Supported by Greenhaven Road Capital, finding value off the beaten path.
Richard Shotton remembers the time and place. He was in the back of a cab and in a sour mood. He’d finished a trainwreck client meeting. To mentally escape he opened a book and read the story of Kitty Gervase. Shotton entered the book, met the Bystander Effect and his whole life changed.
Bystander effect, he could use this. Shotton was spinning his wheels to increase blood donations. Incentives did matter, to a point. He couldn’t pay people more, or at all really. Goodwill helped too, but not enough. Maybe some of the things in this book might help.
Shotton recalled: “Why don’t we tweak the creative? Why don’t we stop saying blood stocks are low in England and start saying blood stocks are low in Birmingham, so please donate.” That wording change led to a 10-15% increase in local donations which added up to a rise in donations across England.
Bingo, behavioral science works. For the last fifteen years Shotton has studied behavioral economics, and wrote The Choice Factory. We’ll look at a handful some of his ideas.
Avoid HIPPOs. Some organizations have decision making obstacles known as HIPPOs, where the Highest Paid Person’s Opinions rule the day. Behavioral economics gets around that by testing, seeing what works, and iterating.
“Too much of marketing is still based around the highest-paid person in the room or the most eloquent person,” Shotton said, “Behavioral science is a significant step forward.”
Richard Thaler agrees because, “there’s fantastic data, you can test anything. You also have very crisp predictions. We were able to test ideas and disprove them.”
Besides Highest Paid, Shotton warns that the most eloquent can also dominate conversation. This was a problem Penn Jillette had when he wanted to push Joe Rogan away from his lunar landing leanings.
Jillette knew just what to do. He called up @BadAstronomer and said, “Come on my radio show and talk to Joe Rogan about the moon landing. I just want to warn you, have your ducks in a row because Joe’s really good…your problem is that he’s a comic and he’s better at talking than you.”
Rogan came on the show and crushed it. The conversation was so lopsided that Penn chipped in at the end, ‘just a reminder folks, we did land on the moon.’ That’s the power of eloquence.
Behavioral economics can bypass those conversations with evidence–but this can be tricky. Unlike physics psycholog is messy.
That’s okay, says Rory Sutherland. We don’t need peer-reviewed, double-blind, statistically-significant information. We just need a hunch to try.
When Shotton works with clients he says, “We pick the bias, the effect, the experiment that we think is most relevant for our particular client and apply that one.” In behavioral economics the biases are the tools, “…it’s a collection of biases, and sometimes seemingly contradictory biases. But the brilliance is, whatever brief you have there will be a useful bias.”
How does someone choose? Make small bets. “There’s lot of experiments that run through the book and one of the eye opening moments was that research did not have to mean a $10,000 budget and 6 weeks of work. You could do a fast, frugal, and prudent approach over a day or two running real-life tests.”
Small bets are how Zappos began. Small bets got 90 Day Fiancé on TV. Small bets is how Pixar makes movie changes.
Shotton tested his guesses on colleagues. David Kelley said to think of small bets like brushfires. Start them all over in weird places, and then double down on what catches. Some ideas for where to start the fires are with habits, incentives, and expectations.
Habits. “Changing behavior is very hard so you want to pinpoint these moments of flux.”
Our post on actions after windfalls and baby steps hit on this idea orthogonally. It’s mostly in moments of transition that people change.
Principal Agents. Making small bets within organizations can be difficult without the right culture, which shapes the incentives. In their conversation, Rory Sutherland tells Shotton about the difference between brand owners and brand importers:
Culture style starts at the summit; Amazon’s culture is driven by Jeff Bezos. Netflix’s culture is driven by Reed Hastings. Seinfeld’s culture was driven by Larry David and Jerry Seinfeld.
Expectancy theory. “The enjoyment is partially determined by our expectations. If we think the product is great it’s more likely that it will be.”
Framing matters a lot. When Annie Duke – a professional poker player – taught non-professionals how to play they didn’t like it. It was too much folding and watching and not enough flopping and topping she told Barry Ritholtz. “What I found was that people don’t like winning in a mechanical way.”
They expected one thing and got another. Duke reframed the situation. Instead of playing the mechanical way all the time, she had them choose to play that way. In teaching her players Duke reframed their expectations. In teaching Duke reframed their expectations from bravado to autonomy.
Books. Shotton is an avid reader and suggests some of his favorites.
Decoded. “A big fan, another book about behavioral science.”
Rory Sutherland. “I’m a big fan of whatever Rory Sutherland does…he’s frankly a genius. He’ll take the same biases and insights that we all read about but his mind is so fertile he’ll leap in completely different directions.”
Everybody Lies. “Written by an ex-Google data scientist and a brilliant example about how if you ask people behave the way they do they will give you misleading answers.”
Thanks for reading. If you want more book suggestions I send out the ones I enjoyed once a month.
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