Robert Cialdini

Sponsored by Greenhaven Road Capital, finding value off the beaten path.

Robert Cialdini joined Barry Ritholtz to talk about his work on influence, persuasion, and scientific ways to get people to say yes. Cialdini said Influence was “the most instructive and most entertaining research project I’ve ever engaged in.” Why? He saw how people actually behaved.

“I went into it to get some ideas for doing research in my laboratories. Say something this way versus that way…I realized that in a laboratory with college students I was missing the power of these techniques to really make a difference outside of the laboratory in the real world.”

The real world is really all that matters. When Rory Sutherland spoke about the replication crisis he said it wasn’t a crisis outside of academia. “As a business person…I just need to know that the way you design a choice has a big effect on how people choose and I need to know also that the logical economic assumption isn’t true.”

“Moving from my university position in the avenues into the streets,” said Cialdini, “was the smartest thing I ever did.”

He beat the streets thirty years ago, so some things must have changed. Right?

Physical appearances change, mental processes don’t.

“The tendencies that people employ to decide to say ‘Yes!’ have not changed. Those have evolved over eons and are still hardwired. What’s changed are the channels that are available for tapping those tendencies and the biggest change is the internet.”

Now we there’s technology to create social proof. But no matter how fancy the technology, the grey matter is the software that matters. We like seeing others doing the things we do. We like to be consistent, both to ourselves and others. “We prefer, for reasons of self-concept, to be consistent with ourselves. We want to see ourselves as reasonable, logical, and rational individuals. And, the people around us want us to be consistent too.”

As evidence of the timelessness, Adam Smith wrote, “Man naturally desires, not only to be loved but to be lovely.”

We follow tendencies because they are easy and they work. What’s easier than acting naturally? “Those things (like social proof, authority),” Ritholtz said, “are hardwired because they serve a purpose.”

“That’s a great insight,” responded Robert, “They’re hardwired because they typically lead us in positive directions.”

Cialdini also praises Buffett and Munger for all they’ve taught him. The Berkshire Hathaway annual shareholder letter, Cialdini said, “is brilliant psychology.” It’s not just what Warren thinks that makes him a great investor, but what he says too. “Buffett is not just a brilliant investor, he’s a brilliant communicator about being a brilliant investor.”

Buffett communicates well to his stakeholders.

Among (many) other good ideas, Charlie Munger encourages people to invert, something we’ve seen people like Bill Belichick apply. Ritholtz said, “Very often (once you invert) it’s pretty clear that ‘Oh, I’m looking at this from the wrong angle. Once I flip it, it becomes clear.'”

Tyler Cowen said that Bloomberg Tyler and Tyrone are his ways of doing this. Rory Sutherland reminds us that “The opposite of a good idea may be another good idea.”

Campaigns (political and for products) may pass, but the principles persist. “During the (2016) campaign, there will be a lot of volunteers to call, solicit, and register. What others have found is that if that person can say to the recipient of the message, ‘I’m your neighbor or I live in town too.’ The connection allows the recipient to say, ‘This person is like me,’ and can move in that direction.”

This works for selling sandwiches too.

Cialdini suggested we read Aristotle’s Rhetoric. “It was the first time anybody took a systematic look. He was talking about orators about how to make a case convincingly.” Hidden Persuaders is also good, and was the “first time anyone has looked at the advertising industry and what makes commercials psychologically successful.”

“I also like Dan Ariely’s Predictably Irrational. It has the terrific insight that though we may be irrational (compared the theory) it’s in these rational ways.”

“Then there’s Nudge, I love Nudge.”

Thanks for reading.

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Tom Standage

Supported by Greenhaven Road Capital, finding value off the beaten path.

Tom Standage is a deputy editor at The Economist, author of a slew of books, and on Twitter (@TomStandage).

The Economist, according to Tom Standage, aims to be “a trusted filter on the week’s events. We make it finish-able, we package it up for you.” How? “We do this with a global perspective. I sometimes call it ‘the view from the moon’.” Rather than a lot of London, The Economist spotlights spacious stories. POV matters. Tom Wolfe tried to do this too, entering situations as the man from Mars.

When Pixar was transplanted – like a healthy heart – to Dinsey, Ed Catmull noticed that his point-of-view was blocked like an obstructed view concert seat. Catmull reflected, “Gradually, snarky behavior, grousing, and rudeness disappeared from view – from my view anyway.” Where we stand affects our stance.

Readers should know which way their news is bent, and writers can take this idea one step further. In an interview on the Not Unreasonable podcast, Tyler Cowen explained how he uses ‘Bloomberg Tyler’ and ‘Tyrone’ to flesh out ideas. Different medians, Cowen said, make him adopt different angles. Cowen’s colleague Brian Caplan calls this the “ideological Turing Test.” Can you explain issue X so that supporters of X believe you are also a supporter of X?

The Economist, Standage said, is a profitable magazine. About half their subscribers choose the print + digital option. About a fourth choose print only. About a fourth choose digital only.

But, the print only group skews younger and the digital-only group skews older. Huh? Standage guessed that older people want the digital version so they can make the font larger while younger people want the print version as a badge. Like white headphones, brown Uggs, and black Benton Springs jackets, the red Economist binds form and function.

Signaling isn’t only for college students. We all do it. Accounting for this we can act appropriately. Rory Sutherland suggested this:

“If you want a good recommendation for an Indian restaurant, you are far more likely to get a good recommendation from a scaffolder called Terry than from the editor from the Times literary Sunday edition. Because scaffolders are perfect recommenders. They have quite a bit of cash but they want good food. They’re not interested in showing off their sophistication. They want a pretty good meal for a reasonable money.”

One place without signaling is The Economist bylines. In one interview Standage is asked about the lack of them, and he said that historically bylines were the abnormally. In another interview, Standage says to think of the classical-natural British landscape. Most people imagine a few sheep, a house or two, and wild grasses.

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But, that’s not right. The classic landscape was wild boars and oak trees. A theme throughout Standage’s conversations is that history has no starting line. Everything is a tweaked version of its predecessor. This is especially true for food.

“Almost nothing that we eat is natural.” Go back twenty-five thousand years and there’s no chicken, no corn. “The point is, we forget how engineered the food and landscapes are.”

The potato was never mentioned in the bible and didn’t immigrate to Europe until the 1700’s. Oh, and it grew in the ground. No one wanted it. It was only a series of famines and wars, Standage explained, that brought the potato onto the plate. Romans didn’t grow tomatoes, so no red sauce for pizza. Corn – to make polenta – had to be imported to Trento too.

Much of Standage’s work is built around food and drink and how they tell the history of the world. That continues today, “Food coming from a farm and food coming from the internet are both basically technology delivering food. The farm is very much a man-made technology like the internet and the delivery truck.”

Life then is like life’s always been, evolving. The Economist evolves too. Standage said they try to make small bets. It’s not Skunk Works or Xerox Park, but the magazine has people tinkering. Sometimes it’s a couple of interns, sometimes it’s a full-scale internal product.

The film adage that no one knows what will work is universal. Fred Rogers tinkered on TV when it arrived. Ed Catmull drew it into the Pixar culture. Chris Blattman experimented with chickens in poor countries. There are so many moving parts, he told Russ Roberts, that it’s hard to know what will work until you try it. Tom Kelley of IDEO tells people to present things as experiments. “Framing things as an experiment is really important.”

 

Thanks for reading.

Sources: YouTube, The Avid Reader Show, Always Take Notes.

Pot & Parables

Supported by Greenhaven Road Capital, finding value off the beaten path.

Emily Dufton spoke at Politics and Prose about her book, Grass Roots. Tyler Cowen blogged, “It is sure to make my best books of the year list, and if she had ten other books I would buy them all sight unseen.”

With marijuana investments growing, (That’s my trade, short Tesla, long pot – Danny Moses) we’ll look at pot and then parables.

In the 1860’s, marijuana was available at corner pharmacies and was used by new mothers to calm colicky babies. In 1886 Coca-Cola was born and would be one of the few to survive the patent medicines era. Salesmen traveled from town to town, sold their elixir, and left us with the expression, ‘snake oil salesman’. By 1897, marijuana’s medical use was well documented.

Köhler’s Book of Medicinal Plants, 1897. From Wikipedia.

As the century turned over – from the Gilded Age to the Progressive – the federal government took a larger role and issued The Food and Drug Act, and Coca-Cola became more like the drink we know today. Prohibition ran from 1918 through 1933.

Fast forward to 1968 and with Richard Nixon’s election, there’s more government expansion. He wants marijuana listed as a schedule one drug on the Controlled Substances Act. The Shafer Commission, tasked with judging this request,  recommended decriminalizing small amounts. Instead, marijuana was listed as a schedule one drug.  The knock-on effects today include academic research being nearly impossible.

But states write their own rules. In 1973 Oregon decriminalizes it, making smoking a joint equivalent to running a stop sign. In 1976 the first parents against marijuana group forms in Atlanta. Around this time, one in ten high school students reported smoking dope and a dozen states have decriminalized small quantities.

In 1980 the lumbering giant known as the federal government takes another step as First Lady Nancy Reagan encourages kids to ‘Just Say No.’ In research for this post I was surprised to see that Nancy Reagan’s is often compared to Lady Macbeth, in both kind and criticizing tones. Around this time another strong California woman enters the saga.

In 1981, ‘Brownie Mary’ was arrested. She reportedly told the police, over the 18 pounds of cannabis on her kitchen table, as they entered her home, “I thought you guys were coming.” Her crime was making ‘magically delicious’ brownies. Her customers were – mainly – HIV invalids.

During the eighties, the war on drugs continues. Marijuana is seen as relatively less harmless when viewed next to cocaine. By 1990, marijuana arrests account for 30% of all drug arrests. By 2002 it’s 50%.

In 1996 Prop 215 allows medical cannabis sales in California. Fast forward to 2017. Thirty states allow medical marijuana. Nine states allow recreational marijuana. It’s estimated the legal marijuana business will have sales around ten billion dollars – that nearly the sales totals from all the Dunkin’ Brand stores.

So what?

Stories rule our lives. Humans aren’t absolute oracles, we compare this to that. ‘This’ is whatever is here and now. ‘That’ is whatever is easy to recall. Our conclusions ca be accurate and erratic, like a driver in the snow or a parent who yells at their kid.

Stories are like candy, and once we hear one we keep it because we’ve already digested it. It’s hard work to avoid what Tyler Cowen calls the philosophy of once-and-for-all-ism. Marijuana is a complicated subject with a sundry history. And in these five hundred words we didn’t address the elephant in the room; race.

Living life by simple stories is like asking, ‘Is the Wifi on?’

Asking questions about simple stories is like asking, ‘How is the Wifi on?’

It was two Republican presidents that restricted individual freedom. How does a party that defined the ‘nine most terrifying words of the English language’ add so much scaffolding, facade, and concrete? It was because of the stories we tell.

 

Thanks for reading.

Michael Munger

Sponsored by Greenhaven Road Capital, finding value off the beaten path.

Michael Munger has a new book out, Tomorrow 3.0 and he’s talking to people like Russ Robert and groups at Duke about the ideas on those pages. In his walk through the economic woods, Munger found a Chesterton Fence and wonders if it’s falling down.

It might be.

We might be transitioning from an age of middlemen to an age of sharing. Like with our study of Pixar, we should keep in mind that middlemen aren’t bad/stupid/unnecessary. They’re a product of the system. They exist because they were an improvement over whatever they superseded. In that same way, the sharing system may supplement the middlemen one.

“What’s being sold is access to excess capacity.” We have a lot of stuff and it’s not often used. “I think 50 years from now people are going to look back and find it remarkable that we spent so much time and effort to ensure that the stuff that we had but were not using could not be used by anyone else.”

We literally lock it up. This may change.

Economics, Munger explains, is the voluntary exchange where providers earn profits and consumers earn a surplus. We choose to buy iPhones and Apple earns money and we listen to podcasts. It’s a win-win. Hampering this system are permissions and transaction costs. In 2017 Munger talked with Roberts about permissions. In 2018 he’s talking about transaction costs, which are “like frictions in a physical system…and prevents many otherwise beneficial voluntary exchanges.”

Munger wants to know if we can “commodify the excess capacity which can then be bought and sold on the market.” We can’t for a toothbrush but we can for a car and “Somewhere between those lies most of the profit opportunity in the new economy.” The best opportunities are “where transaction costs are high but reducible and excess capacity is high.” Think apartments, not apples.

We’ve been working on this system for a while, usually using physical systems. “When I travel for business I make it a point to never buy a car, I always rent one.” Munger uses the ‘platform’ known as ‘airport’ to rent a seat on a plane (rather than buy the plane) and rent a car once he deplanes (again, rather than buy one).

“All over the world stuff is in the wrong place, but it’s never been commodified because we don’t think of this being a commodity, that it can be bought and sold.” If we reduce transaction costs we can get Wendy a Widget from Warren with everyone being better off. “The world is a wealthier place even with the same amount of widgets.”

There are 3 obstacles to this; finding counterparts, paying counterparts, and trusting counterparts. Munger calls them the three Ts; triangulation, transfer, and trust. Middlemen can solve for this, but data can too, and data has a much lower marginal cost.  Reviews are “a way of outsourcing trust that’s extremely cheap but that provides assurance in a way we used to have to rely on reputation or brand name.” Crowds are wise when people are independent, non-coercive, and have some expertise.

It’s the information connection revolution.

We used to solve the 3Ts using physical platforms like farmer’s markets or libraries, now we can have digital ones. Ride-sharing works because they come to you, not because you go to them.

“Why does every house in a suburban neighborhood have a crappy lawnmower that’s hard to start and gets used 45 minutes once a week? There’s no reason not to share these things except that sharing is difficult.” Here Munger skipped over a nuance of the issue, but in an hour-long talk, he has to.

Transaction costs are a hurdle for commodified products. “The reason we own things is that we want the stream of services that come from the item.” It’s not that we want to own a drill, but that we want holes in our walls. Sharing works well for services that vary slightly; rides to the airport, holes in walls, apartments to stay in. But some things are more difficult to commodify.

I live in an HOA with a lawn care service. I walk my dog through the neighborhood with an HOA that has lawn car service. I talk to neighbors as I walk my dog through the neighborhood that has law car service. Law care has not yet been commodified. What local companies need is what Airbnb got with better photos; more details and more tiers. It’s not about commodifying once, it’s about commodifying to at least three levels of customer needs; good, better, best. Munger lived this nuance. He stayed in Paris for two weeks in August. A ‘good’ time to be in the country.

Software is Eating the World wrote Marc Andreessen. We can Break Smart wrote Venkatesh Rao. Software, Munger said, “is to service jobs as robots and automation are to production jobs.”

Getting there will take some work. Should we have platforms for infidelity? “Ashley Madison sells the reduction in transaction costs of meeting other married people who want to have an affair.” What about taxi licenses? When we remove middleman, Munger wonders, are we taking a full account of the promises that have been made? What about jobs? If we do more with less what does that mean for workers? The last time this happened was the Industrial Revolution. How will society handle that? How will young people? Is it The End of Jobs?

Munger thinks the answer to these questions will emerge as Amazon or Uber takes the lead. “Uber is not a taxi company. Uber is a delivery company, and right now it happens that it mostly delivers human butts.”

And “Uber is set up for delivering rentals. Amazon is set up for delivering ownership products. The way that fight works out is what is going to determine much of the economy in the future.” Though maybe it’s not a fight so much as a land grab. If we think of a barbell, Amazon can dominate the end of ownership and Uber the end of rentals.

 

If you liked Munger on EconTalk give his YouTube presentations a try, he’s quite funny.

Thaler and Varian

Sponsored by Greenhaven Road Capital, finding value off the beaten path.

This talk, published in June 2015, was part of Richard Thaler’s book tour promotion for Misbehaving. Hal Varian, Chief Economist at Google, calls it “A wonderful new book.”

When asked about ‘Econs’ (a utility maximizing computational automaton – that doesn’t exist) and humans on the tour Thaler said, “You don’t get a representative sample of humanity at book talks.” This gets a good laugh and gives a good example of the sampling bias.

Varian said he’s a student of behavioral economics (BE) because he needs to be, “If you’re going to engage in business if you’re going to understand human behavior, you have to start with human behavior. You have to look at how people behave and adjust to that even though you ‘know’ they should be behaving differently.” This approach was central to Nudestock 2018 too.

It’s prioritizing action over answers. Street business forces this ordering more than academic avenues. Sunk costs, for example, shouldn’t matter, but they do. People will almost always eat until their plate is clean rather than until the marginal utility of the next bite is too low. I’ve never seen a cookie and calculated a cost-benefit analysis on chocolate chips.

Behavioral Economics is like a friction coefficient for a system. Want to sell more stuff? Decrease friction. Want waste less? Increase frictions. Nudge yourself. Or, said Mohnish Pabrai, frame sunk costs this way:

Framing and other BE tools use the indirect approach. Jocko Willink calls it ‘flanking’. Phil Jackson wrote “One thing I’ve learned as a coach is that you can’t force your will on people. If you want them to act differently, you need to inspire them to change themselves.” Lowenstein wrote about Buffett, “Instinctively, he shrank from confronting his adversaries, but he was superb at winning them over without a fight.”

Nudges are indirect. Save More Tomorrow is indirect. Talks at Google are indirect too.

On the spectrum from Econs to Humans, we might think Google engineers are closer to Econs than most. However, when Google IPO’d, and many became rich, Varian didn’t arrange financial lectures. He invited a broad base of speakers. “And I can’t count the number of people who came up to me afterwards and said, ‘Thank you, that was a great thing to do.’…I thought the Googlers were Econs but I guess not.”

Another indirect approach is not to fight the old but teach the new. Thaler said the behavioral economics summers camp is an application of Max Planck’s intuition that an idea advances as “its opponents eventually die.”

Behavioral Economics is like a finicky classic car. It looks great once you get it running. Rory Sutherland noted that replication crisis isn’t that much of a crisis, but a point about how important the nuance is. BE takes tinkering. It takes experiments.

You want your data to come from experiments, said Varian, rather than HIPPOs – Highly Paid People’s Opinions. Experiments are (one of the reasons) BE has worked so well for finance said Thaler, because, “there’s fantastic data, you can test anything. You also have very crisp predictions. We were able to test ideas and disprove them.”

 

Nick Chater’s Mind

Supported by Greenhaven Road Capital, finding value off the beaten path.

Nick Chater (@NickJChater) believes human thinking is more ‘make it up’ and less ‘look it up’. Certainly, there are automatic processes; breathing, digesting, etc. There are also learned process we engage simultaneously; running and talking.¹ But Chater makes the case  humans cannot use the same neural networks for more than one thing at a time. We think serially, “it’s much more one step at a time than you might think.”

Imagine an improvisation class. We know the story did not exist prior to the performance. “The suggestion I have for you is that that’s what you’re doing all the time….Except for the part, you’re playing is your own part.”

In Chater’s Talk at Google about his book, The Mind is Flat, he explains the 12 Black Dots, the Huang Pashler colored blocks and Kuleshov Effect. Alfred Hitchcock demonstrates how the Kuleshov Effect  transforms a benign gentleman into a dirty old man. It’s about a minute, starting at 0:18

Most of life is like an automatic transmission in a new car, but Chater’s examples turn our mental Mustang into a jalopy, and we grind the gears to find balance.

Our bumpy brains normally operate smoothly because we have a lot of practice. In the colored blocks example (below), we’re pretty good at seeing things that are organized in expected ways. Lines, rows, groups, single colors. These are all things we knock out of the park like it’s batting practice. But the whole presentation is more like a baseball game. We swing and miss.

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Individual colors are easier to match than multiple.

But this isn’t bad, it’s quite good, said Chater. “Your brain is really good at making creative metaphorical jumps.” Humans can interpret anything. It’s why we need explanations like Hanlon’s Razor; never attribute malice that which is adequately explained by stupidity.

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Chater analogized that our brains are like Escher’s infinite staircase. Situationally we explain anything. I did ‘this’ because of ‘that’. X caused Y. Post hoc ergo propter hoc. But that’s like looking at a set of stairs that leads from one staircase to another. Alone, it makes sense. In the context of the whole, it does not. “They (our explanations) all sound very convincing. They’re just like each patch of the image that looks three-dimensional. But if I try to get you to put those stories together it will not make sense.”

I found Nick Chater’s work from MR where Cowen blogged, “I can definitely recommend this book to those interested in serious popular science treatments of the mind, and it is not simply a rehash of other popular science books on the mind.”

 

Thanks for reading.

1/ But not driving and talking and listening. Even the most trivial auditory tasks screws up your ability to brake. Traffic, has many lessons.

Learning but not reading

Supported by Greenhaven Road Capital, finding value off the beaten path.

In 2017 I bought 100+ books on Amazon. In 2018 I haven’t bought any books from anywhere. In October of 2018, I didn’t even read a book.

Instead, I binged on YouTube and podcasts.

Books are great because they encapsulate an idea. As a kid, the library was the chocolate factory and the librarian a Willy ‘Booka.’ Want to learn about something? Read this. Want to go somewhere? Read that. Thanks to the durability of language and paper, books are a perfect vesicle.

But books are also static. They’re limited in their pages. They’re not great for people with a visual perspective. Neil Gaiman articulated this idea in a May 2017 talk in Boston:

“Sometimes things turn up with a format and then you’re lucky. Sometimes they turn up with a format and you’re wrong and then the idea sits around for a while. Anansi Boys I originally thought was a movie and I remember trying to write it as a film script several times and going, ‘this isn’t right.’”

The same idea applies to learning. Some things you have to learn by doing. No book can teach someone how to ride a bike. No bike can teach someone physics.

I watched Rory Sutherland’s Nudgestock 2018 talk this month. Sutherland said that while the replication crisis in academia may be a problem for them, it hasn’t been one for him. “My argument is that, as marketers and practitioners, it’s the failure to replicate we’re really interested in.” Things working (or not) in one area may be different for things working (or not) in another.

Maybe learning is like that too.

Not only should people follow their curiosity in subjects but also their curiosity in forms. Shane Parrish spoke about tutors. David Perell and Tyler Cowen tout travel. Ariana Simpson reads white papers now. Malcolm Gladwell digs around SSRN. Patrick O’Shaughnessy sends out a monthly book list that’s gotten lighter on books. We call these types ‘voracious readers’ but they’re really learners.

The internet is the new perfect package. It’s always there and there’s something always new. Books used to have a monopoly. Now anyone can set up a blog and share their notes, links, and ideas.

Getting Started.

Want to try this? Here are some suggestions:

  • Find a conference you’re interested in and search for it on YouTube. My favorites are Nudgestock and Sloan Sports.
  • Find a channel up your alley. Talks at Google is good, so is WGBH Forum and Santa Fe Institute.
  • Find an author you wanted to read and watch them instead.

Design.

Our design ‘world’ influences our behavior. YouTube will be more distracting but it will also allow variable speeds. Get ready to take notes, capture screenshots, pause and search Wikipedia (Who is Paul Erdos anyway?), turn on transcript and dive in. This is what mine looked like one morning.

Screen Shot 2018-10-23 at 3.50.03 PM.png

For this blog, I’ll get exact quotes for about one-fourth of the talk and then take short-hand notes for the rest.

Then, because writing is a form of thinking, I’ll add ‘narrative notes’. An example from Steve Krug’s 2014 talk:

Steve Krug wants people to be less busy, more lazy, yet more effective. That means regular small steps toward the most important problems. Much like how dollar cost averaging in a low-cost target date fund helps financial health and regular exercise improves physical health, regular usability testing improves a site’s design health.

Krug suggests “starting earlier than you think.” One morninga month with a few people – who were promised a good lunch – is all it takes. The most important thing is  to prioritize and execute, and focus on immediate tweaks.

Sites will always have usability problems, “get over it.” Just improve some things the remove the problem for some users and make it less for others.

The audience questions circled around resource allocation, mainly from the boss. They need educated about this problem, either through first hand experience at testing meetings or by seeing/knowing/thinking about how usability affects the goals of the organization.

Aim for proximity, not perfection and just keep learning.