.
Advertising impressario Rory Sutherland has given TEDTalks on the general life lessons to take from advertising, and the incredible importance of seemingly small details for producing big results. Now, he’s released “Rory Sutherland: The Wiki Man,” a collection of essays and interviews on the art, science, and life of advertising. TED’s Ben Lillie called him in London to talk about his take on new developments in psychology, and how his insights can be applied to the current state of the economy.
You’re a big fan of the new science of behavioral economics.
Enormously, yes.
Given how complicated and hard-to-understand humans are, how do you tell that the new science is, in fact, doing a better job? Is there a real way to tell that?
Well, first of all, I suppose you might argue that if all it does is challenge the old science, it’s worthwhile in that.
Because what it will do, it will prevent what I call dumb assumptions being made. In many cases, I think that people in business assume that people behave in ways defined by neoclassical economics, with individual rational actors going around and trying to maximize utility. Now, that leads to a definition of value creation that has very little to do with what people actually value. And that may cause extraordinary misdirection of investment, expenditures, and so forth. If you can just encourage people to actually consider the psychological angle a little bit more, and consider the behavioral economic angle …
If you think of the billions, for example, spent on the high-speed rail, it’s based on an assumption of value that may actually have nothing to do with what human beings actually value about taking a journey, or what discourages human beings from taking a journey. It’s based on an assumption made by a load of engineers—who secretly, you know, actually like engineering solutions, we have to be candid here—if you’re an engineer, you’re more likely to come up with a solution that involves building enormous great train tracks than you are to come up with a solution that involves, say, some sort of neat psychological manipulation, or better customer service, or better ordering processes for train tickets, all that.
So you get to what I think is the dangerous point, which is that, in a way, the people, you know—we’ve developed a society where actually, people are allowed to define human problems without, actually, any reference to human beings at all. And that, that rubs me a little bit.
My contention is simply that what you’re doing by spending 24 billion is you’re reducing the duration of the only part of the journey which isn’t crap! Everything about a train journey is crap: getting to the station is crap, getting through the station is shit, buying your ticket is fucking awful; everything about it is awful except for when you actually sit on the train and look out the window. That bit’s okay. You know, if you put wi-fi and TV on, that’s pretty much what you’d be doing at home anyway. Okay? I don’t really have a problem with that bit at all. It doesn’t really matter if it’s three hours or one-and-a-half. Really. Who cares?
My second example is, if you take the train travel example, okay. If you work in any sort of creative industry: if you’re a copywriter, or you’re, you know, an inventor, if you’re in any kind of creative process, it’s absolutely assumed that you have to present your thinking to people who are much more rational and practical than you. Does it stack out, what are the cost benefits, blah-de-blah-de-blah. Okay?
Now, that’s kind of all right. However, what’s interesting is, it never happens the other way around. If you’ve got a bunch of rational people, like engineers, sitting there, deciding, “What I think we’ll do is spend 24 billion to increase the speed of trains through London and Birmingham.” What interesting is that no one ever asks those people and says, “Okay. Well, you’ve done all your rational work, but before we allow you to go and put that into practice, let’s just show your solution to loads of wacky crazy people to see if they can come up with something better.”
So what you have is evidence of a double standard. You have an example where you have a double standard where crazy people have to present their work to rational people, but this does not apply the other way around.
Do you buy that argument, that you should just as soon temper rational thinking as you do crazy thinking? The same should apply backwards.
Absolutely. And I’m wondering if you see this changing, with more attention focused on the creative design aspects of technology, with Apple and companies like that.
Well, the way I look at it is, the real sweet spot, which is if you find something which has a valuable economic insight, a psychological insight, and a technical insight behind it — if you can marry those three, you can really produce things Apple-style, which are remarkable. One of the best examples, which would embrace all three, is in the London Underground: the idea of putting dot matrix display boards to tell you how long you have to wait for a train. That’s an use of technology which is also extremely economical, in terms of improving the passenger experience, but it’s based on sort of brilliant psychological insight, which is that the pain of waiting for a train is more about the uncertainty than it is about the delay.
I think that’s a very important point, because I think you could easily go to someone, and they would have solved this problem by effectively making trains more frequent. Now, by the way, I’m not dismissing the engineering approach entirely; I think it has valuable potential. Let’s face it, engineering has done great, great things for humanity over the last few centuries. But if you look at the typical board of directors nowadays, that is pretty much a group of people who are extraordinarily adept at reading a balance sheet. There is no one on a board of directors who represents what you might call the psychological side of problem solving.
And by psychological people, are you looking for people trained in behavioral economics, or more flat-out artistic creative types?
To be absolutely honest, I think that I would favor a few very good academics from a behavioral economics background. There’s a—possibly the first person you might put on the board is a good marketing director, who has a very good understanding of behavioral economics. Someone should be there on board level whose job is to question the assumptions of the prevalent financial, logical model.
Let me continue a point: Actually quite a lot of things are counterintuitive, in many ways. Metrics are also dangerous because, in particular, with relation to humans, very few metrics are linear. If you have anything involving either groups of people or networks of people, or just human stuff in general, you may, for example, notice that there’s a huge difference in personal satisfaction, in changing a train service from hourly to half hourly. You may also notice there’s a big improvement in satisfaction between getting it down from half hourly to, let’s say, every 20 minutes. However, what you will probably find, then, is that beyond that point, not necessarily that point, but beyond some point, it becomes pretty much irrelevant. See, quite a lot of metrics in terms of human psychology and satisfaction and value, are actually non-linear. I’m very intrigued to see that actually a lot of companies are spending a fortune on things they believe to be valuable, which consumers don’t value very much at all. I did a very interesting exercise here, which—do you stay in hotels much?
Sometimes, yeah.
If you ask a room full of 200 people, “Do you know that business where you go to an expensive hotel and they try and take your luggage from you when your car arrives? Or as soon as you get to the door, the doorman tries to take your luggage? How many of you hate that?” About three-quarters of people hate it. The hotel’s presumably doing it partly so you can give a tip to the doorman, but partly really thinks that people value that. In reality, people don’t like it.
I think a lot of service organizations actually do fairly elaborate shit that, actually, people don’t want! The possibility, I think, to use new technology like smartphones and apps and so forth to absolutely streamline customer service to leave a hotel where you check in yourself, and they don’t bother you unless you specifically ask.
It’s very interesting to see how many really successful businesses and business ideas depend on some sort of psychological insight. McDonald’s had this great insight that people don’t want the best burger in the world; they want a burger that’s just like the one they had last time. We value consistency, predictability, and avoidance in disappointment more than we value perfection. I think that’s a very, very valuable insight, that in some ways gave rise to McDonald’s. The other thing that McDonald’s realizes is that, even though when you talk to people in research about food, they talk endlessly about the quality of the food, actually the speed of delivery is probably more important than most people would say. Instant gratification is more important to us than we’re willing to admit. I think that’s another McDonald’s insight.
You could equally look at something like yield management, which is one of the most important ideas in the past fifty years. Which is the business where you have perishable goods, in particular airline seats, train seats, etc., and you sell them off at highly variable prices in order to marry demand with supply and maximize the value.
The interesting point about that, is that requires technology: Yield management’s been made much more possible by the web, because I can actually look at forty-seven different possible flights and decide which combination of departure time, departure date, and price suits me best. I couldn’t do that, really, over the phone, talk to a travel agent. The conversation would become unbelievably tedious, you know. You’d have to be on the phone saying, “And would it be all right if I went on Wednesday via Pittsburgh.” Basically, at that point, human embarrassment is going to take over a problem. It also depends on human permission. Forty years ago, or even twenty-five years ago, if you were sitting on a plane next to somebody, and you discovered they’d paid less than you had, you’d blame the airline. Now you blame yourself.
Now, that in itself is a very, very important business process that’s been made possible by, to some extent, psychological progress into the human understanding of price. Originally, the system was the later you book, the less you paid. Now, of course, it’s the earlier you book, the less you pay— it’s actually not as simple as that by any means, but because there’s a certain rule to it that’s individually transparent and comprehensible, people tend to accept it.
You talk in your book a lot about how a lot of these problems are basically social anxieties.
Read more
