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

by Rory Sutherland

but innovation happens at the extremes. You are more likely to come up with a good idea focusing on one outlier than on ten average users.

It’s true that ‘what gets measured gets managed’, but the concomitant truth is ‘what gets mismeasured gets

mismanaged’.

Real excellence can come in odd packaging. Nassim Nicholas Taleb applies this rule to choosing a doctor: you don’t want the smooth, silver-haired patrician who looks straight out of central casting – you

want his slightly overweight, less patrician but equally senior colleague in the ill-fitting suit. The former has become successful partly as a result of his appearance, the latter despite it.

The psychologist and behavioural economist Dan Ariely was one

of the first people to highlight the famous decoy effectfn1 in the decision process – the phenomenon whereby consumers tend to have a specific change in preference between two options when also presented with a third option that is more desirable than one, but less desirable than the other.

Context is everything: strangely, the attractiveness of what we choose is affected by comparisons with what we reject. As one friend remarked, ‘Everyone likes to go to a nightclub in the company of a friend who’s slightly less attractive than them.’

Firstly, it doesn’t always pay to be logical if everyone else is also being logical. Logic may be a good way to defend and explain a decision, but it is not always a good way to reach one. This is because conventional logic is a straightforward mental process that is equally available to all and will therefore get you to the same place as everyone else. This isn’t always bad – when you are buying mass-produced goods, such as toasters, it generally pays to cultivate mainstream tastes. But when choosing things in scarce supplyfn7 it pays to be eccentric.

A good guess which stands up to observation is still science. So is a lucky accident.

A great deal of the effectiveness of advertising derives from its power to direct attention to favourable aspects of an experience, in order to change the experience for the better.

‘The term affordance refers to the perceived and actual properties of the thing, primarily those fundamental properties that determine just how the thing could possibly be used. […] Affordances provide strong clues to the operations of things. Plates are for pushing. Knobs are for turning. Slots are for inserting things into. Balls are for throwing or bouncing. When affordances are taken advantage of, the user knows what to do just by looking: no picture, label, or instruction needed.’

It is always possible to add functionality to something, but while this makes the new thing more versatile, it also reduces the clarity of its affordance, making it less pleasurable to use and quite possibly more difficult to justify buying.

If you want to offer ease of use – and ease of purchase – it is often a good idea not to offer people a Swiss Army knife, something that claims to do lots of things.fn8 With the notable exception of the mobile phone, we generally find it easier to buy things that serve a single purpose.

The strongest marketing approach in a business-to-business context comes not from explaining that your product is good, but from sowing fear, uncertainty and doubt (now commonly abbreviated as FUD) around the available alternatives.

The desire to make good decisions and the urge

not to get fired or blamed may at first seem to be similar motivations, but they are, in fact, never quite the same thing, and may ...

It is agreed by both game theorists and evolutionary biologists that the prospects for cooperation are far greater when there is a high expectation of repetition than in single-shot transactions.

behaviours, yet some businesses barely consider this at all – procurement, by setting shorter and shorter contract periods, may be unwittingly working to reduce cooperation.

two contrasting approaches to business. There is the ‘tourist restaurant’ approach, where you try to make as much money from people in a single visit. And then there

is the ‘local pub’ approach, where you may make less money from people on each visit, but where you will profit more over time by encouraging them to come back. The second type of business i...

Steve was effectively describing what biologists call ‘costly signalling theory’, the fact that the meaning and significance attached to a something is in direct proportion to the expense with which it is communicated.

Bits deliver information, but costliness carries meaning. We do not invite people to our weddings by sending out an email. We put the information (all of which would fit on an email – or even a text message) on a gilt embossed card, which costs a fortune. Imagine you receive two wedding invitations on the same day, one of which comes in an expensive envelope with gilt edges and embossing, and the other (which contains exactly the same information) in an email. Be honest – you’re probably going to go to the first wedding, aren’t you?

In advertising, a large budget does not prove a product is good, but it does establish that the advertiser is confident enough in the future popularity of the product to

spend some of his resources promoting it. Since at the moment you make a purchase decision, the advertiser knows more about his product than you do, a costly demonstration of faith by the seller may well be the most reliable indicator of whether something is at least worthy of consideration

What this product needs is a brand. Without a distinctive brand identity, there is no incentive to improve your product – and no way for customers to choose well, or to reward the best manufacturer.

expensive advertising and brands arise as a solution to a problem identified by George Akerlof in his 1970 paper ‘The Market for Lemons’ in the Quarterly Journal of Economics. The problem is known as ‘information asymmetry’, whereby the seller knows more about what he is selling than the buyer knows about what he is buying.

In the words of Jonathan Haidt,fn1 1 ‘The conscious mind thinks it’s the Oval Office, when in reality it’s the press office.’ By this he means that we believe we are issuing executive orders, while most of the time we are actually engaged in hastily constructing plausible post-rationalisations to explain decisions taken somewhere else, for reasons we do not understand. But the fact that we can deploy reason to explain our actions post-hoc does not mean that it was reason that decided on that action in the

first place, or indeed that the use of reason can help obtain it.

In the 1950s, the economist and political scientist Herbert Simon coined the term ‘satisficing’, combining as it does the words ‘satisfy’ and ‘suffice’. It is often used in contrast with the word ‘maximising’, which is an approach to problem-solving where you obtain, or pretend to obtain, a single optimally right answer to a particular question.

“decision makers can satisfice either by finding optimum solutions for a simplified world, or by finding satisfactory solutions for a more realistic world. Neither approach, in general, dominates the other, and both have continued to co-exist in the world of management science.”’

Joel Raphaelson and his wife Marikay worked as copywriters for David Ogilvy in the 1960s.

Joel’s 50-year-old theory concerning brand preference. The idea, most simply expressed, is this: ‘People do not

choose Brand A over Brand B because they think Brand A is better, but because they are more certain that it is good.’

This insight is vitally important, but equally important is the realisation that we do not do it consciously. When making a decision, we assume that we must be weighting and scoring various attributes, but we think that only because this is the kind of calculation that the conscious brain understands.

Someone choosing Brand A over Brand B would say that they thought Brand A is ‘better’, even if really they meant something quite different. They may unconsciously be deciding that they prefer Brand A because the odds of its being disastrously bad are only 1 per cent,

Brand B might be 2.8 per cent. This distinction matters a great deal, and it is borne out in many fields of decision science. We will pay a disproportionately high premium for the elimination of a small degree of uncertainty – why this matters so much is that it finally explains the brand premium that consumers pay.

This is essentially a heuristic – a rule of thumb. The more reputational capital a seller stands to lose, the more confident I am in their quality control.

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.

the behaviours we adopt shape our attitudes. Perhaps someone who separates their rubbish into waste and recyclables will become more environmentally conscious as a result of having adopted the behaviour, just as Tesla drivers will wax enthusiastically about the environmental purity of their vehicles, regardless of their initial reasons for buying the car.fn2

Behaviour comes first; attitude changes to keep up.

it is only the behaviour that matters, not the reasons for adopting it. Give people a reason and they may not supply the behaviour; but give people a behaviour and they’ll have no problem supplying the reasons themselves.

the best way to divide unequal resources between a random collection of people – when presented with either good plus bad, bad plus good or average plus average, everybody seems equally content. In fact, we seem

well-disposed to explicit trade-offs. A sentence which contains bad and good news, along the lines of, ‘Yes we admit downside x, but also think of upside y,’ seems particularly persuasive. Robert Cialdini has observed that, as you are closing a sale, the admission of a downside oddly adds persuasive power: ‘Yes, it is expensive, but you’ll soon find it’s worth it,’

When you think about it, it is rather strange how explicit low-cost airlines are about what their ticket prices don’t include: a pre-allocated seat, a meal, free drinks, free checked luggage – such deficiencies

help to explain and destigmatise the low prices.

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 b...

he looks at the grapes in disgust. ‘What a fool I am,’ he says, ‘wearing myself out to get a bunch of sour grapesfn1 that are not worth the effort.’ The moral of the fable is that many pretend to despise and belittle that which is beyond their reach.