Mini Episode 1 - Why do we keep the boxes from expensive shoes and handbags?

Carli from Melbourne gets us rolling with a listener question that's way too close to home.

Dan:                             00:17                Hey, and welcome to Bad Decisions, mini episode one. I am Dan Monheit co-founder of Hardhat. And if you've just come off listening to the previous episode that we did with Mel, you'll know she's off doing things far more important than recording podcasts, having a baby. Go with that, Mel. So I'm going to try and tide us over, and instead of recording new episodes about new heuristics, I'm going to start working my way through the backlog of amazing questions that we have received over the years about why people do some of the weird and wonderful things that they do. So the first question that we are going to look at as part of this mini ep series comes from Carli in Melbourne.

Carli:                            00:55                Hey, Dan, calling from Melbourne here. I thought it was just something I do, but I've noticed my friends have done this as well. The other day, I bought a pair of shoes, and when they arrived, I loved them and put the box in a closet along with 10 other boxes that have been there, collecting dust. I don't know why I do this. I'm probably never going to use it again. And I've realized I do this with a bunch of other products as well. I'm wondering why.

Dan:                             01:17                Such a good question. And this one is real close to home for me as both a sneaker enthusiast and the husband of a shoe and handbag enthusiast. I'm sure that at least 50% of my mortgage payments each month are just going to cover the cost of storing empty boxes from luxury goods. So this is a great one for us to dive into.

Dan:                             01:37                As I think about it, this probably extends beyond just luxury goods. So when I was younger, I remember like in share houses, people used to hang on to all of the old alcohol bottles from expensive whiskeys or champagnes that they drunk. I remember about the same time in my life. People used to collect the old bottles from the aftershaves and perfumes, even though there was nothing left in them. They didn't want to throw out the bottles. And I guess more recently there seems to be a global habit of hanging on to all of our old iPhone boxes even though we know we are never going to need them again, for some reason, we just cannot bear to throw them out. So it is weird that we would hang on to these things, especially when we know that objectively the value is basically zero.

Dan:                             02:20                So the thing that explains that I think explains a lot of this weird and wonderful behavior is a concept called the halo effect. And the halo effect is all around the idea that as humans, we have a tendency to take an initial impression of a person, product, service, brand. And we take that initial impression, and we apply it to the entire being. It's like why as children, we get told not to judge books by their cover because inherently that's what we do. Reading the whole book is long, boring, time-consuming. It's much quicker to just see the cover, make a call, and get on with your life most of the time. But obviously, this can lead us astray.

Dan:                             02:58                So if we think about some of the research behind this, and the first real piece of research done into the halo effect was done by a guy named Edward Thorndike in the 1920s. And what Thorndike and his team of researchers did was I went to the military, and in the military, they asked commanding officers to rate their subordinates on a series of attributes, including their character, their physical strength, their leadership, and their intelligence. And I think what's interesting about doing this in the military is that there's a natural, maybe not a natural, a forced separation between the commanding officers and their soldiers. So they know who each other are, but they don't know each other particularly well, which I feel is a good approximation for most people with most brands. You know what it is, but you don't know it particularly well.

Dan:                             03:44                Anyway, what they found after the commanding officers filled in their reviews and handed the results in was something that is both obvious, but also very, very interesting. What they found was disproportionately high correlations between positive attributes and disproportionately high correlations between negative attributes. So if a soldier was rated really well on one thing, they were probably rated really well on most things. If they were rated poorly on a thing, they were more than likely to be poorly rated on most things. Now, some of these things make sense. So you would imagine that leadership and intelligence should track together. A smarter person is probably a better leader. But someone's physical characteristics and their character or physical characteristics and their intelligence should really have nothing to do with one another, but they still seem to be tracking side by side of whether people were rated well or not well on those attributes. And from this, Thorndike and his team concluded that we tend to take that initial impression and apply it universally.

Dan:                             04:47                Now, the halo effect goes to explain a lot of other weird and wonderful pieces of research that have been conducted, where we tend to assume that tall people are more competent at their jobs, which perhaps in the NBA is correct, but, really anywhere else, it makes no difference. The halo effect is why Ferrari can sell ballpoint pens for $370. It is why good-looking people tend to do better in our legal system than less good-looking people because we judge books by their covers, and we get on with our lives. Now, there are lots of other wonderful brand examples of this.

Dan:                             05:19                Sometimes the halo is set from the top. It's set from the founder of the business. So the gentleman who founded IKEA, his name is Ingvar Kamprad. He, unfortunately, died a couple of years ago, but before he died, he was written up in one of the rich lists as being, I think, the eighth richest man in the world with a net worth of around $60 billion. And you know, what is amazing about this guy is that if you knew one thing about him, it's that he found that he founded IKEA. If you knew a second thing about him, it would probably be that he insisted on driving a 20-year-old beat-up Volvo, that he always flew economy, that he almost exclusively shopped in thrift stores and at markets. He was just a massive tight ass. Now, this might sound like crazy behavior for somebody that's worth $60 billion. But when you have a business built around sharp pricing, that halo of frugality shines all the way down.

Dan:                             06:08                Luxury brands use the halo effect incredibly well. And I guess, what they do, really core to their being, is they take the halo from their hero or their flagship product. So that piece of jewelry that you're actually buying from Tiffany & Co, and they managed to extend the shine of that halo to the tissue paper that wraps it up, to the box that it sits in, to the bag that it goes home into, the ribbon that ties the bag handles together. It sometimes even extends the retail experience to the perceived fanciness of the people serving us. And even the way we feel about their advertising. If the core product is beautiful and luxurious enough, they seem to be able to stretch that halo to everything else that it touches. And the rational attempting to be rational part of our brain says, "well, look, if you've just paid $520 for this silver pendant, which was clearly worth it, otherwise you wouldn't have paid it. Surely the tissue paper and the box and the bag must be worth something. So we'd better not throw them out".

Dan:                             07:06                So for brands, really, the idea is to remember that first impressions count. And whether that first impression is a website, a piece of content on social media, or in-store interaction, remember that people will judge you by it. So if we're going to be judged by our cover, let's make sure the cover is hot. Thank you so much for your question, Carly. Hopefully, that goes some way to answering why people hang on to the boxes from expensive bags and jewelry. If you've got a question for me that you would love to hear answered, you can hit me up on social media. I'm @DanMonheit. You can find me on LinkedIn, or you can email me at AskDan@hardhat.com.au. And if I've piqued your interest in halo effect, make sure you go back and check out episode 21 of the regular Bad Decisions podcast. We'll be back with another one of these in a couple of weeks. So stay safe, and I'll see you then.

 

#34: Authority Bias: Why nine in ten dentists recommend this episode

Doesn't it seem strange that from the moment we're born, we're taught that following instructions is the right thing to do? In this episode, Mel and Dan discuss the authority bias, and why carrying around a clipboard could be the best thing you ever do.

Mel:                             00:17                Hi, and welcome to Bad Decisions.

Dan:                             00:19                The show 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.

Mel:                             00:25                Always ethically.

Dan:                             00:26                Always.

Mel:                             00:27                I'm Dr. Mel Weinberg. I'm a performance psychologist.

Dan:                             00:29                And I'm Dan Monheit, co-founder of Hardhat.

Mel:                             00:31                And this is [Cuts 00:00:32] with the music.

Dan:                             00:39                All right, yo. Hey Mel, how are you?

Mel:                             00:41                I'm good, Dan, how are you going?

Dan:                             00:42                Very good. So I've been thinking as we're starting to return back to some form of normality, there are a few things from COVID 2020-life that I think I will miss, and I'm having trouble letting go of, and one of them is the Saturday movie night, where there is literally no expectation that I'm going to get dressed or go out. And really, I'm just going to sit on the couch, get takeaway food and enjoy a movie.

Mel:                             01:08                Do you do it with Chinese food? That's my default.

Dan:                             01:11                Not a huge fan. Maybe I just haven't had the right type of Chinese food. Italian is the big hit in my household. But even though we're now allowed to go out, I still am choosing to largely ignore that and enjoy the comforts of my own home and my various streaming subscriptions. And I'll tell you what. I watched an absolute cracker last weekend. I'm sure you've seen it.

Mel:                             01:29                What'd you watch?

Dan:                             01:30                Well, it's not Space Jam.

Mel:                             01:43                What did you watch after Space Jam?

Dan:                             01:43                After Space Jam? I watched Catch Me If You Can.

Mel:                             01:47                Good movie. Classic. Leo.

Dan:                             01:50                Nothing has made me want to go to a costume shop, rent a hat, and then go and fly a plane more than Catch Me If You Can, because apparently that's all it takes. Just get a hat.

Mel:                             02:00                It's not necessarily all that it takes, but it can certainly take you a long way. And it certainly took the protagonist in that movie very far. And you know what, Dan?

Dan:                             02:09                What?

Mel:                             02:09                I don't know if this was planned or not, but that basically hands us a heuristic on a silver platter right now.

Dan:                             02:16                Boom!

Mel:                             02:17                I'm sure you weren't thinking about this at all, but it reminds me very much of the authority bias.

Eric Cartman:                02:21                I'm a cop and you will respect my authority.

Dan:                             02:29                It's one of those biases that I can't believe that we've gotten to this episode and we haven't yet discussed it. So great, we've got plenty of content to get through.

Dan:                             02:39                I know. It's everywhere and it's a juicy one. So I'm also excited to dive into this. So where should we begin?

Mel:                             02:44                With the definition, obviously.

Dan:                             02:45                Well, you're the doctor and I'm not going to argue with that. So let's do it.

Mel:                             02:49                Let me use my authority to provide you with the definition. Authority bias is the human tendency to attribute greater authority and knowledge to persons of perceived authority. And that authority can be achieved through fame, power, position, status, wealth, qualifications or even dress, as you saw in Catch Me If You Can. As simple as a pilot's hat, wasn't it?

Dan:                             03:10                Yeah, that's all you need. It's not all you need, you're right, but it's about 80% of what you need to be able to fly a plane, is the correct outfit.

Mel:                             03:17                And the ability to just deceive people and not care.

Dan:                             03:20                You've got to have the swag and it just seems that movie is like, is a classic example of people just not wanting to challenge authority. If somebody with a badge and uniform tells me to do something, then I should probably do it.

Mel:                             03:31                Yeah. There are probably some bad examples of, throughout human history, of where that has led people astray.

Dan:                             03:39                Yeah. And I guess there could be a whole dark side that this podcast could go down about regular people doing terrible things in war times, just because somebody in a uniform told them to. But we're going to not really spend much time on that and instead keep it easy breezy, if that's all right with you?

Mel:                             03:53                I like to keep things easy breezy, but what you do mention in that the dark side of human history in that sense is relevant to what we're talking about, because a lot of what we're going to talk about today has its origins in early social psychology research. And a lot of the real good stuff that we have today, that you would learn in Intro to Social Psychology, comes from the 1950s and 1960s after some particularly dark moments in human history.

Mel:                             04:20                So, if anybody has taken Introduction to Social Psychology or any social psychology course, there are probably three names that you will be pretty familiar with. The first would be Solomon Asch. And I believe we talked about Asch and the conformity study when we talked about social proof.

Dan:                             04:35                I believe you're correct.

Mel:                             04:37                And check the archives for that one. And people would also probably be familiar with the name Zimbardo and the prison experiment. And that's a popular one too. It's been popularized in movies recently as well. Today, we're going to talk about the third name that I put in that group of influential social psychologists, which is the name Stanley Milgram. Have you heard of Milgram, Dan?

Dan:                             05:03                Stanmo? Absolutely.

Mel:                             05:03                Everybody's heard of Milgram.

Dan:                             05:03                But, for those listening that haven't, why don't you bring us all up to speed?

Speaker 4:                    05:06                It's a alive.

Mel:                             05:07                I certainly will. Milgram was involved in a series of studies, in fact, he was leading a series of studies that looked at people's natural tendencies to comply with authority, even when it went against their moral compass. So people might be familiar with this, and I'll just give a brief overview of his research, but he was the one who was leading these studies that were about getting ordinary people to administer electric shocks to actors, but obviously, the person administering the shock didn't know that they were actors. And, it was under the guise of, You're participating in this experiment and your job is to be the teacher. And there's going to be somebody in another room. You can't see them. You'll be able to hear them, though. But they're the learner. And your job is to teach them by administering a punishment every time they make a mistake. And that punishment is going to be in the form of an electric shock.

Mel:                             06:05                "So you just got to press this button here and the person in the other room is going to get an electric shock. And they're going to know that they got it wrong and that they need to improve and, basically, step up the game. Right? As they go, the more mistakes they make, as well, the more severe the electric shock is going to get. But don't worry about that. Your job is to just keep administering those electric shocks as they keep making mistakes."

Mel:                             06:25                And what happened was that at the beginning of the experiment, pretty much all the participants would go along and administer these mild electric shocks to the not-real people in the other room. And it would get to a point. They'd get some feedback. So they were able to hear the person in the other room expressing some pain or discomfort, obviously, in response to the shock. So, if you imagine yourself being there and administering the shock to somebody and then hearing the feedback, you're probably going to start questioning after a little while and go, "Is this really the right thing for me to be doing? And when they did express some concern about, "Should I keep going?", they were told very sternly by Milgram or that the experimenter to, "Please continue. Carry on. This is fine. This is part of the project,." At which point, the participant would typically continue to administer those shocks to such a severe level, that 65% of all the participants administered the highest possible dose of 450 volts, which they believed was causing quite significant suffering to the other person.

Dan:                             07:35                This is wild, because I imagine this is one of those classic things where if you ask people in a completely cold state, "Here's how the experiment's going to work. I'm going to tell you to keep zapping the person every time they get the question wrong. And you're going to hear them screaming for their life." Would you keep going or would you stop? And I'm sure most people would say, "Oh no, of course, I'd stop. I'm not a sick psychopath. Why would I keep electrocuting somebody I could hear screaming from the room next door?" But what the experiment showed, if you just said 65%. So, basically, two thirds of people kept going, just because a dude in a lab coat with a clipboard said, "No, please continue. This is correct. Everything's going how it's meant to be going."

Mel:                             08:08                But you just touched on something there that was really key. That the guy in a lab coat with the clipboard was actually crucial to the experiment. And when they actually changed that, partway through the experiment, there was some variations where they actually just said, "The lead guy's got to step out for a minute." And they just replaced him with an ordinary person in jeans and tee shirt, and people's compliance went way down. So that lab coat, whether it's that lab coat, whether it's the pilot's hat that Frank Abagnale wears in Catch Me If You Can, that is so important. So everybody get out to a costume shop and make yourself look important, whatever it takes to influence people.

Dan:                             08:43                It makes sense. Right? Because I think about where this has come from. And, you know I always like to take a deep historical evolutionary perspective on this. And I think about why would evolution favor a respect or an obedience of authority? Evolution only favors positive attributes, so why on earth would it do that? And so one thing that I've considered is that it often makes sense to respect or be subservient to authority, because the people in authority are usually in a better position to be able to allocate you things you need to survive. So the authority figures might be able to give you food or water or shelter that you wouldn't be able to get if you just decided to challenge them at every moment. And I think on a more broad sense that having most people in society willing to obey authority, or at least adhere to authority makes it much easier to cooperate, to trade, to build societies than if everybody's just trying to burn shit down and you basically have anarchy and pirates running the show, which makes it tough.

Dan:                             09:42                So I think that there is this natural biological incentive for respecting authority. And then we layer onto that the fact that in society, everywhere you turn, from the moment you're born, you are being educated that good and positive behavior is behavior that respects and adheres to authority, whether that comes from parents, or elders, or school, or politics, or military or religion. Everywhere you go, you have a boss, and your boss has a boss, and your boss's boss has a boss. And if everybody just keeps you in line, everything's going to be sweet.

Mel:                             10:14                Yeah. And I think that's really the key, that from a very early age, from our earliest age, we are actually reliant on authority figures. Right? To guide us, to tell us where to go, to fill in the gaps when there's information that we don't have about how to act in the world. So from a very young age, we are hardwired to follow authority figures. And then it's only, maybe, as we get older that we start to develop, maybe in our teenage, adolescent years that we start to develop this need to actually say, "You know what? I think I've got enough information now. I want to make my own decisions. I want to be accountable. I want to be responsible for my own actions." But like you said, it develops as we go and then our social hierarchy is completely catered towards that.

Dan:                             10:55                So we've got hundreds of millions of years' worth of evolution, plus all of our cultural imprinting, that means we really don't stand a chance when somebody comes on screen in a lab coat and tells us to use this particular toothpaste or chew this particular gum. And it seems that the dental industry are perhaps the ... Wonderful industry. I've got some great friends in the dental industry. But, they are big subscribers to the authority bias, because whether it's-

Speaker 5:                    11:17                This man is a dentist. So we can't show you his face on television. Morning, Rob.

Dan:                             11:22                Oral B showing the shirtless Rob, the dentist, from the back. Or the fact that [inaudible 00:11:27] around the world, has affiliations with various dental associations. They even have online education programs for dentists. They have clearly seen the benefits of partnering with the clear authorities in dental health care.

Dan:                             11:41                I think we see a similar thing as far back as the 1930s, when cigarette companies, believe it or not, were getting endorsements by doctors. And I'm looking at an ad from the 1930s now. It's a Lucky Strike ad. And the headline reads, "20,679 physicians say Luckies are less irritating." And it's basically an ad that, of all the cigarettes you can smoke, Lucky Strikes are the ones to go for. And there's a smiling, middle-aged doctor in a lab coat looking like one hell of an authority figure here. And, "If he's telling me to smoke Lucky Strikes, who am I to argue?"

Mel:                             12:15                Was the rationale there that they were less irritating?

Dan:                             12:17                Yeah.

Mel:                             12:18                The cigarettes or the people smoking them?

Dan:                             12:20                Well, maybe both. And I also liked that 20,679 physicians say that. I don't know how many they surveyed. There might've been another million that said, "You've got to be kidding me. These are killing you." But, it's hard to argue with a guy in a lab coat is the first key lesson from today.

Mel:                             12:35                It's interesting, there's so many examples of this out there. Like any time a celebrity's used to endorse a product, the company's, basically, trying to leverage that person's authority, that person's fame or that person's status. And, George Clooney promoting the espresso is a perfect example of that. I'm sure you could flag off many more. Or, all the celebrities who endorse perfumes. Right?

Dan:                             12:58                Yeah. George Clooney as a human looks, pretty suave and sophisticated, so you would get why they would want him promoting suave and sophisticated coffee. But, I think it's really interesting when they have characters from TV shows, like people from Big Bang Theory promoting computers, where it's not even a real person. It's a character, but the character is enough to convey the authority that, "This nerd from Big Bang Theory must know about computers, because that's what I know them as."

Mel:                             13:23                I think this is a big criteria for me to distinguish. That whether a person actually has authority or whether it's perceived authority is really critical. When a person does have authority ... If a person really is a dentist and they know a lot about brushing your teeth and what's good for dental hygiene, then it makes sense to listen to them. I don't think that's necessarily a bias. That's just making a good decision based on good evidence. But when you've got somebody like a character, a make-believe person who doesn't actually have any experience in computers and is clearly being told, "Could you please ... " Or be paid, actually. "Could you please say this and we will pay you X number of dollars." Then, that's where the authority bias comes in, because it's the perception of authority that is influencing people, rather than any actual evidence itself.

Dan:                             14:11                Yeah. So, I'm going to be careful I don't, I don't trigger you here, because there's lots of safe spaces we can go. We can talk about Heart Foundation [inaudible 00:14:16] and all sorts of other things. But, I'm tempted to just take a little wander into the world of social media and say, it's tough today to determine in many instances where somebody is a real authority and where they are a manufactured or artificial authority. And I'm sure in your space, psychology and wellbeing, there are plenty of people out there who may be actually are authorities or maybe are just authorities at looking like authorities.

Mel:                             14:43                100%. And I think the lines between who's an expert and who's not used to be a lot clearer. But, like you say, with social media, but not just social media, the access that people have to even be able to, say, publish their own book. Right? Publishing a book used to be an exclusive right of people who were invited by a publishing company, based on their expertise, to write about a particular topic. But now anybody can self-publish and make money, essentially, or sell copies of something. And people then tend to believe that they're an expert in the area, even though they may not have any qualification at all, or any experience relevant to that.

Dan:                             15:22                I guess their authority becomes their qualification.

Mel:                             15:25                Did I do a good job of not getting too triggered there?

Dan:                             15:27                That was very good.

Mel:                             15:28                Thanks.

Dan:                             15:29                All right. So, look, I think as far as biases go, this is a pretty straightforward one. What we know is that people are more likely to take advice or take instruction from a perceived or authority figure. I guess, from a brand perspective ... We don't need to overcook this, but there are a few interesting and, maybe obvious, but I still think interesting things that brands can do with this. The first is to bask in the reflected glory of other authority figures. So we see this across the board, whether that is a celebrity endorser who aligns with actually what you're trying to do, or it might be an organization, like we spoke about the Australian Dental Association, the Heart Foundation, [inaudible 00:16:04] or even looking at something overseas where ... Nike, obviously, wanting to cement or defend their position as a leading provider of athletic apparel in the world have just signed a billion-dollar, eight-year deal with the NBA to be the official maker of uniforms for the NBA, because clearly if they're making the uniforms for the NBA players, they must be the leading authority on that.

Dan:                             16:26                So number one thing to do is to, bask in the reflected glory of somebody else's authority who can speak on your behalf and lend you some credibility that you otherwise might not have.

Mel:                             16:35                Makes sense.

Dan:                             16:36                That is not why I have you on the show, at all.

Mel:                             16:37                Mm (affirmative).

Dan:                             16:38                It might be a happy coincidence, Dr. Mel.

Mel:                             16:42                I don't feel used. That's fun.

Dan:                             16:44                No. You have feel leveraged.

Dan:                             16:48                The second thing to consider is ... Maybe it's a longer-term approach. Right? Because when you're buying or renting somebody else's authority, you can do that in a short period of time. The second thing to consider is becoming an authority figure oneself. And this is usually a much longer, much deeper commitment. If we go back to the episode on the mere exposure effect, the idea that just repeated exposure over time builds trust, builds safety, builds familiarity.

Dan:                             17:13                And if you are going to become an authority, figure out for yourself, building up your capabilities, your expertise and the familiarity with which people see you associated with the thing you're trying to be an authority for, is something to work on building over time. And the third thing I think brands can do, and this is slightly tangential, but is to think about the medium as the authority. And so there's this idea that you can do things in outdoor advertising and TV advertising that you can't do through digital-only channels. And I say this as a guy who was born and raised building an agency around digital channels. But, when you are making a big commitment on a big screen to a lot of people, it says, "We're a large company. We can afford to be on television. We're going to be here next week and the week after that." And it's often hard to convey that same authority just using hyper-targeted things like email and social media.

Mel:                             18:03                It's funny, isn't it? That idea that TV can become the authority figure, but Facebook has not got that at all. Just because anybody can do it, it doesn't cost a thing.

Dan:                             18:13                Exactly. The fact that it's democratized. From a business perspective, it's amazing for Facebook, because most of their customers are small businesses. So they're a very robust, very resilient business model, but they do miss out on the flashiness and the authority that you can get from those traditional media channels. What about for the poor people of the world? Just trying to not get mistaken by a guy in a captain's hat?

Mel:                             18:37                Yeah. Well, I think the thing here for me is about whether the authority figure has gained their authority through evidence or through eminence. Right? And what I mean by that is, if you take a step back and question where that person's authority has come from, have they earned it through something worthy of actually being a spokesperson for that topic? Or are they just a well-known famous person? In which case, what they say about anything may not necessarily be grounded in actual evidence or in actual research. So, obviously, I'm going to say, "Hey, listen to the people who have done the research, who have the facts, who have the qualifications."

Mel:                             19:14                And as we said before, it's very difficult to always know the difference in today's day and age, where there is so many people out there who are experts, but they're experts based on eminence and having this acquired status, rather than actually having the evidence behind it. So in that sense, my advice to people is to say, "Why do I trust this person's opinion?" Right? What's behind it?

Mel:                             19:37                The other thing that I mentioned just for ordinary people is something that actually Milgram came up with. And I love it when the people who actually named the biases then come up with their own hacks for it. That's my favorite thing. We don't have to do the work. But, Milgram in the 1970s, talked about introducing the idea of agency theory, which might mean something different in your world. But in the world of psychology, agency theory says people will obey an authority when they believe that the authority will take responsibility for the consequences of their actions. So, once people can remind themselves that, "Actually the consequences of this decision are mine. I'm going to have to deal with the fallout or the benefit of this either way." Then you become more likely to question what you're basing your decision on, and to be more comfortable making your own decision and less likely to actually comply with the authority figure.

Dan:                             20:30                It's all on you. You got this, Mel.

Mel:                             20:32                You got this too, Dan.

Dan:                             20:33                Awesome! All right. So authority bias. I reckon that's a wrap. Can we just hit that textbook definition one more time? Just for those playing along at home.

Mel:                             20:41                Yeah. So authority bias is the tendency that we as humans have to attribute greater authority and knowledge to persons who we perceive have some level of authority.

Dan:                             20:50                And the things we can do about this as brands are to, number one, borrow or rent some authority by attaching yourselves to people, organizations or other brands that carry the authority that you want. The second thing we can look at doing is building our own authority, slowly over time. And looking at doing that through both the evidence and the eminence. Is that right, Dr. Mel?

Mel:                             21:11                Very good. How catchy is that?

Dan:                             21:12                And the third thing is to consider our media choices and where the medium itself can actually be the authority, by going big or going home. And for peeps?

Mel:                             21:21                And for peeps. So the first one is about questioning whether the authority figure actually has authority, or whether you're just perceiving that they have all authority. And if you can tell the difference between the two, then you're in a good place, because we want to trust the experts and we want to be cautious about the pseudo experts, wherever you are. And the second thing is about reminding yourself that you actually have agency and you are in control of the outcomes, not the authority figure or the perceived authority figure who you're following.

Dan:                             21:51                That's right. Like Adam Sandler said, "You can do it."

Mel:                             21:54                I can't wait to hear what you're going to watch next weekend.

Dan:                             21:57                Hopefully it lines up with whatever our next bias is going to be. I think that's all-

Mel:                             22:00                Wouldn't that be wonderful!

Dan:                             22:02                ... all for today. If you guys want to find us, we're on all the normal social media places where ... What's your handle, Dr. Mel?

Mel:                             22:09                @drmelw. The "doctor" is how you know that I'm an expert and authority figure.

Dan:                             22:12                Nice. And I'm just a lowly @danmonheit. No doctor. But, hey, I'm still good for advice, so hit me up.

Mel:                             22:18                And that's how you know the difference.

Dan:                             22:21                [inaudible 00:22:21] I will see you next time.

Mel:                             22:22                Bye.

 

#33 Scarcity Bias: Why you always want what you can’t have

Given the choice between two items, why do our brains try to convince us to choose the rarer one? In this episode, Mel and Dan explore the Scarcity Bias, and why people line up for days to buy sneakers.

Dan (00:00):

Just stop. Shush. Get out of it. I'm bringing a new persona to 2021. Don't get in my way.

Mel (00:08):

Wow.

Dan (00:10):

No.

Mel (00:27):

Hi and welcome to Bad Decisions.

Dan (00:29):

The podcast that helps us understand why we choose what we choose.

Mel (00:32):

Why we think what we think.

Dan (00:33):

And how do we exploit this stuff for fun and commercial gain.

Mel (00:36):

Always ethically.

Dan (00:37):

Always.

Mel (00:38):

Always. I'm Dr. Mel Weinberg. I'm a performance psychologist.

Dan (00:42):

And I'm Dan Monheit, co-founder of Hardhat.

Mel (00:44):

And here is [inaudible 00:00:45] with the music.

Dan (00:50):

Wow. Big year, 2021. We made it. Welcome.

Mel (00:54):

Yeah. Yeah. Well, thank you. Nobody's actually welcomed me to the new year, so that's very kind of you.

Dan (00:59):

That's my official responsibility. I've been working through my list. I only just got to W. Sorry it's taken me to February, but we are here now. Whoa. Big year. Lot of really interesting things from behavioral perspective, hey?

Mel (01:12):

Such as?

Dan (01:13):

Such as everything.

Mel (01:14):

It's been a big year. You're talking COVID?

Dan (01:17):

Yeah. How about you give me a list of things that didn't change, and then I'll give you a list of things that did, all right? My hairstyle.

Mel (01:22):

Let's go straight into the big things that...

Dan (01:25):

My hairstyle didn't change. I'm holding strong. One big category of change we can look at from last year is how many things that for, as far back as we can remember, were in abundance, and then suddenly became very scarce. And at the same time, how many things that were at one point in time, very, very scarce. And then whether we like it or not, became very, very abundant.

Mel (01:48):

Yeah. So you're talking about like changes to things that we just took for granted, that we'd always sort of have. And then all of a sudden there were restrictions imposed, or toilet paper. The old toilet paper, yeah?

Dan (01:59):

Things like, I mean, I wouldn't go as far as saying civil liberties, but yes. I mean, in January of last year, if you wanted to go for a walk anytime day or night, you could. If you wanted to go to the supermarket and buy pasta sauce, or toilet paper, or soap, or hand sanitizer, you could. And then by March, you couldn't do most of those things as and when you pleased. And the opposite is also true, where things like time with your kids, which was once very, very limited, suddenly became you're also now a full-time homeschooling teacher person, and you cannot be more than five kilometers from your children at any time for the next six months.

Mel (02:36):

Is there anything you need to get off your chest, Dan?

Dan (02:37):

No, I love my children, but I'm just reflecting on how quickly things can flip between the two.

Mel (02:46):

Right. And so this difference, this distinction between things being abundant or things being scarce makes a big difference to our behavior when it comes to how much we want or how much we're willing to pay for the items in question. And you know what that does, Dan? It brings us to a wonderful point where we can actually talk about a heuristic, that is related to all of this stuff that you've been talking about.

Dan (03:06):

Bring it on. 2021's first heuristic. What do we got?

Mel (03:09):

It's called the scarcity bias, or the scarcity heuristic.

Dan (03:12):

(singing)

Mel (03:18):

It is exactly is as you've described, the tendency for us to place more value on things that we perceive to be more rare than things that we perceive to be in abundance.

Dan (03:28):

And how long will this scarcity heuristic be available for?

Mel (03:31):

Well, it's in short supply, but we are only going to talk about it for about the next 15 minutes.

Dan (03:36):

Whoa. Shit. All right. Well, we better get straight onto it. So this is one of those ones where in a lot of respects, it feels very obvious. That if we can't get hold of something, we probably want it more. And I think that the evolutionary handwriting for this is pretty obvious. So for most of our existence, a lot of things that we wanted were very hard to get, very dangerous to get, or actually very scarce. So it was hard to get food, it was hard to get shelter. So it makes a lot of sense that we would be wired to want stuff that was in short supply. But what's weird is, I mean, today, most things that we need for our basic survival are not in short supply. And I think most of what we would consider scarce today, I think our cave people selves would probably laugh at the notion that we'd be lusting after things simply because of the perception that they are not readily available.

Mel (04:29):

Right. And this is how... if I may, I'm sure our listeners are hanging out for the research. So this is how a lot of the research has been designed, basically to manipulate the perception of scarcity rather than the actuality of it, and to see how people respond. So if I may have some research music please, [inaudible 00:04:48].

Speaker 4 (04:48):

It's alive.

Speaker 5 (04:48):

That's the attitude. You can sell anything? Sell me this fucking pen right here. You can sell anything? Sell that. Go ahead. Sell me that pen.

Speaker 6 (05:00):

Can I finish eating first? I need [inaudible 00:05:02].

Mel (05:02):

Essentially, there's a series of studies where the essence of them all is the same. They'll have two things on offer, two options, I guess of a similar good, like two flavors of cookies, for example, or two ballpoint pens, or two key rings in less exciting variations of these sorts of studies, certainly less tasty ones. And what they do is they first check that the two items are valued similarly at the start by participants. And then what they do is they introduce manipulations where they will change either the scarcity, or the availability, or abundance of one of these goods, and they present the object back to participants with this added context: "You have a choice of two cookies, but this one, there's only two of them left and this other one, there's 20 of them left."

Mel (05:52):

And all of a sudden you see that people's preference for these goods, how desirable they rate it and how valuable they rate it, increases significantly once they know that it is in short supply. So the cookie study was done by Worchel, Lee and Adewald in 1975. And then there were a bunch of studies in between, but another common one that's cited is by Luigi Matone and Luchea Salvadori in 2009, who used the ballpoint pens or key rings. And they found that the preference for the good increased by up to 23% in the scarce condition compared to the abundant conditions.

Dan (06:34):

Spare a thought here. I mean, I do feel bad for the researchers that have to try and make key rings and ballpoint pens seem scarce. I mean, I've never really understood the rationale for better funding for research projects, but if you're scrapping around trying to get people to lust off the caterings, you're probably working too hard.

Mel (06:52):

Sometimes you've got to do what you got to do, Dan for the purposes of scientific research.

Dan (06:57):

I know, but what pricked my ears up here...did you say 23% more, people willing to pay up to 23% more? Just because of the perception?

Mel (07:05):

So, I know that they're willing to pay up to 23% more, but their preference for the scarce option was 23% higher.

Dan (07:13):

Yeah. Potato, potato.

Mel (07:15):

So there was a 23% increase in something.

Dan (07:17):

Yeah, I mean what is preference, if not a substitute for willingness to pay.

Mel (07:22):

And when did we ever...when did you ever let the details get in the way?

Dan (07:26):

Exactly. So 23% more, just because of the perception of rarity, even in actual fact, there were probably lots of cookies still available or ballpoint pens, or key rings.

Mel (07:36):

Yeah. And there's one thing that they also did that's probably worth noting that the Italian researchers that I mentioned from 2009, they noted that competition increases the chances that scarcity bias is going to impact on your decision-making. If you know that somebody else is going to get the option that you don't choose, so if you don't choose this key ring and remember the only two left, somebody else is going to get it, then you're much more likely to choose the scarce one. Like it's like, oh, well I want it. Like, I don't want them to have it because there's something special about this. So better I have the special thing than them.

Dan (08:09):

You just said one thing that was actually two things, right. You said I want it. And also I don't want them to have it, even if I don't want it that much. I want it enough to not want anybody else to get it that I'm just going to go and buy it.

Mel (08:21):

Aren't we funny humans?

Dan (08:23):

This idea of a perception of scarcity, I think, is more relevant than ever now because throughout our entire history, and remember even up into the seventies, probably when it came down to business, the thing that was really hard was making stuff. Because you had to somehow coordinate supply chains from other sides of the world and get stuff into a place like Australia. And the idea was stuff was kind of hard to make but easy to sell. If you could land product here, oftentimes you could flog it.

Dan (08:51):

And I think what we've seen in the last 20 or 30 years is that it is now kind of easy to make most stuff. I mean, it's not easy to make an iPhone, but most things are easy to make. Most of us can go onto AliExpress and start importing bicycle parts, or USB powered fans or bell bottom jeans. If that's what we decide, we want to start making, but it's really hard to sell, right? Because everyone's trying to sell stuff through social channels and through e-commerce and through retail stores. And so we've gone from a world where it was hard to make easy to sell, into a world where it is easy to make, hard to sell. And really one of the best weapons I think we have at our disposal is being able to create a perception of scarcity. When in reality, there probably isn't one.

Mel (09:35):

Right, there's a big thing here about where the scarcity is coming from and you're talking about situations where you can potentially manipulate, strategically manipulate the scarcity of an object or the perception of it.

Dan (09:48):

I don't know about manipulate, but yes.

Mel (09:51):

Use whatever word you want. You can suggest or yeah, let's do something to alter the perception of scarcity for people. And I guess the reasons underlying people's tendencies to do this are really strong and really, really deeply sort of...they're inherent. And that's why I think it's one of those things where even though it like you say, it might be so easy to produce things, why it might actually work in favor of brands to sometimes produce limited amounts. And I think that they know that there are a couple of key factors, two in particular that we'll talk about that contribute to the scarcity bias occurring and the tendency for people to fall victim to it.

Mel (10:32):

We'll just note a couple of underlying sort of theories that contribute to it. First there's commodity theory, which simply states that the perceived unavailability of a resource, that makes it more valuable. So knowing that something is hard to get makes you want it more. There's also uniqueness theory, which is the idea that we have a basic need to set ourselves apart from other people, to differentiate ourselves. And one way that we can make ourselves different or set ourselves apart is by acquiring a rare good that not everybody has access to.

Mel (11:04):

There's also...we've talked about in previous episodes, a couple of heuristics that sort of play a part here. So one is social proof and you'll remember that social proof is our tendency to sort of follow the crowd and do what everybody else is doing. And we'll tend to assume that if something is scarce, it's because lots of other people have already bought it. And so if everybody else has it, then I want it as well. I want to be just like everybody else, which is sort of a little bit against the uniqueness theory, but in a situation where there's actually...there was once a lot of something and now there's maybe less of it. We're more likely to go, well, everybody else has picked that up. I better get one as well. Right? I don't want to miss out.

Dan (11:42):

Restaurants are always the talking point for this stuff. It's like there are a lot of people that want to go to this restaurant. There are limited number of tables in there, so they kind of scarce, but, and while there's lots of other places I could eat, I'm very happy to stand out in front of this restaurant and wait for a table with all of these other people, because it seems like a rare opportunity to get to eat there.

Mel (12:03):

Right, and the other thing that comes into play here as sort of a family favorite that we come back to is loss aversion. The idea that we don't want to feel like we've lost an opportunity to own something, right, because that hurts us. And so the idea with that is like, if we're presented with two options, one that there's plenty of it's in abundance, and one that's scarce, we're tempted to purchase the scarce item. Because if we buy the abundant one, but make the wrong choice, we're not going to be able to come back and get the scarce one. We're going to lose our opportunity to purchase the scarce one. But on the other hand, if we take the scarce one and then later we change our mind about it, we haven't really lost anything. We can always come back and get the one that's in abundance. There's plenty of them.

Dan (12:45):

You can flip the scarce one on eBay. You'll probably come out on top.

Mel (12:48):

Yeah, so there's this huge advantages or perceived advantages to going with the scarce one. Plus the fact that if you have it, nobody else does or somebody else won't. And at the end of the day, that's how we are as humans, we're all horrible creatures. We just want what's best for us and don't care about anybody else.

Dan (13:06):

Well, that is largely true, but there is something that seems to be innate within a lot of us that loves the idea of, if you have something that other people can't get, you must have access to power or money or contact or information that other people don't have, otherwise you can't get that thing. So in our natural desire to create pecking orders in our societies, this really feeds into that.

Mel (13:30):

Yeah, and I think we can also go back to...we can throw in a little shout out to the framing effect as well, because there was something in the framing effect where if you remember, we talked about how it's not really about the object itself. It's just all about how it's presented, and that comes a lot into play here. That there's the perceived value of the good has very little to do with the good itself, but everything to do with the context and whether it's scarce or abundant.

Dan (13:56):

Exactly. I mean, there was a big trend in sneakers as a few years ago, started by a company called Balenciaga. They released a shoe called the Triple S, and it was called a Triple S because it had three midsoles stacked on top of each other. And you talk about the framing effect in one respect, this is a horrifically ugly shoe. On the other hand, it is a horrifically ugly shoe that is $1,200. And there are very, very few pairs available.

Mel (14:26):

How many pairs of them do you own?

Dan (14:27):

Well, I don't want any thank God, but they went absolutely bonkers and nobody could tell you why. I mean, they literally are a diabolical looking shoe, but they were rare, they were expensive and they just struck a chord with people.

Mel (14:42):

So we can sort of capture the ways that you can, I'll say manipulate, I know you don't like that word, but there are a couple of ways that we can actually manipulate the scarcity of a good, right? So one of them has to do with the quantity, so we can limit the quantity. I think you were talking about this before, you can limit the quantity that are actually produced, right?

Dan (15:00):

Yep. Sneakers is one really obvious place where we see this, where especially particular shoes, like there's a particular Jordan...the Air Jordan 11...we could do a whole separate podcast on the Jordan 11...anyway, great shoe, very iconic. Originally from 1995, it was Jordan's comeback shoe after his first retirement. And people love this shoe, and it gets re-released every year, often, multiple times a year in different colorways with different levels of perceived or actual scarcity.

Dan (15:30):

And there was a particular colorway that came out in 2014. It was the legend blue. It wasn't even that rare. I think there were about half a million pairs that got dropped on release date and they were only 200 bucks. So nothing so crazy, but the perception that there weren't many pairs of these meant that from three days out there were people camping out to get these shoes. The day before the stores actually opened, at one store they had 50 police officers dispatched to the site to steady the crowds, there was crowds of people trying to buy $200 sneakers. The day that the shop actually opened, there were riots. Things got set on fire. The doors got broken down. And really just because of the perception that there was a limited quantity of this number of shoes. And we've seen this play out hundreds and hundreds of times since.

Mel (16:18):

Yeah, and that's about limiting the quantity of the product and the flip side of that is that if something is very limited to the point where it's actually rare, then it becomes more valuable. You just have to think of like collector baseball cards or basketball cards and there are certain ones that they're not in high production. And so people will pay a lot more for them simply because they're very hard to get, right?

Dan (16:39):

Absolutely.

Mel (16:40):

Another factor that contributes to scarcity has to do with time, right? So whenever there's a perception that time is limited, and we see this [inaudible 00:16:49] but I'm thinking of limited time only, or this deal is only available for the next 24 hours or the offer expires in a few days, look at me going all marketing on us.

Dan (16:58):

Yeah. I mean, this is a sales technique as old as selling. You see this from signs stuck up in $2 shops basically saying clearance sale today only, to this has almost become a hallmark of things like [inaudible 00:17:16] industry, where there really is no natural limit on how many deals they can make, how long they can offer plans for. So what they do is they add an official constraint that this particular deal, or this particular bundle is only available until the end of February. When, of course they could keep doing it in March and April and May, but they put that artificial constraint in there so people feel that pressure of having to act now so that they don't miss it.

Mel (17:39):

Yeah, and so the final thing, I guess, that we can think about in terms of what we can do to make something more scarce is that we can restrict or sensor access to something, so that it's only available to certain people if they're willing to, I guess, pay for it.

Dan (17:54):

Yeah, exactly, I guess the digital economy is a really interesting place where we see this, where there is a huge abundance of things like news. And once a newspaper puts an article on the website, it can be accessed by billions of people, really for no incremental costs. But to try and get people to assign value to news online, the publishers have had to find some interesting ways to create scarcity. And so this idea of limiting access where a billion people can look at this article, but you Dr. Mel, or you producer [inaudible 00:18:24] could only look at five articles on this website this month and then you just start paying for it, gets us to start thinking that this is a rarer opportunity than it really is and increases the value he might perceive of the content of that publisher. And therefore increases the likelihood that we might actually pay to become a subscriber.

Mel (18:41):

Great. So I think we've covered a lot of scarcity bias. I feel like we've actually gone through a whole bunch of stuff. Is it time to do a little recap? A little summary?

Dan (18:49):

Yeah, I feel like our episode on scarcity bias has been abundant with information and I feel like that that was nice because normally I have to do all the brand stuff by myself, but I feel like you really led me in there. I might just ask you for the humans out there, just trying to get by in the world, trying to not fall victim of the scarcity bias, have you got any suggestions?

Mel (19:09):

Yeah, I think there's a suggestion, not by me, but there's a suggestion that actually, when we perceive there to be limited choice of something that that itself engenders a state of arousal in us. And we've talked before about how, when we experience a sort of a change to our physiological or emotional state, we're motivated to reduce it, right? We actually, even though it could be like an exciting thing, like there's a bit of a thrill of...oh my God, there's something...I don't know if I'm going to get it or not, but we can resolve it by purchasing the product, right?

Mel (19:37):

And I guess my question, or the question I want people to put to themselves is, do you actually want this item or are you just sort of falling victim to this thrill, right? Of...I don't want to not have it. Cause I think there's a big difference between wanting something and then wanting to make sure that you don't not have it. And I think it's important that if you want something...hey, go for it. If you want something and you can afford it and it's going to help you, then it's a good decision, right? But if you're wanting, just not to be sour from something, then that's, I guess a point where you might be more likely to make a decision that we would call a bad decision.

Dan (20:15):

No, I think anybody that's been in a nightclub past 2:30 in the morning is familiar with that equation of choices going down, arousal levels going up and asking yourself whether you really want something or if you just don't want to miss out, is a really worthwhile thing to challenge yourself with. And that's probably a good time to end this episode. What do you think?

Mel (20:34):

It's good for me. I don't know what you're talking about. I was never in that position. Always had an abundance of choices. At least I like to fool myself into thinking I did.

Dan (20:41):

Or maybe we won't end, do you want to talk a bit more about that Doctor Mel?

Mel (20:43):

No, no, no. I think we're good.

Dan (20:46):

All right, let's put a ribbon on it. Scarcity bias, what's that textbook definition?

Mel (20:51):

The scarcity bias is our tendency to value something more simply because there's less of it or we perceive that there's less of it available.

Dan (20:58):

Exactly. And it doesn't just work for cookies and key rings, it pretty much works for everything, right? So I think the opportunity for brands here is to do this, number one through quantity. So limited runs or capped availability of particular ranges to do it through time. So making offers available, but having definitive cutoff points after which point they're no longer available and thinking about access. So giving people the ability to consume or interact with some part of what you offer, but cutting it off there unless they become paying subscribers. And for peeps?

Mel (21:29):

And for peeps, I guess just recognize whether you actually want the product or whether you jus...whether it's just FOMO and you're just falling victim to wanting to make sure that you don't miss out.

Dan (21:38):

Yeah, might be some other way to get your endorphins. Just go for a run.

Mel (21:41):

Go for a run. Yeah, sure, [inaudible 00:21:43] go for coffee with a friend. You can probably have the...probably be just as exciting as actually buying the product and you don't have to probably wait in line for the good outside of Nike store for three days.

Dan (21:53):

Go for a run, have a coffee and if you still want it, then you can buy it if it's still available.

Mel (21:58):

[inaudible 00:21:58]

Dan (21:58):

All right, cool. That was fun. You can find us on the internet, I'm @danmonheit.

Mel (22:04):

I'm @drmelw.

Dan (22:05):

We'll be back with another episode, maybe, they're pretty limited.

Mel (22:10):

This could be the last one.

Dan (22:11):

Could be, who knows, tell a friend, get it quick, catch you next time.