Easy money

Q: How do you get people to pay more?

A: Don’t make them pay.

People and rivers both follow the path of least resistance. What is easy? That’s what people do.

But not junk food, binge-watching, and immediate gratification easy. It’s easy subject to our last choice. Switching jobs isn’t easy, but it is easy to show up at one. Ease has two challenges: the initial change and each small choice.

Jobs To Be Done addresses the first challenge. People change when the discomfort of the present and appeal of the new is greater than the anxieties of switching and habits of the present. JTBD interviews is the focus on the moment things flip. Free hotel breakfasts and donation alchemy are examples.

But I think it’s very interesting when you just think about what can be expensed on a corporate card and how that differs in terms of the pricing power that a business might have. And to me, if you can find a customer that’s going to be able to use their corporate card and you can give them a reason to use their corporate card, they are going to be much less likely to churn, willing to pay for more expenses because it’s always easier to use other people’s money than it is to use your money.

I think much of Manhattan between restaurants and sports teams is propped up on the corporate card dynamic there and a little different demand curve in terms of how that looks from a pricing perspective. So that is certainly the case here and what you have going on, and they’ve used it to their advantage historically.

Matt Reustle, Business Breakdowns

An HBR article’s contents aren’t clear, Matt remarked, there are no stars or reviews. It’s just the title and date. That’s the fear of the new – is this going to be good? But it’s Harvard, and the person buying isn’t the person paying. That’s great! That’s easy!

The challenge of ongoing action, is solved by design, crafting the path of least resistance. Want more vaccines? Schedule their application at each checkup. Want to eat less? Make it hard, or easy!, to count calories Want people to buy your Peloton? Don’t make them pay – let their future selves.

Organizations have many levers to pull to create behavioral change. Which ones are best depends on the context. For Harvard Business Review it’s branding and differentiating between the consumer and the customer.

Design = Action

“We have scores about how much willpower some people have,” says Wendy Wood author of Good Habits Bad Habits, “and some people score really high on those scales. Those people are not denying themselves things, but instead they form habits that meet their goals. For example, my students study in the library or a place in their dorm and when they are there they put their phone away. There’s no distractions. They just work.”

There’s a lot in there!

Willpower might be a bad metric. Often we count, compute, and consider the things which are easy to count, compute and consider. But easy may not be the best way to judge a metric. Calories are easy to count, but how often does calorie counting lead to weight loss? So maybe ‘willpower’ – quantified or not – is the wrong thing to look at as well.

Instead Wood suggests habits which are helped by ease and ease is designed. Wood notes that her students go to a place that is designed for reduced distraction. They also take the advice of James Clear and put their phone just out of reach.

Design is part of writing Cal Newport told Tim Ferriss. We know this, Neil Gaiman’s writing cottage has been featured here, twice! What’s nice about it, Gaiman said, is that it’s just out of WiFi range. A separate place has been an ongoing study on Cal Newport’s blog.

Okay. We get it. But, here’s the twist. The design of “quiet space free from distraction” is only best for certain outcomes.

The starkest 2022 contrast is Twitter. Investing Twitter, for instance, is full of smart people trading ideas, giving commentary, and sharing thoughts. If the desired action is to be a better thinker in the markets the design must include Twitter. It just won’t work to sequester oneself just out of Wifi range. Even Charlie Munger joked about his kids thinking of him as a book with legs: but the book now is the timeline. Similar if the goal is public policy the design must include advocation. If the goal is sales the design must include talking to customers (and finding the JTBD).

The heart of design is intentionality. Here’s to all of us being a bit more intentional today.

‘WiFi’ BTW is just branding. Here is Wood’s full interview.

Vaccine ease

The most powerful decision hack is ease. Make something easy to choose (ex. social proof), make it easy to execute (ex. now), make it easy to justify (ex. let the person tell a good story) and so on. Economist John List joined Tim Ferriss (Overcast) and talked about how we do that with childhood vaccinations.

“You’re going to be in the delivery room. Your kid is going to come out. Everyone is going to be happy. The doctors and nurses will make sure you wife is happy and the baby is healthy. Then the doctor is going to give you a playbook that says: We are going to give these vaccinations today and when you bring your baby back in six months it’s going to get a checkup and some new vaccinations. In twelve months, same thing. In eighteen months, same thing. The polio vaccination occurs in that time period. Any parent is going to do well by their kid and bring them to the doctor checkups, so it’s not an extra cost and you automatically get it.”

John List

Ease, make it easy. Inverted it’s the same plan: make undesirable behaviors more difficult. A few others:

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Going bananas for WW

If this blog has a core, at the moment, it’s about decision making. One way to change decision making is to change the initial conditions. One way to do that is to dial ease up or down.

Losing weight is about introducing new habits and breaking old habits. WW, formerly Weight Watchers, uses ease a lot. Make the good things relatively easy and make the less good things relatively difficult. For example, part of what makes keeping a food journal a successful dietary change is that it introduces a friction, writing down the food forces our focus: do I really want to eat this? There’s no noting bananas though.

“To introduce new habits you want to pick foods you can eat on autopilot. If you’re with WW there are zero point foods that you don’t need to pay attention to. Bananas are pretty healthy and you’re probably not going to overeat bananas.” – Julie O’Brien, The Science of Change, November 2021

The episode is full of behavioral hacks, for instance having slack in the system for an occasional treat (or lapse). Another is the idea of rules of thumb. WW has points, intermittent fasting has times, Whole30 has no carbs. Each also restricts booze.

As a teen I worked retail with a woman who did the points system. She ate popcorn all the time. I didn’t get it. Popcorn has calories. But it worked for her.

As a teen I thought the world was more black and white. Now I get there’s more shades of grey. Now I appreciate the aspects of designing ease.

Here’s a few more posts about the different ways ease works.

Free Breakfast Hack

There’s always a reason why, and if we can find reasons why that are real, but not acknowledged, there is opportunity. Cruising, for instance, might have some hidden reasons and opportunities. The JTBD framework is built around this idea too. Economists call it stated and revealed preferences.

Danny Meyer noticed reasons-why as a restaurateur. It’s not just the food!

“That’s why people go out to eat, it’s not because they don’t want to cook or do the dishes. They want to be transported to a social environment.” Danny Meyer

As a kid I didn’t get this. Sometime around 1998 we went to Ocean City Maryland or Hilton Head South Carolina for a family vacation. We stayed on the beach. It was great. Each night we walked to a different restaurant for dinner and the only requirement was that it allowed flip flops.

One night we were at someplace on the sea, and I wanted fish, the catch of the day or some-such-thing only to discover that it was flown in from Maine. Huh? If I wanted fish from Maine we’d have gone there for vacation.

The lesson there, and still, is that there are a collection of features (acknowledged or not) that consumers want in a product or service. Seafood tastes better by the water.

But wait, there’s more.

People like to make easy choices for the features. Easy in the sense that the amount of work is appropriate for the amount of reward. Doing your own taxes isn’t necessarily easy, but some find the reward of financial savings, mental stimulation, and personal accountability worth it. The process of making the ledger determines the ease. Home improvement is another area. I’ve started many projects because the ledger making is easy, whereas the actual work became quite tricky, a miscalculation of the work-reward relationship.

One feature hack for easier decisions is free. Free is helpful because it’s an easy input and calculation. This can be seen in the free breakfast effect.

From conclusion of the 2012 paper, emphasis mine:

“Experiment 1 shows evidence of the zero price effect; specifically, the free breakfast effect. Even though people’s preferred alternative is the Meliá, when the cheaper option of the Ibáñez Hotel includes a free breakfast, the demand for the latter increases and for the former it decreases. Especially relevant is the fact that when the breakfast in the cheaper option is only €2 (i.e. a price that is virtually insignificant and very close to zero), people go for the more expensive alternative and are willing to pay the extra cost to stay at the Meliá. No matter how small the price is or that the net benefit for each alternative across conditions is identical, the net benefit for the cheaper option will only be superior to the more expensive option when the former offers a free breakfast.”

A two-buck breakfast isn’t easy to choose because the mental accounting is to ask, what’s the catch? Whereas a free breakfast leads to, well I’m probably paying a smidge more for the room but breakfast is another service like housekeeping, room service, or valet.

Free is a special shortcut in decision making, but not the only one. Fish taste better by the sea. Diners want atmosphere, except for fast food. What’s wonderful isn’t that there is no right answer but that there are so many answers. Like a studio engineer listening to a band, there are many dials to make something work.

Other examples of this idea are: Donation alchemy, “Earned” rewards, and eating vegetarian.
& Rory Sutherland quotes von Mises, the man who sweeps the restaurant floor is as important as the one who prepares the food.

Peloton ease

Economist Tyler Cowen cautions against the optimism around self-driving cars because when costs fall, consumption rises. If the costs of driving fall, there could be a lot more cars on the (now congested) road. Cost isn’t just about price, but also understandability, beliefs, and time.

Another way to think-like-an-economist is to consider ease. Every time a how will I… question gets answered things get easier and Peloton answers a lot of questions.

Wooden barrel

A wooden barrel like this can only hold water up to the shortest piece. Each answered how will I… extends the length of that board. Extend the set and action is taken. Here’s Christian Hunt on his background to buying a Peloton:

“My partner brought it up…we had been bombarded by advertisements…I knew a few people who had them and it just got to the point where we thought, ‘Let’s just give this a go, we can return it if we don’t like it.’ And the people I spoke to about it were so positively engaged. Worse case scenario: this thing goes back.” – @ChristianHunt, Human Risk

Just in that comment Hunt hints at the many boards that lead to a Peloton purchase. There’s price (finance it!), usage (we’ve got classes), social (follow your friends), competition (leaderboards), and even logistics!

When surveyed why they bought a Peloton, 78% of people said convenience. Consciously that means convenient to use but really it is everything.

Wood Barrel, via Wikipedia.

USA Swimming Analytics

The first breakthrough in swimming was imitation. Like with high jump, seeing a new way to do things helped. The second breakthrough was underwater footage. What’s next?

Adi Wyner asked, is there anything beyond video helping with swimming improvements? It’s a good question. Let’s get some sweet advanced analytical fruit from the random forest up in here!

“We don’t have any tools to calculate instantaneous velocity, which would be the most helpful. It (the tool) also can’t be something that burdens the swimmer because if equipment is hanging off of them it changes how they are interacting with the water.” – Russell Mark, USA Swimming, July 2021

It’s the classic question: how do I know what to do?

It could be that baseball was uniquely suited to analytics: lots of data, one-v.-one matchups, less cultural importance (relatively). Swimming, Mark explained, has a lot of different body types and so there’s less data and fewer answers for “what to do”.

But it’s not completely empty. USA swimming for instance hosts the Olympic trials three weeks before the games. The thinking here, explained by Wyner, is that individuals vary in their performance but not too much during this competition window. If variance runs ‘in chunks’ then a proximate trials-games window makes sense. This theory might work, it is showing some alpha erosion as for the 2020 games Australian swimming has copied this schedule.

Luckily most of life is not the Olympics. The greatest athletes in the world looking for improvements “at the margin” is not the model. Most of life is answering questions like a 15 or 30 year mortgage? Most of life is just choosing from the good options, not finding the best one to the nth degree.

It feels odd writing about luck without mentioning The Success Equation by Michael Mauboussin. There we go, it’s mentioned.

Donation Alchemy

One fertile area for creativity (and anything new is creativity says John Cleese) is in the area between zero and some. It’s in these places where something moves from free to costing that behaviors change. Oh, and it doesn’t have to be an actual cost. Mental accounting works too.

There’s a concept in charitable giving called overhead aversion.

“We know that donations tend to decrease when overheads increase. That makes sense. People want to feel confident they are having a tangible impact. Interestingly, this only applies when donors have to pay for the overhead themselves. In one study when donors are informed that an initial major donor has covered the overhead, donors are more likely to take an overhead free donation option than opt for a 1:1 matching scheme — even though the matching scheme will yield more for the charity.” – Maddie Croucher

This felt right. My reaction was, well if they muck up the overhead at least I know my money was well spent. This isn’t logical, but I’m not sure it is wrong. At my daughter’s school they collect canned food for a local food pantry. There’s a celebration for the class with the largest mound outside its classroom door.

Now, it would ‘do more’ to donate cash, rather than send food of unknown cost, calories, and willingness to eat, and again I’m not sure it’s wrong. It feels good to know my money was well spent and that the food we bought won’t go to waste.

This school’s canned food drive might be partially driven by the foot-in-the-door effect:

“I always thought that asking small, an ask you can’t refuse from the godfather, works best. If you’re giving three dollars a month it’s much easier to up that to eight or ten than it is to go from naught to fifteen.” – Rory Sutherland

It’s not like I have to find cash or write a check and put it in an envelope. The kidney beans and mac ‘n cheese are within arms reach. Not only that, my kids collect it.

Charitable donation best practices are new to me but I’d wager that what works is ease. Make things financially, intellectually, or socially easy and people will do more. If the overhead is covered that removes the question: will my money go to to those who need it? A small ask might mean that people find doing easier than considering whether or not to. Charities, schools, or businesses can all remove the hurdles for their customers.

One other idea with-regards-to the classroom donations is the social lesson. The food is tangible and the kids collect it. There’s also probably some social signaling pressure among parents to ‘show up’. So net-net is a canned food drive ‘better’?

Big Game Gambling

Photo by Daria Sannikova on Pexels.com

On Bet The Process, Rufus Peabody, Jeff Ma, and John Murray of the Westgate Casino talk honestly about betting. The podcast reminds me of Econtalk. Rather than simple narrative answers, the true answer is some version of, well, it depends. The Big Football Game offers a chance to think about decision making and our bias to thinking that something specific will happen.

People are pretty terrible at weighing opportunity cost. Deciding on this or that is much easier than coming up with a list of options. Walk into any high school and you’ll hear students protest a fill-in-the-blank test when they expected a multiple choice version.

With the upcoming Big Football Game, recreational bettors in Las Vegas and other states will start to make prop-bets. Props, Murray said, were invented to make blowouts interesting. The 2020 Big Game, for example, offers a chance to bet if a fumble is lost in the second half (No, -150).

Make it interesting and immediate thinking lead to a tendency of people to bet for something to happen. Murray said, “The public will bet yes, yes, yes on everything in the prop markets.”

Rufus Peabody, former-prop-bet-gambler-extraordinaire, said that the bet of ‘no safety’ always has positive value. It’s easy for people to remember a past safety, envision a future one, or construct a narrative about someone’s defense chasing down someone else’s quarterback.

We remember the somethings that did happen rather than the one thing that didn’t.

With that in mind, let me give you a sure thing. The best over bet, will be to bet on overeating.