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Behavioural economics is an odd term. As Warren Buffett’s business partner Charlie Munger once said, ‘If economics isn’t behavioural, I don’t know what the hell is.’
Sometimes human behaviour that seems nonsensical is really non-sensical – it only appears nonsensical because we are judging people’s motivations, aims and intentions the wrong way.
Be careful before calling something nonsense.
The lesson we should learn from the appendix is that something can be valuable without necessarily being valuable all the time.
Religion feels incompatible with modern life because it seems to involve delusional beliefs, but if the above results came from a trial of a new drug, we would want to add it to tap water.
Presenting such things in a business setting packed with MBA graduates is slightly embarrassing; you start to envy people in IT or tax-planning, who can go into a meeting with rational proposals on a chart or spreadsheet.
Universal ideas like utilitarianism are logical, but seem not to function with the way we have evolved. Perhaps it is no coincidence that Jeremy Bentham, the father of utilitarianism, was one of the strangest and most anti-social people who ever lived.
In fact, we derive pleasure from ‘expensive treats’ and also enjoy finding ‘bargains’. By contrast, the mid-range retailer offers far less of an emotional hit; you don’t get a dopamine rush from mid-market purchases.
one reliable way to lose money is to go on holiday to some exotic locale, fall in love with the local speciality alcoholic drink and decide to import it to your home country.
‘At the federal level I am a Libertarian. At the state level, I am a Republican. At the town level, I am a Democrat. In my family I am a socialist. And with my dog I am a Marxist – from each according to his abilities, to each according to his needs.’
In solving political disputes ‘rationally’ we are assuming that people interact with all other people in the same way, independent of context, but we don’t.
what we need more of today is men and women who are not wedded to an overbearing system of thought.
The problem that bedevils organisations once they reach a certain sizefn8 is that narrow, conventional logic is the natural mode of thinking for the risk-averse bureaucrat or executive.
There are five main reasons why we have evolved to behave in seemingly illogical ways, and they conveniently all begin with the letter S.fn1 They are: Signalling, Subconscious hacking, Satisficing and Psychophysics.
The GPS knows only what it knows, and is blind to solutions outside its frame of reference. It is completely unaware of the existence of public transport, and so will suggest that I drive into central London at eight o’clock in the morning, a journey only a lunatic would undertake.
A fascinating theory, first proposed by the evolutionary biologist Robert Trivers and later supported by the evolutionary psychologist Robert Kurzban, explains that we do not have full access to the reasons behind our decision-making because, in evolutionary terms, we are better off not knowing;
‘The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.’
Evolution does not care about objectivity – it only cares about fitness.
For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.
Restaurants are only peripherally about food: their real value lies in social connection, and status.
Try this exercise, which starts with a childish question, but one that might not have been asked before: Why don’t people like being made to stand on overcrowded trains?
‘The economic model told me to do it’ is the twenty-first-century equivalent of ‘I was only following orders,’ an attempt to avoid blame by denying the responsibility for one’s actions.
If you would like an easy life, never come up with a solution to a problem that is drawn from a field of expertise other than that from which it is assumed the solution will arise.
If a problem is solved using a discipline other than that practised by those who believe themselves the rightful guardians of the solution, you’ll face an uphill struggle no matter how much evidence you can amass.
Just as, under Maskelyne, the dominant model was astronomical rather than horological, in smoking cessation the dominant model was one of shamefn5 rather than of accommodation.
Even worse, the inventor was a businessman rather than a health professional.
As the novelist Upton Sinclair once remarked, ‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’
One possible explanation for this is that smoking is not so much an addiction as a habit: that after a few years of smoking, it is the associations, actions and mannerisms we crave more than the drug itself. Hence, if you have not been addicted to smoking cigarettes, e-cigs simply don’t hit the spot, just as those of us who have never been heroin addicts tend not to be all that keen on needles.
it’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality.
We are wrong about psychology to a far grater degree than we are about physics, so there is more scope for improvement.
In the Middle Ages, Europeans moved cemeteries from inside their fortifications to outside because of a fear that the souls of the bodies of the dead might return to haunt the living. The incidental result of this fear of ‘revenants’ was improved hygiene and protection from disease.
What people do with their own money (their ‘revealed preferences’) is generally a better guide to what they really want than their own reported wants and needs.
One of the great contributors to the profits of high-end restaurants is the fact that bottled water comes in two types, enabling waiters to ask ‘still or sparkling?’, making it rather difficult to say ‘just tap’.
an inability to change perspective is equivalent to a loss of intelligence.fn1
In some influential parts of business and government, economic logic has become a limiting creed rather than a methodological tool.
The inherent flaws of mathematical models are well understood by good mathematicians, physicists and statisticians, but very badly understood by those who are merely competent.fn2
people who are not skilled at mathematics tend to view the output of second-rate mathematicians with an high level of credulity, and attach almost mystical significance to their findings. Bad maths is the palmistry of the twenty-first century.
To put it crudely, when you multiply bullshit with bullshit, you don’t get a bit more bullshit – you get bullshit squared.
Everyone worries about declining social mobility, rising inequality and the hideous homogeneity of politicians, yet it is possible these have arisen from well-meaning attempts to make the world fairer.
the problem is that when ‘the rules are the same for everyone’ the same boring bastards win every time.
The idea that you should therefore try making your recruitment system less fair outrages people when I suggest it, but it is worth remembering that there is an inevitable trade-off between fairness and variety.
As I always advise young people, ‘Find one or two things your boss is rubbish at and be quite good at them.’ Complementary talent is far more valuable than conformist talent.
Don’t design for average.
The sandwich was not invented by an average eater. The Earl of Sandwich was an obsessive gambler, and demanded food in a form that would not require him to leave the card table while he ate.
It’s true that ‘what gets measured gets managed’, but the concomitant truth is ‘what gets mismeasured gets mismanaged’.
I have never seen any evidence that academic success accurately predicts workplace success.
Is some of what we think to be racial or gender bias merely bias in favour of the status quo?
We might, rather, be heavily predisposed to attaching ‘outsider status’ to people who speak with a different accent to us, since such distinctions would have been experienced more frequently.
This suggests that the prejudice we apply against a lone black candidate or a lone female candidate might also apply to a lone ‘anything’ candidate.fn2
In competitive markets, it pays to have (and to cultivate) eccentric tastes.
