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