Alchemy: The Surprising Power of Ideas That Don't Make Sense

by Rory Sutherland

This example illustrates that, when we make decisions, we look not only for the expected average outcome – we also seek to minimise the possible variance, which makes sense in an uncertain world. In some ways, this explains why McDonald’s is still the most popular restaurant in the world. The average quality might be low, compared to a Michelin-listed restaurant, but so is the level of variance – we know exactly what we’re going to get, and we always get it. No one would say that a meal they had had at McDonald’s was among the most spectacular culinary experiences of their lives, but you’re never disappointed, you’re never overcharged and you never get ill. A Michelin three-star restaurant might provide an experience that you will cherish for the rest of your life, but the risk of disappointment, and indeed illness, is also much higher.fn7 In a world of perfect information and infinite calculating power, it might be slightly suboptimal to use these heuristics, or rules of thumb, to make decisions, but in the real world, where we have limited trustworthy data, time and calculating power, the heuristic approach is better than any other alternative.

In his book Risk Savvy (2014), the German psychologist Gerd Gigerenzer refers to this mental process as ‘Defensive Decision-Making’ – making a decision which is unconsciously designed not to maximise welfare overall but to minimise the damage to the decision maker in the event of a negative outcome. Much human behaviour that is derided as ‘irrational’ is actually evidence of a clever satisficing instinct – repeating a past behaviour or copying what most other people do may not be optimal, but is unlikely to be disastrous. We are all descended from people who managed to reproduce before making a fatal mistake, so it is hardly surprising that our brains are wired this way.

In July of 1945 allied leaders meeting in Potsdam submitted a stiffly worded declaration of surrender terms and waited anxiously for the Japanese reply. The terms had included a statement to the effect that any negative answer would invite ‘prompt and utter destruction’. Truman, Churchill, Stalin, and Chiang Kai-Shek stated that they hoped that Japan would agree to surrender unconditionally and prevent devastation of the Japanese homeland and that they patiently awaited Japan’s answer. Reporters in Tokyo questioned Japanese Premier Kantaro Suzuki about his government’s reaction to the Potsdam Declaration. Since no formal decision had been reached at the time, Suzuki, falling back on the politician’s old standby answer to reporters, replied that he was withholding comment. He used the Japanese word ‘mokusatsu’, derived from the word for ‘silence’. However, the word has other meanings, quite different from that intended by Suzuki. Alas, international news agencies saw fit to tell the world that in the eyes of the Japanese government the ultimatum was ‘not worthy of comment.’ US officials, angered by the tone of Suzuki’s statement and obviously seeing it as another typical example of the fanatical Banzai and Kamikaze spirit, decided on stern measures. Within ten days the decision was made to drop the atomic bomb, the bomb was dropped, and Hiroshima was leveled. Depending on the context, mokusatsu can mean many things. It is derived from words meaning ‘silence’ and ‘death’, an...

what determines the behaviour of physical objects is the thing itself, but what determines the behaviour of living creatures is their perception of the thing itself. The reason this matters so much is that most models of human behaviour and most economic models are blind to this distinction. It won’t surprise you to know that I am sceptical about the promise of ‘big data’, which is frequently promoted as though it were some kind of panacea. Like many things that emerge from the technology sector, we become so drunk on the early possible benefit of a technology that we forget to calculate the second-order problems.fn7 The evangelists of big data imply that ‘big’ equals ‘good’, yet it by no means follows that more data will lead to decisions that are better or more ethical and fair.fn8 To use the analogy of the needle in the haystack, more data does increase the number of needles, but it also increases the volume of hay, as well as the frequency of false needles – things we will believe are significant when really they aren’t. The risk of spurious correlations, ephemeral correlations, confounding variables or confirmation bias can lead to more dumb decisions than insightful ones, with the data giving us a confidence in these decisions that is simply not warranted.

We should also remember that all big data comes from the same place: the past. Yet a single change in context can change human behaviour significantly. For instance, all the behavioural data in 1993 would have predicted a great future for the fax machine.

Attention affects our thoughts and actions far more than we realise. Daniel Kahneman, along with Amos Tversky, is one of the fathers of behavioural economics; ‘the focusing illusion’, as he calls it, causes us to vastly overestimate the significance of anything to which our attention is drawn. As he explains: ‘Nothing is as important as we think it is while we are thinking about it. Marketers exploit the focusing illusion. When people are induced to believe that they “must have” a good, they greatly exaggerate the difference that this good might make to the quality of their life. The focusing illusion is greater for some goods than for others, depending on the extent to which the goods attract continued attention over time. The focusing illusion is likely to be more significant for leather car seats than for books on tape.’1

The old advertising belief in having a Unique Selling Proposition (a ‘USP’) also exploits the focusing illusion: products are easier to sell if they offer one quality that the others do not. Even if this feature is slightly gratuitous, by highlighting a unique attribute, you amplify the sense of loss a buyer might feel if they buy a competing product.

As I mentioned earlier, the human brain to some extent automatically assumes that there are trade-offs in any decision. If a car is more economical, its performance is assumed to be more sluggish; if a washing powder is kinder to the environment, it is assumed to be less effective. This is why promoting a product as being ‘kind to the planet’ comes at a risk – might it be easier to save the planet if we talked less about doing so? The error of the environmental movement seems to me to be assuming that it is not only necessary for people to do the right thing, but that they must do the right thing for the right reasons. My own view is more cynical, and also pragmatic: if people adopt behaviours that benefit the environment, we shouldn’t really care what their motives are.

So, marketing can not only justify a high price but it can also detoxify a low one. Make something too cheap without sufficient explanation and it simply might not be believable – after all, things which seem too good to be true usually are.

Could the local authority that issued me with the ticket give me a chance to play the same mental trick on myself as the easyJet pilot – a reason, however tenuous, to feel slightly upbeat about the fine? For instance, how different would I feel if I was told that the money from my fine would be invested into improving local roads or donated to a homeless shelter? The fine would have the same deterrent effect, but my level of anger and resentment would be significantly reduced. How would that be a bad thing?

It completely mystifies me why most online retailers do not offer you a choice of couriers to deliver your goods. People would vastly prefer this and it would have the additional benefit that they would not wholly blame the retailer if the goods were late or failed to arrive.

A strictly logical approach to problem-solving gives the reassuring impression that you are solving a problem, even when no such process is possible; consequently the only potential solutions considered are those which have been reached through ‘approved’ conventional reasoning – often at the expense of better (and cheaper) solutions that involve a greater amount of instinct, imagination or luck. Remember, if you never do anything differently, you’ll reduce your chances of enjoying lucky accidents. This pseudo-rational approach, with its obsession with following an approved process, excludes counter-intuitive possible solutions and restricts solution-seeking to a small and homogeneous group of people. After all, not even accountants or economists use logic to solve everyday domestic dilemmas, so why do they instinctively reach for calculators and spreadsheets the moment they enter an office? The conventional answer is that we deploy more rigour and structure to our decision-making in business because so much is at stake; but another, less optimistic, explanation is that the limitations of this approach are in fact what makes it appealing – the last thing people want when faced with a problem is a range of creative solutions, with no means of choosing between them other than their subjective judgement. It seems safer to create an artificial model that allows one logical solution and to claim that the decision was driven by ‘facts’ rather than opinion: remember that what oft...

You will improve your thinking a great deal if you try to abandon artificial certainty and learn to think ambiguously about the peculiarities of human psychology. However, as I warned at the beginning of this book, this will not necessarily make life easier – it is much easier to be fired for being illogical than for being unimaginative.fn1 The chart opposite describes the consequences of different modes of decision-making, whether things go right or wrong. Why we need to spend more time and energy hunting for butterfly effects. Large organisations are not set up to reward creative thinking. As the chart shows, the greatest risks result from an imaginative approach, so it seems safer to act logically. However, it is the job of the alchemist to explore the upper half of this chart occasionally – and managers should give their staff permission and unwavering support when they do so.

Our brains present us with a view that is the best-calibrated to improve our evolutionary fitness rather than the most accurate. Being ignorant about your own motivations may pay off in evolutionary terms: it is an inarguable truth that evolution cares about fitness rather than objectivity, and if the ability to present oneself in a good light has certain reproductive advantages, then it will be prioritised. I suspect that we can’t overcome these tendencies, and I am not sure that we would even want to, since life would be unrecognisable – and possibly intolerable – without them. But if we are to understand the power of alchemy, we need better words to describe these motivations, and we must allow ourselves to oppose our natural urge to attach a rational explanation to everything we do. So one of my final tips is that alchemy is not only something you do – it’s what you don’t do. I am not asking you to read this book and then perform any peculiar feat of intelligence – all that is necessary is to abandon the assumptions that you carry around with you like a comfort blanket every day. The difficult part is to abandon them all at the same time, which carries a risk of social embarrassment. For instance, given the modern open-plan office and our obsession with responding to emails as quickly as possible, it might be embarrassing or even damaging to spend 20 minutes staring blankly into space. However, without this time to disengage, it is harder to practise mental alchemy.fn1