Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life

by Rory Sutherland

When you demand logic, you pay a hidden price: you destroy magic. And the modern world, oversupplied as it is with economists, technocrats, managers, analysts, spreadsheet-tweakers and algorithm designers, is becoming a more and more difficult place to practise magic – or even to experiment with it.

There are often two reasons behind people’s behaviour: the ostensibly logical reason, and the real reason.

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. Just because we don’t know why it works, we should not be blind to the fact that it does.* Business, creativity and the arts are full of successful non-sense. In fact the single greatest strength of free markets is their ability to generate innovative things whose popularity makes no sense. Non-sense includes things that are useful or effective, even though (or perhaps because) they defy conventional logic.

‘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 –

It is much easier to be fired for being illogical than it is for being unimaginative.

‘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.’

For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.

science seems to fall short of its ideals whenever the theoretical elegance of the solution or the intellectual credentials of the solver are valued above the practicality of an idea. 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.

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.’

If you want to change people’s behaviour, listening to their rational explanation for their behaviour may be misleading, because it isn’t ‘the real why’. This means that attempting to change behaviour through rational argument may be ineffective, and even counterproductive. There are many spheres of human action in which reason plays a very small part.

As Nassim Nicholas Taleb remarks, ‘There is no such thing as a rational or irrational belief – there is only rational or irrational behaviour.’

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.

Had Darwin waited a hundred and fifty years or so, he could have saved himself a great deal of trouble and seasickness in uncovering our primate ancestry by travelling from Down House to his (and my) local Sainsbury’s supermarket in Otford in Kent. There he could have learned from point-of-sale data that, over 30,000 items on the shelves, the single item most frequently purchased, as by all grocery shoppers in Britain, is . . . a banana.

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’.

At its worst, neo-liberalism takes a dynamic system like free market capitalism, which is capable of spectacular creativity and ingenuity, and reduces it to a boring exercise in ‘how we can buy these widgets 10 per cent cheaper’. It has also propelled a narrow-minded technocratic caste into power, who achieve the appearance of expert certainty by ignoring large parts of what makes markets so interesting. The psychological complexity of human behaviour is reduced to a narrow set of assumptions about what people want, which means they design a world for logical rather than psycho-logical people. And so we have faster trains with uncomfortable seats departing from stark, modernist stations, whereas our unconscious may well prefer the opposite: slower trains with comfortable seats departing from ornate stations.

the number of people who think they understand statistics dangerously dwarfs those who actually do, and maths can cause fundamental problems when badly used.

Remember that every time you average, add or multiply something, you are losing information. Remember also that a single rogue outlier can lead to an extraordinary distortion of reality – just as Bill Gates can walk into a football stadium and raise the average level of wealth of everyone in it by $1m.

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.*

If I were to give you a budget to choose your perfect house, you would have a clear idea of what to buy, but it would typically be a bit boring. That’s because when you have one house, it cannot be too weak in any one dimension: it cannot be too small, too far from work, too noisy or too weird, so you’ll opt for a conventional house. On the other hand, if I were to double your budget and tell you to buy two houses, your pattern of decision-making would change. You would now be looking to buy two significantly different properties with complementary strengths – perhaps a flat in the city and a house in the countryside.

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 quandary is that you can either create a fairer, more equitable society, with opportunities for all but where luck plays a significant role, or you can create a society which maintains the illusion of complete and non-random fairness, yet where opportunities are open to only a few – 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. By applying identical criteria to everyone in the name of fairness, you end up recruiting identical people.

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. Weird consumers drive more innovation than normal ones. By contrast, it is perfectly possible that conventional market research has, over the past fifty years, killed more good ideas than it has spawned, by obsessing with a false idea of representativeness.

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 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.

However, most valuable discoveries don’t make sense at first; if they did, somebody would have discovered them already. And ideas which people hate may be more powerful than those that people like, the popular and obvious ideas having all been tried already. We should test counterintuitive things – because no one else will.

We may use reason to detect lying in others, to resolve disputes, to attempt to influence other people or to explain our actions in retrospect, but it seems not to play the decisive role in individual decision-making. In my view, this theory has much to commend it. For one thing, it explains why individuals use reason so sparingly, selectively and above all self-servingly. It explains why we are good at contriving reasons for positions we already hold, or for decisions we have already made. And it explains confirmation bias, which leads people to seek out and absorb only that information which supports an existing belief. It also explains ‘adaptive preference formation’, where we change our perception of reality in order to depict ourselves in a better light. 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.

it is possible to construct a plausible reason for any course of action, by cherry-picking the data you choose to include in your model and ignoring inconvenient facts. As I said earlier, the people who lost the Brexit referendum in the UK, and the Democrats who lost to Donald Trump in the US, both feel that their respective campaigns had the better arguments, but you would have to be a very committed Remainer or Democrat not to notice that the field in which they were prepared to argue in both cases was spectacularly narrow. The more data you have, the easier it is to find support for some spurious, self-serving narrative. The profusion of data in future will not settle arguments: it will make them worse.

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. You can be a certifiable lunatic with an IQ of 80, but if you stumble blindly on an underserved market niche at the right moment, you will be handsomely rewarded. 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. Perhaps people don’t ‘deserve’ to be rewarded for being lucky, but a system that did not ensure the survival of lucky accidents would lose most of its value. Evolutionary progress, after all, is the product of lucky accidents. Similarly, a system of business that kept empty restaurants, say, open through subsidy, simply because there seemed to be some good reasons for their continued existence, would not lead to happy outcomes. 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 efficien...

So, having given up on compulsion, Frederick tried subtle persuasion. He established a royal potato patch in the grounds of his palace, and declared that it was to be a royal vegetable, that could only be consumed by members of the royal household or with royal permission.* If you declare something highly exclusive and out of reach, it makes us all want it much more – call it ‘the elixir of scarcity’. Frederick knew this and so posted guards around his potato patch to protect his crop, but gave them secret instructions not to guard the patch too closely. Curious Prussians found they could sneak into the royal potato patch and could steal, eat and even cultivate this fabulously exclusive vegetable for themselves. Today, the potato – which is unsurpassed as a source of nutrients and energy – is as popular in Germany as it is everywhere else.

‘A label directs a person’s attention towards a feature in a dish, and hence helps bring out certain flavours and textures.’ Never forget this: the nature of our attention affects the nature of our experience.

When affordances are taken advantage of, the user knows what to do just by looking: no picture, label, or instruction needed.’

With the notable exception of the mobile phone, we generally find it easier to buy things that serve a single purpose. However, the engineering mentality – as at Sony – runs counter to this; the idea of removing functionality seems completely illogical, and it is extremely hard to make the case for over-riding conventional logic in any business or government setting, unless you are the chairman, chief executive or minister in charge. Although you may think that people instinctively want to make the best possible decision, there is a stronger force that animates business decision-making: the desire not to get blamed or fired. The best insurance against blame is to use conventional logic in every decision. ‘No one ever got fired for buying IBM’ was never the company’s official slogan – but when it gained currency among corporate buyers of IT systems, it became what several commentators have called ‘the most valuable marketing mantra in existence’. 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 sometimes be diametrically different.

Upfront investment is proof of long-term commitment, which is a guarantor of honest behaviour. Reputation is a form of skin in the game: it takes far longer to acquire a reputation than to lose one.

If rationality were valuable in evolutionary terms, accountants would be sexy. Male strippers dress as firemen, not accountants; bravery is sexy, but rationality isn’t. Can

Information is free, but sincerity is not,

there is no point in advertising heavily up front if you only make one sale. When you come here, the display says, I’m betting that you’re going to come back, or all my effort will have been wasted.

Economists tend to dislike the idea of branding and are inclined to see it as an inefficiency, but then they might view a flower as an inefficient form of weed. The reason they might not understand the flower’s extravagance in squandering its resources on producing scent and colour is that they don’t fully understand what it is trying to do or the decision-making and information-transfer context in which it is trying to do it. It is not any more irrational for human consumers to pay a premium for heavily advertised products than it is for bees to prefer to visit heavily ‘advertised’ flowers. It seems unlikely that a company would spend scarce resources advertising a product they believed to be bad – it would simply lead to the unpopularity of a bad product spreading more quickly. Moreover, a company with a long-established reputation for high-quality products has much more to lose from customer disappointment than a company with no reputation. To quote a Caribbean proverb, ‘Trust grows at the speed of a coconut tree and falls at the speed of a coconut.’

As a result, a quality that starts off being prized as a useful proxy for fitness becomes exaggerated to an absurd degree, a process sometimes known as Fisherian runaway selection. In animals this can be extraordinarily wasteful. It seems that competition over antler size – which led to them ultimately growing to insane proportions – may have led to the extinction of the Irish elk.

In the early stages of any significant innovation, there may be an awkward stage where the new product is no better than what it is seeking to replace. For instance, early cars were in most respect worse than horses. Early aircraft were insanely dangerous. Early washing machines were unreliable. The appeal of these products was based on their status as much as their utility.

Yes, costly signalling can lead to economic inefficiency, but at the same time this inefficiency establishes valuable social qualities such as trustworthiness and commitment – politeness and good manners are costly signalling in a face-to-face form.

In many ways, 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. This lesson was learned the hard way in Eastern Bloc countries under communism; brands were considered un-Marxist, so bread was simply labelled ‘bread’. Customers had no idea who had made it or whom to blame if it arrived full of maggots, and couldn’t avoid that make in future if it did, because all bread packaging looked the same. Unhappy customers had no threat of sanction; happy customers had no prospect of rewarding producers through repeat custom. And so the bread was rubbish.

The production of rivets under communism demonstrated a similar pattern. Typically a factory was given a monthly quota that it was required to manufacture – the unbranded rivets were then sent to a central rivets depository, where they intermingled with all the other factories’ rivets. From there, all the rivets, whose provenance was by now completely indistinguishable, would be transported to wherever they were needed. The Soviets soon found that, without a maker’s name attached to a product, no one had any incentive to make a quality product, which pushed quantity upwards and quality downwards. The easiest way to produce a million rivets every month was to produce a million bad rivets, which soon led to ships falling apart. Furthermore, you did not know which factory to blame, because the rivets had become commoditised, which is to say anonymised. Eventually the regime swallowed their ideological pride and made factories stamp their names on their rivets – the feedback mechanism was restored and quality returned to acceptable levels.

Branding isn’t just something to add to great products – it’s essential to their existence. 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.

I make a very simple point here: the fact that something does not work through a known and logical mechanism should not make us unwilling to adopt it. We used aspirin to reduce pain for a century without having the faintest idea of why it worked.

In the words of Jonathan Haidt,* ‘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.

Pete Trimmer, a biologist at the University of Bristol, observed that the ability of Siberian hamsters to fight infections varied according to the lighting above their cages – longer hours of light (mimicking summer days) triggered a stronger immune response. Trimmer’s explanation was that the immune system is costly to run, and so as long as an infection is not lethal, it will wait for a signal that fighting it will not endanger the animal in other ways. It seems that the Siberian hamster subconsciously fights infection more energetically in summer because that is when food supplies are sufficiently plentiful to sustain an immune response. Trimmer’s model demonstrated that in challenging environments, animals fared better by weathering infections and conserving resources. Humphrey argues that people subconsciously respond to a sham treatment because it assures us that it will weaken the infection without overburdening the body’s resources. In populations where food is plentiful we can, in theory, mount a full immune response at any time, but Humphrey believes that the subconscious switch has not yet adapted to this – thus it takes a placebo to convince the mind that it is the right time for an immune response.

Could this explain why flu and coronaviruses hit harder in winter? And does Vitamin D supplementation act like the light above the hamster cage. Vitamin D supplements trick our body into thinking it is summer (i.e. food is plentiful) and now is a good time to expend energy on the immune system.