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

by Rory Sutherland

As Sir Christopher Llewellyn Smith, the former director of CERN, remarked after he had been tasked with changing the patterns of energy consumption in Britain, ‘When I ask an economist, the answer always boils down to just bribing people.’

Whenever I speak to a very good mathematician, one of the first things I notice is they are often sceptical about the tools which other mathematicians are most enthused about. A typical phrase might be: ‘Yeah you could do a regression analysis, but the result is usually bollocks.’ An attendant problem is that 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.

I am proud to have met Ole Peters, a tremendous German physicist attached to the Santa Fe Institute and the London Mathematical Laboratory, in the last year. He recently co-authored a paperfn3 pointing out that a huge number of theoretical findings in economics were based on a logical-sounding-but-entirely-erroneous assumption about statistical mechanics.

To explain this distinction using an extreme analogy, if you offered ten people £10m to play Russian roulette once, two or three people might be interested, but no one would accept £100m to play ten times in a row.

One of our clients at Ogilvy is an airline. I constantly remind them that asking four businessmen to pay £26 each to check in one piece of luggage is not the same as asking a married father of twofn6 to pay £104 to check in his family’s luggage.

There is, after all, a reason why commuters are offered season tickets – commuting is not commutative, so 100 people will pay more to make a journey once than one person will pay to make it 100 times.

Commuting is not commjugtative!!

I would rather run a business with no mathematicians than with second-rate mathematicians.

The advertising agency I work for once sent out postal solicitations for a charity client, and we noticed that one creative treatment significantly outperformed the other in its net return. Since there was not much difference between the treatments, the scale of the difference in results surprised us. When we investigated, we found that one person had replied with a cheque for £50,000.

But let me come back to my previous point. In maths, 10 x 1 is always the same as 1 x 10, but in real life, it rarely is. You can trick ten people once, but it’s much harder to trick one person ten times.

In 1919 the catalogues produced by Sears, Roebuck and Company and Montgomery Ward were, for the 52 per cent of Americans in rural areas, the principal means of buying anything remotely exotic.

For instance, our tax system assumes that ten people who earn £70,000 for one year of their life should be taxed the same amount as one person who earns £70,000 for ten consecutive years, yet I have never heard anyone question this – is it another example of bad maths?

Anyone choosing a group of ten people will instinctively deploy a much wider variance than someone hiring one person. The reason for this is that with one person we look for conformity, but with ten people we look for complementarity.

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. By applying identical criteria to everyone in the name of fairness, you end up recruiting identical people.fn3

Remember, anyone can easily build a career on a single eccentric talent, if it is cunningly deployed. 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.

Metrics, and especially averages, encourage you to focus on the middle of a market, 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.

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.

One great problem with metrics is that they destroy diversity because they force everybody to pursue the same narrow goal, often in the same narrow way, or to make choices using the exact same criteria.

One of the other problems with a logically consistent system for hiring people is that ambitious middle-class people can exploit it by ‘gaming the system’. Violin lessons – check, work placement at uncle’s bank – check, charity work with the disadvantaged – check,fn3 high GPA – check.

The advertising industry at present is obsessed with gender ratios and ethnic composition; it is perfectly reasonable to look at these figures, but the industry seems completely blind to another bias, which is that it is extraordinarily prejudiced in favour of hiring physically attractive people.

I am slightly sceptical about using gender and ethnic quotas as a way of tackling prejudice, since they define diversity in narrow ways.

Bingo!

There are two lessons to be learned here. 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.

But when choosing things in scarce supplyfn7 it pays to be eccentric. The second interesting thing is that we have no real unitary measure of what is important and what is not

Business people and politicians do not quite understand this and tend to evaluate decisions by the rigour of the process that produces them, rather than by the rigour with which you evaluate their consequences.

We approve reasonable things too quickly, while counterintuitive ideas are frequently treated with suspicion. Suggest cutting the price of a failing product, and your boringly rational suggestion will be approved without question, but suggest renaming it and you’ll be put through gruelling PowerPoint presentations, research groups, multivariate analysis and God knows what else

For a long time working in the advertising industry, I was conscious that in every proposal we made we presented post-rationalisations as though they had been rational all along.

‘There are two key steps that a mathematician uses. He uses intuition to guess the right problem and the right solution and then logic to prove

CedricVillani

He further contends that our tendency to attribute our successes to a planned and scientific approach and to play down the part of accidental and unplanned factors in our success is misleading and possibly even limits our scope for innovative work.

One astonishing possible explanation for the function of reason only emerged about ten years ago: the argumentative hypothesisfn5 suggests reason arose in the human brain not to inform our actions and beliefs, but to explain and defend them to others. In other words, it is an adaptation necessitated by our being a highly social species.

In this model, reason is not as Descartes thought, the brain’s science and research and development function – it is the brain’s legal and PR department.

The ‘doorman fallacy’, as I call it, is what happens when your strategy becomes synonymous with cost-saving and efficiency; first you define a hotel doorman’s role as ‘opening the door’, then you replace his role with an automatic door-opening mechanism.

The problem arises because opening the door is only the notional role of a doorman; his other, less definable sources of value lie in a multiplicity of other functions, in addition to door-opening: taxi-hailing, security, vagrant discouragement, customer recognition, as well as in signalling the status of the hotel.

I rang a company’s call centre the other day, and the experience was exemplary: helpful, knowledgeable and charming. The firm was a client of ours, so I asked them what they did to make their telephone operators so good. The response was unexpected: ‘To be perfectly honest, we probably overpay them.’

It is a simple principle of business that, however badly your decision turns out, you will never be fired for following economics, even though its predictive value lies somewhere between water divining and palmistry.

Quad-play places four eggs in one basket, which makes us feel vulnerable: refuse to pay that £250 data-roaming charge from your jaunt to Tenerife and one company can cut off your mobile, television, broadband and landline.

It is a never-mentioned, slightly embarrassing but nevertheless essential facet of free market capitalism that it does not care about reasons – in fact it will often reward lucky idiots.

Equally you can have all the MBAs money can buy and, if you launch your genius idea a year too late (or too early), you will fail.

To people who see intelligence as the highest virtue, this all seems hopelessly unmeritocratic, but that’s what makes markets so brilliant: they are happy to reward and fund the necessary, regardless of the quality of reasoning.

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.

Where I live, I can buy groceries from about eight different places; I’m sure it would be much more ‘efficient’ if Waitrose, M&S, Lidl and the rest were merged into one huge ‘Great Grocery Hall of The People’.fn4

The reason this inefficient process is necessary is because most of the achievements of consumer capitalism were never planned and are explicable only in retrospect, if at all. For instance, very few companies ever tested the effects of offshoring their call centre operations to countries with low labour costs – it simply became the fashionable thing to do, such was the level of enthusiasm for cost-reduction.

No one wants to spend £100–£200 on tickets, a meal, car-parking and babysitting, only to find that you would have had more fun watching television at home; in avoiding discounted theatre tickets, people are not being silly – they are showing a high degree of second-order social intelligence.

In maths it is a rule that 2 + 2 = 4. In psychology, 2 + 2 can equal more or less than 4. It’s up to you.

This is why marketing doesn’t get any credit in business – when it generates magic, it is more socially acceptable to attribute the resulting success to logistics or cost-control.

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.

even when Frederick tried coercion and the threat of fines, they simply showed no interest in eating them. Some people objected because the potato was not mentioned in the Bible, while others argued that, since dogs wouldn’t eat potatoes, why should humans?

The $20 slice of fish that graces plates in high-end restaurants under the name ‘Chilean sea bass’ actually comes from a fish that for many years was known as the Patagonian toothfish.

Monkfish was originally called goosefish, orange roughy was once called slimehead, and sea urchins were once whore’s eggs.

Cornish sardines are another example of geographical alchemy at work.fn5 Merely adding a geographical or topographical adjective to food – whether on a menu in a restaurant or on packaging in a supermarket – allows you to charge more for it and means you will sell more.

Strangely, there is one form of enhancement to a menu that seems to be the kiss of death: adding photographs of dishes to a menu seems to heavily limit what you can charge for them.

A course previously entitled ‘Introduction to programming in Java’ was renamed ‘Creative approaches to problem solving in science and engineering using Python’.