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

by Rory Sutherland

There is an abundance of supporting evidence for these magical outcomes: the French are astonishingly productive on the rare occasion they are not on holiday; the German economy is successful, despite six weeks of annual leave being commonplace. But there is no model of the world that allows for America to contemplate, let alone trial, this possibly magical solution.

Here are some recent butterfly effect discoveries, from my own experience: A website adds a single extra option to its checkout procedure – and increases sales by $300m per year. An airline changes the way in which flights are presented – and sells £8m more of premium seating per year. A software company makes a seemingly inconsequential change to call-centre procedure – and retains business worth several million pounds. A publisher adds four trivial words to a call-centre script – and doubles the rate of conversion to sales. A fast-food outlet increases sales of a product by putting the price … up. All these disproportionate successes were, to an economist, entirely illogical. All of them worked.

This insight is only possible once you know not to take the clue literally, and human behaviour is often cryptic in a similar sense; there is an ostensible, rational, self-declared reason why we do things, and there is also a cryptic or hidden purpose. Learning how to disentangle the literal from the lateral meaning is essential to solving cryptic crosswords, and it is also essential to understanding human behaviour.

For instance, the victorious Brexit campaign in Britain and the election of Donald Trump in the United States have both been routinely blamed on the clueless and emotional behaviour of undereducated voters, but you could make equally strong cases that the Remain campaign in Britain and Hillary Clinton’s failed bid for the American presidency failed because of the clueless, hyper-rational behaviour of overeducated advisors, who threw away huge natural advantages.

Perhaps most startlingly of all, every single one of the Remain campaign’s arguments resorted to economic logic, yet the EU is patently a political project, which served to make them seem greedy rather than principled, especially as the most vocal Remain supporters came from a class of people who had done very nicely out of globalisation. Notice that Winston Churchill did not urge us to fight the Second World War ‘in order to regain access to key export markets’.

It’s important to remember that big data all comes from the same place – the past.

To solve logic-proof problems requires intelligent, logical people to admit the possibility that they might be wrong about something, but these people’s minds are often most resistant to change – perhaps because their status is deeply entwined with their capacity for reason.

The Nobel Prize-winning behavioural scientist Richard Thaler said, ‘As a general rule the US Government is run by lawyers who occasionally take advice from economists. Others interested in helping the lawyers out need not apply.’

This book is not an attack on the many healthy uses of logic or reason, but it is an attack on a dangerous kind of logical overreach, which demands that every solution should have a convincing rationale before it can even be considered or attempted.

Irrational people are much more powerful than rational people, because their threats are so much more convincing.

My problem with Marxism is that it makes too much sense.

If you are a technocrat, you’ll generally have achieved your status by explaining things in reverse; the plausible post-rationalisation is the stock-in-trade of the commentariat. Unfortunately, it is difficult for such people to avoid the trap of assuming that the same skills that can explain the past can be used to predict the future.

It is impossible for human relations to work unless we accept that our obligations to some people will always exceed our obligations to others. 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.

Why is this? In his book Skin in the Game (2018), Taleb includes what might be the most interesting quotation on an individual’s politics I have ever read. Someonefn3 explains how, depending on context, he has entirely different political preferences: ‘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.’

The irony is that the ‘man of system’ in the early twenty-first century is all too likely to be an economist, but what we need more of today is men and women who are not wedded to an overbearing system of thought.

At Ogilvy, I founded a division that employs psychology graduates to look at behavioural change problems through a new lens. Our mantra is ‘Test counterintuitive things, because no one else ever does.’ Why is this necessary? In short, the world runs on two operating systems. The much smaller of them runs on conventional logic. If you are building a bridge or building a road, there is a definition of success that is independent of perception. Will it safely take the weight of X vehicles weighing Y kg and travelling at Z mph? Success can be defined entirely in terms of objective scientific units, with no allowance for human subjectivity.

Americans aren’t terribly good at designing roundabouts, or ‘traffic circles’ as they call them, simply because they don’t have much practice.fn10 In one instance, a British team was able to reduce the incidence of accidents on a traffic circle in Florida by 95 per cent by placing the painted lines differently. In one Dutch town traffic experts improved traffic safety by removing road markings altogether.

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. Without an understanding of these concepts, rational people will be condemned to spend their lives baffled and confounded by the behaviour of others; with a grasp of these principles, some of the oddities of human behaviour will start to fall into place.

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; we have evolved to deceive ourselves, in order that we are better at deceiving others.

The late David Ogilvy, one of the greats of the American advertising industry and the founder of the company I work for, apparently once said, ‘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.’

Remember the airline and the cucumber sandwiches? Just as we infer a great deal about an air carrier from their on-board catering, while neglecting to care about the $150m aircraft or the make of the engines, we are just as likely to be unhappy with a hospital because the reception area is neglected, the magazines are out of date and the nurse didn’t spare us much time. In truth, the UK’s National Health Service might benefit from ‘wasting’ a bit more money on signalling, while the US healthcare sector could probably benefit from spending a lot less. It is fine to provide up-to-date magazines in reception to show that you care, but when the urge to show commitment to patients involves performing unnecessary tests and invasive surgery, it probably needs to be reined back.

For the last fifty years or so, most issues involving human behaviour or decision-making have been solved by looking through what I call ‘regulation-issue binoculars’. These have two lenses – market research and economic theory – that together are supposed to provide a complete view of human motivation. There’s only one problem: the binoculars are broken. Both the lenses are pretty badly cracked, and they distort our view of every issue.

By all measures, this seemed to reduce crime significantly; moreover, it did so at a tiny cost, and certainly by less than the cost of direct policing. Several other local authorities have since repeated the approach, though take-up is low – it is much easier to argue for larger policing budgets or for the installation of CCTV, than to approach a problem psycho-logically.

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.’

As the psychologist Jonathan Haidt has shown,1 most moralising works in this way. We react instinctively, before hastily casting about for rationalisations.

It seems likely that the biggest progress in the next 50 years may come not from improvements in technology but in psychology and design thinking.

I am willing to bet that there are ten times as many people on the planet who are currently being paid to debate why people prefer Coke or Pepsi than there are being paid to ask questions like ‘Why do people request a doctor’s appointment?’, ‘Why do people go to university?’ or ‘Why do people retire?’ The answers to these last three questions are believed to be rational and self-evident, but they are not.

recent trial proved that there were no dental-health benefits to the practice of flossing. I imagine that the manufacturers of dental floss were terrified by this finding, but they can relax – I confidently predict that this finding will have almost no effect on people’s propensity to floss their teeth; they weren’t really doing it for health reasons in the first place.

This distinction had never occurred to me, but it also seems to have escaped the attention of most of the economics profession, too. And it’s a finding that has great implications for the behavioural sciences, because it suggests that many supposed biases which economists wish to correct may not be biases at all – they may simply arise from the fact that a decision which seems irrational when viewed through an ensemble perspective is rational when viewed through the correct time-series perspective, which is how real life is actually lived; what happens on average when a thousand people do something once is not a clue to what will happen when one person does something a thousand times.

For all we obsess about scientific methodology, Geim knows it is far more common for a mixture of luck, experimentation and instinctive guesswork to provide the decisive breakthrough; reason only comes into play afterwards. The bureaucrats to whom he must justify his activities, however, demand reasons right from the beginning to justify funding, but the idea that there is a robust scientific process that will reliably lead to progress seems unfounded.

I am not suggesting that we try to solve problems completely at random, with no plan as to where we want to go, and nor do I mean that data and rational judgement play no part in our deliberations. But in coming up with anything genuinely new, unconscious instinct, luck and simple random experimentation play a far greater part in the problem-solving process than we ever admit. I used to feel bad about presenting ideas as though they were the product of pure inductive logic, until I realised that, in reality, everything in life works this way. Business. Evolution by natural selection. Even science.

Today, the principal activity of any publicly held company is rarely the creation of products to satisfy a market need. Management attention is instead largely directed towards the invention of plausible-sounding efficiency narratives to satisfy financial analysts, many of whom know nothing about the businesses they claim to analyse, beyond what they can read on a spreadsheet.

The theory is that free markets are principally about maximising efficiency, but in truth, free markets are not efficient at all. Admiring capitalism for its efficiency is like admiring Bob Dylan for his singing voice: it is to hold a healthy opinion for an entirely ridiculous reason. The market mechanism is loosely efficient, but the idea that efficiency is its main virtue is surely wrong, because competition is highly inefficient.

We don’t value things; we value their meaning. What they are is determined by the laws of physics, but what they mean is determined by the laws of psychology.

So I suggested a magical alternative that would reduce the journey time to Manchester by around 40 minutes and increase the capacity of the existing trains, all in the space of six months and at a trivial cost of around £250,000. The trick I used was simple. Don’t look at the logistics of the problem, look at it from the perspective of a passenger. To reduce journey times by 40 minutes, you don’t have to reduce the amount of time people spend on the train – which is in any case the most enjoyable part of their journey – you could simply reduce the amount of time they waste waiting for the train. Provided their end-to-end journey is 40 minutes quicker, they’ve saved 40 minutes.

As far as I know, no one has taken this suggestion seriously – it does not fit into transport analysts’ narrow, metric-driven conception of what improvement might look like. Their only conception of time-saving applies to time spent in motion – the means by which they aim to improve things are too narrowly defined.

‘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.’

Without the feedback loop made possible by distinctive and distinguishable petals or brands, nothing can improve. The loop exists because insects or people learn to differentiate between the more and less rewarding plants or brands, and then direct their behaviour accordingly. Without this mechanism there is no incentive to improve your product, because the benefits will accrue to everybody equally; in addition, there is an ever-present incentive to let product quality slip, because you will reap the immediate gains, while the reputational consequences will hurt everyone else equally.

Evolution solved the problem of asymmetric information and trust for flowers and bees back when our ancestors were still living in trees. Bees have been around for at least 20 million years, floral plants a good deal longer. My analogy between signalling in the biological world and advertising in the commercial world may explain something I have noticed for years: if you talk to economists, they tend to hate advertising and barely understand it at all, while if you talk to biologists they understand it perfectly. For decades, the most sympathetic ear I had at The Economist in London was not their marketing correspondent (who seemed to genuinely hate marketing) but their science correspondent, whose background was as an evolutionary biologist.

The psychologist Nicholas Humphrey argues that placebos work by prompting the body to invest more resources in its recovery.fn2 He believes that evolution has calibrated our immune system to suit a harsher environment than the current one, so we need to convince our unconscious that the conditions for recovery are especially favourable in order for our immune system to work at full tilt.

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.

One of Nicholas Humphrey’s rules about what makes an effective placebo is that there must be some effort, scarcity or expense involved. Folk remedies may be effective placebos simply because the plants needed to make them aren’t all that common. If there is one area that is worthy of future scientific research, this is it. At the moment, we spend many billions of dollars each year trying to improve drugs but almost nothing, as far as I can see, is being spent on the better understanding of placebos – they look too much like alchemy.

So signalling to ourselves or others – whether to obtain a health benefit (boosting the immune system), applying make-up (boosting confidence) or buying luxury goods (boosting status) – always seems to come accompanied by behaviours that don’t make sense when viewed from a logical perspective. However, rather than being a coincidence or a regrettable by-product, it may be a necessity.

Logically you might think we should accept a 5 per cent risk of our goods not arriving in exchange for a 15 per cent reduction in cost, but the lesson proved by these statistics is that we don’t: once the possibility moves beyond a certain threshold, we seem unable to take the risk at any price. If Amazon were to try to operate in a country where 10 per cent of all posted goods were stolen or went missing, virtually no discount would be high enough for them to sell anything at all.

The Polish-American academic Alfred Korzybski (1879–1950) is perhaps most famous for his dictum that ‘The map is not the territory.’ He created a field called general semantics, and argued that because human knowledge of the world is limited by human biology, the nervous system and the languages humans have developed, no one can perceive reality, given that everything we know arrived filtered by the brain’s own interpretation of it. Top man!

A few years ago I met Daniel Kahneman for the first time. He was characteristically pessimistic about the prospects of behavioural science to change human decision-making, believing that our biases are just too deeply embedded. However, he was hopeful that people, even if they couldn’t see the biases in themselves, might use behavioural science to better understand the behaviour of others. This book has been written in that same spirit.