful businesses --
Google is a great, great technological success,
but it's also based on a very good psychological insight:
people believe something that only does one thing
is better at that thing than something that does that thing and something else.
It's an innate thing called "goal dilution."
Ayelet Fishbach has written a paper about this.
Everybody else at the time of Google, more or less,
was trying to be a portal.
Yes, there's a search function, but you also have weather,
sports scores, bits of news.
Google understood that if you're just a search engine,
people assume you're a very, very good search engine.
All of you know this, actually, from when you go in to buy a television,
and in the shabbier end of the row of flat-screen TVs,
you can see, are these rather despised things
called "combined TV and DVD players."
And we have no knowledge whatsoever of the quality of those things,
but we look at a combined TV and DVD player and we go, "Uck.
It's probably a bit of a crap telly and a bit rubbish as a DVD player."
So we walk out of the shops with one of each.
Google is as much a psychological success as it is a technological one.
I propose that we can use psychology to solve problems
that we didn't even realize were problems at all.
This is my suggestion for getting people to finish their course of antibiotics.
Don't give them 24 white pills;
give them 18 white pills and six blue ones
and tell them to take the white pills first,
and then take the blue ones.
It's called "chunking."
The likelihood that people will get to the end is much greater
when there is a milestone somewhere in the middle.
One of the great mistakes, I think, of economics
is it fails to understand that what something is --
whether it's retirement, unemployment, cost --
is a function, not only of its amount, but also its meaning.
This is a toll crossing in Britain.
Quite often queues happen at the tolls.
Sometimes you get very, very severe queues.
You could apply the same principle, actually,
to the security lanes in airports.
What would happen if you could actually pay twice as much money
to cross the bridge,
but go through a lane that's an express lane?
It's not an unreasonable thing to do;
it's an economically efficient thing to do.
Time means more to some people than others.
If you're waiting trying to get to a job interview,
you'd patently pay a couple of pounds more to go through the fast lane.
If you're on the way to visit your mother-in-law,
you'd probably prefer --
(Laughter)
you'd probably prefer to stay on the left.
The only problem is if you introduce this economically efficient solution,
people hate it ...
because they think you're deliberately creating delays at the bridge
in order to maximize your revenue,
and, "Why on earth should I pay to subsidize your incompetence?"
On the other hand, change the frame slightly
and create charitable yield management,
so the extra money you get goes not to the bridge company,
it goes to charity ...
and the mental willingness to pay completely changes.
You have a relatively economically efficient solution,
but one that actually meets with public approval
and even a small degree of affection,
rather than being seen as bastardy.
So where economists make the fundamental mistake
is they think that money is money.
Actually, my pain experienced in paying five pounds
is not just proportionate to the amount,
but where I think that money is going.
And I think understanding that could revolutionize tax policy.
It could revolutionize the public services.
It could actually change things quite significantly.
[Ludwig Von Mises is my hero.]
Here's a guy you all need to study.
He's an Austrian School economist
who was first active in the first half of the 20th century in Vienna.
What was interesting about the Austrian School
is they actually grew up alongside Freud.
And so they're predominantly interested in psychology.
They believed that there was a discipline called praxeology,
which is a prior discipline to the study of economics.
Praxeology is the study of human choice, action and decision-making.
I think they're right.
I think the danger we have in today's world
is we have the study of economics
considers itself to be a prior discipline to the study of human psychology.
But as Charlie Munger says, "If economics isn't behavioral,
I don't know what the hell is."
Von Mises, interestingly, believes economics is just a subset of psychology.
I think he just refers to economics
as "the study of human praxeology under conditions of scarcity."
But Von Mises, among many other things,
I think uses an analogy which is probably the best justification and explanation
for the value of marketing, the value of perceived value
and the fact that we should treat it as being absolutely equivalent
to any other kind of value.
We tend to, all of us, even those of us who work in marketing,
think of value in two ways:
the real value, which is when you make something in a factory
or provide a service,
and then there's a dubious value,
which you create by changing the way people look at things.
Von Mises completely rejected this distinction.
And he used this following analogy:
he referred to strange economists called the French physiocrats,
who believed that the only true value was what you extracted from the land.
So if you're a shepherd or a quarryman or a farmer,
you created true value.
If however, you bought some wool from the shepherd
and charged a premium for converting it into a hat,
you weren't actually creating value,
you were exploiting the shepherd.
Now, Von Mises said that modern economists make exactly the same mistake
with regard to advertising and marketing.
He says if you run a restaurant,
there is no healthy distinction to be made
between the value you create by cooking the food
and the value you create by sweeping the floor.
One of them creates, perhaps, the primary product --
the thing we think we're paying for --
the other one creates a context within which we can enjoy
and appreciate that product.
And the idea that one of them should have priority over the other
is fundamentally wrong.
Try this quick thought experiment:
imagine a restaurant that serves Michelin-starred food,
but where the restaurant smells of sewage
and there's human feces on the floor.
(Laughter)
The best thing you can do there to create value
is not actually to improve the food still further,
it's to get rid of the smell and clean up the floor.
And it's vital we understand this.
If that seems like a sort of strange, abstruse thing --
in the UK, the post office had a 98 percent success rate
at delivering first-class mail the next day.
They decided this wasn't good enough,
and they wanted to get it up to 99.
The effort to do that almost broke the organization.
If, at the same time, you'd gone and asked people,
"What percentage of first-class mail arrives the next day?"
the average answer, or the modal answer, would have been "50 to 60 percent."
Now, if your perception is much worse than your reality,
what on earth are you doing trying to change the reality?
That's like trying to improve the food in a restaurant that stinks.
What you need to do is, first of all, tell people
that 98 percent of first-class mail gets there the next day.
That's pretty good.
I would argue, in Britain, there's a much better frame of reference,
which is to tell people that more first-class mail arrives the next day
in the UK than in Germany, because generally, in Britain,
if you want to make us happy about something,
just tell us we do it better than the Germans.
(Laughter)
(Applause)
Choose your frame of reference and the perceived value,
and therefore, the actual value is completely transformed.
It has to be said of the Germans
that the Germans and the French are doing a brilliant job
of creating a united Europe.
The only thing they didn't expect is they're uniting Europe
through a shared mild hatred of the French and Germans.
But I'm British; that's the way we like it.
(Laughter)
What you'll also notice is that, in any case,
our perception is leaky.
We can't tell the difference between the quality of the food
and the environment in which we consume it.
All of you will have seen this phenomenon
if you have your car washed or valeted.
When you drive away, your car feels as if it drives better.
(Laughter)
And the reason for this --
unless my car valet mysteriously is changing the oil
and performing work which I'm not paying him for and I'm unaware of --
is because perception is, in any case, leaky.
Analgesics that are branded are more effective at reducing pain
than analgesics that are not branded.
I don't just mean through reported pain reduction --
actual measured pain reduction.
And so perception actually is leaky in any case.
So if you do something that's perceptually bad in one respect,
you can damage the other.
Thank you very much.
(Applause)
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