#9 Licensing Effect: Why we order Diet Coke with our large Big Mac meals

Ever gone shopping for someone else and decided you deserved a gift too? In this episode, Mel and Dan explore the dark side of altruism, and how the decisions we make are often guided by a desire to balance out our emotional states.

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Dan: 00:16 Hey, welcome to Bad Decisions. The show that helps us understand why we choose what we choose.

Mel: 00:20 Why we think what we think.

Dan: 00:21 And how to exploit this stuff for fun and commercial gain.

Mel: 00:24 I'm Dr. Mel Weinberg. I'm a performance psychologist.

Dan: 00:26 And I'm Dan Monheit, co-founder of Hardhat, a creative agency built for today.

Mel: 00:30 Kops, can you please play the best theme music ever?

Dan: 00:34 We do get a lot of feedback on how good the theme music is.

Mel: 00:43 Hit it.

So, okay, I'm taking it back for this one to a couple of weeks ago. It was a conversation that you and I had out of the studio. It happened after I submitted a report that I'd been working on for quite a while. To be fair, I was pretty proud of myself. It was a big report. I thought I did a good job.

Dan: 00:59 Just like a uni assignment. Are you still doing uni assignments?

Mel: 01:03 No, not anymore. I did do them for a long time, so it's a fair question. But it was actually a report that I was paid to do as a consultant. Paid to prepare and submit. Anyway, I felt so good about myself that I thought that I really deserved to go out and spend $400 ... Not a barbecue this time.

Dan: 01:21 No barbecue. You already had the barbecue.

Mel: 01:21 This time it was cycling gear.

Dan: 01:25 Oh, good. Wait. Do you cycle?

Mel: 01:27 I do.

Dan: 01:27 Oh, that's not quite as bad as it could have been.

Mel: 01:30 So, yeah. I just felt like I really deserved it, so I went out and I spent $400,  and then I felt better.

Dan: 01:34 Yeah. Well, I mean, that makes sense. You did some work and then you bought some lycra.

Mel: 01:37 Right. Everyone does that.

Dan: 01:40 Everyone does that. The people that I know who do this ... This reminds me. Back in the day ... Even pre Hardhat, pre Nike Life, I spent four years working at Maccas, which I actually loved, by the way. One of the things that always used to trip me out a bit was when I would work on drive thru. The proportion of people that would come through ordering Big Mac meals or quarter pounder meals, these massive, calorie-laden meals with a diet Coke.

Mel: 02:06 Because that makes it healthier.

Dan: 02:07 Makes it healthy. You all can't just be enjoying the taste of watered down diet Coke more than regular Coke. There must be something else at play here.

Mel: 02:17 I actually do prefer diet Coke, but that's a side issue.

Dan: 02:19 Right. You and everybody else.

Mel: 02:21 What we're talking about here is this idea of licensing. This idea that we give ourselves the licence to do something indulgent or immoral following a good act.

Dan: 02:32 Just for those playing at home. Wait. Is licensing our heuristic for the day?

Mel: 02:35 Welcome, licensing.

From a psychological perspective, we are inherently motivated to alleviate negative emotions. There's a theory called the Negative State Relief Theory, which basically says exactly that. That when we feel negative for any reason, we're motivated to reduce that state. Motivated to relieve that negative state by doing something that will return us back or balance us out to a more positive emotional state.

Dan: 03:09 That's a much better way to go about your day. Feeling neutral or positive instead of negative.

Mel: 03:14 I mean, you'd think so.

Dan: 03:15 You would think so. As a marketing guy and also just as an observer of human behaviour, it would appear that of all of the heuristics that we have covered and will cover, that licensing is the single greatest contributor to what will inevitably be the downfall of mankind.

Mel: 03:30 Tell me more.

Dan: 03:32 Any situation we find ourselves in where we tell ourselves that we deserve to do something, because I've done A, I deserve to get B, it's usually ending badly. One of my favourite examples of this is some studies that have been done about wanting to lose weight. It turns out that one of the worst things you can do if you want to lose weight is to start exercising. Right. Because we start exercising ...

Mel: 03:55 I feel like there are a lot of people who are gonna come at us for this. Carry on.

Dan: 03:59 Well, this is what can happen. Right? Is you're like, "I wanna lose weight. First thing I need to do is I need to start exercising." We go and exercise and we feel really good about it.

Mel: 04:04 Wait. Let's just destroy the whole fitness industry.

Dan: 04:06 Yeah. But, well, it's actually what keeps the whole fitness industry going. Because you go out, you do your workout, you smash out your F45. Whatever it is you've just done. Then you feel so good about doing that, “that I deserve a hamburger for lunch.” What often happens is that I don't just get the hamburger. If I'm gonna do it, I gotta do it properly, so I'll get all of the indulgent toppings in there and I'll get the fries. You can't fries without the aioli. This is the whole package deal. Get the diet Coke, of course. But because of our optimistic inclinations, it would seem that we overestimate the calories we're burning from doing the exercise and underestimate the calories in the meals that we treat ourselves with to return back to neutral after exercising. We basically just undo the whole thing.

Mel: 04:47 That's a really good observation, perhaps unsurprisingly. There's some research to back this up.

Dan: 04:53 Research. Cue the research music.

Mel: 04:54 This is actually real research. Like all good research, it actually sums up what people pretty much already know, which is the licensing effect. An example is with people who take multivitamins. The study showed that people who take multivitamins give themselves a perception of being healthy and being a good human being. They are then more likely to engage in behaviours that are not ideal in terms of their wellbeing. If you take multivitamins, you're more likely to smoke, you're more likely to eat more unhealthy foods, and to do less exercise. But it's okay because you're taking a multivitamin once a day.

Dan: 05:37 Yeah. I mean, what impact can heroine really have on you if you've had a multivitamin before breakfast?

Mel: 05:42 Speaking of heroine and other undesirable things. There's another study that was a 2008 study that basically gave people a opportunity to voice their endorsement for Barack Obama in the presidential campaign. What they found was that people who were able to endorse him as a candidate, then acted more prejudice in a subsequent experiment. They were basically saying, "I support Barack Obama and that gives me the right to go and be racist."

Dan: 06:17 Yeah. This is a classic. "I'm not racist, but..."

Mel: 06:19 All the time, we hear it.

Dan: 06:21 "Some of my best friends are black people, but I will say about them..." That thing has a name.

Mel: 06:27 Now that we've covered racism and heroine in this podcast, where can we go next?

Dan: 06:32 Well, I think the only logical place to go to that is home electronics and home appliances.

Mel: 06:37 Okay.

Dan: 06:37 Yeah.

Mel: 06:38 That sounds completely logical.

Dan: 06:38 Yeah, yeah, yeah. It's a similar, funny like, "Oh, wow. Aren't humans idiots?" type research shows that people who have gone and bought energy efficient washing machines tend to wash 6% more often than people that haven't bought those machines, more than offsetting the benefits that they're getting. Same thing that happens with people that buy energy efficient lights. They tend to leave the lights on because they have the licence to leave the lights on because they're done the right thing by buying energy efficient lights. They leave them on more than people that don't have energy efficient lights, more than offsetting the benefit that they're getting. I guess there's even talk about how things like buying a Toyota Prius makes you feel good because you're not buying petrol as often. Even though the net environment impact of a Prius, because it takes a billion years for the battery and all the other components to disintegrate ...

Mel: 07:27 Licensing justifies every virtuous ... Or basically makes every virtuous activity that we do completely negated.

Dan: 07:35 Yeah. As it turns out, as soon as we try and do something good, we're gonna end up just offsetting it. We exercise, we go and eat a burger. We support Barack Obama, then we go and make racist remarks. We buy energy efficient lights and then we leave them on all day.

Mel: 07:48 The interesting thing about the licensing effect, or one of the interesting things because there are many, is that you don't even have to engage in one of those behaviours in order to justify the other. Thinking is powerful enough to elicit the licensing effect. Okay. Now, here, we're going real psychological and real in your head.

Dan: 08:03 In the brains.

Mel: 08:04 But what we know is that licensing effects happen even when people think about past positive behaviours. Just thinking about a past positive behaviour actually gives you the licence to then engage in something, perhaps, that's more indulgent or rewarding. There's an example from another research study where what they did was they split people into two groups and they gave people a list of words. Okay. Some people were given morally positive words like kind, compassionate, generous. Other people were given negatively moral words. Morally negative words, I should say. Things like selfish, unkind, mean, et cetera. The two groups were then asked to write a short story about themselves using the words that they were given.

Dan: 08:51 So, given nine horrible words, please use them to write a story about yourself.

Mel: 08:51 Basically what happened was that the people who had the positive words ... People who wrote, "I'm a kind, compassionate, generous, loving, giving person" ... At the end of the experiment, when they were paid for their time, they were told actually, "Here's $20 for your time. Would you like to donate $10 of it to a charity or keep it all for yourself?" The people who wrote the positive stories about themselves were less likely to donate the money and more likely to keep it for themselves. They hadn't even done anything except the study had elicited this sense of "I'm a good person, which then gives me the right - hang on, I’m taking my money."

Dan: 09:27 Yeah. Taking my money. I'm already kind and generous. I just wrote a story about it.

Mel: 09:31 The thing is that the other people who actually wrote the negative stories about themselves actually became more motivated to obviously give the money, which was the manipulating factor in that experiment. But it was this idea of moral cleansing, which is the idea that if we've just written something or just thought or just engaged in an activity that makes us feel morally bad, we then, through the Negative State Relief Theory, are motivated to actually do something more prosocial and more virtuous in order to recover that balanced state of emotions.

Dan: 10:04 Right. Now, I promised in the setup for this that I would not talk about religion at all. But I'm just gonna say, hypothetically, if you were to organise some sort of an organisation that would maybe be religious or maybe not, and part of what you wanted to do was raise money as part of that organisation, wouldn't it be a wonderful idea to put a whole bunch of people in a room on a regular, let's say, weekly basis and remind them of what horribly, morally corrupt people they are just before handing out a way for those people to make donations? Hypothetically.

The other thing that this makes me think of is there's a lot of stuff about daily mantras, and positive psychology, and all those sorts of things at the moment. Just off the back of that study you've just described, telling people to wake up every morning, and stand in the mirror, and look at themselves and say, "You are amazing. You are strong. You are brilliant. You are awesome" is probably setting them up to be complete assholes for the rest of the day. Maybe what we should tell people to do is wake up, and look in the mirror, and say, "You are a pathetic, morally bankrupt individual. Go and fix it today."

Mel: 11:02 I actually stand in front of the mirror in the morning and say, "You're an awful person. You are terrible."

Dan: 11:06 Yeah. That's why you're always so lovely when I see you.

Mel: 11:06 See? You see?

Dan: 11:10 Can you lend me $20? I need to buy some cycling kit.

Mel: 11:13 I also think I need to boost up my self esteem, but that's another episode.

Dan: 11:16 Not too much though. It'll just turn you into an asshole.

Mel: 11:19 Well, it is an interesting thing because we do live in this society where people are doing these sorts of things all the time. People are being ... All this stuff to push people to be more kind, and more generous, and more grateful, and more wonderful as a human being is actually setting them up to do some potentially really immoral things afterwards.

Dan: 11:35 Yeah. If you want to do the right thing for society, go out and tell somebody they're a selfish asshole, knowing that the licensing effect will make them want to prove you wrong.

Mel: 11:42 And that's the message of this episode.

Dan: 11:43 Is it?

Mel: 11:44 Everyone's an asshole.

Dan: 11:45 Yeah. So, hey. If we switch gears a little bit into where we see this play out commercially and we think about selling objectively indulgent product, it's hard to go past things like luxury cars. If you imagine ... I don't know why my mind always goes to print ads for luxury cars or billboards and you think about seeing ads in the financial review or the financial sections of other newspapers. When you see ads for luxury cars, there's almost always a theme or a feeling about them that it's like, "Isn't it time?" Or, "You deserve this." Or, "It's time to stop dreaming." Basically inferring that you have been working your ass off in a job that you probably don't like to pay for a house, and school fees, and everything else. And you deserve it. You deserve to drive this incredible, but obscenely overpriced European sports car.

Mel: 12:36 This got me thinking. I want to take us back if I can to our earlier example because I'm still trying to justify the fact that I spent $400 on cycling gear a couple of weeks ago. But what was interesting about that was that ... So, I was feeling really proud of myself. I was feeling this really strong sense of achievement. Totally setting myself up for a licensing effect. And so I went a bought a little bit of lycra and I spent $200.

Dan: 12:58 Who doesn't feel better buying a bit of lycra? That's not weird.

Mel: 13:02 Anyway. That's another story, and a very visual one at that. But I spent $200. And yet, I still felt that I needed to spend more. I felt that the $200 wasn't enough to offset how much I actually put into that report.

Dan: 13:15 Must have been a big report.

Mel: 13:16 I went a spent another $200. And only then, did I actually feel like I'd come out neutral. It made me think about how we go about neutralising our negative emotions. Remember in an earlier episode, we talked about loss aversion. We talked about how when people lose $10, it actually takes a gain of $20 to come out emotionally neutral. It made me think about that. I was wondering about the cost of offsetting different emotions. How much do you have to pay out to overcome feeling guilty?

Dan: 13:49 Yeah. If you got paid $200 to do this report, then $400 was absolutely the right amount to spend on Lycra to feel good about it.

Mel: 13:55 Well, apparently, according to that model ... I went about looking for some research to see if anybody ... Because there's a whole range of negative emotions, so there's a whole range of states that we would seek to balance out. I wondered if anybody had actually tried to quantify it or if it was indeed possible. Guess what I found.

Dan: 14:10 What did you find?

Mel: 14:10 Researchers following the Bad Decisions podcast. I found that there wasn't any.

Dan: 14:14 None.

Mel: 14:15 I'm doing a shout out. I'm doing a call out to anybody that wants to collaborate on some potentially unethical research. It wouldn't be unethical. Maybe that's why there's not much because inducing negative emotions into people is not something that is often looked upon as ... It's perhaps not the done thing. Nevertheless, if anybody's interested in inducing different emotions into people and finding out how much they're willing to pay to offset it, count me in.

Dan: 14:38 Yeah. You basically want to find out how much you have to pay to make a bad feeling go away.

Mel: 14:42 Yeah. That's a cool research question, right?

Dan: 14:45 Yeah.

Mel: 14:46 You love research.

Dan: 14:46 Yeah.

Mel: 14:46 You're in.

Dan: 14:48 Yeah.

Mel: 14:48 I have one co-researcher.

Dan: 14:50 Yeah. I definitely have the qualifications necessary for this. All right. So, hey. What do we do about this as marketers? We talked a little bit about luxury cars, but I think it's the same thing for any indulgent product. If you're selling any luxury goods or holidays, it would be really good advertise or promote those things in environments where people are probably feeling like they deserve it. Advertising for holidays in those horrible digital screens in lifts in big office buildings would make sense. In Gmail. You can run ads in Gmail as well. So, maybe, during the working day would be a good time to put ads in Gmail telling people that they probably should think about planning their next holiday.

Mel: 15:31 What we're saying here is that if you want to encourage people to make an indulgent decision, you wanna associate that with something where they feel like they've worked hard, and they've achieved something really good, and they've got a sense of pride about it.

Dan: 15:42 They deserve it.

Mel: 15:43 They really do deserve it.

Dan: 15:43 I deserve it.

Mel: 15:44 They deserve it. They deserve it. What about if you want to encourage people to make a virtuous decision or a prosocial decision, like a charitable donation? Besides the house of worship explanation earlier.

Dan: 15:56 Yes. This is a great question. It's funny because we were thinking about this in the setup for today and saying, "Oh, well, maybe when people are doing things like Christmas shopping and they're being really indulgent because they're spending all of this money. Maybe that would be a good time to ask them for some donations." But as we dug into that a bit further, we thought, well, people actually are probably more likely to think they're doing something virtuous when they're doing Christmas shopping because they're buying all this stuff for other people. It's probably actually a really bad time to asking them to make charitable donations and a good time to tell them to buy something for themselves.

Mel: 16:25 Which, actually, people often do end up doing.

Dan: 16:27 Yeah. It's like, "I went to do all of my Christmas or festive season shopping and I came home with some junk for everybody else. And a new pair of jeans for myself! I deserved that, I'd been shopping for others." But where we do see this work is if we think about places where people are undeniably having indulgent experiences. That might be in checking out of a great hotel or finishing up a meal at a great restaurant. Often times, you'll find on the bill that comes to you in the hotel or in the restaurant, that they've included or suggested a $5 donation or a roundup donation to the charity of somebody's choice. Because we're sitting there saying, "God, I've just spent $180 on a meal, yeah, $10 would probably be sufficient to make me not feel so indulgent about that." That's a great place for those sorts of messages.

Mel: 17:10 Basically leveraging people's emotional states in order to convince them to make a decision or encourage them to make a decision that is in our favour. Another example like that, is if you think about what happens when you're on flights and you might be coming home from a lovely holiday, and they're coming around with the tin and saying, "Put all your spare coins, anything that you've got leftover in this bag or in this tin." Basically, you've just had a wonderful, indulgent experience. You're feeling pretty good about yourself right now. Here's something that you can do to actually offset that. Help somebody else.

Dan: 17:41 Yeah. Go and spend 25 grand on a holiday and then put $1.60 in a little container and you're gonna be morally neutral. Sound good? All right. That's licensing in a nutshell. As brands, what we need to do is we need to think about, if we're indulgent, where can we find people that can be told that they deserve to indulge? And if we're pious and righteous, we gotta find places where people feel undeniably that they have just been indulging and need to offset that. My question, though, is as consumers, as mere humans, is it all useless? Is there any point in even trying to go and do rightful, socially positive things knowing that we're just gonna go and leave the lights on for longer anyway?

Mel: 18:21 From a psychological human perspective, if I go back to my story where I spent $400 in an attempt to neutralise my state of feeling pride and achievement. A better thing I could have done to actually neutralise my emotions would actually have been to go for a run or actually do some exercise rather than buying the gear to do the exercise. There are cheaper ways to neutralise emotions than going out and spending money on things. If I'm a responsible and rational consumer, what I'm actually doing is finding different ways to manage my emotions and regulate my emotions, and still have $400 in my bank account at the end of the day.

Dan: 19:00 Right. What we're saying is next time you feel like you deserve it, what you really want is some endorphins and you can get them by spending money, but you could also get them by doing some exercise.

Mel: 19:08 You want adrenaline. You want dopamine. There are better ways to get it, and cheaper ways than the ones we've described here.

Dan: 19:13 Yeah. You go and run on the freeway. You'll get both.

Mel: 19:15 Careful.

Dan: 19:16 Good. Okay. That is not a suggestion or recommendation from us. It's just an idea of how you could spike your own adrenaline levels.

Mel: 19:21 I think it's a good ending point. But I think that ... Just a reminder that if you want to ... If you have any feedback for us, if you have any questions, if you want to join us in any research expeditions, please find us on social media. You can find me on Twitter, Instagram, LinkedIn. #BadDecisions. Also find me @DrMelW.

Dan: 19:39 Awesome. And I'm @DrDanMonheit on all the usual social networks.

Mel: 19:44 Wait. Hold up a second. Did you just give yourself an honorary doctorate title? @DrDanMonheit?

Dan: 19:48 Did I just do that? We're gonna have to go back. Can we go back to tapes, Kops?

“Awesome. And I'm @DrDanMonheit on all the usual social networks.”

Mel: 20:01 Yup. That happened. You know that happened.

Dan: 20:03 Okay. Well, you can get me at that or you can get me at any of my actual handles, which is just @DanMonheit. I'm gonna have to speak to some universities just to see if I can get that honorary doctorate.

Mel: 20:14 I'll see if I can help you out.

Dan: 20:14 Organise. We should also give a special shout out to Kops, the main man who that is on the wheels of steel, producing all of the shows. And we literally couldn't do this without you, Kops. We'd just be two people sitting in a room talking.

Mel: 20:26 Love you.

Dan: 20:27 Love you.

Mel: 20:51 All right. Off to Maccas.

Dan: 20:42 Yep.

#8 Temporal Discounting: Why we want $10 today, not $15 tomorrow

Despite our best intentions, selecting options that provide sensible, long term benefits over impulsive, short term ones, seems pretty much impossible. In this episode, Mel and Dan explore how our desire for instant gratification can be used to market products for today, as well as products for tomorrow.

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Mel: 00:19 Hi, and welcome to Bad Decisions.

Dan: 00:21 The show that helps us understand why we choose what we choose.

Mel: 00:24 Why we think what we think.

Dan: 00:25 And how to exploit this stuff for fun and commercial gain.

Mel: 00:28 I'm Dr. Mel Weinberg, I'm a performance psychologist.

Dan: 00:31 And I'm Dan Monheit, co-founder of Hardhat, a creative agency built for today. Hit it Kops.

So I'm sitting on the couch last night. Feeling pretty good about myself, I'd actually just had a salad and some chicken for dinner.

Mel: 00:47 Good for you.

Dan: 00:47 Thank you. And just kind of gnawing at me, in the back of my mind, was this memory, that in my freezer, there was ... I want to say a quarter, but it was probably more like a third, and by third, I probably mean a half a tub of Ben & Jerry's, the Tonight Dough, ice cream.

So you know phrase ... I'm not sure if you're familiar with the Tonight Dough?

Mel: 01:07 Oh I'm familiar.

Dan: 01:08 You're familiar? It's got basically everything you could ever want in an ice cream.

Mel: 01:11 You don't need to teach me about ice cream.

Dan: 01:13 It's like peanut butter and-

Mel: 01:13 I've got it.

Dan: 01:14 Yeah, okay, cool. I knew I wanted it. I knew it was going to be delicious and I was really going to enjoy it if I just went and got it and started hoeing into it with a spoon. I try use a teaspoon, I feel better about myself, it's true.

But, so I'm sitting there thinking “today, or shall I say, tonight Dan, really, really wants to smash this ice cream. And I know tomorrow Dan is not going to be happy about it, but, fuck tomorrow Dan, he'll work it out when tomorrow gets here.”

And as this was playing out in my mind, I realised this is actually a thing I seem to do to myself often. Help me Dr Mel, help me.

Mel: 01:48 Well Dan, what I can tell you, is that you are falling victim to another heuristic.

Dan: 01:53 Another heuristic, and we happen to be recording. What were the chances!

Mel: 01:56 Who would have thought. So what we're talking about here is temporal discounting.

Dan: 02:01 Temporal discounting.

Mel: 02:02 Temporal discounting. Which is the idea that we tend to discount the value of things that are further away in time, and over value things that we can have here and now. So your behaviour is reminding me of a famous experiment that is done with little children.

Dan: 02:17 This is shaping up great.

Mel: 02:19 And you've probably seen it. And many of you might have heard of it. It's the marshmallow experiment.

Dan: 02:19 Yes.

Mel: 02:23 You know the marshmallow experiment?

Dan: 02:24 I know the marshmallow experiment.

Mel: 02:25 So what happens is, you've got a little kid, usually sort of, anywhere between four and seven years old, sitting there at a table. And the researcher comes in and the researcher offers them a marshmallow. They place the marshmallow down on the plate in front of them, and they say “hey little kid, you can have the marshmallow now if you want. But, if you wait 15 minutes, I'll come back into the room, and if the marshmallow is still there, I'll give you another one, and you can eat them both.”

Dan: 02:51 I understand what they're trying to do here. But, surely this flies in the face of not accepting candy from strangers?

Mel: 02:57 Yeah, you've got a point, but, nevertheless, what we find, is that ... and what's really interesting to me about this, is that when you actually watch it, you can see the pain and the anguish on the little kid's face, as they struggle to make this decision between satisfying their emotional need right now - which is “oh my God, there's a marshmallow sitting in front of me and, God I love marshmallows and I really want to eat it.”

Or, knowing that “if I just wait, I can get two.” And you really just see it play out on these kids faces. And I'm sure it was playing out on your face last night..

Dan: 03:29 Yeah, I mean these kids are picking up the marshmallows and just like, “maybe if I just caress it a little bit, maybe if I just kind of smell it, if I smell the marshmallow” ... And I guess, as we grow into adults, some of us grow into adults, we learn to be a bit less expressive about it. But like what you've just described about the anguish on these kids faces, is exactly what I felt on the couch last night.

That I was kind of ... I was at this juncture. I could see both paths playing out ahead of me, and objectively, I knew which the right path was, and what did I say to the objectively right path? Fuck you, I'll sort it out tomorrow.

Mel: 04:00 So, the thing for me about temporal discounting, which makes it really interesting as a heuristic, compared to the others is that, when we've talked about most of the other heuristics, we emphasise this element of uncertainty and being drawn towards making the emotional decision at the moment. And then afterwards, we can think of what the more rational decision is.

With temporal discounting, we actually have two options in front of us. We have the clear emotional choice, and we have the more rational choice. And we have the opportunity to really have some certainly about what the rational choice is, and yet, we still fall victim to making the emotional, bad decision.

Dan: 04:34 Yeah, I mean this is one of those ones, where you are literally watching the car crash happen in real time. So you're standing there, you've got the dessert menu in front of you at a restaurant, or the sneakers in front of you at the store. And you literally can feel the little devil and the little angel on your shoulders telling you what to do. And you have this internal dialogue about, I know what's right, I know what I want to do, I know what I should do. And, for some reason, over and over again, we seem to pick the right short term thing, knowing it is probably the wrong medium to long term thing.

Mel: 05:05 So one of the reasons that we do this, and one of the theories that underlies is from a psychological perspective, is the idea of unrealistic optimism. And a lot of people have probably heard of this as well. Which is that, if we actually are a mentally healthy person, we have this sense where everything is going to be okay in the future.

In fact, we think more so that good things are more likely to happen to us, than bad. And, we just tend to think that everything's going to be okay. It's what drives our behaviour now, thinking that everything will be okay in the future.

And so, you're sitting there with your tub of ice cream thinking, “future Dan will be just fine, he's not going to be this 150 kilo mammoth.”

Dan: 05:42 No, no, he's gonna work this out. He's going to exercise like nobody's business.

Mel: 05:47 Because future Dan is awesome, right? He's ... and unrealistically, so.

Dan: 05:52 Excuse me. Future Dan's six pack is currently carving itself as we speak. And future Dan's superannuation fund is also stacking up to the sky.

Mel: 06:01 So it's very easy to imagine good circumstances happening to future Dan. So much so, that we figure, future Dan's going to be fine. Discount future Dan, because he's just going to be alright. And let's focus on what we can have here and now.

Dan: 06:13 Yep. I guess that that makes sense. Like that's one pretty good reason why we would prioritise the here and now over the future. I guess, the other reason that feels like it would make sense, is because, historically, having a future to worry about, is a pretty new thing. For a long part of our existence, life expectancy was around about 25.

Mel: 06:33 Going back a long way, but yeah.

Dan: 06:35 Going back a long way, but you know, in the context of the universe. Evolution is a slow process. It makes sense that we would have evolved to prioritise the here and now, because in the future, either everything going to be sweet, or we're going to be dead anyway, so what's the point.

Mel: 06:47 Sure, you could get attacked by a bear at anytime.

Dan: 06:48 It's true. Dead with a six pack, dead with a keg. Doesn't make a difference, dead anyway.

Mel: 06:53 So what we find though, and going back to the marshmallow experiment, now what actually happened when they followed these kids up over time, was that it turns out, that the kids who are able to delay the gratification, and actually hold out and wait until they could receive the two marshmallows, turned out to do better than other kids on a whole bunch of different outcomes that are good for us.

So in terms of health outcomes, in terms of wealth outcomes, in terms of everything that we think is good for us, the ability to delay gratification and resist the impulse to eat the marshmallow now, played out much further down the track.

Dan: 07:26 So I guess what that means for us is, just humans trying to get by in the world, is if we can train ourselves to get better at foregoing instant gratification, in the hope of some future, bigger, better gratification, that's going to work out pretty well? Is that a fair thing to say?

Mel: 07:42 I think that's the idea.

Dan: 07:43 And I think, ooh, I feel a parenting tip coming on. Kops, do we have any parenting tip music?

Okay, that'll do. As parents, we decide what we teach our kids to value, and so, you know, looking at what happened with these kids in the marshmallow experiment, obviously we want our kids to be two marshmallow kids, not one marshmallow kid. Eve though they're doubling their calorific intake. But that's a whole separate issue.

But, as parents teaching our kids what to value, it seems to me that it would make sense to teach kids to value things in the future, and to value delaying gratification now for things in the future, rather than to value getting whatever you want, right here, right now.

End parenting tip.

Mel: 08:25 So, now that we have a pretty good understanding of what temporal discounting is, and how it works. Let's turn it into the practical side of things.

Dan: 08:34 All right, awesome. So my time to shine, right?

Mel: 08:36 If you say so.

Dan: 08:38 Currently shining.

So, there's some really interesting implications in this for marketers. So the first and the easiest one to look at is, if you happen to look after a product, or a service that has short term benefits for people. Like is a short term or impulsive type product, then, absolutely lean into that. Knowing that we are hardwired to prioritise benefits right here, right now, over things in the future.

Mel: 09:05 Right, I was going to say like if we have an emotional need, that needs to be satisfied right now-

Dan: 09:09 Yeah.

Mel: 09:09 And you've got a product that can service that need. Go all out.

Dan: 09:13 Exactly. So if you've got a snack food designed for people who are hungry. You know if I think about Maslow's hierarchy of needs. So somebody trying to fil a bottom order need, get some food in their stomach. Trying to talk to them about how the chocolate bar is going to help you self-actualize, it's going to be a tough battle, right?

Instead, you should focus on some things that treats the here and now. And when you look at confectionary, you know chocolate bars that have succeeded globally for long periods of time, like this is exactly what they do.

Snickers is my favourite example. It's also one of my favourite chocolate bars, but ... snickers really satisfies. It's not talking to you about world peace, it's not talking to you about sustainable farming, it's not talking to you about saving for retirement. It's like, “you are hungry now, put this in your face, you will feel better.”

Mel: 09:56 So the contrast to this. And I think ... it makes me think about industries where this is particularly relevant. Where the concept of time is really important to them. So things like insurance companies, superannuation companies - industries where everything, the product is all about the future. And the future is uncertain.

Understanding how temporal discounting works for the consumer is really important, because you're trying to sell people on sometimes that really is not of any instant need to them right now.

Dan: 10:22 Yeah. I mean this is really tough. And a lot of the big industries that all of us work in, are in exactly this space. And even within those industries, I think there's two categories. So you've got guys like banks and universities, who often are selling something long term, but it's a positive. So it's like, well, you're going to pay off your house for 30 years, but then you're going to own it. Or, you're going to come and study for four years, and then you're going to have this degree and this wonderful career ahead of you.

But then you've also got guys like insurance companies, who are not only selling long terms things, but they're selling long term, negative, uncertain things. Like here's a product for you. Like don't spend 120 dollars going out this month. Spend 120 dollars protecting you in the future, in case something really bad happens, and you're going to need to go to the hospital, or something like that.

Mel: 11:06 And unrealistic optimism tell us that the chances of that happening to us, are so slim anyway.

Dan: 11:10 Ah no, I don't go to hospitals. That's for other people.

Mel: 11:13 Never. Other people go to hospitals. It will never happen to me. It's also worth noting that we're actually so bad at falling victim to temporal discounting, that we actually have to be protected from it, by way of forced superannuation. So we're so bad at putting money aside for our future, that the government has actually forced us to do it.

Dan: 11:30 Yeah. So, we've seen some degree of that happen with health insurance as well, where the government basically penalises you for not taking out health insurance. But even then, if you're in education or even if you are in health insurance, there are some things that you can do, to help overcome temporal discounting.

So, I mean, one of the things is to take a very, very hazy future state. You know if you're a bank, thinking about the home that somebody might own one day if they save enough. Or the holiday they might get to take. And make it less hazy. Make it more concrete. Give people something firm that they can actually hook themselves onto. Because there's been some interesting studies that suggest that, if were trying to delay gratification for a known thing, we're much better at doing that, than delaying gratification for an unknown thing.

Mel: 12:13 Yeah. So a good example is if you think about planning for a holiday. And you think that people are actually willing to spend money on a holiday that might happen in the future. The outcome is fairly certain, right? Our future holiday is going to be something that we can be pretty certain that we're going to enjoy as well.

And what you find is that people are willing to do that, because they know that not only do they get to enjoy the experience of purchasing a holiday, but they then get to enjoy the next three, four, five, six, twelve months of actually leading up. The anticipation of the holiday, is often better than the enjoyment of the actually holiday itself.

Dan: 12:48 Absolutely. I think another really cute example of this, is some research done ... I'm pretty sure it was Dan Ariely, one of my other giant man crushes. He's not giant. The crush is giant. But, he did a ... I think he did some research into if people had the opportunity to meet their celebrity crush, if they'd rather meet them this afternoon, or if they'd rather meet them in three days time. And most people would prefer to meet them in three days time because it's a fixed thing. You're going to get to meet them today or in three days time. But, if it's in three days time, you also get to enjoy the anticipation and the lead up and thinking about it for that period, which adds to an overall greater happiness experience.

Mel: 13:26 So, bottom line, anything that we can do to make something that is potentially uncertain in the future, seem closer in time, and more certain, is going to benefit.

Dan: 13:35 Yeah. And the other thing we can do as far as making things closer in time, is to try and find interim goals that people can get. So if your university's selling education, talking about the career you're going to have in 30 years, is great maybe. But talking about what you're going to know at the end of your first semester, or what transfer options, or further education options would be available to you at the end of your first year, would also be great.

Similarly, if you're a bank trying to chase down new customers, helping people understand, if they sign up today, what do they get tonight. What benefits do they unlock? What status or rewards or offers can they have today to help satiate that need to get to a future benefit that may or may not arrive.

You also see a lot of health insurance companies do this, by bundling in rewards programmes. Where, even if you never actually claim on your health insurance, you can get discounted sneakers, or entry into gyms and things like that, just for signing up.

All right Mel, super quick summary. What have we learnt today?

Mel: 14:32 Well we learnt that as a consumer, we're going to be highly vulnerable to making decisions that result in us receiving something right here, right now. But long term, may not be in our best interest.

Dan: 14:43 And is there anything we can do about that?

Mel: 14:45 Well there is ... we can, if we are aware of it, then we can potentially train ourselves to delay reward, and resist that impulse.

Dan: 14:54 Or we can rely on the government to put in policies that force us to focus on the future rather than the here and now.

Mel: 15:00 Cool.

Dan: 15:01 I guess if we’re selling stuff that is meant to fulfil short term needs, then go, pedal to the metal, hammer that wherever we can. If we're selling things that are more about long term planning, long term goals, we've got to find ways to make things less hazy. Make them clearer. And also find some short term interim goals or benefits that we can help people enjoy.

Is that everything?

Mel: 15:19 I think so.

Dan: 15:21 All right. Hey, this is good, it was good. I'm glad we got to talk about temporal discounting.

Mel: 15:25 Yeah, I mean, it's about time.

Dan: 15:30 Oh wow, that's bad.

Mel: 15:32 Yeah, I did.

Dan: 15:33 Was that a doctor joke? Was that psyche joke?

Mel: 15:36 All right, if you guys have any questions for us, please find us on social media.

Dan: 15:40 Not just questions, what about feedback? Can we have feedback?

Mel: 15:42 Feedback's great. Yeah we love feedback.

Dan: 15:42 We love getting feedback.

Mel: 15:43 Only if it's good though.

Dan: 15:44 If it's good send it to me. And hey, keep listening. We have so many more bad decisions to unpack, so make sure you come and check out the next episode. It's going to drop two weeks from now. See ya!

Dan: 16:13 I think doctor jokes are worse than dad jokes.

Mel: 16:16 I think we're finished here.

#7 Anchoring: Why we spend too much on BBQs

When we’re trying to determine the value of something, we tend to place far too much reliance on the first piece of information we stumble across. In this episode, Mel and Dan look at ways that pricing strategies influence our judgement, and how game shows make us feel like losers when we’re actually winning.

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Dan: 00:18 Hey and welcome to Bad Decisions. The podcast that helps us understand why we choose what we choose.

Mel: 00:22 Why we think what we think.

Dan: 00:23 And how to exploit this stuff for fun and commercial gain.

We're your hosts. I'm Dan Monheit co-founder of Hardhat, a creative agency built for the digital age.

Mel: 00:31 And I'm Dr Mel Weinberg a performance psychologist. And cue music.

Dan: 00:41 Hey Mel, you're a psychologist right?

Mel: 00:46 I think so.

Dan: 00:46 Like a real one, yeah? You do consultations with people?

Mel: 00:49 Yeah.

Dan: 00:50 Okay, cool.

Mel: 00:54 Do you think that I don't? You want to check my registration?

Dan: 00:56 Okay, that's good. Can we do one of them now?

Mel: 00:57 Okay.

Dan: 00:58 I'm gonna tell you I'm mad, why I'm raging. I mainly hate TV, I mainly don't watch TV but, sometimes things happen and the TV is on and it just happens to catch my attention. Of all the types of TV I hate it's reality TV and game show TV that drives me the most crazy and leaves me with the least amount of faith in mankind.

Mel: 01:18 Stop right there, this isn't gonna work.

Dan: 01:19 What do you mean, why?

Mel: 01:22 In order for the therapeutic relationship to work you and I need to have a good rapport, feel like we're on the same page. I cannot be on the same page with you about this.

Dan: 01:29 What, you watch reality TV?

Mel: 01:31 Love reality TV, what else is there to watch?

Dan: 01:33 Aren't you a freaking doctor? Isn't it just beneath you?

Mel: 01:37 No, I typically think that when I spend all of my day using my brain when I come home I want to watch something that doesn't involve using my brain at all.

Dan: 01:46 So because I don't use my brain during the ... Are you suggesting?

Mel: 01:48 Just saying.

Dan: 01:50 Anyway, just go with me on this. So anyway I'm watching Deal or No Deal, this whole show could really be done in fifteen seconds. I don't know how they manage to drag this shit out for a full half hour. But what I just do not understand about this show, what was driving me absolutely crazy is you have these, basically losers. I mean, these guys are wearing polyester shirts. You have these guys who if you walked up to them before the show started and said " Hey buddy, how bout’ I just write you a check for ten thousand dollars right now, how would you feel about that? " They would take it, and these same idiots just because they're onstage and these weird metal briefcases and lights and music are saying no to guarantees of twenty grand, thirty grand, fifty grand. I just don't understand it. These people are idiots.

Mel: 02:40 So it sounds to me Dan that the reason that you dislike these sorts of game shows is actually the reason that I really do like them. Which is that they are all actually based on behavioural economics stuff. It's what we do! They make it fun! They gamify it.

Dan: 02:52 I'm not buying into this at all.

Mel: 02:52 You love it now. Basically what happens on Deal or No Deal, at least in the Australian version, which I assume is what you're watching. So you've got the chance to win two-hundred thousand dollars right? And that's what comes up in big flashing lights, two-hundred thousand dollars your only chance to win and like what you said the show is designed and situated in a way that introduces pressure, suspense, elements of risk, huge uncertainty right?

Dan: 03:18 Mild nausea for the audience.

Mel: 03:19 For some maybe, enjoyment for others. All that is in an attempt to push the contestant into making a decision that is emotional rather than rational. That's behavioural economics, that's what we do here. So all of a sudden for the guy you were talking about winning ten grand seems like you've lost. Because what they're doing is anchoring it against the grand prize of two-hundred thousand dollars. So when you compare it to the reference of two-hundred thousand dollars, ten grand seems like small change.

Dan: 03:50 Okay, you just said anchoring?

Mel: 03:53 Anchoring, anchoring is our heuristic of the episode. Welcome anchoring into the show.

Dan: 03:58 Alright, can we have some anchoring theme music Kops?

Dan: 04:14 That's much better Kops thank-you.

Mel: 04:16 Anchoring is the tendency for us to place disproportionate value on the first piece of information we are given when making a decision. Basically, whatever it is that we hear first, we use that as a reference point against which future information is considered. So anything that we hear after that doesn't get thought of independently of whatever comes before it. It's all based on whatever we've heard so far.

Dan: 04:38 Okay, so in this Deal or No Deal thing, they don't tell you that you could win zero dollars. They come out and say you could win two-hundred thousand dollars.

Mel: 04:47 Exactly, because they don't want to anchor the ten thousand dollars against the zero dollars. They're anchoring the ten thousand relative to the two hundred grand. So all of a sudden if you're getting ten thousand dollars you don't think you're getting a very good deal at all.

Dan: 04:58 And you might be inclined to say, " No deal. "

See I'm with you now. I guess we don't really talk about anchoring but this does make me think of two other techniques that people speak about. One is the age old low-balling technique where if somebody's trying to sell you something the first thing you do is give them an offensively low price. If somebody comes up to you and tries to sell you their car, twenty thousand dollar car, " Well if you throw in the tyres I'll maybe give you ten grand for it. " And then you've basically anchored them at ten grand and anything is assessed as relative to that.

Or there's the opposite of that which I guess is what we're afraid of, which is the door in the face technique.

Mel: 05:37 What's that?

Dan: 05:38 So the door in the face technique probably comes from the time of door to door salespeople. And it's the idea that when you give the first price to somebody you make it so eye wateringly high that the person you're trying to sell to basically slams the door in your face and tells you to piss off, but you've now set an anchor that these steak knives are going to cost a hundred and eighty dollars and when you end up selling them for a hundred and twenty or whatever it is the person buying thinks they've actually got a really good deal.

Mel: 06:05 You know what I've just realised?

Dan: 06:07 What's that?

Mel: 06:07 Not only do we work in different industries but our industries actually have their own different languages. It's amazing that we communicate at the level that we do. I say anchoring you say door in the face and we're all talking about the same thing. Potato Potatoe.

It's also making me think of all the times that I've actually been ripped off as a consumer.

Dan: 06:07 Yeah and are there a few?

Mel: 06:26 Yeah, because sometimes I go into situations and I really have no idea how much things cost. And I feel like this might have happened to me recently with a purchase of a BBQ that I bought. Hot Dogs at Mel’s, but that's a different thing. I just wanted something simple.

Dan: 06:43 I think BBQs are a great category for looking at these types of things because a BBQ is a thing that most people only buy once every, what, like when was your last BBQ purchase?

Mel: 06:52 I'm 34, that was my first.

Dan: 06:54 First BBQ purchase, so once every 34 years. So you walk into it basically susceptible to every type of behavioural economics heuristic possible because you have no idea what you're doing.

Mel: 07:03 And I'm blonde.

Dan: 07:03 And you're blonde.

Mel: 07:05 Adds a whole other element.

Dan: 07:06 Does it?

Mel: 07:06 To the sales process, yeah.

Dan: 07:08 Maybe we'll get a BBQ sales person on next episode and see if there is any truth in that.

Okay, so you're gonna go buy a BBQ and what happened?

Mel: 07:15 I walk in and there's a whole bunch of BBQs there and what's the first one that I see? The biggest shiniest BBQ that's out on display.

Dan: 07:23 The Beef-Eater twelve thousand?

Mel: 07:25 Five thousand dollars.

Dan: 07:26 Five thousand dollars for a BBQ?

Mel: 07:28 Right? I'm not making BBQs for a whole family alright.

Dan: 07:33 You don't strike me as a five thousand dollar BBQ buyer.

Mel: 07:35 Do I look like the sort of person who would spend five thousand dollars on a BBQ?

Dan: 07:37 Nah, I'm gonna be real here. No you do not.

Mel: 07:39 I basically said, no thank you not interested. Did not want to spend that amount of money. See ya later, I'm out.

But I did buy a BBQ.

Dan: 07:48 You did buy a BBQ? So you didn't “see ya later I'm out. I'm out of this aisle and going into the next aisle where I will purchase a BBQ”, for how much?

Mel: 07:56 I feel like I slammed the door in the guys face, but I don't think it hit him.

Dan: 08:01 Okay, what did you end up buying?

Mel: 08:03 Well, since you asked. I paid six hundred and ninety-nine dollars.

What are you doing? But I got a trolley and a BBQ cover thrown in.

Dan: 08:13 What?! Oh you got a cover thrown in.  That's gotta be worth at least four bucks on Ebay!

You spent seven hundred dollars on a BBQ?

Mel: 08:21 Why do I feel like you're taking the piss?

Dan: 08:21 What's your cost per use going to be? How many steaks are you gonna cook on that Mel - Sorry Dr Mel?

Okay, let’s be real though. If I had told you at the start of the day that you were going to go and spend seven hundred dollars on a BBQ, but you would get a free trolley and cover with it, you reckon you would've been cool with that?

Mel: 08:38 You're making me feel silly.

Dan: 08:39 Not silly, but let me tell you something. Girl, you got anchored. You got anchored bad.

Mel: 08:46 This is why I need you!

Dan: 08:47 You got anchored bad.

Mel: 08:48 Oh god. What do I ... okay.

Dan: 08:51 But hey, it happened to the best of us. At least they didn't put the BBQ in a bag that you then carried around that told everybody that you got anchored badly.

Mel: 09:01 Wearing it on my forehead?

Dan: 09:02 Because apparently this happens in some markets overseas, like you go travelling in Asia. Particularly I heard about this happening in Thailand where you go to a market and you bargain hard in there. Sorry, this is a complete side note by the way. And you go and bargain for headphones or whatever it is you're buying, you eventually get to a price, you give them the money they put the thing you've brought, whatever it is, headphones, DVD, I dunno do people still buy DVDs? I dunno, into a bag.

But apparently, there's different bags that mean different things so if its in a black bag it means that you're a really hard negotiator. If they put it in a white bag it's like you're a really bad negotiator and if they put it in black and white stripy bag it might mean you're somewhere in the middle. So you're basically walking around the market with a sign telling every other vendor how they're meant to anchor you.

Mel: 09:48 They've got some secret language going on as well?

Dan: 09:50 It's not even that secret. You're literally like walking around with a flashing sign that says “can't negotiate for shit, start high.”

Mel: 09:55 “This persons an idiot, charge them as much as you want.”

Dan: 09:57 See so we're all susceptible, it happens. Anyway, that may or may not be true but if it is true it's a great story and if it's not it's still a great story it's just not true.

Another place where we see anchoring come to life is on wine menus. I feel like honestly we could do a whole episode on wine menus and restaurant menus. We could do a lot of restaurant examples. But, on wine menus normally, the highest volume selling wine on a wine menu is the second most expensive wine because customers will look at the list. They'll see the most expensive, they'll get anchored to that. They're like " I'm not crazy, I'm not Mel buying a five thousand dollar BBQ. I'm going to be a bit more reserved - "

Oh don't be sad.

" - and I'm going to buy the second most expensive wine. " And a lot of restaurants knowing this will therefore make their second most expensive wine on the menu the wine that they make the best margin on. Sneaky sneaky.

Mel: 10:46 So the thing about this and the interesting thing about anchoring is that the research has shown that the anchor value doesn't even have to have anything at all to do with the product.

So we talked at the start about Deal or No Deal and we were talking in terms of currency and we've talked with the BBQs as well. But, what the research shows - cue music -

Dan: 11:03 I think we're getting over produced. Has this show jumped the shark?

Mel: 11:13 The research shows that the anchor value doesn't even have to have anything to do with the product, so for example, Tversky and Kahneman. It's as if we've just read one paper by Tversky and Kahneman and we're just citing it. But this one does come from their popular piece in science from 1974.

Dan: 11:30 Oh I read that, cover to cover.

Mel: 11:32 Hasn't everyone?

And what they did was have participants watch a spin of a roulette wheel. And it was rigged to either stop at number ten or number sixty-five, so it wasn't like your standard roulette game zero to thirty-six or whatever it is.

Dan: 11:32 Yeah that's weird.

Mel: 11:45 You wouldn't want to be betting on it. Wheel's rigged so you're either going to land at number ten or number sixty-five and what they then did was ask people to guess the percentage of United Nation countries that were African countries.

Dan: 11:56 Who doesn't know that?

Mel: 11:57 I mean look, nobody has any idea.

What happened was, for people who saw the wheel -

Dan: 12:02 Sorry to our African listeners. I'm gonna take it upon myself to know the answer to this by next episode.

Mel: 12:08 For people who saw the wheel land on number ten, their estimates were about twenty-five percent on average. But, for people who saw the wheel land on sixty-five their guesses where about forty-five percent.

Dan: 12:21 This makes no sense at all.

Mel: 12:22 It's like we get primed to think in reference to the latest number that we heard.

Dan: 12:25 Even if the number has absolutely nothing to do with the question?

Mel: 12:28 That's what the research shows.

Dan: 12:29 It's like we're so stupid, we're so clueless, we're in a new situation and we literally have no idea what the answer is.

We're like "brain, what's the percentage of African countries in the United Nations?" And my brains like "uh I dunno." "The answer should be a number, are there any other numbers you can tell me?" And it just literally just grabs the closest number and says "there you go, try this." Like sixty-five, that sounds a bit much let’s go with forty-five.

Mel: 12:54 Anchoring in a nutshell.

Dan: 12:54 That's literally what happens.

Mel: 12:55 That's it.

Dan: 12:56 You know every episode we do I just realise how stupid we are as a species.

Mel: 13:01 We are but it's the whole point of what we are trying to do here is actually give people the information so that they can then use to then improve the way that they understand what's going on and the way that they make decisions.

Dan: 13:12 Yeah, and sell more stuff. Shall we get to that bit?

Mel: 13:15 Yeah.

Dan: 13:15 Okay, so I think there's a few really cool ways that we can use this. So the first one we could talk about is any negotiating situation and the conventional wisdom if you're going into a salary negotiation or whatever. Buying a house or whatever it is, there's always this idea that you want the other person to go first. Whoever says the number first, loses.

Mel: 13:37 But it's also nice, a nice thing to do sometimes to give the other person.

Dan: 13:40 But also awkward, you know it’s awkward. I think off the back of today's episode we can see there's gonna be an anchor set. Someone's gonna say something first and then all the other negotiations are going to take place as a result of that anchor.

Mel: 13:54 I think I get what you're going to.

Dan: 13:56 If someone’s going to set an anchor: I vote me.

Mel: 13:59 I get this now. Why I such a negotiating. It's because I'm too nice.

Dan: 14:03 Too nice, yeah. You've just got to come in and make an obscene demand. You've got to slam the door in someone’s face with your demand. Your rates for doing this podcast are going to go up significantly. What's four times zero?

Definitely for any negotiating situation go in hard, go in strong, you set the anchor and let everybody else work around you.

Mel: 14:26 It also helps in terms of getting a sense of control over the situation. Because like we've said somebody's gonna set an anchor, if you leave it up to the other person, you're playing their game from there. So negotiations from somebody who's not good at negotiations. I've learnt my lesson.

Dan: 14:41 Definitely take advice from Mel about negotiating.

Mel: 14:44 Set the anchor first, got it.

What else from a marketing perspective?

Dan: 14:47 Supermarkets do all sorts of wacky stuff with pricing and bundling and things like that and anchoring can play a really big role in how many of a product people will purchase.

There's been some really interesting studies that looked at advertising rolls of paper and when you look at things like four rolls of paper for two dollars or fifty cents a roll a significantly higher proportion of people will pick up the four rolls for two dollars even though you can buy them as individuals. Because, people have been anchored to think that four is the correct number of rolls of paper that you clearly need whoever you are and whatever house you happen to live in.

Mel: 15:22 Okay so I think I've seen some research similar to that and it involved a supermarket selling Campbell soup. They have cans of soup but they were on sale for seventy-nine cents.

Dan: 15:22 That's a good deal.

Mel: 15:32 Yeah, you'd think. What happens is they have shoppers go into the supermarket. They go through the soups, they see Campbells soup’s on sale for seventy-nine cents and people were purchasing an average of 3.3 cans of soup. Great.

Dan: 15:45 I've never bought a third of a can of soup.

Mel: 15:47 It's an average so take in average numbers.

Dan: 15:49 You do your fancy math stuff and come back to me.

Mel: 15:52 They were buying on average three or four cans of soup, you happy?

Then what they did was they put a sign up and the sign said there's a limit of twelve cans of soup per customer. All of a sudden what have they done? They've set an anchor.

Dan: 16:06 They're anchoring people at twelve. Yep.

Mel: 16:07 And what they found was that when that sign was up shoppers purchased an average of seven cans of soup.

Dan: 16:13 Seven, up from three and a third?

Mel: 16:15 Up from three and a third, so they got anchored too.

Dan: 16:18 I love the visual of just watching somebody trying to pick up seven cans of soup at the same time. Just go dropping them everywhere.

Mel: 16:25 And we've talked about anchoring but what it's also introducing is a little bit of a social proof which we've talked about in a previous episode where when you see that sign, limit twelve per customer, you automatically think everybody is buying this soup. This is popular soup. You're getting sold to both the social proof and the anchoring bias.

Two for one.

Alright time to wrap this up.

Dan: 16:47 Two for one heuristics with a free trolley and cover!

Mel: 16:50 Time to wrap this up speaking of covers.

Dan: 16:52 Okay, let’s wrap it up.

Mel: 16:53 Basically, anchoring whatever the first piece of information is we see we're gonna place disproportionate value on it. So beware of the first numbers that you're exposing your customer to.

Dan: 17:03 And I guess that means as a brand we've got to acknowledge that most of the time some sort of anchor is already going to exist so we gotta decide where do we want to play relative to the market anchor. Do we want to come in super premium? Do we want to come in super cheap? Do we want to chip in around the edges? But acknowledge that there is already likely an anchor that our customers are working around. And on the off chance that there is not already an anchor don't be afraid to go out an aggressively set one. As people like Apple always do.

Mel: 17:31 Cool so that brings us to the end of this episode and as always if you have any questions or any comments for us you can get us on social media. I'm @DrMelW Twitter, Instagram, LinkedIn, wherever.

Dan: 17:44 Myspace? IRC?

Mel: 17:46 Oh god.

Dan: 17:47 And I'm @DanMonheit you can get me Instagram, Twitter, Facebook, Google.

Mel: 17:56 And please join us next time where I will tell you about more of my bad purchasing decisions and I will get Dan to maybe talk about some more reality TV shows.

Dan: 18:05 Hey, can we do an on air steak testing from your new BBQ?

Mel: 18:08 I thought you were going to ask if we could talk about the Kardashians next time.

Dan: 18:09 We are not talking about the Kardashians, never ever ever talking about the Kardashians.

Mel: 18:14 We'll talk about them one day.

#6 Confirmation Bias: Why black Jeeps are everywhere

Turns out we really love being right. So much so that our brains systematically ignore things that don’t fit with what we already believe to be true. In this episode Mel and Dan look at how marketers can make the most of what customers already believe.

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Mel: 00:16 Hi, and welcome to Bad Decisions.

Dan: 00:18 The podcast that helps us understand why we choose what we choose.

Mel: 00:21 Why we think what we think.

Dan: 00:22 And how to exploit this stuff for fun and commercial gain.

Mel: 00:25 Always in an ethical and professional manner.

Dan: 00:27 Yep yep yep.

Mel: 00:28 I'm Dr. Mel Weinberg, I'm a performance psychologist.

Dan: 00:30 And I'm Dan Monheit, co-founder of Hardhat, a creative agency built for the digital age. Let's roll.

Mel: 00:41 Alright so we're gonna flip things around a little bit. We're gonna mix things up this time.

Dan: 00:44 Oh okay.

Mel: 00:44 Yeah, we're starting to feel comfortable.

Dan: 00:44 Good, spicy.

Mel: 00:45 We gonna mix it up.

Dan: 00:46 Spicy.

Mel: 00:47 We are going to start with a game.

Dan: 00:49 A game? Good.

Mel: 00:49 I'm calling it a game but really, we're actually bringing the research part forward and you-

Dan: 00:49 You've lost me.

Mel: 00:55 ... Dan Monheit ...

Dan: 00:56 Can we just do a game?

Mel: 00:58 You are the single participant in this study. Do you consent?

Dan: 01:03 If I'm the only participant, I feel like I'm definitely gonna win.

Mel: 01:06 Okay, alright I like the confidence. So, here's how this game is gonna work and just for everybody listening in, Dan has given his consent. He understands that this study meets all ethical guidelines and his results will be kept confidential, just between you and us.

Here's how the game works. I'm gonna tell you a sequence of numbers, okay. And these numbers are bound together by a rule that I'm thinking of.

Dan: 01:29 Okay.

Mel: 01:29 Your job is to figure out what the rule is. Okay?

Dan: 01:29 Mm-hmm (affirmative).

Mel: 01:32 And the way that you figure out what the rule is, is that you get to tell me a sequence of numbers, that you think matches my rule.

Dan: 01:40 Easy.

Mel: 01:41 I'm gonna tell you whether you’re right or wrong, and after that you'll be able to have a guess at what the rule is.

Dan: 01:45 Okay.

Mel: 01:46 Got it?

Dan: 01:46 Got it.

Mel: 01:47 Alright, the sequence of numbers is: Two, four, eight.

Dan: 01:53 Two, four, eight, okay cool. Three, six, 12.

Mel: 01:59 Yep, that conforms to my rule.

Dan: 02:01 Okay. Five, 10, 20.

Mel: 02:04 Yep, that follows the rule. Do you wanna have a guess at what the rule is?

Dan: 02:06 Okay yeah I got this. It's pretty easy, so you double the number each time.

Mel: 02:06 Nup.

Dan: 02:10 Okay, 12, 24, 30.

Mel: 02:18 Yep.

Dan: 02:20 What, you sure?

Mel: 02:21 Yeah.

Dan: 02:21 That definitely conforms.

Mel: 02:23 Yeah it's my rule, I know what's going on.

Dan: 02:23 10, 20, 30.

Mel: 02:27 Yep.

Dan: 02:29 One, two, three.

Mel: 02:31 Yes. I think we're getting closer.

Dan: 02:33 Okay so three up numbers, three ascending numbers.

Mel: 02:33 Yes!

Dan: 02:38 Yes!

Mel: 02:38 You got it!

Dan: 02:39 I win!

Mel: 02:40 You did win, you were right.

Dan: 02:41 Can we have some winning music Kops?

Mel: 02:47 Well done.

Dan: 02:47 Yes, thank you.

Mel: 02:48 And I'm sure you're wondering what we were trying to show there.

Dan: 02:52 Other than just trying to demonstrate my raw intellectual horsepower.

Mel: 02:56 Which should be on show for everybody all the time, but, what I'm trying to do is demonstrate the confirmation bias. Which is-

Dan: 03:04 The confirmation bias, okay.

Mel: 03:04 ... Yeah, it's the tendency to look for, and actually pay more attention to information that basically affirms what we already believe to be true.

Dan: 03:13 Okay, so what was that?

Mel: 03:15 So in that situation, you didn't know what the rule was, but you had to think of examples. You had a predetermined rule, you had a working hypothesis of what you thought the rule was, right? You thought that it was just doubling each number.

Dan: 03:15 Doubling, yep yep.

Mel: 03:29 And so your first guess was three, six, twelve.

Dan: 03:33 Mm-hmm (affirmative).

Mel: 03:33 Then you went to five, 10, 20.

Dan: 03:36 Yeah.

Mel: 03:36 Right, so you were consistently giving me instances that conform to the rule that you thought was true.

Dan: 03:42 Got it.

Mel: 03:44 And then you told me what you thought the rule was, and I said, nah that's not the rule. You then thought I was stupid because you had the rule all figured out, forgetting that actually it's my game.

Dan: 03:52 Right. Okay so let me get this straight, so I was asking questions that I thought were gonna get me the right answer?

Mel: 03:59 You were asking questions to confirm your own view of what you thought was going on, yeah.

Dan: 04:03 Oh, my hypothesis, right. So what should I have done?

Mel: 04:05 Well your job was actually to be confirming my hypothesis, not your own.

Dan: 04:08 Right.

Mel: 04:09 So what you should have done would have been to try different things, to figure out whether other things matched the rule, instead of continuing to go with what you thought was the rule, try different things. So that's when you started saying seven, 14, 20.

Dan: 04:25 Yeah.

Mel: 04:25 Something like that, and I said, yep, that conforms the rule too. And then all of a sudden, you realised, hang on, " Now I've got an exception."

Dan: 04:32 Yeah.

Mel: 04:32 Okay, "So now my rule and my thinking of the rule has to expand a little bit," and that's where you got closer to actually figuring out the solution.

Dan: 04:38 And then I got it right.

Mel: 04:39 Yes.

Dan: 04:40 That's important.

Mel: 04:41 Of course. So the idea with the confirmation bias is basically, it's easier for our brain to confirm existing views than to introduce new ones because when we've already got an existing pre-held view, our brain is wired that way, it's easy, it's the default system for our thinking to go in that direction. Anything that comes in, that is contrary to that, actually introduces what we call a state of cognitive dissonance.

Dan: 04:41 Ooh that sounds fancy.

Mel: 05:07 It is some big research words for you. So cognitive dissonance is the state of discomfort that we feel when there's inconsistency between what we think, what we value, what we believe, how we act.

Dan: 05:20 Is that what normal people would call confusion?

Mel: 05:22 Perhaps it is. Perhaps it is.

Dan: 05:22 It's just so fancy.

Mel: 05:25 I just like to use big words for things. So this is a theory that underlies the confirmation bias. And basically, it's such an uncomfortable feeling for us that we're highly motivated to reduce it.

Dan: 05:35 Okay so if I try and understand what was happening in my brain there, so you tell me to guess a rule, I had an idea of what it was, and then without realising it, I was basically asking things that I figured were gonna get me a yes, 'cause that's easier for my brain than asking things that give me a no and then I have to work out what to do with that.

Mel: 05:53 And not only do you like to be right, but you thought you were gonna be right.

Dan: 05:53 Yes.

Mel: 05:53 You thought you were gonna win before we even started the game.

Dan: 05:56 Yeah well, you gotta have confidence in life.

Mel: 06:00 Confidence is good for you.

Dan: 06:01 Yeah, so this is really interesting 'cause in my non-scientific world, where something like this really stands out is, you know that experience I think we've all had where you go to a restaurant and I guess well ... A lot of my stories start in restaurants but we all go there, and you'll be at a restaurant and somebody at your table for some reason, I don't know, they just got out on the wrong side of bed, but they basically decide this restaurant actually sucks. This service is actually really terrible here. And then all of a sudden, all you do is look out for, and as a result, notice things that confirm the fact that the service actually is terrible. Like can you believe when she just poured me water like she spilled a couple of drops? Or when they put the plate in front of me, it wasn't straight?

Mel: 06:46 It's the worst.

Dan: 06:46 It's the worst, right? And it almost blinds you to anything good that might have happened as part of the rest of the meal because you are so set on confirming the fact that this is actually a shit restaurant and it's just ... That's the experience I've decided that I'm going to have here.

Mel: 07:03 Yeah it makes me think of when celebrities or famous sports people have a certain reputation and often it's a bad reputation and so everything that they do is looked at with that view of, “oh that must be something bad and they're a bad person and they're arrogant or they're cocky” or they're this or they're that and everything that they do is actually flavoured by the perception that we think that they're not a very good or noble person worthy of their fame perhaps. And what we tend to discount and actually ignore is anything good that they might do. So I can think of a number of tennis players for example who carry this reputation and even though-

Dan: 07:39 Bad boys, tennis bad boys-

Mel: 07:39 ... The bad boys of tennis, yeah.

Dan: 07:40 It used to be such a gentleman sport before these ruffian kids got involved right?

Mel: 07:44 But now even though some of these ... A couple of these guys, they're actually like in the top 50, some even in the top 10, none of that really gets paid attention to because everybody's just noticing the tantrums that they throw.

Dan: 07:55 Right, and once we decide that these people are tantrum people, they can only throw a tantrum once every 50 matches, but that's the thing we’re looking for and that just confirmed what we already knew, spoiled brat, not deserving of our hard earned taxpayer money. So I guess outside of restaurants, somewhere else that this plays out is if we think about purchases that we make on a very irregular basis. So things like a new bed, you might buy a new bed once every seven years, right?

And when we decide to buy a new bed, there's a part of us that thinks it's only really worth buying beds when they're on sale, and we should try and get a deal when there's a bed and what do you know, when you start looking for a bed, all of a sudden, you happen to notice that all of the bed shops, whether that's Forty Winks or Snooze, happens to be on sale like this very weekend. What are the chances that Forty Winks is having a 40-hour sale in the exact 40-hour period that I've decided I wanna buy a new bed?

Mel: 08:46 So all of a sudden, you're totally prime to be looking for that sort of information because you are in need of a bed.

Dan: 08:51 Yeah, when in reality, the chances of them being on sale this weekend are 100% because actually, they seem to be running 40-hour sales all the time. It seems that every time 40- hour window finishes, a new one starts. And you tend to not even notice these ads when you're not in the market. But as soon as you decide you are in the market, all of a sudden, your consciousness picks it up, and you're all about it. And I guess another place where we all notice this is when we are looking for new cars, and you decide that you're interested in getting a black Jeep Wrangler, and you've never noticed black Jeep Wranglers before and all of a sudden as soon as you start thinking about buying one, next thing you know, you realise that they're absolutely everywhere.

Mel: 09:29 I feel like that happens to me all the time.

Dan: 09:31 All the time.

Mel: 09:31 Every six years or so when I look for a new car. Alright so there's more to this actually than just feeling a sense of psychological discomfort. The evidence shows us that this heuristic actually has a physiological correlate. So it's been shown that we actually experience genuine pleasure indicated by a rush of dopamine in the brain, when we process information that supports that belief. So it genuinely feels good to think that way. And on the flip side, there's also evidence that the state of discomfort is equivalent to a physical experience of pain. So it actually feels good when we confirm our own beliefs and it actually hurts us when we don't.

Dan: 10:08 Right so if we went back to the start of this episode, where I'm trying to work out what this ridiculous rule is that you've got in your mind, my choices are, ask a question that is probably gonna get me a positive dopamine hit with the answer, or ask a question that's probably be like a kick in the nuts when I get the answer. Clearly I'm gonna be seeking the dopamine hit every time.

Mel: 10:28 You pretty much got addicted to it because you just kept asking for that and you kept wanting [to get that] right, you're just like a little monkey in a cage or a little mouse.  

Dan: 10:35 No, I would've gone with like a person in a hospital where they get to administer their own drugs but sure... Monkey in a cage, whatever works, really ... So where this is, I think really getting maybe a bit out of control, where this is really accelerating in our modern digitally lead world, is, if you think about how we consume news, so where confirmation bias really kicks in is around things that we're often emotional and passionate about, and things like political views, right. And so back in the day when there was a handful of newspapers out there and every person's newspaper basically looks the same, what we tend to do is, we read the newspaper, we tend to focus on the articles that support what we already believe, and we disregard all of the ones that don't and what we tend to do is, buy the newspaper that already is the best fit with what our views are, so we can use most of it as confirming our beliefs and ignore as little as possible.

But now, we don't read too many newspapers, and we tend to get our news through self-curated feeds, like Facebook, what we end up doing is building our own newspapers that are just jammed with things that we already believe are true. And so what happens is, we decide that there's too much animal cruelty going on in the world - that's our hypothesis. We then end up following lots and lots of pages and people that agree with and support that, which then creates a reality for ourselves 'cause every time we go and look at the news, there's more and more stories about animal cruelty and all of a sudden, it just amplifies and keeps ratcheting up this perception that we have about what's going on around us is true.

Mel: 12:03 And maybe that's got something to do with the addictive property of something like Facebook, if we're selecting what we wanna see on there and every time it's giving us a dopamine rush, we're all just monkeys in cages.

Dan: 12:15 All of us. At least I'm not a lonely monkey in a cage.

Mel: 12:16 So, tell me Dan, because I'm just the naive psychologist here. Tell me how our marketing audience can use this to help them?

Dan: 12:22 So I think the first thing for a marketer to realise is that when you realise it's so much easier for people to take on information that is consistent with what they already believe, it makes us realise it would be crazy to try and change people's minds. So if we are a business that people have a perception about, unless that perception is horrific, diabolical and damaging, we shouldn't bother with trying to change people's perception of us. Instead, we should take a thing that they already believe, even if it's just a little thing right, a little positive thing, we should do everything we can to ramp up the proof points about why what they already believe is true. So if they believe it a little bit, we should talk about it a lot.

And if we have an aspiration that is completely at odds with what people already believe of us as a business, we're gonna have a massive challenge ahead of us so be ready for a long haul, a very expensive marketing battle, or be considering to try an alternative strategy. A perfect example of this is when we look at what Toyota did, alright. So Toyota have an undeniable, undisputable reputation as a really practical, efficient, cost effective car. So nobody looks at you when you go buy a Toyota and nobody's like, "God she's a bit reckless with her money, she's just gone and bought a new Corolla." It's a really respectable, sensible car to buy.

Now, Toyota obviously had ambitions to also get a reputation in the luxury market, and to sell luxury cars for a lot more money that you can sell a standard Toyota Camry for. So one option they could have done with those is, they could have said, "Well people believe that we are reliable and efficient and practical, and now what we're gonna do is get them to believe that we're all of those things and also luxurious," but instead what they did was they said, "That's gonna be too hard, we're gonna set up a completely separate brand, and that brand is gonna be known as a premium luxury brand." And that's how Lexus ended up coming onto the market and Lexus plays in its space and Lexus is completely believable as a premium, luxurious, high end offering, and has not tarnished Toyota's reputation as a sensible, practical cost efficient car in any way.

Mel: 14:26 Okay.

Dan: 14:26 Brilliant masterstroke.

Mel: 14:28 So what we take from that example, is that what Toyota were able to do, was to build on their customer sense of familiarity, loyalty with the product, not introduce any sense of dissonance, just keep everything familiar while at the same time, they were able to broaden their customer base by introducing a new product by the name of Lexus that didn't introduce any dissonancy, thus are no discomforts, people are ready to go.

Dan: 14:52 Exactly and I guess in your terminology, there's no cognitive dissonance for Lexus because nobody knows what Lexus is. It's a completely new brand.

Mel: 14:59 Cool I got it.

Dan: 15:00 Nice, you could be a marketing something any time now. I guess that we see this in lots of fashion brands as well, where we have businesses that have got a really good reputation for something, but wanna be able to access another part of the market. So you look at Armani or you look at Donna Karan and these guys have an undeniable reputation as high end luxury couture brands, but they want a big piece of the middle market. So rather than taking their Donna Karan or Georgio Armani brands and putting it out the masses, what they do is they create what's known as a diffusion line. So DKNY or Armani Exchange, and it says, it's a completely kind of separate brand, it's not the couture brand that people know and love. It's a completely separate thing and that lets us play in both of those environments.

Mel: 15:46 Okay so it's important to remember that as human beings, we like what is familiar, we like what is comfortable, we like what is consistent, and we literally oppose things that aren't.

Dan: 15:55 Yeah, I kinda like this, let me just throw in one more example also from the fashion world. So Nike obviously have a wonderful reputation, a lot of different athletic pursuits, they have done an incredible job of actually becoming a legitimate brand in the skateboarding world, which took a long time and a lot of very carefully structured deals, to be known as more than just a running or a basketball brand so they have done a great thing with skateboarding. To do the same thing in the surf industry was gonna be another long expensive haul, so instead of trying to do that, they just bought Hurley, and Hurley is already known as a surf brand. So Hurley gets to be about surfing and continue doing its thing so no cognitive dissonance there, Nike gets to keep playing in the traditional sports that it's already been in, no issues there, and everybody's happy and making money.

Mel: 16:43 And I'm happy because I love that you're saying cognitive dissonance as if it's a term that you've heard your entire life.

Dan: 16:48 Yeah no that's the thing, it is, I've always known about cognitive dissonance.

Mel: 16:50 Okay.

Dan: 16:54 Yeah, ooh, feel that dopamine hit there.

Mel: 16:54 So why don't we recap? What have we learnt? Couple of main points. First is that we really like to hear things that are familiar and consistent.

Dan: 17:02 Absolutely, so from a marketing or a comms perspective, the goal is to accentuate what people already believe. If they already believe that we're a bank for small business, ramp that up. If they already believe that we're a university for sports marketing, ramp that up. It's really really tough to change people's minds. So go with what works and if you really have aspirations to be somewhere out of your category, be ready for a long battle or consider a greenfield approach.

Mel: 17:29 And just to finish off and to bring back the human side to it a little bit as well, I think it's so important that as individuals who are curious about the world and how the world works, that, we recognise that we have a tendency to confirm information or to accept information that we already believe to be true, but, that's not how we learn and that's not how science progresses. I think it's important that we think or we ask ourselves the question, "What am I missing?" And instead of going around seeking to validate your own views, even as pleasurable as that may be from a neuro-scientific perspective, look for instances that don't fit the rule. Look for the exceptions to the rule and expand your horizons.

Dan: 18:08 And look for other places for your dopamine hits right?

Mel: 18:11 Yeah, there are many other ways you can get it.

Dan: 18:13 Good, alright, keep it ethical Mel. Dr. Mel.

Mel: 18:16 And as always, if you have any questions, you can tweet us, my handle is @DrMelW.

Dan: 18:21 Are you on Twitter?

Mel: 18:22 Yes.

Dan: 18:22 Do you like check it?

Mel: 18:22 Yeah.

Dan: 18:24 Yeah, alright. Anywhere else?

Mel: 18:26 Instagram.

Dan: 18:27 Insta, do people send you photos on Insta?

Mel: 18:30 It's your turn. Dan, where would you like people to send you photos to?

Dan: 18:34 You can send me photos, thoughts, comments, perspectives @DanMonheit, no Dr. just @DanMonheit.

Mel: 18:34 No doctor.

Dan: 18:39 No doctor. Get me on Twitter, or Instagram, or LinkedIn, or Facebook, or Google Plus? No Google Plus.

Mel: 18:53 Catch you next time.

Dan: 18:54 See ya.

#5 Social Proof: Why we knowingly make stupid choices with our friends

If all of our friends jumped off a cliff, chances are we would too. Same goes if that cliff is a new restaurant, movie or fashion label. In this episode, Mel and Dan look at how our innate desire for social connection can be a marketer’s best friend.

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Mel: 00:17 Hey guys, welcome to Bad Decisions.

Dan: 00:20 Congrats on making at least one not bad decision. This is the show that helps us understand why we choose what we choose ...

Mel: 00:26 … Why we think, what we think …

Dan: 00:27 … and how to explore this stuff for fun and commercial gain.

Mel: 00:30 Always in an ethical and professional manner.

Dan: 00:32 Yep, Yep, Yep, Yep, Yep.

Mel: 00:33 I'm Mel Weinberg. I'm a performance psychologist.

Dan: 00:36 I'm Dan Monheit, co-founder of Hardhat, a creative agency built for the digital age. Let's do this.

Mel: 00:47 So, Dan.

Dan: 00:48 Yeah. Well actually no wait, so it's early to be interrupting you but before we start, I think we've got to say, first of all big shout out to all of our listeners who have been subscribing and downloading and super importantly rating and reviewing the show. It's been a massive first few episodes and we're kicking some ass in the podcast charts. So please keep them coming. If you are enjoying the show, tell some friends, write us a review, show us how witty you could be.

Mel: 01:17 Yeah. We do appreciate all of our fans. Can we call them fans?

Dan: 01:21 Yeah.

Mel: 01:21 Was that a bit sneaky?

Dan: 01:22 We mainly appreciate the ones with five star ratings for us.

Mel: 01:25 They are special.

Dan: 01:26 Yep.

Mel: 01:27 So, Dan?

Dan: 01:28 Yes.

Mel: 01:29 Can I take you back a little bit to your teenage years? I know they weren't all that long ago. I want to ask you if you can remember a time when all of your mates wanted to do something but for whatever reason you weren't allowed.

Dan: 01:42 Sure.

Mel: 01:43 Did you ever have that chat with your mom where she goes, “if all your friends went and jumped off a cliff would you jump off a cliff?”

Dan: 01:50 No. No, of course. Probably. Probably once a week I had that conversation with my mum.

Mel: 01:55 I feel like everybody has that and you've got to roll your eyes and just say “of course not mum. I'm not an idiot. I wouldn't jump.”

Dan: 02:03 “I don't want to jump off a cliff, I just want to go to a rave party under a bridge mum. It's not the same thing.”

Mel: 02:07 Totally different. Right?

Dan: 02:08 Yeah.

Mel: 02:08 Well, it turns out that mum's question, cynical and exaggerated as it might be, is actually a pretty good one because what she's picking up on is the fact that your friends don't always make the most rational decisions and she tried to catch you out and say, are you actually going to be able to make the rational decision in that circumstance when all your friends are doing something stupid? The thing is that chances are higher than you think, and that you probably would follow them all off the cliff.

Dan: 02:36 Yeah. If only my mum would just get out of my way and let me go and hang out with my friends at the edge of the cliff.

Mel: 02:41 It could be a cool place to hang out. Who knows but let's think about this for a second, if that actually did happen, what are your options? If you don't do it and all your friends jumped off a cliff and die then you're left alone and you don't have any friends.

Dan: 02:54 Yeah. That sucks. That's a bad option.

Mel: 02:56 That's bad. If they all do it and it's not really that dangerous and turns out jumping off this cliff is actually pretty fun and some thrilling thing to do-

Dan: 03:04 They actually is a Nordic sport, like cliff diving.

Mel: 03:06 People do that.

Dan: 03:07 I wonder what their parents say to them.

Mel: 03:07 That's an interesting question.

Dan: 03:07 Maybe for another episode. Yep.

Mel: 03:13 If that happens then you're the loser who was too afraid to jump and you're going to wear that for the rest of your life if they even stay friends with you.

Dan: 03:19 Yeah.

Mel: 03:20 So not that we're encouraging cliff jumping behaviour on the show, it's not something that we endorse unless it is for-

Dan: 03:26 Nordic and for recreational and athletic purposes.

Mel: 03:28 Of course and if you do that you can feel free to write us a review and tell us all about it as well, but just trying to make the point that we are social creatures by design and so choosing not to do what everybody else is doing is actually a form of social suicide in itself.

Dan: 03:42 Right. So basically what we're saying is our brains would rather us die with friends, than live lonely.

Mel: 03:50 Totally. Our brain is actually wired for connection, where we've said already we're inherently social creatures by design so our brains have actually evolved for us to be like that and we now know thanks to neuroscience that there’s actually particular types of neurons in our brain whose job it is to copy the behaviour that we see other people doing.

Dan: 04:10 Which this is important because this is how little kids learn how to walk and talk and not touch hot things and you know-

Mel: 04:17 All those things-

Dan: 04:17 Copying is important.

Mel: 04:20 It's not you, it's your brain.

Dan: 04:21 Yeah.

Mel: 04:21 So what we're talking about here is the heuristic that is referred to as Social Proof, which is one of the heuristics that we talk about and of all of the heuristics and all of the tricks that our brain plays on us, this is probably one of my favourites and we're allowed to have favourites. Ain't we?

Dan: 04:21 Yeah.

Mel: 04:40 It's probably one of my favourites because it really just illustrates how stupid we really are sometimes.

Dan: 04:47 Right. So let me ask. This is the thing where if we find ourselves maybe in a situation where we don't know exactly what we're meant to be doing, I've never been here before and we see a whole bunch of other people doing something, lining up for something or all going, doing something in a particular way. We just go, I don't know but they all look like they know what they're doing, so I'm just going to copy them exactly.

Mel: 05:08 Yeah. That's spot on. With all of these heuristics, they come to the fore most in times of uncertainty or whenever there's ambiguity or whenever we're looking or we're not sure about what decision to make. So, in those times what we do is we look to our friends. We don't always need to even ask them for advice, we just need to see it or we need to hear about what they've done and that's enough to motivate us to believe that it's going to be good for us as well. The chances are also that we're going to end up enjoying whatever it is that they did more because they told us that we would.

Dan: 05:37 So for me, I guess the most obvious example of where this come to life is where you decide you're going to go out for dinner and especially if you're going out for dinner in a place that you're not used to being ... overseas, interstate, whatever it is. You walk down the street and there's two restaurants side by side and you know nothing about either of those restaurants and objectively they both could be exceptional but you see one restaurant is absolutely jammed and there's a line of people at the front waiting to get in and the restaurant next door is completely empty and what do we do? Do we roll the dice and go to the empty restaurant next door? Of course not. We get in line we say “yeah, I'm happy to wait an hour for a table because this must be a much better restaurant because look how many other people who are clearly not idiots have already selected this out of the two restaurants.”

Mel: 06:25 This is an interesting one because we talk often about the heuristics guiding us towards the most efficient response and this is actually one where we would sacrifice our own time to wait in line and maybe that's just proof of how strong this heuristic really is.

Dan: 06:39 Absolutely. You were saying before that we're wired for connection as humans and I don’t know if you’ve watched a lot of bad prison shows like I tend to, you’ll know the lowest of the low, the worst thing you can do to somebody who's already in prison is to take them away from the people who are probably beating the shit out of them and punish them further by putting them in solitary confinement. So detached from any form of connection whatsoever. So I think that to your point it just shows how strong the desire to mimic and copy and be around other people really is.

Mel: 07:11 I'm going to give you another example and of course it is going to come from the research.

Dan: 07:14 Yes, from the research.

Mel: 07:16 It's research time.

Dan: 07:17 We need research music. Producer Kops can we get some music for introducing research? Yeah. I feel it needs to have a going back in time feel to it.

Mel: 07:34 Well-

Dan: 07:34 Like a harp? To the research!

Mel: 07:42 This one will data particularly dated instrument such as the harp because for this one we're going back to research from the 1950s.

Dan: 07:49 Excellent.

Mel: 07:50 So win yourselves back in time to when psychological research was questionably ethical and well, I'll give you one that would probably still make the bar, as it only involves a little bit of a manipulation of subjects. So the idea for this one is that a participant is brought into a room and there's a number of other participants sitting there and they're all involved in a task where they're presented with a line, a vertical line and that line serves as their reference or their target line. Okay? Then they're shown three other lines, we'll call them line A, line B and line C and they are varying in length and the participants job is-

Dan: 08:24 Budgets in the fifties were pretty small.

Mel: 08:27 All we had to do was draw lines on paper.

Dan: 08:28 Sorry. Keep going.

Mel: 08:31 All they have to do, their only task is to identify which line, A, B or C, is the same size as the target line that they were originally shown and one of the key elements of this is that the task is manipulated so that the correct answer is pretty damn obvious, right? So the three lines are so different that you can pretty clearly see which one is the right line. So here's the catch, what the participant doesn't know is that all of the other participants in the room aren't real participants, they're confederates, they’re in on the study.

Dan: 09:00 You dodgy, dodgy, dodgy psych people ...

Mel: 09:00 Here we go, here comes the deception and the job is, or what the job of these confederates is, is to all identify an incorrect line as the one that matches the target line. So as they go around the room saying which line do you think stayed out loud, which line you think matches the target line? Even though line A might be the obvious correct answer, everybody else has decided that they're going to all say C, okay? So they all say C. Yep, now C the right answer. Yep. I'll go with C. C it looks correct. Okay. When it gets to the last person who is actually the real participants, they. They have no idea what's going on. They can see what the clear answer is but what they actually tend to do is to conform with everybody else even though they clearly know they’re giving the wrong answer.

Dan: 09:47 So they'll sit down and say clearly the answer is A they'll know but because everybody else has just said C, they say C?

Mel: 09:54 So that's why it's over a number of trials about 32 percent of participants agreed with the majority every single time, even though they knew they were wrong and 75 percent did so at least once. So we are very vulnerable and very stupid human beings.

Dan: 09:54 We are so precious, aren't we?

Mel: 10:09 We are.

Dan: 10:10 It's one thing to say we'd rather be dead with our mates than alive by ourselves but clearly we would also be wrong with all of our friends than right by ourselves.

Mel: 10:20 Yeah because what better way to look like an idiot than to do so surrounded by a bunch of other idiots.

Dan: 10:25 This just explain so many parts of our society.

Mel: 10:29 It does.

Dan: 10:31 Wow and I guess collective bad decision making, misguided groups of youths ... It all comes together under social proof. Yeah, yeah, yeah,

Mel: 10:40 Yeah. You understanding bad decisions.

Dan: 10:42 Wow. Alright. So, in the real world is pretty easy to see how this happens. Right? So you're in a lab study or you're at a restaurant and you can see what decisions other people are making and so it's easy to peg yourself to them but I guess for guys that work in internet spaces as I often find myself doing, the internet can be a pretty lonely place and people are trying to make decisions about what restaurants to book or what products to buy, often in the seclusion of their own homes, in their underpants. Not that that makes a difference but I'm just-

Mel: 11:11 Hang on a second. How are you looking at the internet?

Dan: 11:12 In my underpants.

Mel: 11:14 Okay.

Dan: 11:14 So my official internet browsing attire that's why I don't use internet work. So the people of the internet have found some really interesting ways to convey social proof even when there's no other people around. So, one of the earliest examples I remember saying is if you jump on the Kogan.com website for any of our international listeners which we do have some, Kogan.com is one of the biggest online retailers in Australia. Very early on in the peace one of the things that the Kogan website used to do is as you're browsing around it would bring this little pop up in the bottom left or right hand corner telling you that someone from a suburb somewhere near you has just bought a product off this website. It was pretty non-invasive but you just notice it. Notice this gentle nudge or stroke that said, "Hey mate, you're not the only idiot on this website at three in the morning there's other people on here and they're transacting".

Similarly, if we take the restaurant example onto the internet and you see a restaurant that you're looking to go to that's got two reviews with an average of five stars and another restaurant that's got 136 reviews with an average of four stars, you tend to put more faith in where more people have been and more people have endorsed. I don't know, a lot of news websites you see things like how many other people are currently reading this article. So there's lots of interesting tips and tools that we're seeing online players use to reinforce people's behaviour by letting them know other people are doing this as well.

Mel: 12:40 That's right and they actually serve two purposes. The one is to get people in and to convince people if they are uncertain about what choice to make that they'll be making the right choice. The other thing is that when they're already engaged with it, so if they're already reading a news article telling them that five thousand other people are currently reading this article as well, reinforces their enjoyment of what they're actually doing.

Dan: 13:00 It must be good because five thousand other people are also enjoying this.

Mel: 13:03 Can't be a waste of time and if you're wasting your time, hey so is everyone else good.

Dan: 13:07 God we’re idiots … not that Facebook is a time waster at all but Facebook are very prolific with this stuff as well where they do an amazing job of showing you brands or stories or other pieces of content that your other friends like and so you can't help it go, “God if 28 of my friends already like this brand or this product or this venue then geez, I should probably give it a look in as well.”

Mel: 13:29 People have gone even one step further with this where you can actually pay for social proof, right?

Dan: 13:36 Uh-huh.

Mel: 13:38 So, the idea of being able to buy followers on Instagram so you can pay x amount of dollars and they'll give you a thousand followers. What that does is increase your perception of popularity to other people. People think that, okay, other people are following you, this many people are following you, there must be something here worth following, I'm going to join the herd and I'm going to click like or I'm going to click follow as well. So it's, I think a pretty cool offshoot that you can actually now sell the heuristic.

Dan: 14:03 Yeah. Unethically of course but yeah, it's-

Mel: 14:06 Who’s the ethical police now.

Dan: 14:09 It's a bizarre thing and it's always a fundamental rule, it pays to be popular and this is the thing that businesses have known forever. If you are a nightclub, it pays to leave a whole bunch of people waiting out the front, some people driving past think that must be really popular because there's people just queuing up to get in there but the modern economy and the internet have given us a whole bunch of interesting ways to both make people feel they're doing something that lots of other people have selected and also a way of showing people that friends and contacts and people just like them are into whatever it is we want them to buy.

Mel: 14:45 We’ve got to be careful with it though because you know that feeling that you get when you do wait in the club -and look it's been a while for me - but that feeling when you do wait in a club where you wait to get in for a long time then you walk in and you're like, this place is empty, what the hell is going on? You just go, this was a sham.

Dan: 14:59 Yeah. So, the best I can do on that is that’s what Google+ was like, which is an easier reference for me than clubs, it’s been a long time, but remember when Google+ came out, which is Google's attempt at social network and there's this crazy waiting list and you had to try and get on the Beta and you're doing everything and you've got friends that’ve got limited invites and you sign yourself up for an account and you get in there and it's like “hello! (hello, hello, hello) .... There's nobody here, what the hell is this” and I'm backing out straight away and then everybody starts flaming about Google+ and saying it's terrible and then social proof ends up working against them because everybody just ended up bagging the crap out of it and it died a pretty quick death.

Mel: 15:39 So if the social proof isn't authentic or if you get caught out on it, if people realise that it's not really something worth waiting for, then you're screwed, then it's over. So the best way to overcome that is to have, to use people, when I say use people not in the unethical use people way but just use people who are most like you. So the more, if somebody, obviously we're very similar Dan, right?

Dan: 15:39 Mm-hmm (affirmative)-

Mel: 16:07 If somebody, if I get a notification on my Facebook that says Dan Monheit liked this, I'm like “Dan Monheit liked this okay, well Dan Monheit...”

Dan: 16:16 “… must be awesome he’s like a connoisseur of all things … awesome …”

Mel: 16:17 We seem to like the same things. So right, I'm in. So it's got to be genuine and the most genuine way to do it is to promote the actions of people who are most like or most similar to the person who you actually targeting.

Dan: 16:29 Yeah. So, in completely unrelated news we're talking about getting our reviews and ratings earlier and what you dear listeners should know is that a lot of people who are very, very similar to you and we know what similar to you is. We're basically inside your ear now.

Mel: 16:29 Over here.

Dan: 16:45 Yeah. A lot of the people that have been giving us five star ratings and reviews are really similar to you so it's probably something you should consider doing.

Mel: 16:53 You should do it because all of your friends who are very similar to you are also going to enjoy having us inside their brains just as much and you wouldn't want to deprive them of that, would you?

Dan: 17:03 Not at all. So, hey it's good to talk about how we can sell more nightclub admissions and restaurant food and sorts of  other things with this but there was also interesting thing we were talking about a bit earlier today about how this was used for good, how social proof was used for social good as well?

Mel: 17:19 Yeah. So instead of using social proof as a reason to jump off the cliff with your mates, you can also use social proof and probably what you should use social proof for more than anything is to encourage pro-social behaviour. So, an example out of the UK had to do with people's compliance to paying their taxes and they were trying to figure out different ways to get people to be more compliant when it comes to paying taxes. So there are a number of different strategies that they used involving sending threatening letters, sending letters reminding people of their civic duty to pay taxes, but by far the most effective message when it came to increasing the number of people who would pay their taxes was to let people know how many other people within their neighbourhood had already paid their taxes. By doing so, you become victim to social proof and you feel that obligation that everybody else has done this, I should probably do it too.

Dan: 18:18 Just like that people paying up the taxes.

Mel: 18:20 How easy is it?

Dan: 18:21 Yeah. Amazing. Alright, I think that's everything we've got on social proof. Let's wrap this up.

Mel: 18:27 So takeaway number one, our brain is wired for social connection so much so that our instinct to connect with other people is always going to override any rational thought processes we may have.

Dan: 18:39 Like jumping off cliffs. Point two is that, if you've got a product or service to sell, what you want to do is find some really interesting or creative ways to show the person you're trying to sell to that lots and lots of other people just like them have already bought this product and they are thrilled with it. And we don't talk a lot about data on this show but this is somewhere where data can be really interesting, you can use all of the data that you have on users or prospective users to make sure that you're matching up your existing customers with your prospective ones.

Mel: 19:07 Then to expand on the last thing we learned is don't just tell them what other random people are doing, tell them what their best friends are doing, tell them what their siblings are doing, tell them what the closest people to them are doing and they're going to be more likely to do it themselves.

Dan: 19:21 And pay your taxes, everybody else in your neighbourhood is doing it. Alright. I think that's a wrap. Make sure you tune in next episode, we've got another awesome heuristic to unpack for you.

Mel: 19:31 If you guys have any questions for us or you just want to let us know what you think, please hit us up on social media. You can find me on Twitter or Instagram @DrMelW.

Dan: 19:39 I'm also on Twitter and Instagram @Danmonheit.

Mel: 19:43 See you next time.

Dan: 19:43 We out.

#4 Endowment Effect: Why we always sit in the same damn seat

Cars, homes, pens, mugs - it doesn’t matter what it is - if it’s ours, chances are we'll think it's more valuable than it really is. In this episode, Mel and Dan look at why we're always going to be disappointed when we sell something second hand, and how marketers can make their products irrationally valuable in the eyes of consumers.

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Dan: 00:17 Hey, I'm Dan Monheit, Co-founder of Hardhat.

Mel: 00:20 And I'm Dr Mel Weinberg, a performance psychologist.

Dan: 00:23 And if you're listening to this, it's because you're interested in why we choose what we choose ...

Mel: 00:27 ... why we think what we think ...

Dan: 00:28 ... and how to exploit this stuff for fun and commercial gain.

Mel: 00:28 Here we go again.

Dan: 00:32 Yeah, here we go again.

Hey, Mel?

Mel: 00:47 Yeah, Dan.

Dan: 00:49 I couldn't help but notice, this is our, I don't know, third, fourth episode now, and every time we come in here, being the gentleman that I am, I always let you in first, and for some reason you always sit in that exact seat. I was just wondering why that is?

Mel: 01:01 This spot?

Dan: 01:02 Yeah.

Mel: 01:03 It's my spot.

Dan: 01:03 Yeah, I know. I know you say it's your spot, but what makes it your spot?

Mel: 01:08 It's the one that I always sit in.

Dan: 01:11 It's your spot, because it's the one you always sit in, because it's your spot ...

Mel: 01:14 Because it's my spot.

Dan: 01:15 Right.

Mel: 01:15 Are you calling me out for circular logic here?

Dan: 01:18 I mean, it just seems weird, right? Like, we had the first show, we recorded it in, I don't know, 20 minutes, 30 minutes. So you sat on that piece of fabric once for 20 minutes, and now it's yours until, I don't know, the end of time, until somebody demolishes the studio and builds a new one, and then maybe I can sit on that side.

Mel: 01:32 You want my spot.

Dan: 01:33 Well, I don't really want it, but I just think it's interesting that you have somehow assigned value to that, I guess in the same way that when we go to sell our cars, we always seem to, for some reason, think that they're worth a hell of a lot more than the people who want to buy them. The same is probably true for our houses, as well. For some reason, the person selling the house always seems to think they're going to get more for it ... unless you happen to live in Melbourne ... than people seem to think they're going to be paying for it.

Mel: 01:58 I think what I'm hearing is that you're sort of describing what's known as the Endowment Effect. It's one of those heuristics that we talk about often. It's the idea that we tend to ascribe more value to something simply because we own it. Like the reason that my spot is obviously better than your spot is because it's mine, and so basically, the more that I feel a sense of ownership over this piece of real estate, here on this couch, the more important it is to me and the less willing I am to give it up for anything.

Dan: 02:30 That's interesting that the longer you have it for, the less willing you are to give it up, which I guess, if we think about things like our cars, which we spend a lot of time in and we probably have all these wonderful memories of going on road trips on and have got these sort of parts of ourselves assigned to these objects.

Mel: 02:45 And you name ... some people name their cars.

Dan: 02:48 Some people name their cars. That'd be weird but people do it, right. I guess the longer something is part of us, and the more it becomes part of our identity, and that place on the couch is clearly a key part of your identity now, the more value we tend to ascribe to these things, even if they're just inanimate objects.

Mel: 03:05 Yeah, so hey, let me tell you about some research. Guess what-

Dan: 03:08 Dr Mel coming with the research.

Mel: 03:10 I've got a study for you, would you believe it?

Dan: 03:12 Out of your back pocket.

Mel: 03:13 It's a study from the back pocket of the jeans I was wearing back in 1990, by some of our favourites, including good old Danny Kahneman. It was a study involving Cornell undergraduate students, and what they did was they gave half of them some mugs, okay.

Dan: 03:31 Mugs? Like drinking mugs?

Mel: 03:32 Yeah, like coffee mugs. Yeah.

So they gave mugs to half of them, and the other half didn't get any mugs. Then they asked both groups to place a value on how much these mugs were worth. So we're making a bit of a contrast here between what people perhaps are willing to pay for the mugs, and for people with the mugs, it's about how much they're willing to accept for the mugs. What they found was that the people who actually were given the mugs placed a much higher cost estimate on the value of those mugs than people who weren't given the mugs.

Dan: 04:06 Okay, let me break this down. So you and I are both in this course, Cornell undergrads. You're in the lucky group of people that get a mug. I'm in the unlucky group of people that don't get mugs. Then they're like, "How much do you reckon these mugs are worth?"

Mel: 04:16 Yeah. I say, "This is a nice mug and I'm holding it, and actually, I mean, it's my mug. So it's probably worth about five bucks."

Dan: 04:26 Right, and I'm like, "Well, I don't really see any value in that mug. Who cares? I reckon it's maybe worth, I don't know, $2.50, $3.00."

Mel: 04:34 That's exactly what happened, yeah.

Dan: 04:34 And that's what happened.

Mel: 04:34 Yeah.

Dan: 04:36 So you thought it was worth more just because you had it?

Mel: 04:38 Same-looking mug, the only difference was that I was given one and you weren't.

Dan: 04:42 Right. Look, this seems weird, right. This seems weird that we would be somehow wired to assign value to something just because it's in our possession. It sounds like it would make us do kind of wacky things, but I guess if you take a long term historical perspective on this, coming from a world of finite resources ... You know I like to talk about caveman Dan ... If we had to go out and hunt for something and kill it and bring it home, there's probably a lot of work in that, so it probably makes sense that we would have evolved to overvalue the stuff that we have, over the things that we don't.

Mel: 05:14 Yeah, and in the same vein, so one of the ways that we can explain this is through the concept of loss aversion, which is also very popular in the behavioural economics field, and it's the idea that once we have something, we really, really don't want to lose it. We're more motivated by the idea of not losing something than we are by the idea of actually gaining something.

Dan: 05:35 Right, it's the old, like, bird in the hand is worth two in the bush.

Mel: 05:38 Something like that, yeah. Yeah, so the idea is that if we have it, we don't want to let it go, and if we don't have it, we don't actually care that much for it.

Dan: 05:46 Okay, that's interesting.

Mel: 05:48 It comes back to our motivation around ... and sort of how emotions play into the way that we think. So all of this stuff is about how we feel, rather than how we think, at the end of the day. One example of loss aversion is that if you lose $10 out of your pocket, you're going to be pretty upset, right.

Dan: 06:12 Mm-hmm (affirmative).

Mel: 06:13 Everybody knows that feeling where you've just lost 10 bucks, right.

Dan: 06:15 “I'm such an idiot!”

Mel: 06:17 And logically, you'd think, well, if you get 10 bucks back, all right, we're good, I'm even. Even though your bank account might be even, emotionally you're not. Emotionally you've gone out of whack because that loss of $10 was actually a lot stronger than finding it again. So what you actually need, to come out emotionally even, is actually to find 20 bucks.

Dan: 06:40 Right, to compensate for the lost 10.

Mel: 06:43 That's right.

Dan: 06:44 Wow. That's a recipe for disaster for mankind, surely.

Mel: 06:44 Can be. Yeah.

Dan: 06:49 Okay, so if we're going to just really put a ribbon around this, what we're saying is, if we own a thing, actually or even just perceptually, even just that we happen to sit on that chair for five minutes, if we feel some sense of ownership towards something, we are going to ascribe more value to it than if we never owned it at all.

Mel: 07:08 Yeah. Can you give me an example of how this might work in your world?

Dan: 07:13 I'm so glad you asked. Obviously, academically or just intuitively, instinctively, businesses have realised this for a long, long time, that the quicker you can get somebody to feel like this thing is theirs, the better chance you've got of them actually buying it. So if you look at things like real estate, right, we have open for inspections for a reason. We want people to come in and see the house. You know you go to an open for inspection and they take away all the photos of the family that live there. Firstly because it's kind of weird, but also it's much easier for you to imagine yourself in that home.

Same thing when you go to buy a car, the first thing the sales guys wants to do, right, is give you an experience. He wants to get you in the car, going for a test drive, so you can start imagining yourself driving to work or driving home or cruising around with your friends in this exact car. Even if you've only driven it for two or three minutes, 15 minutes, whatever it is, it's started to weld itself to you, and you start feeling some degree of ownership. You've imagined your future life together.

Mel: 08:11 It's pretty amazing how strong our imagination is for things like this. Back in the day, I used to work at Sportsco.

Dan: 08:18 Let's go Sportsco?

Mel: 08:20 That's the one. I used to sell running shoes, used to sell sneakers. That might have been where part of the obsession started. But what I used to do would be to get the customer to try them on, right, and if you can get a customer to try it on, you've basically made the sale, because what happens when they try it on is that they start to walk around the store in it, and as they're walking around the store in it, they're imagining their future life with these shoes.

Dan: 08:42 “My life is so good with these shoes.”

Mel: 08:46 And they're imagining all the other outfits they can wear with these shoes. They're imagining what events they're going to wear these shoes to. So then, for them to actually not make that purchase, that not only deprives them of the shoes, but of all those future dreams that they had with this fantastic new pair of Air Force Ones.

Dan: 09:00 Got you. So that's one. The second way businesses try to use this is with the process of co-creation, so knowing that if they can get consumers to feel like they're actually contributing to the end product, they're going to ascribe ownership to it, and therefore they're going to value it more. There's a couple of really great examples of this.

Number one is IKEA. IKEA know that the fact people spend whatever it is, 89 bucks on a Billy bookshelf, they bring it home and then they invest two or three hours of themselves, their own time and effort, and cursing and tears if you're me, in putting together your Billy bookshelf, you are just going to be so much more proud of it, and you're going to value it so much more highly than if you'd just gone and bought a ready-made thing off the shelf. It results in people doing all sorts of crazy stuff, like selling Billy bookshelves on Ebay for hundreds of dollars, which makes no sense at all. I was even speaking to somebody last week who's being relocated overseas and they are taking their Billy bookshelf with them. The thing cost under 100 bucks and they probably sell them wherever the person's moving. Makes no sense at all.

The other great example of co-creation is the guys at Betty Crocker. You guys know the cake people, and Betty Crocker know that if they can get people to feel like we are really creating the cake with them, and not just putting together a bunch of things they have assembled for us, we're going to be so much more proud of it. They've realised that the minimum threshold for us feeling like we're contributing is cracking an egg. So even if everything else is in the box, if we crack the egg, we mix it in there, we are baking, and now it feels like it's ours, and man, this cake tastes so good, and I'm so proud of it because I made that thing. I cracked that egg by hand.

Mel: 10:38 So another example, it's reminding me of customising products and personalising shoes. We'll go back to the good old Nike kicks as an example, because one day, one day we'll get Phil Knight in the store, in the studio, and then we'll get in his door. But the idea is that if you can personalise a pair of shoes, right, everybody's got shoes, and they come in all different colours, but if you can actually co-design them, if you can actually contribute to what colour those shoes are, what colour the swoosh is going to be, what colour every little piece of it is going to be, what colour the shoelaces are going to be, it's going to feel like yours. And if at the end, you can chuck your initials on it and a number, then those shoes are ultimately yours.

Dan: 11:24 I guess we're seeing that proliferate out everywhere, from websites where you can spec up your own car and put your own wheels on, and you can change the different tint of the windows, through to even just being able to put your initials on a phone case or a bag or a wallet.

Mel: 11:40 Yeah, that's it. It's happening everywhere now, so I think we can move onto the next ... the last one, which was the idea of a money-back guarantee.

Dan: 11:49 Uh-huh (affirmative).

Mel: 11:49 Yeah, so we know all sorts of companies offer a money-back guarantee these days, for all sorts of things, and what they're really doing there, rather than giving you a sense of ownership or allowing you to co-create, they're actually feeding into this idea of loss aversion. So knowing that we don't like to lose out on anything, for example our money to buy something, what they do is offer a money-back guarantee which says, "You don't actually need to worry about losing anything of yours to obtain this product. In fact, we're going to, if you're unhappy, you can have all of your money back. There's absolutely no reason to worry or to feel anything in respect to loss, at all."

Dan: 12:26 You've basically just described every infomercial ever made.

Mel: 12:29 That's it.

Dan: 12:30 All right, so the three ways I guess companies are using this is, one is around giving people an experience to get a sense of ownership, you know, free trial of the product, test drive, try it on, walk around, describe your life in this thing. The second is around co-creation. If we can get them to build it, they're going to value it more, they're going to love it. And the third is around de-risking the potential loss with things like money-back guarantees.

Mel: 12:53 Yeah. Don't take my spot.

Dan: 12:55 I would not take your spot, and now I understand how much you value it, I don't even think I could afford to take that spot if I ever wanted to.

Mel: 13:02 No, I'm not selling it to you for anything.

Dan: 13:03 But to you guys, dear listeners, I mean, look, this show would be nothing without you all. You have contributed so much and you should all be so proud of yourselves for the show that you've helped create here.

Mel: 13:12 Yeah, I mean, it really is their show. I mean, we do it for everybody, don't we?

Dan: 13:18 Yeah.

Mel: 13:19 It's fun for us, but it's really-

Dan: 13:21 Mainly for the people.

Mel: 13:22 It's all for them.

Dan: 13:23 Yeah. So if you've got more questions about the endowment effect or loss aversion, you can hit us on Twitter. If you want the airy-fairy academic stuff, you can get Mel. What's your handle, Mel?

Mel: 13:32 Airy-fairy ... @DrMelW.

Dan: 13:34 Sorry, well-researched.

Mel: 13:36 Scientifically credible.

Dan: 13:37 Scientifically proven. She's wearing a lab coat right now, @DrMelW. Is that D-R Mel W?

Mel: 13:44 That's the one.

Dan: 13:45 Got you. Or if you want to know the hard hitting business side of this stuff and how to actually use sell more products and services, you can get me on Twitter as well, I'm @danmonheit, M-O-N-H-E-I-T.

Mel: 13:56 And just in case you were wondering, that was Dan trying to sneak everybody into co-creating the show.

Dan: 14:02 No, it's not sneaky at all.

Mel: 14:04 You told me, again. I'm going to put my ethical police hat on.

Dan: 14:07 Call the fun police.

Mel: 14:09 Show's over. We're out.

Dan: 14:10 All right, we're done.

#3 Choice Paradox: Why it’s so hard to choose a hamburger

We all want more choices, right? Well, no. Not according to the data anyway. In this episode Mel and Dan look at how choice can adversely affect our ability to make decisions, as well as what good marketers can do to tip things in their favour.

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Dan: 00:17 Hey, I'm Dan Monheit, co-founder of Hardhat.

Mel: 00:20 And I'm Dr. Mel Weinberg, a performance psychologist.

Dan: 00:23 And if you're listening to this podcast it's because you're interested in, why we choose what we choose ...  

Mel: 00:27 Why we think, what we think ...

Dan: 00:28 And how to exploit these things for fun and commercial gain.

Mel: 00:31 Dan, you promised me this would be ethical.

Dan: 00:33 This is totally ethical, but let's be real, that's what we're here to do.

Mel: 00:46 So I've got to tell you what happened last night.

Dan: 00:48 You sound so depressed about it.

Mel: 00:50 Well, I mean it wasn't one of my finest moments. I was hungry, so I couldn't figure out what to eat, so I thought I'll get in my car and I'll drive around. Is that not what you do when you're angry?

Dan: 01:03 No, go on.

Mel: 01:03 Alright. So I thought, there's so many options within a two kilometre radius of my place. So I just drove around to see what jumps out at me. 45 minutes later, I parked out in front of my house, went inside and boiled a can of tomato soup.

Dan: 01:18 Wow.

Mel: 01:19 Yeah.

Dan: 01:19 That's a good insight Mel.

Mel: 01:20 Yeah. That's the life of Dr. Mel.

Dan: 01:23 That's right, you had soup for dinner last night?

Mel: 01:25 Yeah.

Dan: 01:26 I'm going to tell you something, I'm going to one up here, I actually wish I'd had soup for dinner last night.

Mel: 01:31 What did you have?

Dan: 01:32 I had cereal for dinner last night. This idea of driving around is ridiculous. I don't know if you're familiar with smartphones, but you should get one. And on phones you can get things called apps. I have three such apps on my phone, I have Deliveroo, I have Foodora and I have Uber Eats. And actually a bit like you, I had to first decide which one of these three apps I want to open.

I went with Uber Eats, but then even opening Uber Eats there was literally like hundreds of choices, talk about first world problems. There are so many different types of delicious looking hamburgers for me to choose from that I actually just could not come to terms with making a decision. And by this point it was already after 8:00 and I thought forget it, I just closed the apps and went and had some cereal. Which was actually quite delicious, I think.

Mel: 02:18 Cornflakes or Weetbix?

Dan: 02:20 I actually had Muesli. Actually, my thing with cereal, I think most of us are dehydrated most of the time, we don't drink enough water. So I think having cereal does a good job of filling up and also giving you the fluids that you probably need.

Mel: 02:31 Not that should anybody should be taking dietary recommendations from the two of us right now.

Dan: 02:39 I think this is true. But anyway, I was just thinking, it seems ridiculous to complain about how hard it was to choose which dinner option I wanted out of the literally hundreds that were available to me, compared to what even just a couple of hundred years ago we would have had to go through to eat dinner.

Mel: 02:53 Like what?

Dan: 02:53 Well maybe a few thousand years ago, like Flintstones times, you had to go and hunt a Dinosaur, or whatever people hunted, and go and kill that thing and that's what you get to eat for dinner. But at least you didn't have to decide which thing you were going to have, just like you just see a thing and you hunt it down and you kill it, and guess what? Everybody is eating.

Mel: 03:13 We were such simple humans back then, weren’t we?

Dan: 03:16 I know, I can't help but think hunting a saber tooth tiger would have been easier than selecting a burger off Uber Eats.

Mel: 03:21 Well, see, you're bringing up an interesting thing there, which is this idea about choice and freedom to choose, right? Because as humans, we like the idea of having choice, right?

Dan: 03:33 Absolutely. It's a right, isn't it?

Mel: 03:35 We deserve the right to freedom and to freedom of choice. It makes us feel like we're in control of things and it makes us feel like we know our world. But there's this thing called the Choice Paradox, which a lot of people are probably familiar with and we're going to tease that out a little bit in this study ... in this episode...

Dan: 03:53 What’s not a study? Everything's a study.

Mel: 03:55 I'm such a researcher, aren’t I?

Dan: 03:58 You are.

Mel: 03:58 But we're going to tease that a little bit to help us understand why we make such poor food choices when it comes to dinner and to hopefully help us make better ones next time.

Dan: 04:07 Awesome. Okay. I think the other good thing about Choice Paradox is that it’s a thing you can say in front of other people and it's immediately going to make you sound smarter. So let's unpack exactly what it is so that you can back up the big terminology with some actual ideas. So Dr. Mel, let's start where all good things start. Surely there's some seminal piece of research that we can all look to, to learn about the choice paradox.

Mel: 04:30 In fact there is. Have you heard of the jam study?

Dan: 04:34 I have not, but I feel like I'm about to. Let's talk about the jam study.

Mel: 04:38 You know what, it's actually called the famous jam study. It's not only the jam study, it is the famous jam study.

Dan: 04:44 The most famous of all other jam studies.

Mel: 04:46 I'm not sure how much research there is the journal of jam, but this one is definitely up there. So the famous jam study was an experiment by Lyengar and Lepper back in 2000. So it's really fairly contemporary in terms of how these sorts of things go in psychology. What they did was, they set up a tasting booth at, say a local supermarket and there were two conditions that people were exposed to. At one of these tasting booths, say it was on the first weekend, there were six varieties of jam that the people could choose from and they noticed, or took note of how many of the passers by or how many of the shoppers stopped to taste these jams.

Dan: 05:21 Everybody loves tasting some free jam.

Mel: 05:22 Yeah, a sprinkle of strawberry jam, spoonful of raspberry jam and you're good to go. So then the next weekend they actually had the same tasting booth, but instead of having six jams on display, there were 24 varieties of jam.

Dan: 05:36 What how many?

Mel: 05:36 24.

Dan: 05:38 24, there's no way you could, we're not going to do this because it's going to be annoying for our listeners, but nobody can name more than seven types of jam.

Mel: 05:47 I'm pretty sure-

Dan: 05:47 We're not doing this, 24, that's ridiculous.

Mel: 05:50 What would be the most random jam?

Dan: 05:54 There would be some sort of a Goji Berry infused with some sort of ancient- I don't know. Let's keep going. Lots of jams.

Mel: 06:00 Okay. There were some exotic jam options as part of this 24 variety. So what they actually did was, they took note of how many of the passers by stopped to taste some of the jam and they found that people were more interested in the display when there was the larger variety, so for the 24 jams on display, people were going around thinking "Oh, what is this jam?"

Dan: 06:23 “I have to go and see this!”

Mel: 06:24 Yeah - “I want to have a look at what sorts of jams are there, I'm going to check this out.”

Dan: 06:27 People call in their wives and husbands, “you have to come down there are 24, you will not believe it, 24 jams, come check it out. “

Mel: 06:33 So even though more people did stop, when it actually came to purchasing behaviour, what they found was that people were much more likely to actually make a purchase of jam when they had been exposed to only 6 of the options.

Dan: 06:45 Oh, let me get this right. So 24 jams, more people stopping, six jams, less people stopping, but more people buying.

Mel: 06:52 That's it.

Dan: 06:54 Right. So that's not what we would expect, right? We would think that more choice is better and we're going to feel better about it and you get to choose one out of 24, not one out of six. So what has happened? Something has happened between jam seven and jam 24, that people have just decided to stop buying.

Mel: 07:10 Yeah. There are few things that come into play. One of the things could be, did you know what jam you were looking for in the first place? Because if you have 24 options at your disposal and you already had an idea in mind about what jam you wanted, then you're more likely to see that jam when there's 24 options on display than when there's only six. But most people stumbling across a jam display in the supermarket are willing to try new flavours, and they are not sure what they're going to come across. So what happens is they try a few, and all of a sudden they start comparing the properties of the different jams, the sweetness-

Dan: 07:43 How's the viscosity on the apricot and passion fruit?

Mel: 07:45 Yeah. All these things come into play and all of a sudden jam becomes something that's really important and our brain is trying to figure out all this new information that we have to coordinate which jam we're going to choose. And then it's like something flicks in our brain and our brain goes, hang on a second, I really don't give a stuff about jam, where's the chocolate at?

Dan: 08:04 Yeah. I don't need jam my life. Let's move on.

Mel: 08:07 So that's exactly what happened. So our brain just goes, you know what, like flip the switch because I'm not interested in this any more, stuff this.

Dan: 08:12 Like too hard, can't win, don't try.

Mel: 08:13 Absolute too hard basket. Yep.

Dan: 08:15 Right. And that's going to happen more when we're dealing with making a choice out of 24 than we're making a choice out of six.

Mel: 08:22 Yeah. And then, it goes a step further, because if even if you do make a choice and even if you actually do buy a jam from that option of 24, when you go home, you're tasting that jam but you're still thinking about all the ones that you didn't buy and all the ones that you left behind and so your actual enjoyment of the product at the end of the day is less than it would be if you would have been more secure in your choice or more definite in your choice from having a smaller option.

Dan: 08:51 So I'm eating my lunch of boysenberry jam and instead of just enjoying it, I'm actually running 23 concurrent “what if” scenarios in my brain about how much better my life could have been if I just picked standard, predictable strawberry? It's always been there for me. Or what if I'd picked raspberry it's like strawberry but just slightly more interesting.

Mel: 09:13 And all of a sudden, all of the positive things that we normally attribute to jam, all the sweetness that we know about jam gets overtaken by this horrible indecision and regret about all of the jams that we left behind.

Dan: 09:25 God we’re pathetic creatures aren’t we.

Mel: 09:26 Oh, yeah.

Dan: 09:27 And I mean, let's be honest, this probably goes some way to explaining the current divorce rate in the country, which is around about 50%. I mean, what about the thousands of other people that we've met in our lives? What if we just picked one of those instead?

Mel: 09:41 So much choice, so much regret.

Dan: 09:44 But you know what I guess is not just an affliction affecting the lowly jam buys of the world. I think it's quite well known that some of the world's greatest entrepreneurs including the late great Steve Jobs and Mark Zuckerberg, are famous for wearing the same thing day in, day out.

Mel: 10:00 People who know you might think that you're perhaps in that category as well, with your dunks, with your jeans, with your pretty standard attire here. What are you trying to do here, Dan?

Dan: 10:11 Well, I think what guys like Steve and Mark and I are trying to do here is, we acknowledge the fact that there's going to be a lot of decisions to make today and probably, I don't know, four or five of them are actually going to be really, really important decisions and it would be remiss of me, and us - I speak on behalf of my choice minimising brethren here - It'd be remiss of us to waste one of the good decisions of the day on what are we going to wear today?

Mel: 10:37 So this has absolutely nothing to do with fashion?

Dan: 10:39 No, no, no. Nothing to do with fashion.

Mel: 10:41 No. This is all about you just making smarter decisions throughout the day.

Dan: 10:44 Yeah. It's saying, look, there's going to be important decisions to make during the day. I have to reduce the decisions early on in the morning so that I can be ready and fresh for when an actual important decision turns up. So what I'm going to eat for breakfast, not such an important decision, I might as well just eat what I ate yesterday.

Mel: 11:00 Yeah, you're probably going to eat it for dinner as well.

Dan: 11:01 Well, that cuts to the core Mel. But ... what are we going to wear? Like it seems crazy that people would actually expend real mental energy considering that every morning. But, you know, to each their own ...

Mel: 11:15 Sorry, retail industry.

Dan: 11:18 You guys do a great job. Don't get me wrong. I guess, a lot of the ... Well you're probably the one to talk about literature more than I do, but I would imagine if I read literature, a lot of it would talk about how decision making abilities are like a tank of gas, or maybe like a muscle.

Mel: 11:34 Yeah. One way that you could think about these would be to think of it like a fuel tank, like a decision fuel tank. And we make sure we want to keep that full because you never know when you're going to need that.

Dan: 11:44 I'm a high octane performer. Yes.

Mel: 11:46 You want to preserve as much fuel as you can in that decision tank as possible. So yeah, I guess it makes sense that if there are things that you can reduce, that discomfort of having to choose between having to use up that fuel in that tank and save it for later, then you'll be much better placed to make better decisions later on.

Dan: 12:02 Exactly. That's what I tell people. An interesting side note on that is, a good tip for our listeners, if you guys ever end up in prison or if you're currently listening to us from prison and you find yourself eligible for a parole hearing, the research shows that you should try and get your parole hearing done in the morning. It was a very famous study, so famous that even guys like me have heard about it, done with judges in Israel. That looked at the likelihood of granting parole as the day wore on, and what the researchers found was that the earlier in the day the more likely people were to be granted parole because as the judge is still human and as they fatigued as the day wore on, it's much easier to just deny parole knowing that they would get another shot at making a decision at some future point. And it's better to make the easiest decision of all, which is, to not make a decision at all.

Mel: 12:51 So whether you're buying jam, whether you're starting up the next Facebook or really ... whether you're in some seriously big trouble and trying to apply for parole, then there's so many things that you can learn from understanding how we make decisions and the Choice Paradox itself.

Dan: 13:09 Absolutely. So if we look at this on a really tactical level, if we're designing an interface or something for a client, even just things like how many navigation items we give people, there used to be an idea that people want to see everything on the homepage, put all the navigation items up there and let the poor user workout which one of those 15 items to select. Whereas now we realised, we needed to give people fewer but better options.

Can we condense it down to three or four really good choices? And same with even things like a contact us page, do we really need to give people, call us, email us, fill out this form, get us on Facebook, get us on Twitter and get us on Google+. We just make it so hard for people. Fewer but better options is absolutely going to do the trick.

Mel: 13:52 I think one of the things that the Choice Paradox highlights is the difference between giving people actual choice and giving them the perception of choice, right? Really what people need is the illusion. They need that perception that they are able to choose should they want to, but don't give them the actual choice. It's too much.

Dan: 14:06 So who's questionably ethical now? How are we going to give people the illusion of choice. I didn't know you were in the world of trickery, Dr. Mel.

Mel: 14:13 Excuse me. I think in my time here is done...

Dan: 14:16 So no, let's finish up on this bit. So we're talking about giving people the illusion of choice? So I guess we could think about that on a website where you have a big shopping cart. I don't know, where do you buy your sneakers from?

Mel: 14:28 East Bay.

Dan: 14:29 From East Bay. All right, cool, so on East Bay we know there's thousands and thousands of different sneakers on there, but we know the site is good enough to filter you down pretty quickly to a digestible list of a few dozen results.

Mel: 14:42 While at the same time showing me how much choice that actually is available. So you get those little numbers in brackets behind each filter, which actually tell me, “now if you really want to go and look at all of the possible Nike shoes, I'll show them to you. But really I know that here are just the ones that you want.”

Dan: 14:56 Awesome. So I guess what they're doing by that is they're saying, "Look, all of the choice is here," but at the same time they're trying to not completely bamboozle you by showing you 2000 options at once, knowing that if they did that, chances are you'll just leave.

Mel: 15:08 That's right.

Dan: 15:09 Cool. So Choice Paradox, fewer but better options.

Mel: 15:12 Yeah, so what are you having for dinner tonight?

Dan: 15:15 Why do you have to do that? What are you having for dinner tonight?

Mel: 15:20 I'm probably just going to mum's house.

Dan: 15:22 For soup?

Mel: 15:24 Two options at mom's house, take it or leave it.

Dan: 15:26 Love it. All right, well, hopefully today you've learned a bit more about why we choose what we choose ...

Mel: 15:30 Why we think what we think ...

Dan: 15:31 And how to exploit these things for fun and commercial gain.

#2 Availability Bias: Why we massively overestimate our chances of success

Of all the mental tasks we suck at performing, estimating the likelihood of something really good or really bad happening is right up there. In this episode, Mel and Dan unpack the ingredients that lead to our terrible mental calculations, and discuss how we can reconfigure them to create more compelling ads

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Dan: 00:17 Hey, I'm Dan Monheit, co-founder of Hardhat.

Mel: 00:19 And I'm Dr. Mel Weinberg, a performance psychologist.

Dan: 00:22 And if you're listening to this podcast, it's because you're interested in why we choose what we choose-

Mel: 00:26 Why we think what we think-

Dan: 00:27 And how to exploit these things for fun and commercial gain.

Mel: 00:31 Dan, you promised me this would be ethical.

Dan: 00:33 This is totally ethical but let's be real, that's what we're here to do.

So, Mel, I was thinking we seem to be terrible at estimating the likelihood with which things happen. People seem to really overestimate the likelihood of things like winning the lottery, or their startup getting bought by Facebook for a billion dollars.

Mel: 01:00 Yeah, it goes the other way as well. We also tend to underestimate the likelihood that bad things are going to happen to us in the future. We always think that if we look ahead into our future that bad things are more likely to happen to other people than they are to us.

Dan: 01:12 Yeah, which is kind of weird right? It seems like instead of going through all the hard work of getting the data and crunching the stats and making an educated guess about how likely something is to happen, we seem to do this weird kind of mental gymnastics trick where we're like "Hey brain, find me an example of startups getting bought by Facebook for a billion dollars". And it would appear that the easier it is for our brain to produce an example of that, the more likely we think it is for that thing to happen.

Mel: 01:39 Yeah, so basically what you're explaining is a psychological phenomenon called the Availability Bias. It was introduced to us by a couple of legends called Kahneman and Tversky, amongst a host of other types of heuristics and biases that they identified. The common example that they give is when they ask people to guess or to estimate whether, if they think about all the words in the english language, are there more words that start with the letter K, or that have K as the third letter. Do you want to have a go?

Dan: 02:11 Okay, let’s do this.

Mel: 02:12 Alright, how many words can you think of that start with the letter K?

Dan: 02:14 You go first.

Mel: 02:14 Okay. Kiss.

Dan: 02:18 That's cute. That's with a C. Kickboxing.

Mel: 02:22 Kill.

Dan: 02:24 Knuckle.

Mel: 02:25 Kind.

Dan: 02:26 Karate.

Mel: 02:26 Knife.

Dan: 02:29 Kar- I said Karate. Karaoke!

Mel: 02:30 You're out, you're out, you're out!

Dan: 02:30 There's lives, there's lives! Kangaroo!

Mel: 02:30 Kangaroo, okay.

Dan: 02:30 Knickerbocker.

Mel: 02:30 King.

Dan: 02:30 Knuckle.

Mel: 02:36 Knife. You said knuckle.

Dan: 02:38 Damn it, Okay. Go on.

Mel: 02:39 Anyway, there's heaps, right? How many words can you think of that have K as the third letter?

Dan: 02:44 Ask.

Mel: 02:45 Take.

Dan: 02:49 Make.

Mel: 02:49 Bake.

Dan: 02:49 Cake.

Mel: 02:52 Acknowledge.

Dan: 02:57 I got nothing.

Mel: 02:58 Okay, so basically the same thing that you explained before about how your brain searches for bits of information.

Dan: 03:03 There are no words with K as the third letter, clearly.

Mel: 03:05 Well, see it's not exactly true. In fact there are many, many more words in the english language that actually do have K as the third letter, it's just that it's so much easier for us to remember words that start with the letter K because that's how we process information. We process words alphabetically. We have rules for the way that we store information and they dictate how easy it is, or how difficult it is for us to retrieve that information.

So basically what Kahneman and Tversky show us with that experiment was that, if you want to think of words that start with the letter K, or you want to answer this question, you don't actually know how many words start with the letter K, you don't actually know how many words have K as the third letter. So you say to your brain “Brain go and find me examples of words that start with the letter K". It's easy you can think of heaps - that's how we store information. But if you say to your brain “Hang on a second can you find some words for me that have K as the third letter?" And all of a sudden your brain comes up blank.

Dan: 03:55 While you're describing this, I don't know about you listening, but I'm imagining my brain as Tom Cruise in Minority Report calling up all of these examples on a giant moving screen, waving his arms around. That's basically what happens, yes?

Mel: 04:07 Great movie, great reference, totally appreciate it. Pretty much, we're just searching for information. And that's what Kahneman and Tversky called the Availability Bias, and that was the classic example that they used to teach us about how it works.

Dan: 04:19 Right, so, as marketers what does this mean for us?

Mel: 04:24 You're the marketing guru.

Dan: 04:24 Oh, right.

Mel: 04:26 I'm just the psychologist.

Dan: 04:28 Clearly as marketers we want to be words that start with K. We don't want to be words with K as the third letter. When we are promoting a product, a service, a brand, we want our prospective customers to think about us and think about the benefits they're likely to get from using our product, service, brand, far more often and to be far more frequently occurring than they otherwise might, right?

Mel: 04:52 So you want to play with people's minds?

Dan: 04:56 Yes, that's what we do right? As advertisers, we're choice architects, we're trying to get people to choose certain things. So, if what you're telling me, and what we're talking about today is the fact that the easier something is to recall, the more likely we think it is to happen. Then obviously we need to ask ourselves, how do we make things easier to recall and therefore seem more likely to happen.

Mel: 05:17 There is a way that we can do that, and there are some things that we know about the way that we store information that can make it more easy to retrieve. I'll give you three examples. The first thing that makes it easier for us to recall something is how recent it is. If you imagine that your brain has multiple compartments, and it's constantly taking in new information, the most recent information has part of place in your brain and in your awareness, until something else comes along to replace it. The more recent something is, the easier it is for us to remember, so, if you think about a couple of years ago with the Malaysian airlines flight that went missing. And for a few days after that, all people were thinking about with regard to aeroplanes when the word aeroplane popped up, people were thinking about aeroplanes going missing.

Dan: 06:02 Right, because it just happened right?

Mel: 06:04 And it was fearful, right then for a few days afterwards people were thinking “I don't want to fly, I definitely don't want to fly Malaysian Airlines, I don't really want to fly anywhere near Asia”. Slowly though after that as more instances, or as more days passed where there weren't any planes going missing, that became more common, and that became more frequent. The example of the Malaysian Airlines flight was that, for as long as it was in recent memory, and recently available, it was very easy for us to pay attention to it and to recall it.

Dan: 06:36 So the more recently something's happened, the easier it is for us to remember, and that makes sense because people forget stuff, we forget stuff all the time. If we saw it this morning we're way more likely to remember it than if we saw it six weeks ago.

Mel: 06:49 And because we're more likely to remember it, we think it's more likely to happen again.

Dan: 06:49 I've got a couple of young kids, one of the things I learned very early on is as soon as my son has a bad incident with something- he falls off a slide at a park, the first thing we’ve got to do is put him straight back on there. And I guess now what we're explaining is that that pushes the most recent memory of falling off a slide down the list, or down the giant Facebook news feed that is our brain, and adds new memories on top of it pushing it further and further and further away until one day he's a messed up 28 year old and can't remember why, and one day realises because he fell off a slide and his dad never acknowledged it. Or something like that.

Mel: 07:25 Parenting tips to come in the near future.

Dan: 07:28 Yeah, yeah. Talk to me about marketing, don't talk to me about parenting.

Mel: 07:30 Alright, so we've covered recency, making something more recent can make it easier to remember. The next thing has to do with the emotional intensity. If you think about the way that your brain processes and stores information, the area of your brain that is responsible for storing memories is right next to the part that's responsible for storing emotions. So these things go together and these things are very highly connected.

If I asked you to think about the happiest moments of your life, go.

Dan: 07:56 My wedding day, the birth of my children.

Mel: 07:59 I'm calling bullshit Dan, they are the things that you're supposed to say. Be honest.

Dan: 08:00 Yeah, but they're happy.

I got this pair of Jordan 11s-

Mel: 08:05 Now we're talking.

Dan: 08:07 When they were released in the U.S. people actually burnt down footlocker stores, and I just walked straight into a shop here, they had one pair left in my size. Must have been 2007.

Mel: 08:16 Could probably recall the exact date, can you hear the passion in his voice. Alright this is an emotionally intense-

Dan: 08:16 The smell, oh you open up the box and just- anyway.

Mel: 08:25 This is a vivid, emotionally intense experience. What about if I ask you to think about the times in your life where you were most relaxed?

Dan: 08:31 Yeah, yeah, an example?

Mel: 08:32 Okay, you can tell me.

Dan: 08:34 Example. Intellectually I know the answer, I was probably on a beach somewhere on a holiday?

Mel: 08:43 Cause that's where you're supposed to be relaxed.

Dan: 08:46 Like the most relaxed?

Mel: 08:52 It's hard, right, because an emotion like feeling relaxed, feeling calm, feeling tired, or feeling sleeping don't have the same intensity as emotions like being happy, being sad, being terrified, being excited. Anything that has a higher emotional intensity, any memory that is associated with a more intense emotion is going to be much easier for us to find. It's gonna stand out in our brain when we go searching for things. The ones that have the emotional attachments are gonna have the big spotlights on them, the ones we’re gonna be directed to.

Dan: 09:23 It's like in all caps with all the hashtags. Very easy to locate for future reference.

Mel: 09:27 Easy to find, that's it.

Dan: 09:28 So, I guess if we go back to that Malaysian Airlines example, right. We talked about the perfect storm for that. It happened very recently and clearly a missing plane, just like a car crash or a shark attack is high on the emotional spectrum.

Mel: 09:43 Definitely and those are the things that make it. Yeah you can say emotional spectrum, that's a thing.

Dan: 09:47 Yeah. Good, scientific.

Mel: 09:47 I'll pay that.

Dan: 09:47 It punches us in the brain.

Mel: 09:47 No.

Dan: 09:53 No, it doesn't do that.

Mel: 09:55 Stick with by your head.

Dan: 09:55 Emotional spectrum.

Mel: 09:58 Yes, the emotional spectrum of things if we're going from low alertness, low arousal to high alertness, high aroused. The things that are on the higher end of that spectrum are gonna be more memorable.

Dan: 10:09 Right.

Mel: 10:09 So, the third thing that we can do to make a memory more available is to give it some personal significance. Let's think of the example of something that nobody should ever do but a lot of people are typically guilty of on a frequent basis. Let's say texting and driving. We all know we're not supposed to text and drive and it's very dangerous and that if you get caught there are terrible consequences. At the very least you might get some demerit points and a heavy fine, at the very least. We know these things but it still doesn't really stop us from doing the behaviour. The thing that might stop us or make us think twice about engaging in that behaviour is if we hear that our best friend, our sibling or our parent has just been busted, been caught, been fined and had it happen to them. What happens is we see, “okay that's just happened to somebody who is very much like us. If it can happen to them it is more likely to happen to us.”

So, because we can easily recall an instance of it happening to somebody just like us, it's front and centre of our memory.

Dan: 11:12 I guess what's weird about this it can completely override nonsensical things. Somebody who has a relative who smokes a pack a day and lives to 106 for some reason believes or over indexes in the belief that you can smoke and live a long life, even though the facts clearly would suggest that the opposite is true.

Mel: 11:34 Well, if you're looking for instances of smoking related deaths, you think okay, well I know somebody who smoked and they lived till 110, so I don't know if I believe in that.

Dan: 11:34 Yeah.

Mel: 11:43 So we'd certainly overestimate the importance and the frequency of these things based on how personally significant it is to us.

Dan: 11:49 Cool. So, just to recap here, not all memories are created equal.

Mel: 11:54 Certainly not.

Dan: 11:54 The easier it is to pry out a memory, the more likely we are to think something is going to happen. Creating memories that are more powerful and more easily recalled, we need to make them recent, we need to make them emotional and we need to make them as personally relevant as we can for our audience.

Mel: 12:11 Yep.

Dan: 12:11 So, if we think about how we might wrap this up as a marketing campaign or as a thing that might happen for a real life business product or service out there. Let's imagine a university and the university has a sport's science program and it's obviously trying to attract undergrad students into that program. Some of the previous alumni from that program have gone on to exceptional careers in the best sporting leagues in the world. Out of the thousands and thousands of graduates that have come and gone, a handful have found their way into the NBA, the NFL, the English Premier League, whatever it is. Taking what we've learned today, if a university were to produce a whole bunch of content, highly emotional stories that were displayed very frequently through the likes of say social media, to the right audience, which featured people that looked like, smelt like, seemed like their audience - and these guys went out and achieved things that were emotionally significant and exciting and interesting … perspective students would not be able think that the likelihood of that happening to them is higher than it actually is. Is that what we're saying here?

Mel: 13:21 Yeah, I mean you try to compete with a whole bunch of other information that a person's brain is taking in. So, you're looking at what you can do, knowing what we know about how the brain works to make your information the most readily available and seemingly important information to them.

Dan: 13:37 I guess what you're trying to say here, and I'll just be blunt about it before the ethical police start talking about us manipulating people, let's be honest, the advertising industry, those of us that work in ads and marketing. We are here to change people's mind, that is our whole remit. Anybody that tells you anything different is lying or self delusional. We're here to make people choose our products, our clients products over other peoples, so we might as well be good at it. Understanding how people remember things and knowing that the easier it is to recall a memory, the more likely people are to believe it is something that we should absolutely consider. I guess what we've learned about today is one such technique to help us do that, called:

Mel: 14:17 The availability bias.

Dan: 14:17 Awesome. All right. Do we have anything else to talk about on the Availability Bias?

Mel: 14:20 Do we?

Dan: 14:20 I don't know, I have a fun fact.

Mel: 14:23 Give me a fun fact.

Dan: 14:25 More people, I think over 20 people a year die taking selfies.

Mel: 14:31 Ouch.

Dan: 14:32 Less than two people a year in Australia die from shark attacks.

Mel: 14:35 I'm never taking a selfie again.

Dan: 14:36 Yeah, we should fear selfies way more than than we should fear sharks.

Mel: 14:39 It's probably the reason I'm still alive is cause I don't take selfies.

Dan: 14:42 All right, I think we should start a campaign, stop the selfies, it's for your own good. All right, I think that's it for this episode. Come back next time for more about why people choose what they choose.

Mel: 14:53 Why people think the way they think.

Dan: 14:55 And how to exploit them for profit and fun.

Mel: 14:55 Ethically.

Speaker 3: 14:55 (Music playing)

#1 Intro to Bad Decisions

Welcome to Bad Decisions, the podcast that helps marketers understand why we choose what we choose, why we think what we think, and how to exploit this stuff for fun and commercial gain.

Each episode, Dr Melissa Weinberg (performance psychologist) and Dan Monheit (ad guy) will explore a different heuristic (behavioural quirk) that causes us to make poor decisions. In doing so, they’ll draw from the worlds of research, behavioural sciences, and cold, hard advertising.

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Mel: 00:17 Hi. Welcome to Bad Decisions.

Dan: 00:19 The podcast series that explores why we choose what we choose.

Mel: 00:22 Why we think what we think.

Dan: 00:23 And how to exploit this stuff for fun and commercial gain.

Mel: 00:26 I'm Dr. Mel Weinberg. I'm a performance psychologist with a background in subjective well-being and resilience.

Dan: 00:32 I'm Dan Monheit, co-founder of Hardhat, a creative agency built for the digital age.

Mel: 00:47 Every day of our lives, we're faced with making a bunch of decisions. And sometimes we make good ones, but most of the time we actually make really bad ones.

Dan: 00:56 Yeah, you're right. It's actually quite miraculous that we've survived as a species until this point.

Mel: 01:00 We live in a world where we've got choices to make all of the time. How do we know when we're making good decisions? And how do we know we're making bad decisions?

Dan: 01:08 It seems as though our brains aren't always working exactly how we think they should.

Mel: 01:12 It's funny, because we rely on our brains to perform all these important processes for us, but they don't always seem to work in the way that's actually best for us.

Dan: 01:20 Yeah, I mean, like, it's usually net positive.

Mel: 01:24 Generally. But I think, something that we're both interested in is how our brain makes shortcuts to get us to making decisions.

Dan: 01:32 Because the reality is, if we actually stopped and thought about all the options for every decision we needed to make every single day, we'd never get past breakfast, right?

Mel: 01:40 We might end up making the most rational decision, but maybe that's not the best one. Maybe it will help us to make the most rational decision, but maybe that will come at the cost of  a whole lot of our time. So maybe it's actually more effective for us to make decisions based on other things, like I don't know, our emotions.

Dan: 01:58 Yeah, however, when you look at it, knowing how people make decisions and understanding how we can perhaps influence how people make decisions is a pretty important thing, especially if you're an advertising marketing guy like me.

Mel: 02:10 And it's basically what I do as a psychologist, I try to understand why people think, how they feel and really help people get a better understanding of ultimately who they are.

Dan: 02:20 The way the show is going to work is each episode we're going to take a heuristic. And a heuristic is like a quirk or a weird thing that our brain does to help us make a decision without us even really noticing. And we're going to sort of interrogate it from various perspectives.

Mel: 02:32 I'm going to come at it from an academic and psychological perspective. So I'm going to talk about how the brain works. I'm going to look at some of the research and explain some of the research that we have from the field of behavioural economics.

Dan: 02:44 And as interesting as the research and the academic side of things are, I'm going to be bringing the real world where the “rubber hits the road” perspective, and looking at how great brands and great businesses can use some of these heuristics or quirks to sell more products and services and make a whole bunch of cash.

Mel: 03:00 In the upcoming episodes, we're going to explore things like the availability bias, the choice paradox.

Dan: 03:05 We're going to see what happens when you put too many jams on display for people to look at.

Mel: 03:09 We're going to explore how many words you can think of starting with a letter of the alphabet.

Dan: 03:14 Sounds good, right?

Mel: 03:15 By the time we're done, you'll have a whole new understanding of how your brain works.

Dan: 03:19 And you'll never look at another purchase decision the same way again.