Perspective is everything Rory Sutherland

what you have here is an electronic

cigarette it’s something that since it

was invented a year or two ago has given

me untold happiness a little bit of it I

think is the nicotine but there’s

something much bigger than that which is

ever since in the UK they banned smoking

in public places I’ve never enjoyed a

drinks party ever again

and the reason I only worked out just

the other day which is when you go to a

drinks party new stand up and you hold a

glass of red wine and you talk endlessly

to people you don’t actually want to

spend all the time talking it’s really

really tiring sometimes you just want to

stand there silently alone with your

thoughts sometimes you just want to

stand in the corner and stare out of the

window now the problem is when you can’t

smoke

if you stand and stare out of the window

on your own you’re an anti-social

friendless idiot

if you stand and stare out of the window

on your own with a cigarette you’re a

philosopher

so the power of reframing things cannot

be overstated what we have is exactly

the same thing the same activity but one

of them makes you feel great and the

other one with just a small change of

posture makes you feel terrible I think

one of the problems with classical

economics is it’s absolutely preoccupied

with reality and reality isn’t a

particularly good guide to human

happiness why for example a pensioners

much happier than the young unemployed

both of them after all are in exactly

the same state of life

you both have too much time on your

hands and not much money but pensioners

are reportedly very very happy whereas

the unemployed are extraordinarily

unhappy and depressed the reason I think

is that the pensioners believe they’ve

chosen to be pensioners whereas the

young unemployed feel it’s been thrust

upon them in England the upper-middle

classes have actually solved this

problem perfectly because they’ve

rebranded unemployment if you’re an

upper-middle class English person you

call unemployment a year off

and that’s because having a son who’s

unemployed in Manchester is really quite

embarrassing but having a son who’s

unemployed in Thailand is really viewed

as quite an accomplishment but actually

the power to rebrand things to

understand that actually our experiences

costs things don’t actually much depend

on what they really are but on how we

view them I genuinely think can’t be

overstated

there’s an experiment I think Daniel

pink refers to where you put two dogs in

a box and the box has an electric floor

every now and then an electric shock is

applied to the floor which pains the

dogs the only difference is one of the

dogs has a small button in its half of

the box and when it dozens the button

the electric shock stops the other dog

doesn’t have the button it’s exposed to

exactly the same level of pain as the

dog in the first box but it has no

control over the circumstances generally

the first dog can be relatively content

the second dog lapses into complete

depression the circumstances of our

lives may actually matter less to our

happiness than the sense of control we

feel over our lives it’s an interesting

question we asked the question the whole

debate in the Western world is about the

level of Taxation but I think there’s

another debate to be asked which is the

level of control we have over our tax

money that what costs us 10 pounds in

one context can be a curse what costs us

10 pounds in a different context we may

actually welcome you know paid 20,000

pounds in tax towards health and you’re

merely feeling a mug pay 20,000 pounds

to endow a hospital ward and you’re

called a philanthropist I probably the

wrong country to talk about willingness

to pay tax

so I’ll give you one in return how you

frame things really matters do you call

it the bailout of Greece or the bailout

of a lot of stupid banks which lent to

Greece because they are actually the

same thing what you call them actually

affects how you react to them viscerally

and morally I think psychological value

is great to be obscure missed one of my

great friends a professor called NIC

chater who is the professor of decision

Sciences in London believes that we

should spend far less time looking into

humanity’s hidden depths and spend much

more time exploring the hidden shallows

I think that’s true actually I think

impressions have an insane effect on

what we think and what we do but what we

don’t have is a really good model of

human psychology at least pre-cana Minh

perhaps we didn’t have a really good

model of human psychology to put

alongside models of engineering of

neoclassical economics so people who

believed in psychological solutions

didn’t have a model we didn’t have a

framework this is what Warren Buffett’s

business partner Charlie Munger calls a

latticework on which to hang your ideas

engineers economists classical

economists all had a very very robust

existing latticework on which

practically every idea could be hung we

barely had a collection of random

individual insights without no role

model and what that means is that in

looking at solutions we’ve probably

given too much priority to what I call

technical engineering solutions

newtonian solutions and not nearly

enough to the psyche psychological ones

you know my example of the Eurostar six

million pounds spent to reduce the

journey time between Paris and London by

about 40 minutes for naught point oh one

percent of this money you could have put

Wi-Fi on the trains which wouldn’t have

reduced the duration of the journey but

would have improved its enjoyment and

its usefulness far more for maybe ten

percent of the money you could have paid

all of the world’s top male and female

supermodels to walk up and down the

train handing out free Chateau but roots

to all the passengers you’d still have

five million pounds in change and people

would ask for the trains to be slowed

down

why were we not given the chance to

solve that problem psychologically I

think it’s because there’s an imbalance

an asymmetry in the way we treat

creative emotionally-driven

psychological ideas versus the way we

treat rational numerical spreadsheet

driven ideas if you’re a creative person

I think quite rightly you have to share

all your ideas for approval with people

much more rational new you have to go in

and you have to have a cost-benefit

analysis a feasibility study an ROI

study and so forth and I think that’s

probably right but this does not apply

the other way around people who have an

existing framework an economic framework

an engineering framework feel that

actually logic is its own answer what

they don’t say is well the numbers all

seem to add up but before I present this

idea I’ll go and share some really crazy

people to see if they can come up with

something better and say we artificially

I think prioritize what I’d call

mechanistic ideas over psychological

ideas an example of a great

psychological idea the single best

improvement in passenger satisfaction on

the London Underground per pound spent

came when they didn’t add any extra

trains nor change the frequency of the

trains they put dot matrix display

boards on the platforms because the

nature of a weight is not just dependent

on its numerical quality its duration

but on the level of uncertainty you

experienced during that wait waiting

seven minutes for a train with a

countdown clock is less frustrating and

irritating than waiting four minutes

knuckle biting going when’s this train

gonna damn well arrive here’s a

beautiful example of a psychological

solution deployed in Korea red traffic

lights have a countdown delay it’s

proven to reduce the accident rate in

experiments why because Road range

impatience and general irritation are

massively reduced when you can actually

see the the time you have to wait in

China not really understanding the

principle behind this they applied the

same principle to green traffic lights

which isn’t a great idea your 200 yards

away you realize you’ve got five seconds

to go you floor it

the Koreans very assiduously did test

both the accident rate goes down when

you apply this to red traffic lights it

goes up when you apply it to green

traffic lights this is all I’m asking

for really in human decision-making is

the consideration of these three things

I’m not asking for the complete primacy

of one over the other I’m merely saying

that when you solve problems you should

look at all three of these equally and

you should seek as far as possible to

find solutions which sit in the sweet

spot in the middle if you actually look

at a great business you’ll nearly always

see all of these three things coming

into play really really successful

businesses Google is a great great

technological success but it’s also

brick based on a very good psychological

insight people believe something that

only does one thing is better at that

thing than something that does that

thing and something else it’s an innate

thing called goal dilution err let

Fischbach has written a paper about this

everybody else at the time Google more

or less was trying to be a portal yes

there’s a search function but you also

have weather sports scores bits of news

Google understood that if you’re just a

search engine people assume you’re a

very very good search engine all of you

know this actually from when you go in

to buy a television and in the shabbier

end of the row of flat-screen TVs you

can see are these rather despised things

called combined TV and DVD players and

we have no knowledge whatsoever of the

quality of those things but we look at a

combined TV and DVD player and we go

yeah it’s probably a bit of a crap telly

and a bit rubbish as a DVD player so we

walk out of the shops with one of each

Google is as much a psychological

success as it is a technological one I

propose that we can use psychology to

solve problems that we didn’t even

realize were problems at all this is my

suggestion for getting people to finish

their course of antibiotics don’t give

them 24 white pills give them 18 white

pills and six blue ones and tell them to

take the white pills first and then take

the blue ones it’s called chunking the

likelihood that people will get to the

end is much greater when there is a

milestone somewhere in the middle what

are the great mistakes I think of

economics is it fails to understand that

what something is whether it’s

retirement and in

cost is a function not only of its

amount but also its meaning this is a

tell crossing in Britain quite often

queues happen at the tolls sometimes you

get very very severe hues you could

apply the same principle actually if

you’d like to the security lanes in

airports what would happen if you can

actually pay twice as much money to

cross the bridge but go through a lane

that was an express lane it’s not an

unreasonable thing to do it’s an

economically efficient thing to do

time' means more to some people than

others if you’re waiting trying to get

to a job interview

you’d patently pay a couple of pounds

more to go through the the fast lane if

you’re on the way to visit your

mother-in-law you’d probably prefer

you’d probably prefer to stay on the

left the only problem is if you

introduce this economically efficient

solution people hate it because they

think you’re deliberately creating

delays at the bridge in order to

maximize your revenue and why on earth

should I pay to subsidize your

incompetence on the other hand change

the frame slightly and create charitable

yield management so the extra money you

go goes not to the bridge company it

goes to charity and the mental

willingness to pay completely changes

you have a relatively economically

efficient solution but one that actually

meets with public approval and even a

small degree of affection rather than

being seen as bastardy so where

economists make the fundamental mistake

is they think that money is money

actually my pain experienced in paying

five pounds is not just proportionate to

the amount but where I think that money

is going and I think understanding that

could revolutionize tax policy it could

revolutionize the public services it

could actually change things quite

significantly here’s a guy you all need

to study he’s not stream School

economist who was first active in the

first half of the 20th century in Vienna

what was interesting about the Austrian

school is they actually grew up

alongside Freud and so they’re

predominantly interested in psychology

they believed that there was a

discipline called proxy ology which is a

prior discipline to the study of

economics proxy ology is the study of

human choice action

and decision-making I think they’re

right

I think the danger we have in today’s

world is we have the study of economics

considers itself to be a prior

discipline to the study of human

psychology but as Charlie Munger says if

economics isn’t behavioral I don’t know

what the hell is von Mises interestingly

believes economics is just a subset of

psychology

I think he’d refers to economics is the

study of human prac see ology under

conditions of scarcity but von Mises

among many other things

I think uses an analogy which is

probably the best justification and

explanation for the value of marketing

the value of perceived value and the

fact that we should actually treat it as

being absolutely equivalent to any other

kind of value we tend all of us even

those of us who work in marketing to

think of value in two ways there’s the

real value which is when you make

something in a factory or provider

service and then there’s a kind of

dubious value which you create by

changing the way people look at things

von Mises completely rejected this

distinction and he used this following

analogy he said he referred actually to

some strange economist called the french

physiocrats who believed that

only true value was what you extracted

from the land so if you were a shepherd

or a quarry man or a farmer you created

true value if however you bought some

wool from the Shepherd and charge the

premium for converting it into a hat you

weren’t actually creating value you were

exploiting the shepherd now for Mises

said that modern economists make exactly

the same mistake with regard to

advertising and marketing he says if you

run a restaurant there is no healthy

distinction to be made between the value

you create by cooking the food and the

value you create by sweeping the floor

one of them creates perhaps the primary

product the thing we think we’re paying

for the other one creates a context

within which we can enjoy and appreciate

that product and the idea that one of

them should actually have priority over

the other is fundamentally wrong try

this quick thought experiment imagine a

restaurant that serves michelin-starred

food but actually where the restaurant

smells of sewage and there’s human feces

on the floor

the best thing you can do there to

create value is not actually to improve

the food still further it’s to get rid

of the smell and clean up the floor and

it’s vital we understand this if that

seems like a sort of strange abstruse

thing in the UK the post office had a

98% success rate at delivering

first-class mail the next day they

decided this wasn’t good enough and they

wanted to get it up to 99 the effort to

do that almost broke the organization if

at the same time you’ve gone and asked

people what percentage of first-class

mail arrives the next day the average

answer would have been 50 or the modal

answer would have been 50 to 60 percent

now if your perceptions much worse than

the Euro reality what on earth you doing

trying to change the reality that’s like

trying to improve the food in a

restaurant that stinks what you need to

do is first of all tell people that 98%

of mail gets there the first step that

the next day first-class mail that’s

pretty good I would argue in Britain

there’s a much better frame of reference

which is to tell people that more first

starts mail arrives the next day in the

UK than in Germany because generally in

Britain if you want to make us happy

about something just tell us we do it

better than the German

choose your frame of reference and the

perceived value and therefore the actual

value is completely transformed has to

be said actually of the Germans that the

Germans of the French are doing a

brilliant job of creating at united

Europe the only thing they didn’t expect

is there

uniting Europe through a shared mild

hatred of the French and Germans but I’m

British that’s the way we like it what

you’ll also notice is that in any case

our perception is leaky we can’t tell

the difference between the quality of

the food and the environment in which we

consume it all of you will have seen

this phenomenon if you have your car

washed or valid when you drive away your

car feels as if it drives better and the

reason for this in my car valid

mysteriously is changing the oil and

performing work which I’m not paying in

for and unaware of is because perception

is in any case leaky analgesics that are

branded are more effective at reducing

pain than analgesics that are not

branded I don’t just mean through a

reported pain reduction actual measured

pain reduction and so perception

actually is leaky in any case so if you

do something that’s perceptually bad in

one respect you can damage the other

thank you very much