#20 Spotlight Effect: Why nobody else notices the ketchup stain on your shorts

Ever wondered why making the smallest faux pas can ruin your entire day? In this episode, Mel and Dan discuss the spotlight effect, and how it influences our perception of how much attention people are actually paying towards us (and our ads).

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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: 00:24 Always ethically. I have to say that. Speaking of, I'm Dr Mel Weinberg, I'm a performance psychologist.

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

Mel: 00:34 Let's play some music.

(music)

Dan: 00:43 Okay, so the first thing I feel I need to do is I just need to apologise.

Mel: 00:47 To who?

Dan: 00:47 Well to all of our loyal listeners out there because, as it turns out Mel, I've been pretty busy and we haven't done an episode for more weeks than I'd like to admit. And it's pained me as I've tried to fall asleep most nights, thinking about how angry people are going to be. You guys are going to your podcast apps and you're hitting refresh and you're wondering what's going on, why are there no new episodes of Bad Decisions?

Mel: 01:10 They must be so concerned...

Dan: 01:11 I know, people must be concerned. I just wanted to say, I for one as at least 50% of this setup here, am profoundly apologetic about this.

Mel: 01:20 That's really nice of you Dan. I, on behalf of the other 50% of this enterprise, don't apologise. It's fine that you feel that way Dan, but I got some news for you.

Dan: 01:34 What's that?

Mel: 01:34 Nobody cares.

Dan: 01:34 People care.

Mel: 01:35 Nobody cares.

Dan: 01:36 Everybody cares, they're wondering where we've been.

Mel: 01:38 No, no.

Dan: 01:38 Mainly where I've been.

Mel: 01:39 Not as much. They haven't really been lying awake at night as much as you have. I guarantee you that and if you have, please look up my details and come and see me for a session in the clinic 'cause there is something wrong with you.

Dan: 01:49 And then look up my details and come and see me and we can hang out and be the best of best of friends.

Mel: 01:53 So the reason Dan that you are thinking this way and that you are feeling very apologetic, which is very kind and very nice to our listeners...

Dan: 02:01 I'm just that kind of guy.

Mel: 02:02 You are, but you are also somewhat narcissistic, for all of your empathy, and I feel like...

Dan: 02:11 It's faux empathy.

Mel: 02:12 I feel like you're falling victim to what's known as the spotlight effect.

Dan: 02:15 Spotlight effect, me?! Why do these things always affect me?

Mel: 02:27 See this one is quite specific from a psychological perspective and basically what it is, is the tendency to considerably overestimate how much attention other people are paying to us.

Dan: 02:39 I see why other people would overestimate how much attention people are giving them but, with me it's real.

Mel: 02:44 Let me give you an example. You're walking down the street and you're holding a whole bunch of stuff and you're struggling to manage everything and there's people walking past you, and all of a sudden you just absolutely stack it. Things fly everywhere, you spill your coffee, and you fall onto the floor, you hit your butt, and like you're just thinking "oh my god this is the most embarrassing thing that's ever happened to me". In your mind, you're basically thinking this is social suicide. People are going to think I'm the most useless, incapable person...

Dan: 03:14 Uncoordinated...

Mel: 03:14 Yeah, I can't even walk down the street! So what kind of a person am I? You think about it for hours afterwards, you go "oh my god, that was so embarrassing." You can't stop thinking about it and replaying the incident in your head and you assume that everybody else who saw that is spending their day thinking "oh this idiot just completely stacked it, was carrying too much, just lost it, it was hilarious." When in reality what's happened is that they're not really thinking about it. They might've had a bit of a giggle at the time, if it was funny, and if you were okay of course and not seriously injured. But nobody else is thinking about it as much as you are.

Dan: 03:54 No I know, and that's probably because they're just thinking about something for themselves, right?

Mel: 03:59 Well yeah, because when something like that happens to us it dominates our attention. Because it's so critical to our survival in the world, and to our sense of self, our brain needs to focus on it right then and there, but others don't attend to it in the same way that we would. It's important to us, but us falling over isn't really that important to them. It doesn't really have any impact on their survival, or their continued existence or anything like that, other than maybe giving them something to chuckle over for a little moment.

Dan: 04:23 And they probably have things that are much more important to their life, or their survival, like they have a coffee stain on their shirt.

Mel: 04:29 Right, which you maybe didn't even notice.

Dan: 04:30 If you have a ketchup stain on your shorts, that is literally the only thing you're going to be worried about for the whole rest of the day. I'm like, "I'm such an idiot", people are going to be looking at me, and then some schmuck trips over and stacks themselves, and for half a second you're like "ha!". But "I have ketchup on my shorts, I'm such an idiot."

Mel: 04:46 This is the thing, as we go about our day being hyper alert to anything that might threaten our survival, things that happen which impact on other people's survival, unless it's extreme, you don't really care that much. We have so much going on in our environment, that we need to scour and we have effective data filtration strategies which basically mean that we filter out information which isn't immediately relevant to us, or isn't going to be an ongoing source of threat. So if you have a ketchup stain on your pants, that's super important to you, you think everybody's looking at it, especially if you're wearing white pants...

Dan: 05:20 I'm not wearing white pants, but if I was, people would think I'm a toddler, what sort of grown up can't get all the ketchup in their mouth or on their plate?

Mel: 05:27 Look and I think that this is something that we've developed in order to defend our sense of self. We have to believe it's important for our brain to believe that everybody is paying attention to us, because as far as we're concerned, we are the centre of our own universe.

Dan: 05:43 Yeah, you're right. I think western civilisation has a lot to answer for on this as well. Certainly today, we are encouraged to see our lives as a movie, and we play the lead role in this. Hollywood and general western values around individualism and "go your own path, and write your own journey", and all of those sorts of things, tell us there is a spotlight shining on you all the time, and everybody else is playing supporting roles in the movie that is your life. Even if we think about how we raise kids and everything is about being an individual and you have your own room, and someone's kids rooms are off limits to their parents because preserving the individualism is so important and even if we just went back a few hundred years, or looking at more traditional eastern cultures, the role of the individual is far smaller and is much more about how you fit in, how you conform with a tribe, or religion or a society or a group. As opposed to kids having their own rooms, everybody's just sleeping in dormitories and trying to blend in.

Mel: 06:43 It's interesting, for me I see this as a very childlike type of bias that we have. But I think this is an artefact of how our brain develops. You're talking about the individualistic nature of things and how it is very childish, but one of the ways this manifests is in terms of ego-centric thinking. We think we are the centre of our universe and actually when you're a child, you are. Your brain actually doesn't have the capacity to think from anybody else's perspective, so everything that is happening, you're seeing from your eyes and you're experiencing as yourself. No perspective whatsoever. And you see this play out- you've got small kids - you see this happen when you play hide and seek with a child. A two or three year old and it's their turn to hide, what do they do? Do they run off and they hide behind the curtain?

Dan: 07:25 No. That's a lot of effort.

Mel: 07:25 It's a good hiding spot, but no so what do they do?

Dan: 07:28 They put their hands over their eyes...

Mel: 07:30 Exactly, right... and they go you can't see me, I'm hiding.

Dan: 07:34 Yeah, if they can't see me then I can't see them.

Mel: 07:39 That's how they think because they're actually unable to see things from your perspective or from your eyes.

Dan: 07:44 This is why there are no three year old snipers. The worst snipers in the world. In a slightly less military example, on a daily basis, I have young kids and one of them will come up to me... I might be attempting to cook something, and there are literally things on fire in the kitchen and one of my children will come up and not understand why this is not a good time to wanna go and play with them. It's like, "can you see I'm literally, there is literally flames coming off the stove, not a great time to fix LEGO".

Mel: 08:15 Doesn't matter because I want to play LEGO...

Dan: 08:21 Yeah I love you guys still though, we'll play LEGO afterwards, as soon as daddy puts out the fire in the kitchen, it's LEGO for everyone! Especially if you don't tell mummy...

Mel: 08:28 This spotlight effect, I feel is a residual effect of having this ego-centric thinking that dominates our life as a child. We grow up and we have the ability to see things from other people's perspective but our inherent, more natural default way to look at things is from our eyes, and our eyes only.

Mel: 08:43 Before we go on, because there are two other ways this manifests that I want to talk about, but I know that everybody is really interested, as much as I am, in the ...

Dan: 08:52 Let me guess, the research!

Mel: 08:53 The research!

Dan: 09:00 I'll be back in a minute...

Mel: 09:02 While you take a break Dan, let me just take everybody very quickly through a little bit of research that was published in a very highly regarded journal, the Journal of Personality and Social Psychology, in 2000. It was by Gilovich Medvec and Savitsky, they were the ones who sort've coined this term, spotlight effect. What they did, was they created a situation where one person would feel embarrassed and what was the best way they could think of to make somebody feel embarrassed?

Dan: 09:28 This was before the Borat mankini epidemic?

Mel: 09:32 They decided that one way that they could potentially cause embarrassment, or cause a person to feel shame, would be to have them wear a bright yellow T-shirt that had the face of Barry Manilow printed on it.

Dan: 09:43 That's fine in some circles...

Mel: 09:44 It's creative... this is how academics think, right. Let's go with it. Basically what they were doing was they wearing that T-shirt into a room full of people. Before they did, they asked the person who was wearing this T-shirt, how many people do you think are going to notice? Afterwards they asked all the people who were in the room with them, did you guys notice what this guy was wearing? What they found was that...

Dan: 10:05 You're about to get a massive hip check from reality here buddy...

Mel: 10:09 What they found was that the subjects, the people wearing the bright yellow Barry Manilow T-shirt predicted about 50% of others in that room, would notice their embarrassing T-shirt and in reality, only about 25% of their classmates actually did. What that tells us is that we overestimate, we in fact double, how much attention we think people are paying to us.

Mel: 10:31 I'm done with the research now, we can go back to a couple of other ways that this manifests.

Dan: 10:35 Good.

Mel: 10:36 I'm sorry, I know that everybody else really, really needed to hear that, it's important to me so it must be important to them... I think I just fell victim to the spotlight effect.

Mel: 10:46 The next way that this manifests and the other thing that plays into the spotlight effect is the idea of naïve realism. Naïve realism is basically the idea that we assume that we are bringing a completely objective view to a situation. So we're seeing something with all of the facts, and we're naively thinking that is the way that this is happening in reality. We assume that everybody else is seeing it the same way that we are, which is not really what's happening, because essentially what's happening is whenever you encounter a situation, your brain's trying to process it, you're trying to understand it, and you're bringing into that situation your own history, your own experiences, your own memories, your own context with which to understand that information. Other people aren't necessarily looking at it through the same lens that you are. Other people are looking at it bringing in their own understanding, bringing in their own history, bringing in their own memory and experiences and emotions and all that.

Mel: 11:44 It reminds me of when we talked about Daniel Kahneman, I don't think we can go an episode without mentioning him, but in his book Thinking Fast and Slow, one of the acronyms that he continues to refer to is WYSIATI, which stands for What You See Is All There Is. This is essentially what naïve realism is all about. That we see things from our perspective, we think we have all of the information because we actually do have all of the information available to us, the problem is that we assume that everybody else has all of that as well, and they don't.

Dan: 12:11 This is going to be terrible, but this reminds me of an old joke, it sounds like something a Rabbi would tell at a sermon. There's this old couple, Morty and Esther. One morning Morty decides that he's going to go out to the shopping centre. So he goes off to the shopping centre, he's been gone for a couple of hours and it's a couple of hours later and he's driving home. It's about this time Esther's watching TV and she sees a special interruption to the news broadcast. They've got one of those helicopters in the sky, and they basically see somebody driving down the freeway in the wrong direction. The first thing Esther does, she calls Morty, she says "hey I know you're coming back from the shopping centre, please be careful there's some maniac driving down the freeway on the wrong side of the road." And Morty says, "not one, there's hundreds of them!"

Mel: 12:56 Alright, didn't want to laugh at that, and you've broken one of the fundamental rules of Bad Decisions, which is that we don't talk about religion here.

Dan: 13:05 No, that's not about... is that about religion?

Mel: 13:06 I don't know, didn't have to be a Rabbi, but anyway funny joke.

Dan: 13:08 He's not a Rabbi, I said it sounds like a joke you would hear in a rabbinical sermon.

Mel: 13:12 Oh, you're the Rabbi...

Dan: 13:13 Yeah, and I have a beard at the moment. Anyway that's a visual joke, which is excellent for podcast audiences.

Mel: 13:23 Anyway, a third phenomena that's associated with the spotlight effect is what's known as the self-as-target bias, which is a sense that actions or events are disproportionately directed toward the self.

Dan: 13:39 "Why do these things always happen to me?"

Mel: 13:41 Always, right. You're always going to bump into somebody that you don't want to bump into, and that's the thing that always happens to you. Or you're in class and you haven't prepared for a test and you're like, I know the teacher's going to ask me a question. I know they're going to pick on me...

Dan: 13:56 I never get a good parking spot...

Mel: 13:58 Basically it's all about me. It's not about you.

Dan: 14:01 As if the universe hasn't conspired for me not to get a parking spot. What other explanation could there possibly be?

Mel: 14:08 It's just funny because there's a confusion between the information that's available to you and the information that's available to everybody else and we just fail to account for this discrepancy as we go about our everyday life.

Dan: 14:20 I think as far as heuristics go, of mental quirks go, this is a pretty tight package, right? It's like nobody gives a shit, basically nobody gives a shit because everybody is dealing with the ketchup on their pants.

Mel: 14:31 Let's soften this a little bit. People care, people just don't care as much as you do.

Dan: 14:36 People care at least 50% less than you think they do.

Mel: 14:41 And from a psychological perspective it's fascinating. How does it affect people in the brand marketing space?

Dan: 14:47 The first thing is next time somebody says to you "do you how many shits I give?", you know the answer. It's like half as many as I initially thought, so now we've got that wrapped up.

Dan: 14:56 While this is a thing we talk about as individuals and nobody cares about your person as much as you do, or as much as you think they do, I absolutely see this manifest with brands, with clients, with marketers who spend all day, all night, years of their working lives thinking about a product or a brand that they happen to be working on, and sometimes I can find myself in a workshop that has been going on all day and we're debating how we talk about something and sometimes somebody just needs to put their hand up and say "I don't think anybody really cares whether we describe ourselves as healthy and natural, or natural and healthy". It's like we're obsessed with this, but nobody else gives a shit.

Mel: 15:39 One question could be, how do you then make people obsessed with it?

Dan: 15:42 So as far as how this can play out for brands, once you accept that honestly nobody gives a shit, 'cause they've all got ketchup on their shorts, there's a couple of directions you can go.

Dan: 15:52 The first is to acknowledge that it is far harder to get people's attention than you think. It is 100% harder to get people's attention than you think. There's a wonderful saying that most people ignore advertising because most advertising ignores people.

Mel: 16:05 I like it.

Dan: 16:06 And often as marketers, as agency people we think we're being risky and we think we're being bold, but unless we are 100% above where we think we need to be, chances are no one's going to notice, nobody's going to care. One thing is we've got to be realistic about what it takes to create memories, and create "cut through" and stop making boring shit all the time.

Mel: 16:34 Is it like go hard or go home?

Dan: 16:36 Absolutely and go twice as hard as you think, and a good starting point is to go and listen to the previous 16 episodes about all the ways to hack memory, and hack the way that people think because if we're not going hard then we shouldn't go at all. So that's one.

Dan: 16:50 The second interesting way we see this play out is, it sounds a bit sinister but cuts to the heart of a lot of advertising. If people believe that they are the centre of the universe and the centre of their own movie, they're playing the lead role, who am I to tell them they're not? Instead what I'm going to do is I'm going to actually play into that. You see this a lot with luxury goods, where they basically showing scenarios of people wearing the luxury goods, and just turning heads where they go.

Dan: 17:15 There's actually quite a cool ad, it came out last year for a new car, I think it was called the Holden Arcadia, and the whole ad is built around the premise of, "Don't just turn up. Arrive". It's kind of elevating this moment of turning up somewhere, and everybody's just watching you get out of the car and there's doves flying in the background. It's this complete Hollywood version of the seed of an idea that everybody already has in their mind. I think another classic example, this is rampant in the cosmetics industry, if we look at Maybelline and their old line. Now the line is just "Maybe it's Maybelline", but historically it's "Maybe she's born with it. Maybe it's Maybelline", which suggests that if you wear this product, people will gossip about you.

Mel: 17:57 Which is what people are already thinking anyway.

Dan: 17:59 Yeah, so if you wear this product, more people will be talking about you 'cause they're going to be wondering if it's natural or if it's Maybelline. I think the same thing, there was a hair care brand that talked about looking like you've just stepped out of a salon, suggesting that people will talk about you, when really they won't.

Mel: 18:14 It's funny because the whole idea of the spotlight effect is that there isn't actually a spotlight on you even though you think there is, and what these ads that you're talking about are doing, are actually going "No, no, you're right, there is a spotlight effect on you!"

Dan: 18:23 "It's real! You are in a movie!"

Mel: 18:23 So maybe there's some confirmation bias that plays into it as well. That people already think that people are talking about them and they're being watched...

Dan: 18:29 "That's why that ad just talks to me, because that is what happens when I turn up somewhere. The music plays, everybody turns their head..."

Mel: 18:36 Maybe it's Maybelline...

Dan: 18:39 I'm gonna tell you, if you see me in the street, it's not Maybelline...

Mel: 18:42 Definitely not, not with that beard...

Dan: 18:44 I was born with it... not the beard...

Mel: 18:47 To wrap where we're at, I think there's an appropriate quote that I think people will be familiar with, and that is actually very hard to source back to a person... actually that's not true. It's easy to source back to a person, the problem is nobody knows who that person is or what they've done except write a couple of books, which I can't find the titles of, and say some things that sound really good as quotes. Let's go with one of that.

Dan: 19:10 I feel like Churchill gets quoted with a lot of miscellaneous quotes, and it's like I don't know who said this, it sounds smart...

Mel: 19:15 Well this one is Olin Miller.

Dan: 19:17 The big O.

Mel: 19:18 Yeah, apparently an American businessman, that's the best I can get. But he was a clever one, he said "You probably wouldn't worry about what other people think of you if could you know how seldom they do."

Dan: 19:28 That's such a thing that a great aunt would say, and it feels like the sort've wisdom that you get with age. Where when you're a kid you think there's only your way, and as you become an adolescent, you just think that everybody's looking at you all the time and then as you get older, you realise everyone's so busy worrying about their own...

Mel: 19:44 You're just a little speck in the big wide world.

Dan: 19:45 Yeah, everyone's so worried about their own ketchup stains that they don't care about yours. I think that's a wrap. What did we learn?

Mel: 19:54 We learned that nobody cares. We learned that we tend to place a lot more emphasis on how much we think other people are paying attention to us when they're not really paying much attention to us at all. It's not all about us, is really what we learned.

Dan: 20:08 And if we're brands, we should either play in to the fact that people think everybody's looking at them, and tell them that our product is really going to assist them with that, and/or at the same time realise that it's at least 100% harder to be noticed that we think it is. Go hard or go home. If you think your ad is a yellow Barry Manilow T-shirt, you've got to up it to a yellow Barry Manilow T-shirt with sequins and nipple clamps, and maybe make it backless.

Mel: 20:35 Yeah, and then just as a person, the ability to be able to step out of your own head, see things from another person's perspective sounds like something that we really should've figured out, but it's not really the way that we naturally go about things, so it might take a bit of effort. But you can do it.

Dan: 20:49 I feel like we just had a Dr. Phil moment.

Mel: 20:50 A Dr. Mel moment.

Dan: 20:53 Alright, I think that's a wrap, are we outta here?

Mel: 20:54 We're done.

Dan: 20:56 See ya next time.

Mel: 20:57 Later.

#19 Zeigarnik Effect: Why you want to know what happens in this episode

What happens when memories or tasks are unfinished, and why is it that they seem to stick in our heads? In this episode, Mel and Dan explore the Zeigarnik effect and how we can use it to create stronger memories, stop procrastinating, and keep customers thinking about us long after our ads have run.

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Mel: 00:00 What do we know about negative emotions?

Dan: 00:03 They're bad?

Mel: 00:04 You haven't learnt anything. What we know is that when we feel negative we're highly motivated to relieve ourselves of that feeling.

Dan: 00:12 That's where we got the phrase, "Shitting myself."

(Music)

Mel: 00:32 Hi, and welcome to Bad Decisions.

Dan: 00:34 The podcast that helps us understand why we choose what we choose.

Mel: 00:36 Why we think what we think.

Dan: 00:37 And how to exploit this stuff for fun and commercial gain.

Mel: 00:40 Ethically.

Dan: 00:41 Of course, always ethically. I'm Dan Monheit, co-founder of Hardhat a creative agency built for today.

Mel: 00:46 I'm Dr. Mel Weinberg, I'm a performance psychologist.

Dan: 00:48 And this is Kops about to press play on the best audio ever.

(Music)

Dan: 00:58 We're going to do something different this episode.

Mel: 01:00 Oh, mix it up.

Dan: 01:01 We normally start with "Dan has a weird life anecdote." Then we stumble into a heuristics, and then we stumble into advertising.

Mel: 01:09 Either that or we go, "We're going to mix it up this time."

Dan: 01:11 Yeah. It's definitely either we do the normal thing or we do something different.

Mel: 01:14 Well, or yeah that.

Dan: 01:15 So, I want to start today talking about an ad. It's an ad-

Mel: 01:18 What a surprise.

Dan: 01:19 Well, I know, now I don't have to wait 15 minutes to do it for a change. So, I want to talk about an ad that I kind of ... The inner ad nerd in me loves. It's one of the greatest and most successful and most imitated ads of all time. In the 16, 17 episodes we've done up until now we've talked about a lot of heuristics that have hints of themselves in this ad, but nothing that really explains it properly.

Mel: 01:43 Okay.

Dan: 01:44 So the ad that I'm talking about, of course, if you're an ad nerd playing along at home is an ad from 1926. So almost 100 years ago. A guy by the name of John Kapel, so maybe it's Jon Kapel's I don't know, he died in 1990 so I'll never get to ask him.

Mel: 01:58 RIP.

Dan: 01:59 Right. So, he wrote an ad and the ad came out in the era of lots of print advertising, obviously, and lots of direct response print advertising. So, ads where you want somebody to send in a coupon or mail in to get something sent back.

Mel: 02:13 Okay.

Dan: 02:13 The ad was for piano lessons. Rather than doing ads about, "Learn to play piano in 30 minutes a day," or "The easiest way to learn how to play piano." He wrote this ad for which the headline was, "They laughed when I sat down at the piano. But when I started to play ... "

Mel: 02:29 What?

Dan: 02:30 Yeah. So that's the headline, then there's a few hundred words of copy underneath it. Like most ads from the 1920s there's this beautiful illustration that takes up probably the top third of the page, which looks like a very 1920s style dinner party with a whole bunch of people sitting around in suits doing what they do.

Mel: 02:46 Okay.

Dan: 02:47 So, this ad might sound familiar. The structure of it might sound familiar. It has kind of been imitated countless times, and is actually the blueprint for most of what we'd consider clickbait these days. “Something happened and you'll never believe what the outcome of that was.”

Mel: 03:05 Okay. Yeah. I see where you're going. So, tell me, how long have you been sitting on this? How long have you been sitting in this state of discomfort and just not understanding this ad that you love so much?

Dan: 03:14 Well, you know I feel in one respect I do understand it because it's suspense. It's getting people to buy into an idea and then not know how it's resolved and then they have to read something else to find out about it.

Mel: 03:25 Yeah.

Dan: 03:25 It's why a lot of TV shows work, and it's why a lot of movie trailers work. But why is suspense a thing? Why do we care? Why do I care about some illustrated guy from the 1920s sitting there on the piano?

Mel: 03:37 You know what? We should talk about this more.

Dan: 03:40 We should.

Mel: 03:40 We should solve this problem for you in this episode.

Dan: 03:41 Well, we have a whole podcast for that. Let's do it.

Mel: 03:43 All right. Well, I'm thinking that one of the ways, or something that might help you to understand, is a psychological phenomenon known as the Zeigarnik effect.

Dan: 03:54 The Zeigarnik effect.

Mel: 03:55 Right. And it sounds like a really cool word, but it was really just the name of a Russian researcher, or psychologist. I'm not actually sure. We should probably clarify.

Dan: 04:03 Yep.

Mel: 04:03 Anyway, it was in 1927, so whatever it is she's probably not that anymore.

Dan: 04:11 1927, and if we just were to wind back the tape, this ad that I'm talking about is from 1926.

Mel: 04:15 Whoa.

Dan: 04:16 Which is just further proof that ad guys are always one step ahead of psychologists. You guys just kind of turn up and put a fancy name on something that we've actually worked out.

Mel: 04:24 Are you finished now?

Dan: 04:24 Yeah. I'm finished now.

Mel: 04:25 Okay, good. So, back in 1927 Bluma Zeigarnik observed, while she was dining in a restaurant, that waiters were more likely to recall details of orders that were not yet paid for.

Dan: 04:41 Uh-huh (affirmative).

Mel: 04:41 So, basically you're taking orders, and for some of them they've finished the task and they've been paid for and complete. Those people have left, but orders that were not yet finished were being recalled more. The waiters were able to recall the details, they were able to tell exactly what you ordered, what dishes you ordered, what drinks you ordered with it. But once it was paid, see you later. Out of sight out of mind almost.

Dan: 05:02 And this happens today, almost 100 years later. You go into a good café to order brunch and there's like nine of you. Everybody makes their order. Not only do they make their order but everybody has weird variances of it. Menus are now just listed ingredients and people can just assemble whatever they want out of that apparently.

Dan: 05:17 So, you see waiters somehow not writing this stuff down, and often getting it exactly right. Then you wonder how long are they carrying this stuff around in their minds for?

Mel: 05:27 Yeah. So, this stuff was sort of happening before we had a good understanding of how memory works. We have working memory, and short-term memory, and long-term memory, right. So Zeigarnik was little bit ahead of her time. But basically what the Zeigarnik effect says is that we recall incomplete, or unresolved tasks, more frequently than we recall complete or finished tasks. So there's something in this idea of something being unfinished, or something being not yet complete that motivates us to actually remember it more.

Dan: 06:02 So, it's not so much the guy in the suit at the piano and what happened so much as it is just something that has started and my brain just wants to complete and finish?

Mel: 06:11 Yeah, your brains exploded because you've got some information and you're like, "I don't like having only some information. I need to have all the information. Finish this story for me, somebody please close this story and relieve the state of discomfort that I'm in by not knowing."

Dan: 06:23 Yeah. I guess my brain is running through all sorts of different possible ways that this thing could end, or that could explain this thing that I have incomplete information for.

Mel: 06:31 Exactly, and as you're doing that you're actually devoting a whole lot of mental energy to it, aren't you?

Dan: 06:35 Yeah.

Mel: 06:36 Right.

Dan: 06:36 Which it's not inherently positive. It's kind of, I feel uncomfortable. I feel like I have this itch. Like somebody has given me an itch. That sounds like a weird STD story. I feel like-

Mel: 06:46 Save that for another episode.

Dan: 06:46 I have a psychological itch that I'm expending energy trying to scratch.

Mel: 06:51 Right. So, Lumen said it maybe a little more eloquently than that.

Dan: 06:57 Than that-

Mel: 06:57 And what he said-

Dan: 06:58 No mention of sexually transmitted diseases or infections.

Mel: 06:59 What he said was, "The intention to carry out a task generates a state of psychological tension that keeps the issue alive until the task is complete and the tension is released."

Dan: 07:11 Basically there's an itch in my underpants and I don't know how it got there.

Mel: 07:13 Right.

Dan: 07:14 That's basically what it's saying.

Mel: 07:14 That's one way.

Dan: 07:15 Yeah.

Mel: 07:16 Now, the interesting thing about that is that the reference cited for this quote from Lumen is 1935, and then 1951, which tells me that Lumen was thinking about this for 16 years.

Mel: 07:27 So it was a big problem for him that needed to be resolved.

Dan: 07:29 Yeah. He definitely didn't have anything else going on in his life. He was just thinking about this.

Mel: 07:33 Certainly a long time, yeah. Not a lot happened in the world between 1935 and 1951. So it's not like anything else could have interrupted.

Dan: 07:38 Mainly people trying to resolve this issue.

Mel: 07:42 Okay, so this issue of the Zeigarnik effect was picked up a lot later on by Baddeley in 1963. Baddeley's name today is associated, you'd read it in like 50 psychology textbooks, with working memory. What Baddeley did to illustrate the Zeigarnik effect in a sort of round about way, or that phenomenon that Zeigarnik noticed in waiters, was that he devised a test that involved anagrams of five letter words.

Dan: 08:08 Mm-hmm (affirmative).

Mel: 08:08 So, an anagram is-

Dan: 08:10 A jumbled up word.

Mel: 08:11 Yeah, like a word where the letters are all jumbled up and your task is to solve the anagram by putting the letters in the right order to create a word. So, he presented participants with 12 five letter words, right. Basically you've got a few seconds to solve each one. So let's play along at home.

Speaker 3: 08:24 “Tonight, on Australia's biggest bargain sale we're offering a-”

Mel: 08:27 The letters are-

Dan: 08:30 Oh, we're not doing this.

Mel: 08:30 Yeah we are, here we go.

Dan: 08:30 Come on.

Mel: 08:30 Come on. Put your thinking hat on, right.

Dan: 08:32 Let's see how smart-

Mel: 08:33 I'm giving you five letters, make a word.

Dan: 08:34 Only one of us is a doctor.

Mel: 08:35 All right.

Dan: 08:37 I'm an auditory learner, this is very difficult.

Mel: 08:38 You're already making excuses before we've even started, right.

Dan: 08:41 Okay.

Mel: 08:41 So, the letters are-

Dan: 08:43 You're giving me letters, I make them into a word.

Mel: 08:45 Correct.

Dan: 08:45 Any word I want?

Mel: 08:46 Well, a word that's part of the English language.

Dan: 08:48 Oh fuck - you and your technicalities. Okay, let's go.

Mel: 08:50 W-E-O-T-L.

Dan: 08:50 W-E-O-T-L. Towel.

Mel: 08:56 Correct. See, the fun part of this is you can play along at home and you can see if you can solve it before Dan!

Dan: 09:01 That's not what we're doing.

Mel: 09:02 Are you smarter than Dan Monheit.

Dan: 09:02 That's not what we're doing.

Mel: 09:04 R-A-P-T-Y.

Dan: 09:07 Party.

Mel: 09:08 Correct. Look at you.

Dan: 09:09 Also, Rapty.

Mel: 09:10 Right. But actually party.

Dan: 09:12 Yeah.

Mel: 09:12 All right, let's try a harder one. E-V-O-A-B.

Dan: 09:16 E-V-O-A-B.

Mel: 09:19 Times up. Okay?

Dan: 09:20 Above?

Mel: 09:21 This is how the experiment works. Yes. It's above.

Dan: 09:23 Yes.

Mel: 09:23 Okay. Right, but you were too late.

Dan: 09:24 Oh.

Mel: 09:25 So I'm going to tell you the solution, it was Above. Okay. But, unfortunately, you didn't get it in time.

Dan: 09:30 Aww.

Mel: 09:30 Okay. So this is what the experiment involved.

Dan: 09:34 Focus on the negatives-

Mel: 09:34 It wasn't like that-

Dan: 09:34 I got the first two.

Mel: 09:34 It wasn't something-

Dan: 09:34 The first two I did really well on.

Mel: 09:36 Very good, keep remembering that.

Dan: 09:37 Thanks.

Mel: 09:39 So basically in the experiment participants were given 12 of these and they were given a certain amount of time in which to solve it. If they failed to solve it in time they were told the answer. Okay? 12 times, all right. So then afterwards the participants were asked how many of the words they could recall. Obviously the solved words, the English words, that were not the jumbled up letters. But how many of them they could recall? What Baddeley found was that people were twice as likely to recall the words that they actually failed to solve than the ones that they did.

Dan: 10:10 Right, because they're unresolved.

Mel: 10:11 Yeah.

Dan: 10:12 Right.

Mel: 10:12 Well, they were unresolved. They've since been resolved. But at the time people were devoting a lot of mental energy to it.

Dan: 10:17 So, it stuck.

Mel: 10:17 It stuck.

Dan: 10:18 So, for an ad guy like this is very interesting. Because obviously when we're making ads and comms for people we want to be noticed, and we want to be remembered.

Mel: 10:25 Hmm.

Dan: 10:25 So, knowing that leaving people with a little something unresolved can help us be remembered for longer, is an interesting thing for us to play with. I guess when we think about that headline, "They laughed when I sat down at the piano. But when I started to play ... " it's totally doing that because I don't know what did happen when you sat down to play.

Mel: 10:42 It's giving you something unfinished, right. You sit there and you think, like you said before, all the things that possibly could happen. All that time you're putting a lot of attention to it, you're essentially rehearsing this.

Dan: 10:50 Yep.

Mel: 10:51 You're going to remember this for a long time. Once you actually do finish the story it's going to stick with you.

Dan: 10:54 Yeah, like 98 years people have been trying to work this out.

Mel: 10:57 You're one of them.

Dan: 10:57 96? Yeah.

Mel: 10:59 So, you're not alone.

Dan: 11:00 Thank you.

Mel: 11:01 You're not alone in your state of psychological tension.

Dan: 11:03 Thank you.

Mel: 11:04 So, if we think about why this happens, there are a couple of reasons. We'll talk them through. The first has to do with how we process memories. I often talk about this with clients in relation to trauma. But it doesn't necessarily, I mean this isn't a traumatic memory it's just a memory. We can use the same analogy.

Dan: 11:18 This episode is going to be a traumatic memory. When you lead me into trying to do a live piece of research.

Mel: 11:23 No, it's just gentle encouragement.

Dan: 11:25 You weren't very supportive of my efforts. Anyway-

Mel: 11:26 So anyway. The way that we process memories, I like to think of our brain having this section that’s sort of like a repository for all of the memories and experiences of our lives. It's like a library. Imagine you're the librarian, yeah?

Dan: 11:38 Okay.

Mel: 11:39 So, when something-

Dan: 11:40 Can I be a hot librarian and I take off my glasses and let my hair out?

Mel: 11:42 Whatever you want. If that helps you.

Dan: 11:44 I don't wear glasses and I don't have hair. This is going to be difficult. Anyway.

Mel: 11:46 Try to create that image.

Dan: 11:48 Yeah.

Mel: 11:48 Anyway ... So, you're the librarian and you are given a book and your job is to find the place in all of the shelves of your library that this book belongs.

Dan: 11:57 Yep.

Mel: 11:57 Right, what could you do? You could sort it by author. You could sort it by theme. You could sort it by-

Dan: 12:03 Colour.

Mel: 12:04 Alphabetical or title. You could sort it by colour.

Dan: 12:06 All the blue books go together.

Mel: 12:07 Yep.

Dan: 12:07 That's a very good way to find things.

Mel: 12:08 Hey, it'll keep things nice and ordered and neat.

Dan: 12:10 Yeah.

Mel: 12:11 That's what your brain wants to do. It wants to store things neatly.

So you've got all these different strategies that you can use to try and sort it. When you acquire a new piece of information your brain basically has to do the same thing. It has to figure out in which shelf of the library this piece of information belongs. Does it remind you, we're talking about the Zeigarnik effect, how do I store that? “Hmm, that reminds me of a heuristic, so let me put that with all the other heuristics in my brain and put it there, okay.”

Dan: 12:33 Reminds me of “this can go in the words that sound like the garlic” section.

Mel: 12:37 You come in and-

Dan: 12:38 It now has one book in it.

Mel: 12:39 Look, everyone has their own strategies for storing information. Okay, you could put it there.

Dan: 12:43 It's like how someone with English as a second language would say the garlic. “Ze garlic!”

Mel: 12:49 We're totally going off track. Can you please-

Dan: 12:51 You don't have that section?

Mel: 12:51 Stick with me here.

Dan: 12:52 This is weird.

Mel: 12:53 Stick with me. Right. So, once you've got a piece of information that's unresolved - "They laughed when I sat down at the piano. But when I started to play ... " That's sitting there like a book and your brain is going, "Where on earth do I put that?"

Dan: 13:05 Yeah.

Mel: 13:05 It doesn't even rhyme with anything.

Dan: 13:07 It's like, does this go with the happy books?

Mel: 13:09 I don't know where to put it.

Dan: 13:09 Or does it go with the sad books?

Mel: 13:10 I don't even know.

Dan: 13:12 Does it go with uplifting?

Mel: 13:13 So confusing, right.

Dan: 13:14 International drama?

Mel: 13:15 So what do you do with this book that comes in that you don't know where to store? What do you do with it? Putting it anywhere, it's not for somebody else to clean up later, that's not how your brain works.

Dan: 13:26 Yeah. You just leave it. Yeah. You just leave it out, right.

Mel: 13:28 What you do is you leave it on the desk.

Dan: 13:30 Yeah.

Mel: 13:30 Every now and then you'll sort of pick up the book and go, "Hmm. Do I know now where to store it? No. I'm just going to keep covering it up with other books." But it's not going to magically find its way to the shelf by itself. At some point you are going to have to finish this memory, or this book, and put it back and figure out where it belongs.

Dan: 13:47 Or my wife is just going to throw it in the bin.

Mel: 13:50 Either way, that would get rid of it at least.

Dan: 13:51 Yeah.

Mel: 13:52 But it's not going to help. That's not sort of how our brains work.

Dan: 13:54 Right.

Mel: 13:54 Okay, our brains aren't just going to discard it.

Dan: 13:56 Lucky she doesn't have access to that. I would literally remember nothing. Everything's an unresolved issue on the desk in my brain.

Mel: 14:01 So what's happening is the longer that this book sits there, the more you're thinking about it, the more you're rehearsing it, the more you're becoming familiar with the actual properties of the book. Once you eventually do solve it the easier you're going to be able to recall that when you need to, right?

Dan: 14:14 Yeah.

Mel: 14:15 You're going to be able to find it much easier because you know exactly where it went, and you've spent a lot of time thinking about it. So that's sort of strategy one. That's got to do with how the way that we process memories, and the way that we understand information and store it for easier retrieval later on.

The other element of this is that there's an emotional side of it. There's always an emotional side to everything, right.

Dan: 14:34 Always with you.

Mel: 14:34 That's what I'm here to talk about.

Dan: 14:34 Can't just be about the facts.

Mel: 14:34 Right, no it's all about the feelings. So, the idea that we are in this state of psychological tension when something is unresolved, we experience that as a negative. It has a negative emotional tone to it. We don't like it. What do we know about negative emotions?

Dan: 14:49 They're bad?

Mel: 14:49 Oh, God, you haven't learned anything. What we know about negative emotions is that we don't like them, yes. They're bad.

Dan: 14:54 See?

Mel: 14:55 So it motivates us to alleviate the situation.

Dan: 14:57 Yeah.

Mel: 14:57 But we're motivated to do something about it because we no longer want to feel this state of discomfort.

Dan: 15:01 We want to heal the world.

Mel: 15:03 Yes.

Dan: 15:03 Michael Jackson was on to something.

Mel: 15:06 He was. We want to make the situation better. Okay, we do not like feeling unpleasant.

Dan: 15:10 Yep.

Mel: 15:11 We feel unpleasant, we feel uncomfortable, and we have incomplete tasks so it actually motivates us. So this Zeigarnik effect actually has a very helpful aspect to it.

Dan: 15:19 Sure.

Mel: 15:19 It motivates behaviour.

Dan: 15:20 So, what I find kind of challenging about this … as an ad guy I'm trying to craft experiences for my clients, and my clients consumers, customers, humans, whatever we call them. Am I better off, then, trying to create for them a closed loop experience, which kind of feels positive but is then forgettable because we've just filed it. Or am I better off trying to create an open loop, like an unresolved theme, which I know is going to hang around in their attention for a bit longer but kind of feels inherently negative?

Mel: 15:52 Dan.

Dan: 15:53 Yes.

Mel: 15:53 What if I told you that through the magic of psychology you could do both.

Dan: 15:56 Oh, I would say sign me up right now!

Mel: 15:59 Let me just wave my magic wand and let me tell you how this works. You can create a positive experience. You can take a person from an emotionally neutral experience to a positive one, and they feel good and they like you and they like your product and they want to buy more. Cool. But, we've talked about with emotions, there is the emotional tone. With memories it's really important to create that emotional tone.

You can intensify the positive emotion by first taking a person down. All right. So first you create this state of psychological tension. You create this discomfort and then you solve the problem for them. You take them not from neutral to positive, but from negative to positive and that has a much more long lasting effect. Great memory created, problem solved, podcast over.

Dan: 16:43 So, upset people first and then make them happy.

Mel: 16:46 Now you're starting to understand. But no, no. No wait-

Dan: 16:48 I don't want to upset them by giving them something incomplete that's going to irritate them.

Mel: 16:53 Create a state of tension that bothers them, makes them think about it more.

Dan: 16:56 Yeah, okay.

Mel: 16:57 Yeah.

Dan: 16:57 I can do that.

Mel: 16:58 Then give them all the answers.

Dan: 16:58 Yeah. I guess one of the challenges here is probably as advertisers we often over state how much we think people are going to be invested in a challenge that we put out for them, or a story we start to tell them they then fade away from.

Mel: 17:09 Right.

Dan: 17:10 So I think it's pretty important to be real about how much we're asking people to solve, or how much we're asking people to give a shit.

Mel: 17:16 Right. I mean, none of this works if nobody cares.

Dan: 17:18 Yeah.

Mel: 17:18 If I give you a problem you don't care about and leave it unfinished, you're like, "All right, I'll see you later. Don't care."

Dan: 17:23 Yeah, whatevs.

Mel: 17:23 Yeah, you have to have some attachment to it.

Dan: 17:24 So, not to go completely off track but if we think about game shows like 'Who Wants to be a Millionaire' we always find out the answer after the break of whether they got it right or wrong. They spend a lot of time trying to get you invested in the story, and the person, and they phoned a friend, and how are they going to spend the money. So you actually do care long enough to hang around to the other side of the ad break to find out how it all ends.

Mel: 17:43 Yep. To be continued, right.

Dan: 17:45 Cool.

Mel: 17:45 Three powerful words in advertising.

Dan: 17:46 Yep. Thanks, I'll write that down.

Mel: 17:49 Yeah. So how do we actually use this?

Dan: 17:52 Okay. Me first, you first?

Mel: 17:53 You first.

Dan: 17:54 Me first. Okay, what I think is really interesting about this, and it's very topical so this is probably going to date the show a little bit. But, one of the really hot issues in creative advertising at the moment is the six second format. So for those of you outside the industry 30 seconds used to be the default time length for a piece of creative. You could tell a reasonably nice story in 30 seconds. Then it got down to 15, and now really through social media and digital channels, six seconds is kind of what we get.

Mel: 18:19 Mm-hmm (affirmative).

Dan: 18:20 So there's a lot of conversation about how do you tell a story in six seconds? Can you get somebody to feel happy or sad or motivated or inspired or challenged within six seconds, which is an insanely short period of time.

Dan: 18:32 What I think about off the back of today's episode is that maybe we don't have to tell the whole story in six seconds. Maybe what we have to do is just elicit enough curiosity in that six second window that we get. Because I could make someone curious in six seconds. I can do that.

Mel: 18:45 Can you? Because that's still hard.

Dan: 18:46 I'm sure I can. Do you want to hear how? … Aha!

Mel: 18:48 You got me.

Dan: 18:48 Right. So I can do that in six seconds.

Mel: 18:52 You just did it in two.

Dan: 18:55 Exactly. I could do it three times in six seconds. Then pick up the story somewhere else. So I think from a brand that's an interesting way to think about using our short form media, whether that's a print ad or a billboard or a short video. Not trying to tell the whole story, just enough to hook people and then you can close the loop for them later.

Mel: 19:12 You've also repackaged the whole idea. The whole idea is not to tell a story in six seconds.

Dan: 19:16 Yeah.

Mel: 19:16 The whole idea is to garner emotional investment in six seconds.

Dan: 19:22 It's to write a headline.

Mel: 19:22 Right.

Dan: 19:22 Six seconds is a long time to write a headline.

Mel: 19:23 That's what you’ve got.

Dan: 19:24 And we're back to 1926. All right, and what about as just people? Trying to get by in this world?

Mel: 19:30 So as just ordinary people trying to navigate our emotions in a distressing world. I'm going to give you, I guess, a bit of a hack to use this to your advantage.

Dan: 19:38 Good. That’s uplifting.

Mel: 19:38 How do you use this to help you? Yeah. I'm going to talk to the procrastinators out there.

Dan: 19:43 Never met one. Never been one.

Mel: 19:46 Right. Well, I am one. There's a whole lot of work that I'm not doing right now while I'm sitting in here podcasting with you.

Dan: 19:52 This is important.

Mel: 19:52 Very important. But, it can also be serving as a procrastination tool. Anyway. So what's actually happening when we procrastinate, for some reason we're failing to initiate a task for some reason, or complete a task. Something’s going on and for some reason we feel like we're actually safe in not doing anything at all than actually moving forward.

Which might work in some instances, but when you actually have contracts to fulfil and things to complete you actually need to get these things started. So, the most effective way to use the Zeigarnik effect to actually motivate you to get work done is to start that task. No matter what. Even if it's as simple as opening a document and writing the title and your name on it.

Dan: 20:31 Yeah.

Mel: 20:32 Right. Bad Decisions, a podcast by Dan Monheit and Melissa Weinberg. If we were to write a book, hey there's an idea. If we were to write a book that would be how we would start it.

Dan: 20:39 Oh, now we've started it. That's annoying.

Mel: 20:41 Once we've started it we have created this state of tension that motivates us to relieve it.

Dan: 20:46 Yeah. So when I make a to-do list the first thing I should do is write, "Make to-do list." Yeah?

Mel: 20:53 Yeah, actually initiate that task. I guess you could do that.

Dan: 20:56 I can tick that off and I'm already on my way.

Mel: 20:57 Yeah. But you were telling me some way that you even do this with PowerPoint presentations.

Dan: 21:01 Oh, yeah.

Mel: 21:01 Even before you write the title.

Dan: 21:03 Yeah. Sometimes I would just take the previous presentation that I did, duplicate it and save it as the name of the new presentation that I need to do. Now it's started. For some reason, now my motivation instead of telling me to avoid doing that thing, it now just wants to dive in and do it.

Mel: 21:19 Yeah. You've opened a new box and you need to solve that box before you can do anything else.

Dan: 21:22 Oh, I'm so smart and such an idiot.

Mel: 21:24 So, you know people say you just have to start. You really do. You just have to start. It doesn't matter if it's the smallest start but you need to sort of click go. You need to initiate that task. It will create a state of discomfort that you do not like, and that will motivate you to actually get the work done.

Dan: 21:38 I think, off the back of that, a really great advertising line for somebody might be, like, "Just do It." So I might try and pitch that to somebody. I think it could really work.

Mel: 21:46 Yeah. That could be big. I can imagine that, I can see that. Yeah. Cool.

Dan: 21:51 All right. I think, is that everything for today?

Mel: 21:52 You know what would be good?

Dan: 21:53 Whoa, sorry.

Mel: 21:53 I was just going to say if you added to that by adding some sort of a tick to say that you've completed the task.

Dan: 21:58 Oh, yeah, yeah. I like it. We should start like a sports company or something.

Mel: 22:01 Yeah. Interesting.

Dan: 22:02 All right, maybe next time.

Mel: 22:04 All right, so Dan I'm just wondering how you feel now? Because we started this episode with you having a problem that was unresolved.

Dan: 22:09 Well, first of all I feel good that you care about my feelings.

Mel: 22:12 What you might have noticed, I mean I obviously do. But what you might have noticed throughout the episode was that I took you on an emotional journey, didn't I?

Dan: 22:18 Yep. Is that what just happened?

Mel: 22:20 You just got totally Zeigarnik'd here.

Dan: 22:21 If I had emotions that is definitely the journey I would have been on.

Mel: 22:25 I made you feel a little bit bad about it. I helped to escalate and emphasize those feelings of discomfort so that now that we've solved the problem, don't you feel amazing?

Dan: 22:34 Amazing. Do you bulk bill?

Mel: 22:35 No.

Dan: 22:36 No, okay. Cool. Well, I think we're good?

Mel: 22:40 Yeah.

Dan: 22:41 Well done.

Mel: 22:41 Yep. We've solved the problem.

Dan: 22:42 The Zeigarnik effect.

Mel: 22:43 Yeah.

Dan: 22:43 Solved it.

Mel: 22:44 Completed. Finished. Feel good. Wonderful.

Dan: 22:46 There actually is one other bit that we didn't tell people about, which is really the key for how this whole thing works.

Mel: 22:50 Which is what?

Dan: 22:51 Oh, they'll have to find out next episode.

Mel: 22:52 Oh.

Dan: 22:52 See what I did there?

Mel: 22:55 Did it. Did that take six seconds.

Dan: 22:57 Maybe. Peace out.

(Music)

#18 Focusing Illusion: Why we don’t really need a pay-rise

If you won the lottery, would you be happier? Although the answer may seem obvious, our perceptions of what’s important to us don’t always match the reality. In this episode, Mel and Dan consider how we can use the magic of the focusing illusion to capture consumers’ attention.

---

Dan: 00:01 What has happened to you?

Mel: 00:04 I just don't care anymore. I Google things for research (laughs), and Kops don't cut that at the end.

Dan: 00:09 And that was the day Mel lost her accreditation. Okay.

Dan: 00:32 Hey, and welcome to Bad Decisions. The show that helps us understand why we choose what we choose-

Mel: 00:36 Why we think what we think.

Dan: 00:38 And how to exploit this stuff for fun and commercial gain.

Mel: 00:40 I'm Doctor Mel Weinberg. I'm a Performance Psychologist.

Dan: 00:43 You know, you always used to say "ethically of course" at the end, which you've stopped saying-

Mel: 00:47 I've given up, what does that say?

Dan: 00:47 Hey, I'm Dan Monheit, co-founder of Hardhat, a creative agency built for today.

Dan: 00:58 Funny story on the weekend.

Mel: 01:00 Tell me all about it.

Dan: 01:00 You love hearing my parenting stories.

Mel: 01:02 Always.

Dan: 01:02 All right, so my daughter is two and half now, very cute, daddy's girl, love her. It's great. Love my son too. Anyway, she’s got a lot of toys, as kids today do, like a whole room full of toys. Used to be a study, now it's a toy room. And she's got a cousin, so my nephew who's a boy, and he's maybe three months younger than her-

Mel: 01:19 Hoping he's a boy if he's your nephew.

Dan: 01:20 Yeah, that's how it works. So he was over on the weekend, and these two adore each other. They love each other, they've literally grown up all over each other. And they love each other, but they fight like crazy. And what usually happens is my nephew comes over, and he walks into the toy room, and there's a hundred toys in there, and he just picks a thing, so this week it was this stroller. Some random stroller that he wanted to play with.

And my daughter, who really has not touched this toy stroller for weeks, maybe even months, decides for a moment that this toy stroller is now the single key to her happiness. It is the sole reason for her being on this planet, and she needs this toy stroller in her hands and in her life, right now.

So as you can imagine, they start having a grab off with each other. They're screaming. They’re crying. There's very rational me trying to explain to my daughter that there are so many other toys in here, many of which are also strollers, some of which are substitutes for strollers, some of which are nothing to do with strollers at all, but could also be a source of happiness. She didn't want a bar of it. She just wanted the damn stroller.

Mel: 02:25 Her two and half year old brain was focused on getting that stroller, and that stroller only.

Dan: 02:30 Yeah, and it didn't matter how much I wanted to tell her about all the other great toys in the room, she couldn't give a shit. She wants the one thing that her cousin has picked up and he wants to play with as well.

Mel: 02:38 We're also going to need to work on your parenting strategies, because trying to rationalise with a two and half year old is probably not gonna get you very far.

Dan: 02:43 No, it's going to be fine. At some point she's going to be old enough to understand, by which point I will be so well practiced at rationalising with her, I will kick her ass.

Mel: 02:50 Just watch out.

Dan: 02:50 Yeah.

Mel: 02:51 All right, so how did this whole situation resolve? What did you do, as Dad, to get through this?

Dan: 02:56 Well, I decided that the stroller was the only thing that would add happiness to my life, so I confiscated it, took it for myself, and left the two of them to play with something else.

Mel: 03:05 And it worked?

Dan: 03:06 Yeah, well, define worked? No, don't define worked. It worked. But you know, kids … come on guys.

Mel: 03:12 Kids, right? Kids brains, right? How silly that they can only focus on one thing at a time, and that becomes the object that completely dominates their attention, that they just refuse to look at anything else.

Dan: 03:23 Idiots.

Mel: 03:23 Yeah, see the funny thing is, adult brains sort of work the same way.

Dan: 03:28 Oh, come on.

Mel: 03:28 Sorry to tell you, but that's one of the things that we just don't outgrow. In adults, we refer to it as the Focusing Illusion.

Dan: 03:39 Ah, sounds far more grown up, “the Focusing Illusion”, than “having a tantrum.”

Mel: 03:46 Yeah, so the Focusing Illusion is basically the idea that we have a limited attention span. Or we have a limited tank of attention, so only one thing can really dominate our attention at any particular point in time. And we convince ourselves that that is the most important thing, at the time, because we're thinking about it, so obviously it has to be important, or we have to at least tell ourselves it's super important.

But at the time that we're thinking about it, it is actually the most important thing. We actually don't have the capacity to think about too many things at one time, so multi-tasking is a terrible idea. We have one thing that we can really focus on, and we think that it's way more important than it is.

Dan: 04:22 This sounds like something that's going to get us into trouble.

Mel: 04:24 Well, like every illusion that we talk about, it does. And the fact that it's called an illusion makes it sound even more-

Dan: 04:31 It's mystical.

Mel: 04:31 Yeah, mystical, so let me tell you a little bit about some research.

Dan: 04:37 No you do not have, you do not have research about this!

Mel: 04:38 Oh yeah. Oh I do.

Speaker 3: 04:39 “Merlin’s beard, you must be Harry Potter!”

Mel: 04:48 You know what, cause I love research so much I'm actually going to give you two research articles about this.

Dan: 04:52 Whoa!

Mel: 04:54 They sort of lend into one another. So the first we're gonna talk about is one of the most well known research articles in the field of understanding happiness. Which is pretty much what dominates most of my research career. It's a study by Brickman, Coates and Janoff-Bulman back in 1978.

Dan: 05:10 The Brickman, Coates and Janoff-Bulman.

Mel: 05:13 Often known as the Brickman et al study, right? So the Brickman et al study was looking at the happiness of lottery winners and comparing them to the happiness of paraplegics. So you have people who either have the best thing that you could imagine happening to them, as in winning the lottery, or one of the worst things that people could imagine which would be to become a paraplegic. And what they did was they assessed the happiness of these groups of people and-

Dan: 05:38 These have to be a binary grouping? There are no paraplegics that win the lotteries?

Mel: 05:41 Well there was a control group. (laughs) That would be an interesting group then.

Dan: 05:45 Yeah you guys are neutral! We've worked it out.

Mel: 05:47 We've balanced you out. What they found was that after a not particularly extensive period of time the happiness of both lottery winners and paraplegics returned back to their pre-event state. So even though you would think that, and I guess this is what made the study so remarkable, is that ordinary people looking at this would go "Wait, surely lottery winners are gonna be way happier than paraplegics right?"

Dan: 06:11 One would think.

Mel: 06:11 The best thing that could happen to you and one of the worst things that could happen to you, you would think that over time that would stay the same. But actually the research found sort of counterintuitively that both of their happiness states returned to what we call their normal or baseline levels not that long after the actual event.

Dan: 06:27 So basically what's the point of doing anything?

Mel: 06:29 Well this changed the way that we think about happiness, because it speaks to the fact that we adapt to things. We don't think that we adapt to things so when we think about events happening, we think about winning the lottery “wow that would be amazing”, we fail to recognise that we adapt to situations very quickly. We are way more resilient than we give ourselves credit for, and resilience is about adapting to both happy and sad events. So it works both ways. But we don't actually imagine how resilient we're going to be in response to situations. We focus instead on the actual event.

Dan: 07:01 Yeah and I guess a straight away, shoot from the hip example that springs to mind as soon as you talk about this, as a guy who runs an agency, is pay rises. You give out a pay rise to somebody and the first time you do this you think this is going to be amazing, this is really going to give the person the bump that they need and they're going to come into work so excited and motivated. And what you learn very quickly is that people just return to the normal baseline of where they were in almost no time. And I actually went and had a look at some research from this because you know pay rise is a thing you can't really get away from as an employer, and best case scenario maybe you can get a bump for six weeks out of a pay rise. You go and cut somebody a check for five grand, ten grand, fifteen grand whatever, best case scenario you're going to get six weeks out of it and then they’re-

Mel: 07:47 And then they're gonna want more.

Dan: 07:47 Yeah and then they go back to that where it's always been.

Mel: 07:48 So no pay rises for your employees?

Dan: 07:52 So no pay- well lots of very very small pay rises.

Mel: 07:52 Well that's a better way to hack it.

Dan: 07:53 Every six months, yeah.

Mel: 07:54 I'm glad I don't work for you.

Dan: 07:56 Aw come on.

Mel: 07:57 The next study which came out about twenty years later, so taking us to 1998, was by Schkade and Kahneman, do you know that name?

Dan: 08:04 That guy?

Mel: 08:05 Yeah, Kahneman again. So this study was basically looking at what was called the Focusing Illusion. They looked at the Brickman at el study and said, "Well we know what's going on here and we're gonna test why it's happening."

And so they had one of those great titled articles, you know that's the key getting a good research paper. You gotta give it a good title.

Dan: 08:24 Clickbait.

Mel: 08:24 So the title was “Does Living in California Make People Happy?” And what they were doing was prompting people to think about what it would be like if somebody just like them, with their values, their interests at their stage in life, were to move to California what their happiness would be like. And also if somebody just like them with their values and interests and at their stage in life were to move to the mid-west, how happy would they be?

Dan: 08:52 Why would you set up those two? There's nothing wrong with the mid-west. You set 'em up like they're at opposite ends of the spectrum!

Mel: 08:56 Right the thing is-

Dan: 08:58 A lot of good things happen in the mid-west.

Mel: 08:58 I'm sure they do, the thing is that when most people think of California they think about the weather and how beautiful it is especially when you've been prompted that you're involved in a study that's looking at the impact of climate on happiness.

Dan: 09:09 Ah, that was a thing.

Mel: 09:09 Yeah so that makes a bit of a difference as well.

Dan: 09:11 Yeah.

Mel: 09:12 And then what they did was they compared the results to the happiness ratings of people who actually live in California and who actually live in the mid-west and what you find is that when people self rate their own happiness the overall happiness of people who lived in California and lived in the mid-west were the same, there was no difference. The reason is people don't typically think of the climate when they're thinking about how happy they are-

Dan: 09:36 It's like one of many things.

Mel: 09:37 But when you put that as the point of contrast between two groups and you ask others to report how people will feel in those situations, they over exaggerate the importance of climate in their estimation so they think, "Oh well a person living in California would be way happier than a person living in the mid-west."

Dan: 09:56 Right so let me get this straight, so they asked a bunch of people in California and a bunch of people living in the mid-west how happy they were. And then they asked a bunch of people who lived in neither how happy they think they would be if they lived in California or the mid-west?

Mel: 10:05 Or someone like them, yeah.

Dan: 10:06 And so what people thought was if they moved to California they would be way happier than if they moved to the mid-west.

Mel: 10:12 Yeah.

Dan: 10:13 Because the weather is so much better in California? That's an easy jump to make isn't it?

Mel: 10:19 Yeah.

Dan: 10:19 But I guess what you're saying is it's completely incorrect.

Mel: 10:21 It's due to the fact that they're focusing on a particular aspect, i.e the climate, which actually isn't as important as they think it is.

Dan: 10:27 Right and why is that?

Mel: 10:29 Because when people are estimating their overall happiness they think of a number of different things and climate is not something that takes priority. It's like how people also think that money will make them happy. There are a whole bunch of things that go into contributing to your happiness and how you rate your happiness and overall money is not at the top of the list.

Dan: 10:46 So I guess what we're suggesting here is that we sort of do this gross simplification and when we're trying to forward project what will make us happy, we look at one thing and think “yeah that's the lever.” So if I just had more money or if I just had a six pack or if I just had that particular car, I would be so much happier than I am now. And maybe what we fail to understand is that in the future it's a very multifaceted world with lots of variables that contribute to our happiness and those things are probably nowhere near as important as we think they are.

Mel: 11:16 Yeah, I mean it goes a long way to explain why people make bad spending decisions. Like “I need to have those pair of shoes, if I had those pair of shoes in my life then everything would be better. I would be happier, I'd be walking around in those shoes. God it would feel so good to be in those shoes!” But three hours after you bought the shoes the effect fades, it wears off and all of the sudden you're not as happy as... They don't have the power to make you as happy as they did from the start.

Dan: 11:39 Right, small potentially side note but I just remember hearing this idea that when you really lust after something for a long time and then you go and buy it and in that tiny little window where it's come into your possession, the joy that you feel is not actually the joy of owning that thing, it's the joy of not lusting for something.

Mel: 11:55 It's relief. (laughs) You don't need to lust after it anymore.

Dan: 11:59 It's just the joy of actually not wanting for anything and then after half an hour or two hours, a sort of fire gets stocked again and you start lusting for things. Anyway kind of a weird idea.

Mel: 12:10 It takes us to an interesting discussion around attention and about our capacity to attend to things. We've mentioned multitasking, but this idea that we have a certain amount of brain fuel? There's only a limited amount that we can spend at any moment so we actually can't focus on multiple things at any one time. We're using our brain most effectively if we're just focusing on one particular thing at any given time.

Mel: 12:33 And this is the reason why magic happens.

Dan: 12:37 Right. I was right with you and-

Mel: 12:42 And then we went to magic, cause in my next career I'm going to be a magician. I'm going to take everything I know about how people's attention works and then I'm gonna become the next David Copperfield.

Dan: 12:52 But you already are a magician, you're a magician of the mind.

Mel: 12:53 That's a nice way to put it but I can entertain people with it. At the moment I don't use it for entertainment purposes.

Dan: 12:59 Yeah, what do you call this show?

Mel: 12:59 (laughs) Yeah, you got me.

Dan: 13:03 Edutainment?

Mel: 13:04 Something like that, infotainment. But the whole thing with magic, look I'm not going to go into a discussion on whether or not you believe in magic and I like to believe in some magical things, but a lot of magicians work by manipulating your attention.

Dan: 13:19 Yeah when we talk about magic you're not talking about fairies and tooth fairies and pixies and that.

Mel: 13:24 Not in this context, but I do believe in fairies.

Dan: 13:26 We're not doing that now. But you're talking about Vegas, magic shows, magicians-

Mel: 13:30 I'm talking about card tricks, yeah that sort of stuff-

Dan: 13:33 Card tricks yeah, and I guess things that rely on that idea of misdirection. Where a magician is doing something with their left hand that is very interesting and distracting so you don't notice what you're doing with their right hand. Or they have beautiful girls doing stuff with hula-hoops so that you're kind of watching that and you've just neglected to see the guy put something in his pocket or pull something out of his pocket.

Mel: 13:50 Yeah, see that's the trick whenever they bring beautiful girls out, and if you're like me and you don't get distracted by the beautiful girls you're like "Oh what is the magician doing right now?"

Cause I wanna watch exactly what he's doing at every moment in time, I don't wanna miss a thing.

Dan: 13:59 Yeah and maybe it's actually the beautiful girls who are doing the trick.

Mel: 14:02 Oh wow.

Dan: 14:03 Yeah see double misdirection. So I guess this focusing illusion or focusing bias makes a lot of sense right, if we just talk about being humans trying to cope in this world. Because if you said to me, "Hey think about what would make you happy in five years from now or ten years from now." And I really thought about that as a legitimate question that is like really hard. It's multifaceted, there's so many things that I have to weigh up it makes sense that my brain would just wanna pick some cheats or substitutions and go “well, more money would be good so I'll just pick that.”

Mel: 14:34 Yeah like too hard basket just give me something simple.

Dan: 14:36 Yeah just throw me a frickin bone here.

Mel: 14:38 So I mentioned with your marketing hat on that this could come into play-

Dan: 14:42 It's the only hat that I own let's be honest.

Mel: 14:45 Well given it's a big hat then, you've got something in there I'm sure this would apply to finding your point of difference in the field, something like that with a new product?

Dan: 14:57 I love this bias because this is what great brand positioning and great advertising is all about. So it's saying somebody's gonna have to make a decision and most decisions are actually, if you think about them, quite complex. So just think about something that's completely run of the mill like going to the supermarket to buy cottage cheese. What is your decision making criteria for buying cottage cheese? If the brands don't give you one, you've just got a whole bunch of cottage cheese lined up it's hard. Are you looking at price? Are you looking at packaging size? Are you trying to guess what they taste like based on the packaging?

Mel: 15:27 Which one looks the nicest.

Dan: 15:29 Yeah, or you looking at salt content, or fat, or who knows. As brands and advertisers what we get to do is to give people a thing to focus on and say, "Don't worry about all that, this one has protein in it."

Mel: 15:41 Right.

Dan: 15:41 Or “this one has no sugar, or this one has low salt.” And it says to people that's the thing to focus on, don't worry about trying to weigh up everything else. So this is why you see things with no sugar but they're loaded with fat. Or things with no fat but they're loaded with sugar because marketing brands know people can't do all the calcs so we just give them a thing to hook onto.

Mel: 16:01 So what you're talking about is using that smartly in the sense that you can understand that when people are in this situation they're gonna have to think of something that's gonna make their decision easier, right? And they might automatically go you know what. Price. I'm just gonna go with the cheapest. Which I imagine is what a lot of people will do-

Dan: 16:15 If nothing else yeah.

Mel: 16:17 What you're saying is that what you can do is actually you can prime them to have a specific thing that they focus on. They're going to focus on something and rather than letting them do it off their own bat, which could take me anywhere and I may not win in that sense, I'm gonna be like this is what you're focusing on. This is what is important to you right now.

Dan: 16:32 Probably one of my favourite sayings about advertising or thought bubbles about advertising is the idea that there is no such thing as a low interest category, only low interest brands. For those of you outside of advertising, a low interest category is a thing people wouldn't spend much mental energy thinking about. So you might say that buying cottage cheese is a low interest category. Who's gonna think too much about that?

Mel: 16:54 Yeah who cares?

Dan: 16:55 But that only exists when there's low interest brands because no brand has turned up and said "Ah we'll give you something to think about!" And you see this all over the supermarket. You see the creation of whole categories like sugar free cola. All the colas were the same and then there's one that's sugar free and it's like “oh god is that a thing I'm meant to think about?”

Dan: 17:12 Free range eggs which is a great thing, don't get me wrong, but was not a thing that people think about as a decision criteria. Now we're starting to see meat and poultry with things like antibiotic free. That's a thing? Is that a thing I need to think about? Well I guess if it is I need to pick the one that's antibiotic free and not worry the other 15 attributes that I might make this decision based on.

Mel: 17:31 Yeah and it doesn't even have to be interesting. Like something being antibiotic free I don't actually care it's just something different. And anytime you're presented with something different your brain has to dedicate attention to understanding it, to processing it.

Dan: 17:43 Yeah, and it's a really great way... A product calling itself something free, antibiotic free, completely throws shade on the rest of the category. The rest of the category might also be antibiotic free, they just never thought to say it so by one brand saying that's the thing that we're going to focus on and we're gonna direct your attention mister or misses consumer at focusing on as well, it makes you question what everyone else is doing and hopefully pick that product off the shelf.

Mel: 18:08 Yeah, have you got any other examples in the marketing field?

Dan: 18:10 So examples of this are basically any time that a brand gives you a new way to shop a category, a new way to think about a purchase decision. So in supermarkets are this is everywhere but if you think about things like even the world of workouts. At the moment we are in the middle of this F45 explosion. F45 decided that of all the different ways you could evaluate a workout, portion of aerobic to anaerobic activity or where it happens. Or how it happens, or how much fun it is or how mindful it is.

Mel: 18:38 Or how much weight you can lose and how quickly.

Dan: 18:39 How much weight you can lose yeah. Their thing is 45 minutes. F45 they're like focus on 45 the F might even be for focus I don't know. Maybe it's for fitness, maybe it's for fun … I don't know. Anyway the thing that is not ambiguous is that it's 45. So they're saying, " Hey people out there looking to buy into some sort of a fitness routine slash cult, if 45 minutes is important for you that's a thing important for us. Focus here."

Dan: 19:02 And then it makes you wonder yeah well how long does Zumba take? How long does crossfit take? I don't know.

Mel: 19:06 And maybe I don't have time for it but I have 45 minutes.

Dan: 19:09 Definitely have 45 minutes because that's less than an hour.

Mel: 19:11 Yeah.

Dan: 19:12 So that's what us ad guys do but what can the poor consumer do to defend?

Mel: 19:16 Yeah, well I see this in my line or work as well right. You know how you talk about F45 being like a thing of the moment? Another big thing literally of the moment is the whole mindfulness craze or phase or whatever you want to call it? And the whole idea of mindfulness could be said to be based around the Focusing Illusion. The idea that mindfulness for example is a cure for anxiety. Right when people are anxious most of the time they're anxious about something that may or may not happen in the future. Mindfulness works by directing peoples attention to the present with the understanding that you have a limited capacity to only attend to really one thing at a time. If you're attending to the present it's actually impossible to be anxious right then because anxiety is about projecting into the future and if you're focusing on what's happening here and now, then that is all that you can be.

Mel: 20:03 And that is all that your brain has the capacity to think about. So mindfulness is a therapeutic method you know. We've got the Focusing Illusion coming into market, coming into psychology … it's everywhere.

Dan: 20:13 Yeah feels like we've kind of gone the long way around but actually what we're saying is in this whole crazy, complicated landscape of things that you could spend your time and attention focusing on, sometimes a thing will just wave its hand and say, "Hey look at me! Look at me! Look at me!" And that's really all our brain is capable of doing.

Mel: 20:27 Yeah and the flip side of that for you to sort of counteract it is to realise that you can actually control the object of your attention. You can choose what you want to focus on at any given moment and that is going to be the most important thing to you at that time.

Dan: 20:39 Right, well that sounds kind of profound.

Mel: 20:41 Do you like it?

Dan: 20:42 I like it.

Mel: 20:42 Cool. So there's something more profound.

Dan: 20:44 Yeah?

Mel: 20:45 That was the Dr. Mel way of saying it but Danny Kahneman said it differently.

Dan: 20:49 Danny?

Mel: 20:50 We're friends now. (laughs)

Dan: 20:52 D.K? Yeah what did he say?

Mel: 20:55 His quote when he was asked pretty much what's like the most important information that you could give, the most useful information that you could to a lay person, he said, "Nothing is as important as you think it is, while you are thinking about it."

Dan: 21:08 Nothing is as ... wait.

Mel: 21:10 (laughs) That's not what he said. He said, "Nothing is as important as you think it is, while you are thinking about it."

Dan: 21:16 Yeah so the thing you're thinking about right now is the most important thing that you think it is but it's really not it only is because you're thinking about it.

Mel: 21:23 Yeah!

Dan: 21:24 Yeah? (laughs)

Mel: 21:25 It sounded more profound when he said it.

Dan: 21:27 Yeah well I've remixed it for a new generation.

Mel: 21:30 And I think that's a really good way to sort of sum it up. When you're thinking about something it is the most important thing, it's dominating your focus. And you know when people say don't respond in the moment, take 24 hours and respond after? It's because you've got perspective and you've got a different context in which to see it afterwards. And it doesn't seem as important 24 hours later as it does at the time that it happened.

Dan: 21:50 Always save your rage emails as drafts first and it you still think it's a good idea to send it the next morning go right ahead.

Mel: 21:55 There you go. (laughs)

Dan: 21:56 Yeah that's my profound wisdom.

Mel: 21:58 Yep so that's where we're at, I think we've covered the Focusing Illusion.

Dan: 22:02 Yep!

Mel: 22:02 We've focused on it for long enough and we know it has been the most important thing for the last 20 odd minutes of your lives as it has for ours.

Dan: 22:09 Yeah I think we've also just explained how all magic works as well so that's a pretty good episode.

Mel: 22:13 Yeah tune in for more magic next time.

Dan: 22:15 Yeah alright where do people find us?

Mel: 22:17 They'll find us on the internet @DrMelW

Dan: 22:20 Oh that's you and they'll find me at also on the internet @DanMonheit

Mel: 22:23 Search the internet.

Dan: 22:24 Yeah.

Mel: 22:24 Google things.

Dan: 22:25 Can we say, I mean it's going to timestamp but, can we say that you're also going to find us at South by Southwest next year?

Mel: 22:29 Oh my god.

Dan: 22:29 Yeah!

Mel: 22:30 Dan is so excited guys.

Dan: 22:31 Yeah Mel and I are going to be presenting at South by Southwest, Austin Texas, March 2019. Come and see us in the flesh.

Mel: 22:40 So much magic, it's going to be so much magic.

Dan: 22:42 Yeah, I've got my cowboy boots ready.

Mel: 22:44 Can't wait.

Dan: 22:44 Peace out.

#17 Ben Franklin Effect: Why we should all be asking for way more favours

Social convention suggests that if you want to make a new friend, you should do something nice for them. But according to Ben Franklin, we’ve been doing it all wrong. In this episode, Mel and Dan explore how we can use non conventional techniques to gain our customers’ trust and loyalty forever more.

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Dan: 00:00 Feels like our emotional brain is the real world, and then our rational brain is the PR department, that just tries to explain what happened here.

Mel: 00:08 We could look at it that way.

Dan: 00:09 It's like “no, no, this was a very strategic decision that this human being has just made here”

Mel: 00:10 Of course.

(music)

Mel: 00:29 Hi, and welcome to Bad Decisions.

Dan: 00:32 The show that helps us understand why we choose what we choose.

Mel: 00:35 Why we think what we think.

Dan: 00:36 And how to exploit this stuff for fun and commercial gain.

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

Mel: 00:42 And I'm Dr Mel Weinberg. I'm a performance psychologist.

Dan: 00:45 A performance psychologist who loves this track?

Mel: 00:47 Loves this track.

Dan: 00:48 Play the track. (music)

Mel: 00:56 Welcome back. Well, welcome back to us, really.

Dan: 00:58 Yeah, it's been a minute.

Mel: 00:59 It's been a little while, we've been doing some things.

Dan: 01:01 Yeah, some conferences.

Mel: 01:02 Yeah.

Dan: 01:03 Good to be back in the booth.

Mel: 01:04 Alright. So, we're bringing things back with a heuristic that is actually named after somebody ... Have we done one of these yet?

Dan: 01:14 I think this is our first.

Mel: 01:15 The heuristic actually has a person attributed to this.

Dan: 01:18 Yeah. So, maybe if we take people behind the scenes. Yeah, we did a little bit of research. What are the heuristics we want to talk about in the next few episodes? And this one just stood out like dog's balls.

Mel: 01:26 Before I even knew what it was I was like, “this is the heuristic we're doing today.”

Dan: 01:31 Yeah, and what is the heuristic we're doing today?

Mel: 01:32 It is the Benjamin Franklin effect.

Dan: 01:35 The Benjamin Franklin effect. (music)

Mel: 01:42 Dan, who's Benjamin Franklin?

Dan: 01:45 Yeah, because this is what I was thinking too. I mainly know Benjamin Franklin from the ‘It's all about the Benjamins Baby' right? So, this guy gets to have his face on the $100 bill of the US currency, basically global currency, right. And as if that was not a great enough accolade, he also gets his own heuristic named after him, and I was thinking, this guy must be pretty seriously talented, and I was ready to be disappointed.

Mel: 02:13 Because that's how you know you've made it, right? Once you get a heuristic named after you, you are set.

Dan: 02:17 What? A heuristic, but there's only one $100 bill, that job only goes to one person, and it's him!

Mel: 02:22 Yeah, but he got a heuristic named after him, surely that's better.

Dan: 02:24 He has a rap song! There are rap songs! Anyway, so I was like, you know what? I'm definitely going to be hating on this guy. I'm going to go do some research because there is nobody that deserves to be on a $100 bill and have a heuristic named after them. But if there was, I admit, it was Benjamin Franklin.

So, this guy is basically just a freak. He was born one of, what, like 17 children? Very poor family, very miserable upbringing, not great prospects at life, and you know what? I was going to try and paraphrase this off Wikipedia but look, they've done a pretty good job here. If we just rattle this off, right-

He was an American polymath, which for those of you unfamiliar with the term polymath, I mean, that's basically somebody who is exceptionally knowledgeable about many, many areas. So that's pretty good start-

Mel: 03:08 One day I want to be a polymath.

Dan: 03:09 Yeah. I'd just be happy to be a unimath, just to know a lot about one thing ...

One of the founding fathers of the United States. Yeah, good for him. He was a leading author, printer, political theorist, politician, Freemason, postmaster, scientist, investor, humorist, civic activist, statesman and diplomat.

Mel: 03:27 What have you done in your life?

Dan: 03:28 Yeah. Well, he didn't have a podcast, I can tell you that much. Though he did basically help commercialise electricity, which means that we can have podcasts.

Mel: 03:36 Got you there.

Dan: 03:37 As a scientist, he was a major figure in the American enlightenment and the history of physics and, look, basically the guy just invented everything and did everything so, you know what? He deserves the $100 bill. Good on you Benny-boy.

Mel: 03:49 Well done. But bringing us to the heuristic, here's the thing for all the wonderful things he did, there was this one asshole who just didn't like him.

Dan: 03:49 Yeah, I mean look, everyone's got haters.

Mel: 03:49 Everyone's got haters.

Dan: 03:49 We've got haters. Kanye's got haters.

Mel: 04:02 Yeah.

Dan: 04:03 Benny-boy Franklin had haters.

Mel: 04:05 He had this hater, right? And he actually realised that at some point he was going to maybe need this hater to be on his side, and so he thought, I need to figure out a way to get this hater to like me, right? He was known for having a way with people and understanding sort of the way that people work.

Dan: 04:22 Yeah, apparently that for all of his accolades he was also like an extremely gifted interactor.

Mel: 04:22 Interactor?

Dan: 04:27 Interactor. He was like a really-

Mel: 04:30 He was really good interactor-

Dan: 04:32 He was really good with people, and I'm going to say, you go to look at the photos of him, he is not the most handsome guy in the world. Full respect for the bald on the top, mullet at the back, but mate, he had a way with words and probably-

Mel: 04:44 And a way with people.

Dan: 04:46 ... A way with people.

Mel: 04:48 So, what he could have done is he could have gone to this hater and offered to do something nice for him, right? Or given him a compliment, flattered him, said, “You're awesome, I actually want to be friends with you.” But that's not what he did. He went about it in a more subtle and indirect way. What he decided to do was to ask this ... He wrote a letter to this hater, and he said, “Listen mate,” which I'm sure is the way that he said it. We sound like the two most naïve Australian podcasters when we're talking about US history, but anyway-

Dan: 04:48 No, no, no. This is what happened.

Mel: 05:16 He said, “Listen mate, look ...”-

Dan: 05:17 Mate.

Mel: 05:20 “... There's a book in your library that I understand is really rare and it's actually really hard to get and I know that you've got it. Look, could you do me a favour? Is there any chance that you could let me borrow that book?”

Dan: 05:32 Yeah, so let's get this right. So this guy dislikes Benjamin Franklin?

Mel: 05:35 Yeah.

Dan: 05:36 Benjamin Franklin has the audacity to ask this man for a favour of the loan of an extremely rare book from his personal library. And how does the man respond?

Mel: 05:45 Well, how do you think he responds? He says, “Wow, Benjamin Franklin wants to borrow my book! Wow. I've got something that he needs. I'm going to wrap it up really nicely, put a bow on the top and send it by horse and carriage to Mr Benjamin Franklin.”

Dan: 05:59 Right. And then what happened?

Mel: 06:01 The hater, who will be known as the hater in this story, sent it-

Dan: 06:04 Yeah. Doesn't even get named.

Mel: 06:05 No, we don't even know who he was.

Dan: 06:07 Hater.

Mel: 06:07 But he sent the book, right? And Benjamin Franklin, who knows whether or not he read the book, but he returned it about a week later and when he returned it he wrote a note saying, “Thank you so much, that was so lovely of you. I really appreciate it.”

Dan: 06:22 Wow. What a dreamy guy.

Mel: 06:23 And then what happened was that the next time that they actually met in person the hater, who had never spoken a word to Benjamin Franklin in the past, or never a kind word at least, all of a sudden wanted to be his best friend.

Dan: 06:35 What do you know.

Mel: 06:35 He came over, he spoke to him, and from then on they were the best of friends. It's a beautiful story of friendship and a little bit of deceit.

Dan: 06:44 So, I mean this is weird, right? Because what the Benjamin Franklin effect basically tells us is that, if you want somebody to like you, rather than doing something nice for them you are far better off asking them to do something nice for you.

Mel: 06:58 Yeah, hey Dan, on that note could you do me a favour?

Dan: 07:02 No. Yes. When? Money? Am I being played here?

Mel: 07:06 Can you explain to me a little bit more why this happens.

Dan: 07:08 Yeah. So, we've sort of been digging around because this does seem really weird, because we would like to think that because I think in a certain way, I would act in accordance with that, but this would suggest that it's actually maybe even completely backwards, that because I've acted in that way, that changes how I feel about something.

Mel: 07:25 Yeah. So, we see this ... There's obviously some research that I'm going to talk about.

Dan: 07:28 Of course there's research. Do we have research music?

Mel: 07:30 We have research music. Play the research music.

(music)

Okay. Of course whenever these heuristics come into play they're in situations of uncertainty. Okay? So there has to be some element of uncertainty and in this case it's the uncertainty around the intentions of the other person.

Dan: 07:56 Right.

Mel: 07:57 Okay, so let's remember that while I tell you about the research. So, the research for this is actually pretty old in research terms. It dates back to 1969-

Dan: 08:06 Summer of '69.

Mel: 08:07 The summer of when all good -

Dan: 08:09 Someone should right a song about all this research.

Mel: 8:11 - when all good research was happening. Like all the cool people in that time were really doing research.

Dan: 08:16 Yeah, and other people had some guys from school and they started a band and tried to real hard.

Mel: 08:21 Anyway, Jecker and Landy were two researchers who-

Dan: 08:21 Not in the band.

Mel: 08:26 Not in the band. They were actually the cool guys doing the research, and they set up this study where they had three different groups. They were given some menial tasks, it doesn't actually matter what the participants were doing as part of the experiment, but there was an experiment to involve, to explain, the nature of the study to all three groups.

At the end of this study, like on their way out, that's where the experiences of the groups differ. So, on the way out one of the groups is basically asked by the experimenter to do him a favour. The experimenter says, “Look, we’re having some trouble in terms of the funding for the department and I know you were just given 20 bucks to participate in this study, but I'd really appreciate it if you'd consider donating it back to the department.”

Dan: 09:10 I know you kind of glossed over it but what did they do that they got paid 20 bucks for? Just loosely. Like you said it was a menial task, what are we talking here?

Mel: 09:16 It was just like something boring, they're either just like turning things on a wheel or sorting cards. It doesn't actually matter what they're doing.

Dan: 09:22 For an hour?

Mel: 09:22 Yeah.

Dan: 09:23 Scientists are cruel. Poor people.

Mel: 09:26 But that wasn't the point.

Dan: 09:27 Turn these wheels for one hour for science-

Mel: 09:30 Be a monkey for us.

Dan: 09:31 Yeah, seriously. Alright.

Mel: 09:34 I feel like we have talked about way less ethical forms of research though that scientists have conducted.

Dan: 09:38 Yeah, there were no anal probes in this one, that's a good-

Mel: 09:38 A good start.

Dan: 09:41 A good start.

Mel: 09:42 So that's the first group, right? They're asked on the way out by the experimenter to donate that twenty bucks to the poor lab.

Dan: 09:48 Right. “Couldn't even afford interesting tasks for you to do. All we could afford was wooden wheels.” Yeah.

Mel: 09:53 The second group on their way out, they come into contact with the receptionist of this lab and the receptionist asks them on the way out, “Look, would you mind donating back your money?” Or, “Could you do us a favour, could you donate the money back to us?”

Dan: 10:08 The cheek.

Mel: 10:09 Yeah, and the third group just left with their money. They weren't asked to donate it at all. So, the thing they're actually measuring was a post-study questionnaire of how much they liked the experimenter.

Dan: 10:26 Right. Not the receptionist. She was like the decoy.

Mel: 10:30 Not the receptionist. Yeah, she's just there. We're assuming that she was a female as well. But anyway-

Dan: 10:35 1969, let's be honest.

Mel: 10:36 So, what happens is they actually measure the liking for the experimenter, and what they found was that that middle group who were asked by the receptionist to donate the money at the end, they had the least amount of like for the experimenter overall. Okay? They were just like, “Don't really feel much for this experimenter at all.” Interestingly, the group who reported that they liked the experimenter the most were the group who were actually asked by the experimenter to return the money that they had been given. And so, again this just speaks to this idea of this is weird, right? The experimenter has just asked them to return the money that they'd been given and that makes them like him more.

Dan: 11:16 Yeah. It's weird, right? It feels like you should go on asking people for shit and making friends.

Mel: 11:20 Yeah. This is my new way of making friends. “Hey everybody, could you all do me a favour?”

Dan: 11:25 Do me a favour.

Mel: 11:26 “If you do it you're my new friend.”

Dan: 11:28 Yeah. In so thinking about how this kind of works, and I know this is probably the bit that you would normally do, because it's kind of sciency, but I found this interesting that there's this notion of cognitive dissonance, which we've spoken about in previous episodes, which is just what fancy people call confused, and it's this idea that we think to ourselves, “I did something nice for this person and I only do nice things for people that I like. I can't take back the thing that I've just done, so therefore I must like this person.”

Mel: 11:52 You must.

Dan: 11:53 Alright.

Mel: 11:53 There's no other reason why you would-

Dan: 11:55 This is my only logical explanation for why I just did something for someone I didn't like, and now I like them more.

Mel: 11:59 Yeah. So, this is what happens when we do things when we're in conditions of uncertainty. We've talked about how our emotional brain acts in times of uncertainty and then our rational brain kicks in after the fact, and it's like, “Hang on a second, what did we just do and why did we do that? Ah, because I like them. Right, I get it.”

Dan: 12:13 I don't know if we've spoken about it like this before, but it feels like our emotional brain is like the real world and then our rational brain is the PA department that just tries to explain what happened here.

Mel: 12:25 We could look at it that way.

Dan: 12:26 It's like “no, no, this was a very strategic decision that this human being has just made here.”

Mel: 12:30 Of course.

Dan: 12:31 Okay, so this is weird, right? So, I want somebody to like me who doesn't like me. I ask them to do me a favour, they do me a favour and now they like me more than they did before.

Mel: 12:40 So they like you and they've done you a favour.

Dan: 12:40 And they've done me a favour-

Mel: 12:40 You've run twice.

Dan: 12:43 They've done me a favour. I'm totally winning.

Can we unpack this a little bit? Like, maybe from a psych perspective. Why would this work?

Mel: 12:49 Yeah. So, we can think about it from the perspective of the person who's asked to do the favour. The person who doesn't like you, like what's wrong with him for a start-

Dan: 12:58 For a start.

Mel: 12:59 But they're asked to do you a favour and what happens? What's their experience like?

What's happening for them is that they're getting ... When you ask somebody to do you a favour, you're actually suggesting to them “hey actually you've got something that I need.” Like Ben Franklin was doing at the start, you've got something that I need, which puts you as the favour-askerer in a position of vulnerability, right? You're saying, “I'm actually vulnerable because I actually don't have it all.” Right? “I'm a really cool person, I have a lot of things going for me. There are a lot of reasons to like me, but you know what? You have something that I need.”

Dan: 13:31 Yeah. So, Benjamin Franklin doesn't have the rare book and the researcher doesn't have the 20 bucks.

Mel: 13:36 That's right. And so there's something that you need. And typically in these situations it operates when there's an imbalance in power. Okay? So, the experimenter is obviously in a position of power over the people in the experiment. That's just the way it works.

Dan: 13:52 Benjamin Franklin was probably in a position of power over this random hater because he was already quite prominent and powerful by that point.

Mel: 13:57 He was more powerful, yeah.

So, this is all about addressing the power imbalance and actually evening it out. So, the person who's on the other side, the participant, is usually the person who feels vulnerable. And what happens is when the experimenter shows vulnerability, all of a sudden they've got something in common. All of a sudden they've got something that they both understand and all of a sudden there's a basis for them to form a trusting relationship going forward.

So, it's all about evening up that power balance.

Dan: 14:22 I guess the second half of it ... Number one, the person has showed some vulnerability, but I feel like there's also a kind of subverted compliment or an acknowledgement of expertise. So, not only am I showing you that I'm vulnerable, but I'm asking you to help me with something that you clearly know about. So, objectively I'm asking you for a favour, but really what I'm doing is I'm saying “Hey, you know something that I respect and could you share that knowledge with me.” So, if we think about asking a colleague to proof-read something before it goes off to a client, you are objectively asking them a favour but in a backhanded kind of way you're acknowledging that they have some value to contribute, or some expertise that you would like to tap into.

Mel: 15:03 It seems so deceitful when you think of it like that. Like, the person who asks the favour gets that person to like them and also gets the favour done for them. Like, it seems like there's a clear winner in this situation, but the other person thinks they're winning.

Dan: 15:15 Yeah. What I've concluded today is doing favours for people is a losing man's strategy. Losing person's strategy.

Mel: 15:22 But it's also the basis of functioning communities. And we actually need to have those interactions in order to build what we call social capital and to build trust.

Dan: 15:32 Yes, because, what? Trust is built on vulnerability?

Mel: 15:35 Well, in order for a trusting relationship to ensue, somebody at some instance has to start off by taking a back seat and showing vulnerability. Somebody has to say, “I'm vulnerable, I need something. Can you help?”

Dan: 15:47 Yeah. It is interesting thinking about it in a pitching situation. When you walk in to pitch to a prospective new client, the prospective client has all of the power. Basically they're the judge. If you've never pitched for anything in your life before, it's basically like going on some terrible reality TV talent show where you have a panel of judges and hopefully you impress them.

Mel: 16:07 Now you're talking my language.

Dan: 16:09 And an interesting strategy I read about for a pitch, which to be honest I've never executed before, is to open the pitch with the reasons why the client should not pick you, which obviously are going to be things that you're going to fix up later in the presentation. But if you start on the front foot by showing a vulnerability, where if you say, “Look, if what you guys are looking for is an agency that has delivered more aged-care campaigns than anybody else in the country, we are definitely not the guys.” So, you sort of declare your vulnerability first and maybe that forms the basis of a trusting relationship.

Mel: 16:43 Yeah. I mean, if you've looked at any TED Talk, that's why they're effective.

Dan: 16:47 They all start with a story.

Mel: 16:48 They all start by offering vulnerability.

Dan: 16:50 Story about my childhood.

Mel: 16:51 Of course. Because you think that the person who is up there giving the TED Talk is an expert. That's why they're there. You think that they know way more about whatever it is they're going to talk about than you do, and hopefully they do if they're standing up there. But the first thing that you do, the script for a TED Talk, is tell your personal story. Make yourself vulnerable to the audience first. Reel them in, and then hit them with what you actually are an expert in.

Dan: 17:12 I'm going pants-less. That speech. You want to see vulnerability, people?

Mel: 17:18 So, when you talk about how it works with your clients, it makes me think of the way that I work in practise as well. So, if you think about a client/therapist relationship, there's a clear power imbalance there, right? A client comes in feeling pretty vulnerable and feeling like the therapist is there to solve all of their problems and has all the knowledge and expertise in order to do that effectively. One of the most important things that you can do as a therapist in order to build rapport is to become vulnerable to the client, to sort of balance out that power, by actually saying, “You know what? You're actually the expert in your life, or in whatever it is that you're doing. Can you tell me a little bit about that.”

So, I work a lot with athletes, right? From all different sports. And I like to think of myself as a pretty sporty person, but there are some pretty weird sports out there.

Dan: 17:18 Unique. Interesting.

Mel: 18:01 Unique and, you know, every sport has its own little culture and psychology and nature attached to it and I do not claim in any way to understand all of that. So, one of the tools that I can use is to actually, and of course I'm actually genuinely interested, but by actually asking the client to explain their sport to me, or explain the technicalities, or talk to me about that, they actually have the opportunity to feel empowered and feel emboldened and actually feel like they're not as vulnerable or they have something they can teach me. And hopefully they like me and they come back for more.

Dan: 18:33 Also probably a better strategy than you going pants-less, because that's not right.

Mel: 18:36 It doesn't really work so well.

Dan: 18:39 I don't know how it's going to work for me either, but one of us should try it before next episode.

Mel: 18:43 I'm pretty sure there's some ethics against that.

Dan: 18:45 So, a lot of this is about human to human interaction and with human to human interaction it's important that things seem genuine. Like, we're not just asking for favours just for the sake of asking for favours. That the favours actually show some level of insight into something people could help us with, right?

Mel: 19:02 Yeah. I mean, the whole thing totally backfires if it seems disingenuous.

Dan: 19:04 Yeah, like the fact that Benjamin Franklin knew this guy had this book in his library definitely played into the whole effect. It wasn't just a random request for a Peanuts comic, or something like that.

Mel: 19:14 Yeah.

Dan: 19:15 I think while that's kind of natural in a human to human relationship, when brands want to get involved with this, when brands want to ask favours of people to get them to like the brand more, there's really automated versions of this. So, if you imagine you've just bought something off of Amazon and you get an email three days later saying please rate your experience. They're asking you a favour, but it feels kind of ...

Mel: 19:39 Well, I know why they're asking me a favour. It's because I've obviously just made a purchase and they don't really care about me, they're actually doing it because they want their feedback because they've got some ratings that they need to, you know, meet.

Dan: 19:49 Yeah. Whereas you can imagine, and obviously this is maybe not practical for every brand, but you could imagine if instead of doing that if somebody from Amazon called you and they're like, “Hey Dr Mel, we just noticed that you've bought your fourth psychology book and we're really interested in trying to improve our psychology offering, could you just spare a few moments to give us your thoughts on what we could do to improve our collection of psychology books on Amazon?”

Mel: 20:13 “Oh you want my expertise now to help you. Oh, of course!”

Dan: 20:17 “That's a favour we'd like to ask you, would that be okay with you?”

Mel: 20:19 “Oh, of course. I'd love to help.”

Dan: 20:21 And you could just imagine how good you would feel about Amazon as a brand after that.

Mel: 20:25 Well, I really like them because they actually valued my opinion.

Dan: 20:28 Yeah, which is nice. And we see this client agency world as well where, you know, somebody senior from a client might call me to ask how their team is going, and if we go back to our things about showing vulnerability and acknowledging expertise, like when a senior client asks me how their team’s going that does acknowledge vulnerability. It says how “I'm not really across all the details of everything, and hey you have some expertise because you're seeing how my guys are going and you're smart enough to know when guys are going well or not going well.” And of course I feel completely in love with clients that do that. They want my opinion, it’s great.

Mel: 21:01 Yeah.

Dan: 21:02 Alright, what do you reckon? Is that a wrap for big bad Benjamin Franklin effect?

Mel: 21:06 I think we've done it.

Dan: 21:08 Alright, so what's the moral of the story?

Mel: 21:10 If you want someone to like you ask them to do you a favour, and also recognise, and this is something important just as a little side note, there is strength in vulnerability, right? We often think that the things that attract us to people are strength, when actually what attracts us to people is their vulnerability.

Dan: 21:24 Oh, that's deep. We're going to end it on that.

Mel: 21:26 I think we should.

Dan: 21:27 Alright. Why don't we do our social media handles?

Mel: 21:29 Okay. You can find me on Twitter, Instagram, LinkedIn, whatever, @DrMelW.

Dan: 21:34 Yeah, and you can find me @Danmonheit, like just generally on the internet, type it into Google, I'll be there somewhere.

Mel: 21:41 You'll find him.

Dan: 21:41 Cool.

Mel: 21:42 And when you do, ask him to do you a favour.

Dan: 21:43 Yeah, I'd be happy to.

Mel: 21:44 See ya.

#16 Framing Effect: Why we like our milk fat-free and our luxury cars full price

Would you enjoy your beef more if it was 75% lean or 25% fat? That’s weird. In this episode, Mel and Dan explore the framing effect - and how what we’re presented with is far less important than how it’s packaged.

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Dan: 00:00 And then this, why do you keep hiding my Lamborghini card, alright it’s only a matter of time before we start irritating each other.

Mel: 00:28 Hi. And welcome to Bad Decisions.

Dan: 00:30 The podcast that helps us understand why we choose what we choose,

Mel: 00:33 Why we think, what we think,

Dan: 00:34 And how to exploit this stuff for fun and commercial gain.

Mel: 00:36 I'm Dr Mel Weinberg. I am a performance psychologist.

Dan: 00:39 And I'm Dan Monheit, co-founder of Hardhat a creative agency built for today.

Mel: 00:42 Play the music.

Dan: 00:50 Alright, Mel I want to offer you a deal. Okay. So I've got this amazing new piece of technology I've been working on. It's quite the revolution.

What this technology is gonna do is it's going to improve our quality of life in a way that you would not believe.

Mel: 01:05 Sounds great.

Dan: 01:05 It's going to make us more efficient, more productive, more fun. It's basically going to make us more everything.

Mel: 01:10 Yeah.

Mel: 01:11 And I'm going to offer you this technology, but I have one condition. Alright so it’s going to do all these amazing things, but once a year I need to turn up and randomly kill 1,200 people.

Mel: 1:21 [laughter]

Dan: 1:23 What? What do you reckon?

Mel: 01:25 Look it sounds good, but I don't think I'm in.

Dan: 01:30 So no?

Mel: 01:32 What why would you do that? 1,200 people at random.

Dan: 01:36 Well sucked in. You already bought it. My innovation is called the car. Yeah. So, why that's just in Australia. 1,200 people die a year from car accidents and probably two times that are actually seriously injured or become disabled as a result, which is kind of morbid way to start the show. But it does illustrate something particularly interesting.

Mel: 01:55 Yeah. That we shouldn't be driving cars.

Dan: 01:57 Well yes, we should not be driving cars. Bring on the autonomous vehicles, but also.

Mel: 02:01 But also what you've talked about and what you've mentioned is something called the framing effect.

Dan: 02:05 That is correct.

Mel: 02:06 Yes. See you're introducing the one?

Dan: 02:08 Yes.

Mel: 02:08 You know the heuristic this time.

Dan: 02:09 I'll give you this one.

Mel: 02:11 So the framing effect is pretty basic when it comes to heuristics.

Dan: 02:13 Well, sorry for bringing a basic heuristic with me today. We can't all be doctors.

Mel: 02:17 No, but it's important because it does signify a pretty bad decision. The framing effect is the idea that our brain makes decisions not based on the raw information, not based on what information is presented, but on how that information is presented.

Dan: 02:30 Yeah. And look, let's be honest, not only is it just like a basic heuristic, but this really cuts into the core of marketing and advertising and positioning.

Mel: 02:39 I mean, it's all about context.

Dan: 02:40 Exactly. How are we gonna tell our story.

Mel: 02:42 So look, by now it's probably no surprise to our listeners to hear that the framing effect was originally brought to our attention by Kahneman and Tversky back in 1981.

Dan: 02:51 Those guys.

Mel: 02:52 Yeah, it was a really good paper. But some other researchers, did us a favour. More recently in 1998. This is Levin, Schneider and Gaeth where they provided us with a typology of framing effects and what that does for us, is it nicely frames the way that we're going to lay out this episode.

Dan: 03:13 That's very meta. It's framing the way we talk about framing?

Mel: 03:16 Yeah.

Dan: 03:17 Wow.

Mel: 03:17 Wow. So here we go. So there were three types of framing. The first is called risky choice framing-

Dan: 03:22 Can I just ask? There's always three, do you reckon they find two, and they're like “there must be one more here somewhere.”

Mel: 03:27 I think if we've learned anything with regard to how to pitch an idea, get three of it.

Dan: 03:31 There's always three. If you found two keep looking there's always a third one there and if you four, one of them is probably bullshit.

Mel: 03:37 So the first one is risky choice. So I'll give you an example. All right, so let me ask you. There is about to be ... Let's say you're the health minister, there's about to be an outbreak-

Dan: 03:47 I feel like I'm wearing a bad suit.

Mel: 03:48 Yeah, you are.

Dan: 03:50 Or a good suit compared to other health ministers.

Mel: 03:52 It's all about the confidence.

Dan: 03:52 See what I did there?

Mel: 03:54 So there's about to be an outbreak of a deadly disease and 600 people are going to die. We've looked around and we've asked all these professionals about how we’re going to combat this and you've got two options.

The two best options have been presented to you. Here they are.

Dan: 04:06 Hit me.

Mel: 04:07 Okay. The first treatment A, you're going to save 200 lives, 200 lives will be saved if we implement treatment A.

Dan: 04:13 Okay that's good.

Mel: 04:15 Treatment B, there's a 33 percent chance that everybody's going to be saved and there's a 66 percent chance that no one will be saved.

Dan: 04:27 So hang on. We’ve got 600 people affected by this. Option A, 200 people definitely gonna live. Option B, 33 percent chance people are going to live.

Mel: 04:34 33 percent chance that everyone will live.

Dan: 04:35 Everyone lives, 66 percent chance that everyone dies. 66 percent chance everyone dies is enough for me to say no thank you. I'm going to go with option A.

Mel: 04:43 Okay? And that's what the majority of people in fact, 72 percent of people presenting with this problem would say.

Dan: 04:49 What's wrong with the other 28 percent of people?

Mel: 04:52 Well maybe they're realising that actually the two instances are pretty much the same. If I'm telling you that a third of people are going to be saved. So you're saving a third of people, 200 people. The difference is that I could also tell you, and I could pitch that to you in a totally different way. What if I say to you, if you do treatment A 400 people are going to die all of a sudden it doesn't sound like a great option, does it? It's been reframed.

Dan: 05:19 And I guess when you have the misfortune of being in hospital and the doctor comes up to you and says, "oh, we've got to do some surgery on you" They're much more likely to tell you “look, this has got a 95 percent chance of success” than saying, “well there's a 5 percent chance this is actually gonna be complete waste of all of our time”.

Mel: 05:31 Correct. So, that's risky choice. The next type of framing is when we frame the attributes of something. So you know, when you go to the supermarket and you've got your beef options and you've got the choice of beef that’s 75 percent lean beef, would you rather that? Or would you rather the 25 percent fat beef?

Dan: 05:52 Well I mean if we just accept just for a moment, and this probably relates to the previous example as well, that basic statistics and probability is beyond most of us in our day to day lives, we're just looking for the quickest answer. And so clearly looking at something 75 percent good is a far better outcome than looking at something that's 25 percent bad.

Mel: 06:09 Well, it's framed more positively for you if you're after the leanest meat and you're going to get 75 percent lean meat, well that sounds great. Here's the kicker with this one is that when we frame the attributes in this way, even though what we're actually evaluating and the attributes of it are being presented, are exactly the same. What actually happens is that people will rate their enjoyment of the 75 percent lean meat higher than the 25 percent fat meat even though it’s the same meat.

Dan: 06:35 That makes sense. I guess like buying the most expensive wine on a wine list, will probably make you think that wine was more enjoyable than if you bought that same wine at a better restaurant and it was kind of somewhere down the bottom of the list.

Mel: 06:47 So it's about the context.

Dan: 06:48 And frame differently. If we stay in the supermarket aisle, I mean telling we see in Australia is that most dairy products are promoted as fat free. So 98 percent fat free, 99 percent fat free, 95 percent fat free, which kind of makes sense. That's what people want to know about. I always find it interesting when you go overseas, especially when you go to Europe. I think maybe even the States have it as well and they'll have like two percent fat milk. It's like, even though two is a very small number, it's still like you're telling people that there’s fat in there.

Mel: 07:14 Yeah. You could flip the whole dairy industry on its head if you went to the northern hemisphere.

Dan: 07:19 Yeah, it's like they rolled out the whole industry before anybody had a chance to go ”wait, no no no, don't do that. Don't make the industry standards talk about how much fat …”

Mel: 07:27 You could just say that it's 98 percent fat free.

Dan: 07:29 How much not fat. That is far more exciting-

Mel: 07:32 And everybody will be will be like two percent.

Dan: 07:33 This actually makes me think of another example, something that happened not long after the GFC, which I remember at the time thinking, wow, that's really clever how they've done this. And in the same way, it's taking the same information but presenting it completely differently. So this was something with super luxury car dealers. I think maybe I'm just going to talk about Lamborghinis as an example. I can't remember if it was them, but let's just assume it was. And let's say these guys are selling $400,000 cars and at the best of times selling a $400,000 car is difficult. Selling it off the back of the GFC is like really almost impossible. So what these guys are doing is they're sitting on stock of cars. They've got new models come in. They have to get these things out.

And in the normal law of supply and demands and normal economic theory, if you have a $400,000 thing that you want to sell more of, what do you do? Reduce the price. Right? Price goes down, demand goes up.

So I mean you can imagine going up to a Lamborghini dealership and seeing like 25 percent off stickers plastered everywhere. Like it was JB Hi-Fi or something. Clearly not going to happen, but they still have to move the car. So what these guys ended up doing was reframing the discount so instead of marking a $400,000 car down to a $300,000 car, they managed to keep the price at $400,000, but we basically overpay people $100,000 for their trade ins. So you turn up with a whatever, $100,000 car to trade in. They say “no no no, the Lambo is a $400,000 car and we never discount the $400,000 car, but you know what, instead of giving you $100,000 for your BMW you've brought in, we're going to give you a $200,000 allowance for that car because it's a good one.”

Mel: 09:06 So it's really interesting what they've done there because they're actually retaining the perceived value of the Lamborghini.

Dan: 09:11 Exactly. So what they've done here is a really cool job of reframing because what they've done is they've left the $400,000 Lambo as a $400,000 Lambo, but instead of giving you $100,000 discount off the retail price, they've given you $100,000 bonus on your trade-in car and at the end of the day you've given your car in for the same amount of money and walked out with a $400,000 automobile.

Mel: 09:29 Very clever

Dan: 09:30 Win, win, win.

Mel: 09:31 The third type of framing effect is when you frame the goal of something or more like the outcome. Okay. So think about it in terms of if you needed to pay a registration fee for something. And an example is that when people are presented with a registration fee and there's a penalty for paying late, 93 percent of people paid on time.

Dan: 09:57 Okay, that's pretty good. It turns out late fees work.

Mel: 09:59 The flip side is that when you're presented with a discount for early registration, how many people will pay it early, and you only get 67 percent.

Dan: 10:08 Which is interesting, right?

Mel: 10:09 Yeah, I mean that's why I said it.

Dan: 10:12 Well, I mean it's interesting because I think in a previous episode we talked about this idea of loss aversion and so maybe we perceived the fine as an extra loss and we’re far more motivated to avoid loss than we are to get a gain, which would be why more people would want to avoid the loss than to get the gain of paying early.

Mel: 10:27 Right. That's perfectly consistent with loss of vision.

Dan: 10:29 Yeah. Which is actually kind of weird though because when I look at how energy bills come, we know it's more effective to charge people a late fee. But most energy bills, and certainly my energy bills, don’t have late fees but they have discount fees if you pay early, which according to the research I guess you were just talking about is a less effective way.

Mel: 10:49 So here's the thing, it's effective in terms of compliance, yes. So if you want people to pay their bills, pay their fines on time, instituting a late fee or a penalty for not paying it on time is going to be effective. But here's the thing, if you are a brand who wants to maintain an ongoing relationship with the customer, well how much are they really going to like you if you keep slugging them with late fees?

Dan: 11:09 So it's like slightly worse in the short term, but far better in the long term for the energy provider.

Mel: 11:09 Right.

Dan: 11:09 So, in a discount.

Mel: 11:14 That's right. The energy provider wants to be your preferred provider. And if they keep slugging you with late fees, at some point you're going to say, ah, you've got a choice in the market and you're probably going to shift to something else.

Dan: 11:24 So good take out here is if you're in a government sanctioned monopoly, just slap people with late fees because what are you going to do? Go “I hate this council. I'm taking my house somewhere else” obviously not an option. So they don't really care if they get hated. Unless you're listening to us from a council and I'm sure everybody loves you.

Mel: 11:39 Love you.

Dan: 11:40 Love you. Please don’t give me parking tickets. People don't have a choice so they just got to put up with it. Whereas if you're in a competitive market, whether it's telecommunications or gas, electricity, whatever, that long term relationship is more important, so we're better off giving a discount than offering a late fee.

Mel: 11:53 So it's a trade off. Yeah, that you've got to trade off. You got to understand that if you are going to push compliance and if you're gonna push compliance in a way that's going to make it most effective, it's going to come with a compromise of your ongoing relationship and your customer satisfaction.

Dan: 12:05 There's another thing, just maybe tangential to that, but there's a weird ... look at me I want to know about the psychology. There's a weird thing that happens in my head where I think if I didn't pay early and end up paying on time, so I missed the discount. It's like, oh, that's my bad. I'm an idiot.

Whereas if I was about to pay on time and I kind of got distracted and I ended up paying a day later and they slugged me with a late fee. I'm like,” these guys are assholes”

Mel: 12:26 So it's an attribution as well about who's actually taking the blame, who's taking the responsibility for it.

Dan: 12:31 Yeah. I'm responsible for good things in my life. Other people are responsible for bad things in my life. Completely normal.

Mel: 12:37 Yes, you are. So we're going to shift gear for a moment and look at an ad that has given us a really good example of the framing effect in action.

Dan: 12:45 I love ads let's look at more ads. It's very hard in the auditory format, not a lot of good radio ads, but we're going to describe a TV ad, right?

Mel: 12:52 Right. And it's an ad from the transport accident commission. The TAC.

Dan: 12:55 So for those of you not from around here, TAC are the guys in charge of making sure we’re getting home safely and nobody dies on our roads. And this was brought out as part of a big sort of repositioning or reframing from them.

So a number of years ago they actually adopted a road safety system or philosophy out of Scandinavia, out of Sweden. And it's the idea of moving towards zero where there's this inherent sort of understanding in things like terminology, like road toll that some number of deaths on the road are just inevitable, like road toll, there is a toll you have to pay for having roads as a society. And maybe even at a deeper level, if you heard about someone who was drunk behind the wheel wrapping themselves around a pole, people would think, well then they probably deserve to die anyway. They weren't really doing the right thing. They were breaking the law. But it is harsh, but probably what a lot of people think.

This new philosophy says, well look, humans aren't perfect, so we have to wrap a whole system around them. If we really believed that zero deaths is the only acceptable number of deaths on the road. So anyway, it's a very interesting way of reframing what they're about-

Mel: 13:58 They're in a tight position, like you say.

Dan: 14:00 Exactly. And I think this guy sad that you're about to talk about is a wonderful illustration of that.

Speaker 3: 14:05 “In 2016, 291 people died on our roads. What do you think would be a more acceptable number?”

Speaker 4: 14:13 “Uhhh - acceptable? 70 maybe? Probably 70.”

Dan: 14:13 70?

Mel: 14:13 70.

Dan: 14:18 70 would be good.

Mel: 14:21 Compared to 291 deaths. Hey, 70 sounds like a win. 70 is pretty good.

Dan: 14:25 Imagine if we could have 220-somethin- one less deaths on our road this year. Wouldn't that be amazing?

Mel: 14:34 Sounds like a massive win for road safety. Yes. Here's the reason the ad’s effective and here's what happens next.

Speaker 3: 14:39 “Can you save 70?”

Speaker 5: 14:43 “Actually this is what 70 people looks like.”

Mel: 14:47 All sudden what happens is this conception of 70 abstract people who I don't know and who I can’t put faces to and have nothing to do with me dying on our roads, yeah I'll wear that. All of a sudden you've put faces and names and persons. Literally real people. People who are close to this man in the view. And you've presented 70 of them and you've said to him “you still think 70 is acceptable?”

Speaker 3: 15:15 “Now what do you think would be a more acceptable number?”

Speaker 4: 15:24 “Zero. Zero.”

Dan: 15:27 “Well, actually I don't really like my second cousin who you’ve brought out …” No, he says zero. I guess to highlight what you're saying, I mean they've reframed a reduction in 291 anonymous people to 70, reframed from that zero people you know, to 70 people you know.

Mel: 15:43 Exactly. It's completely reframing something and first of all, in the first instance, it's seen as a gain from 291 down to 70 massive wins. But when you've got 70 loved ones lost, all of a sudden that's about the biggest loss that you can get to lose your entire family, including your 8th cousins. That's a lot of loss.

Dan: 16:01 So I'm not sure what you meant to do as a result of seeing the ad, other than believing that it is a worthwhile positioning for the organisation to be going after. But a beautiful illustration of literally seeing framing unfold before your eyes.

Mel: 16:12 Yeah. And what makes it more powerful is that what they've done is they've primed this guy. They've pretty much set him up to give that answer. Because they started with 291 people died in on our roads, last year.

Dan: 16:24 Which kind of harks back to the idea of anchoring that we've spoken about in a previous episode as well, where you give somebody a number first and then get them to guess and their guess is always sort of relative or pegged on that first number that they hear.

Mel: 16:36 Yeah. So priming pretty much provides people context by setting themselves up by giving them information on which they can base their next response or statement.

Dan: 16:44 Exactly. And I think priming if we talk about the framing effect as being the how something is presented, not the what is being presented, priming has a huge role to play in that because priming is almost a thing that happens almost immediately before the observed behaviour. Which is why I really like have no faith in most survey results that are published in things like newspapers because you don't know what the one or two or 10 questions they asked before the question they’ve actually reported back on.

So if you're going to do a thing on gun control as just a random example, and you wanted to publish whether people thought we should have tougher gun control laws. If the proceeding five questions were about ... “did you know that x number of people were killed in the last 12 months because of our current gun laws? Do you know that you know more than 70 percent of these people with children and did you know that ... “ Whatever. And then you just ask the question, “do you think we should have tighter gun control laws?” You think that that's going to prime people to say yes, as opposed to if you started your line of questioning about “did you know that our freedom of rights and freedom of speech are now more suppressed now than they've ever been in any time …”

Mel: 17:45 So you're saying you don't have faith in the research that’s published in newspapers.

Dan: 17:48 Correct.

Mel: 17:48 Here's the difference. Just like to fight back for research, when research is done in science and printed in proper scientific journals we actually-

Dan: 17:56 Proper scientific journals.

Mel: 17:58 Real as opposed to the newspaper. Researchers are actually aware of these sorts of things. We call them item order effects. And so whenever I ask people questions, even if it's research study or whether I've got a client in my office and I want to know how they feel, I’m first of all not going to ask them, “how much pain did you feel today? How uncomfortable are you right now?” I'm not going to prime them to think of other things before I say, “and by the way, how wonderful is your life right now?”

Dan: 18:23 Yes. I guess if you said to me “give me a list of all the things that are upsetting you at the moment” and then said “so how are you?” I've probably just primed myself into saying I'm not very good.

Mel: 18:32 So we're aware of these things and there are contingencies that can be made in terms of the planning of surveys to ensure that people are not primed prior to entering questions

Dan: 18:40 But is not priming even a possibility?

Mel: 18:42 Well, what we know is that there are examples where you can deliberately prime people to think a certain thing. And there are things that can happen that can precede a question that will automatically prime somebody to think something. So what we can do is do our best to reduce any effects of priming. At least any effects of deliberate priming.

Dan: 18:59 Yeah, but I guess you can't control where someone had a great morning. You know, somebody got stuck in traffic trying to get to their appointment with you or trying to get to the place where they're going to complete the survey and they bumped their toe walking in and their phones just cracked the screen or whether they just got a call from some lost relative telling them that they'd like to write them a check for $2,000,000.

Mel: 19:19 It's true. But I can get a pretty good indication by the look on their face as to whether they've just busted their toe and broken their phone or whether somebodies just given them $2,000,000. So I can incorporate that into my interpretation of their answers.

Dan: 19:31 And by that you mean just throw their answer in the bin.

Mel: 19:33 I mean, if it's not an accurate representation of their general state or general mood, then yeah. So to summarise where we've come to so far, so in terms of framing effects, we've talked about the three different types of framing effect. We talked about risky choice, we talked about attributes and we talked about goal, then we throw in a bit of priming information. So now that we know all of this and now that our listeners are so much wiser to all of this, what do we do with it?

Dan: 19:56 So it's a good question because a lot of this sounds really fundamental. When you look at the first two ways that framing works. A lot of It is just to do with putting your best foot forward.

We don't need to tell people that if you have a product that's got a 85 percent chance of succeeding and a 15 percent chance of failing, we're better off telling people that it's an 85 percent chance of success.

Mel: 20:14 I think people get that.

Dan: 20:15 People get that. But I mean this really cuts to the core of branding and positioning of businesses. So some of the things we might talk about is, I don't know if you pick a beverage, pick a vodka. Do you want to be the best vodka from New Zealand? So you're the best of all the vodkas to come out of New Zealand. This is the number one.

Mel: 20:36 New Zealand big for vodka, hey?

Dan: 20:37 Well yeah, or do you want to be the most New Zealand vodka in the world? So like where are you setting your frame, are you looking at the global stage and how you going to do that? Or are you looking at a smaller local stage? Similarly, one of the things we'll often ask about a new product or service is, is this product more like a paracetamol? Like is this the thing designed to take pain away and we're going to frame it all around all of the pain that you're currently suffering, how this product's going to fix it? Or is this product more like a multivitamin and it's gonna not take you from negative to neutral, but it's going to take you from neutral to amazing, wonderful, skipping through the fields in the sunshine.

Mel: 21:09 Got it. So that's what we can do with brands. From a consumer perspective, it's really simple. We know that our brain is making decisions based on how information is presented. Your job is to try to neglect as best you can, all this information that is distracting you and make the good decision by focusing on actually what information is being presented.

Dan: 21:28 So if you're a consumer on the receiving end of the vodka example I gave before, just try and work out if it’s good vodka.

Mel: 21:34 And do you want vodka?

Dan: 21:35 Well let’s assume you do, right. Goes with most things. Great breakfast, drink. Don't drink vodka for breakfast.

Mel: 21:40 Not always.

Dan: 21:42 But just focus on, is it a good product?

Mel: 21:45 Do you actually enjoy it?

Dan: 21:46 But don't do that too much because then I won’t have a job.

Mel: 21:48 All right, so that's pretty much a wrap on the framing effect.

Dan: 21:51 That is true after listening to this podcast. If pain persists, please contact Dr. Mel, you’re all over the internet Dr Mel Weinberg.

Mel: 21:58 @DrMelW.

Dan: 21:59 @DrMelW, and I'm also in some parts of the internet @Danmonheit.

Mel: 22:04 See you next time.

Dan: 22:05 Yeah see you next time. When is next time Mel?

Mel: 22:09 You know, I think will do for a little bit of a break actually.

Dan: 22:10 We have been working pretty hard.

Mel: 22:11 And we've pretty much exhausted all of Kahneman and Tversky’s 1981 paper.

Dan: 22:15 You are going to need to get back to your research, we're going to take a little break. We've got some side projects we're working on here, but we will be back.

Mel: 22:21 We'll be back soon.

Dan: 22:22 More bad decisions.

Mel: 22:23 There were definitely more bad decisions to be made.

Dan: 22:25 Thanks for listening.

#15 Hot Hand Fallacy: Why we love seeing hot streaks

You’ve just made your last three shots, won your last three hands or closed your last three deals. What do you think will happen next? In this episode, Mel and Dan explore the fallacy - and reality - of ‘catching fire’ in games, business and life.

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Mel: 00:14 Hi, and welcome to Bad Decisions.

Dan: 00:21 The podcast 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: 00:27 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 today.

Mel: 00:34 You did it.

Dan: 00:34 I did it, now you do it Kops. [music playing]

Mel: 00:41 So Dan Monheit for this episode, I want to welcome you to Mel's Casino!

Dan: 00:44 Hey hey, it's great to be here.

Mel: 00:47 So here's the situation alright, we're flipping coins.

Dan: 00:50 This is a decidedly low-budget casino.

Mel: 00:53 This is a coin toss game, and I have just flipped the coin three times, and it has resulted in three heads. Your job, for a million dollars is to tell me whether you think that the next coin will be a head or a tail.

Dan: 01:10 So we've had heads, heads, heads?

Mel: 01:11 Yup.

Dan: 01:12 Due for a tail, I'm going with tails.

Mel: 01:13 You think you're due for a tails.

Dan: 01:14 Due for a tails.

Mel: 01:15 Willing to bet your life savings on it.

Dan: 01:19 I thought I was betting a million dollars that wasn't mine.

Mel: 01:22 Well we can go either.

Dan: 01:22 Either way.

Mel: 01:22 So you ready-

Dan: 01:26 Let's keep the show moving. I'm going with tails.

Mel: 01:26 Heads, heads, heads, tails. Alright. Okay so now I wanna switch things up a little-bit, and I want you to go in your crazy imagination, to the NBA playoffs.

Dan: 01:36 Okay, I'm there.

Mel: 01:37 You are, Dan Monheit. You are a fifty percent shooter from the field.

Dan: 01:42 Wait, I'm playing in the playoffs?

Mel: 01:43 Yeah.

Dan: 01:44 Oh, this is good. Okay yes.

Mel: 01:45 This is easy for you to imagine?

Dan: 01:46 Oh yeah.

Mel: 01:46 You're right there.

Dan: 01:47 Yes.

Mel: 01:47 Okay. You're a fifty percent shooter from the field.

Dan: 01:50 Yes.

Mel: 01:50 You've just hit your last three shots.

Dan: 01:50 That's good. Yes.

Mel: 01:52 Yes, it's NBA playoffs.

Dan: 01:52 So normally when I think about playing basketball I'm on the bench, but this is good. I'm in the game. I'm hitting shots, I've hit three in a row.

Mel: 02:02 Very realistic.

Dan: 02:03 Okay, so I've hit three in a row, feeling good.

Mel: 02:05 Alright, Coach Mel calls a timeout. Gonna draw up a play. We need a shot to win. You've just hit your last three. Should I put the ball in your hands?

Dan: 02:14 Gimme the ball, "get out of the way."

Mel: 02:17 Dan Monheit for the buzzer beater to win?

Dan: 02:17 Absolutely.

Mel: 02:18 You will back yourself every time?

Dan: 02:20 Oh I've just hit three in a row.

Mel: 02:21 Yeah, but you see, when we just flipped three heads in a row, you were pretty convinced that the fourth one was gonna be a tails.

Dan: 02:28 Because we're due for tails.

Mel: 02:29 We're due for tails, and this time?

Dan: 02:30 Yeah, well it's different.

Mel: 02:32 Okay, I can tell, why?

Dan: 02:33 I'm not a coin.

Mel: 02:34 Right, who are you?

Dan: 02:35 I've hit three in a row.

Mel: 02:35 You're super star bench player Dan Monheit right here.

Dan: 02:39 I'm no longer bench player.

Mel: 02:40 Sorry.

Dan: 02:41 Yes, this is my coming out party.

Mel: 02:42 So, what we're talking about here, what we're talking about today, what we've tried to just illustrate, is the idea of the Hot Hand Fallacy.

Dan: 02:50 This is not a fallacy. I actually had a hot hand. I hit three in a row, and I'm gonna hit the fourth.

Mel: 02:55 Remember this was your imagination, let's come back, let's bring it back into the podcast.

Dan: 02:58 Alright.

Mel: 02:59 The Hot Hand Fallacy, is the belief that we're going to be more successful in future attempts, if we've been successful in past attempts.

Dan: 03:06 I think NBA Jam has a lot to answer for, in this fallacy.

Mel: 03:10 Queue the audio.

Dan: 03:12 “He’s on fire. Razzle-Dazzle. It’s good!”

NBA Jam Audio: 03:12 Boom-Shaka-Lacka! Kaboom!

Dan: 03:18 So I tell you what Dr. Mel. I mean, I'm not a doctor but I don't know, I have some thoughts about this.

Mel: 03:23 Yeah, you're allowed.

Dan: 03:24 I'm allowed to have thoughts? With the fact that it's a fallacy, I totally get it for your first example, when we're tossing coins, or doing other completely random games, so maybe roulette or, something else like that. Where anybody that's done, you know, in maths, understands each event is completely independent and has nothing to do with the previous event and we kinda construct this story that, we're on fire. And I think, actually, casinos kinda know this and tap into it where at a roulette wheel they'll actually put up, what the last twenty spins or the last forty spins have been, to sort of help people construct a story.

Mel: 03:57 Yeah, that's not to actually give you information. It's actually to mess with your mind.

Dan: 03:59 Yeah, got it. So, you know that's a thing that we do, but, isn't sport different? In sport it's not completely random like if I have just hit three shots in a row, there's probably some things working in my favour. So like, my confidence is probably feeling better, my teammates might be looking for me, and maybe something's working against me as well. Like maybe the defence, trying to close out.

Mel: 04:19 100%.

Dan: 04:20 Or maybe taking stupid shots, cause, my confidence is up?

Mel: 04:22 Yeah well, your shot difficulty changes right?

Dan: 04:25 Yeah.

Mel: 04:25 With each one. What you're saying is that there's two different scenarios here. Right? One when we're talking about casino type stuff, mostly down to chance. Right? So the odds are fifty-fifty in those scenarios no matter what. Whereas, in the heat of a game, yeah there's so many other things that could influence whether or not you're going to make the shot.

Dan: 04:41 Exactly so with the casino stuff I'm sure there was research, but we don't really need research to know if that's a thing. We know it's completely random and we all know that we make up stories to tell ourselves that it's not cause we're all special snowflakes and we need to construct a narrative where the world makes sense around us.

Mel: 04:54 Well see that last bit, I'm not sure about being special snowflakes but we certainly do need to construct narratives how the world operate. Because we need to have meaning in our world it gives us a feeling of familiarity, predictability, it would be really uncomfortable for us to live in a world where we had no idea what was gonna happen next. So we tend to make patterns out of random things.

Dan: 05:13 Yeah, like how people see Jesus on toasted cheese sandwiches.

Mel: 05:16 Yeah.

Dan: 05:17 Yeah.

Mel: 05:18 We see faces. We see them in the clouds.

Dan: 05:20 Yes, and we're wired to do that, you know, even as a baby one of the first things you get to do is recognise what a face looks like, so, it makes sense we see patterns and repeated things everywhere we look.

Mel: 05:30 So, next time you see Jesus in the back of a tree, you're completely normal.

Dan: 05:34 Exactly, but with sport I guess it's, it's kinda different. Right? Like is there a fallacy or really is there a hot hand?

Mel: 05:41 Well so now we're going to enter ourselves into an argument that has been going for, about the last 35 years. Alright it started with a piece of research in 1985 by Gilovich, Vallone, and Tversky

Dan: 05:57 Did you say Tversky?

Mel: 05:59 Yeah.

Dan: 05:59 Because if there is a hot hand in research, this guy has it. He's basically on a Bad Decisions hot streak. He's been mentioned in every single episode.

Mel: 06:06 But here's the thing. When you get to be as good as Tversky was, you get to do really cool things with your research.

Dan: 06:11 Such as?

Mel: 06:12 Well, they spent their time, this is so totally different to my experience in Academia. Well it's a little-bit, cause I did watch a lot of basketball when I was in Academia, but they basically just got to look at and analyse the statistics of basketball games. So in 1985 they were looking at the shooting records of the Philadelphia 76ers.

Dan: 06:30 Jordan's rookie season.

Mel: 06:31 And what they were trying to do was look at whether shooters were more likely to make a shot, depending on the result of their previous shot.

Dan: 06:39 So they were trying to determine, if I just made a shot, am I more likely or less likely than average, to hit the following shot.

Mel: 06:45 Yep, and here's the thing, when they asked both the players, and the fans watching the game, if they were more likely to make the next shot after just hitting, the previous one, everybody was like, "Yeah, definitely more likely to."

Dan: 06:54 Yeah.

Mel: 06:55 Actually what the research found, was that there was no evidence for the influence or the suggested idea of a hot hand. The hot hand was a fallacy, and the hot hand didn't actually exist.

Dan: 07:09 Well that's upsetting.

Mel: 07:09 Isn't it?

Dan: 07:09 That's like, really upsetting.

Mel: 07:10 Sorry imaginary Dan in the NBA playoffs, apparently you are not a thing.

Dan: 07:14 I bet also, just like as a guy watching sport, you kinda like to think that this is happening right?

Mel: 07:19 Well yeah, it makes it entertaining, it makes it fun of course. The crowd goes nuts when somebody's hit three in a row.

Dan: 07:23 Exactly. So it may lead to the question I mean, you said this is a contentious issue, we’ve got a paper in 1985 that says no, his is absolutely not a thing ... surely it can’t end there?

Mel: 07:32 Well so then there was a whole-bunch of other studies that came out to replicate it, right? And then all of a sudden you got all these coaches going, "Na uh," and elite sports people going, "Na uh. I don't believe this. I don't care what your statistics show. I know that if I'm feeling hot, God damn it I am feeling hot!" Right? Now for 30 years this research stood, right? There was no such thing as a hot hand, in basketball or in sport.

Dan: 07:55 Well maybe not according to academics and statisticians.

Mel: 07:57 Right. According to everybody else and so a couple of researchers came out and they're like, "Not uh, this has got to be a thing and, we are gonna show you that it is a thing."

Dan: 08:04 "We're gonna keep researching this until we get it right."

Mel: 08:07 "And, we are going to keep watching basketball games and calling it research for as long as we possibly can."

Dan: 08:10 I see where you're going here.

Mel: 08:13 And so, in 2014 some researchers from Harvard, came out with a study.

Dan: 08:18 Well they're smart. They're smart right?

Mel: 08:18 Right, I mean they're from Harvard right? They came out with a study where they looked at 83,000 shots in the NBA.

Dan: 08:22 Tough gig.

Mel: 08:23 Yup, and they incorporated all these factors that weren't included in the earlier studies. So they were looking at factors that contribute to shot difficulty, like the things we were talking about like is another defender there, how far are you from the ring, etc. etc. What point in time is it in the game? And what they found was that there was, actually some evidence for the idea of a hot hand.

Dan: 08:41 Hey, see?

Mel: 08:43 If you look long enough. You'll find something.

Dan: 08:44 Exactly, you will find it’s in the data somewhere.

Mel: 08:47 So, currently, apparently, as it stands, the hot hand is not a fallacy. The hot hand is actually an effect.

Dan: 08:53 Right like what are we talking here. How much more likely am I to hit my 4th shot if I just hit the last 3.

Mel: 08:58 So here's the thing the effect sizes were marginal. I'm talking like an extra 1 or 2 percent. But look, if you think about in the contents of sport, like I always say in sports sometimes it's the smallest differences that have the biggest impact.

Dan: 09:12 I guess thinking back about what we were saying earlier about our desire to want to create stories around this stuff. Maybe the reality is you only have 1 or 2 percent difference in likelihood of hitting a shot but when you add on to that bit of extra swagger from the player, the crowd going off and cheering the person’s name because they just hit 3 in a row, the commentator starting to talk up that they have seen not seen a shooting streak like this at this count since December 1987 and this is one of the greatest performances likely to see. All sudden the story fits, even if the reality is questionable.

Mel: 09:44 Right the perception is way more fun.

Dan: 09:46 Yeah, and we want it right? We want the story. It's a much enjoyable experience to watch a game where there is actually momentum and hot streaks. Then when it’s just a bunch of random shot attempts.

Mel: 09:57 Right, so let's break this down in to a couple of reasons why we might fall for this. Okay, why we might think the Hot Hand Fallacy is a thing? In addition to it just being more fun to believe in. I will give you a couple other reasons why we tend to think this way. The first is the fundamental attribution era. Which is the idea when good things happen we attribute them to internal characteristics of ourselves. Right? So, when you've just hit 3 shots in a row you're thinking, "I'm hot, I'm on fire." The flip side of that when bad things happen we don't think that has anything to do with us. Right we’ll put things down like chance or bad luck.

Dan: 10:30 Exactly and so if we think about that example. Like in the casino where, you know if we are losing, oh you know, oh we get 3 heads in a row we think. We think we're due for tales..

Mel: 10:39 Yeahs, it's not because there's something wrong with us. It was bad luck.

Dan: 10:42 Exactly.

Mel: 10:43 We are due for a win.

Dan: 10:44 Due for a win. Totally.

Mel: 10:44 We're a good person. Good people deserve wins in life.

Dan: 10:47 Exactly, whereas if I just won 3 hands in a row. I'm probably due for a 4th.

Mel: 10:51 Of course. Because it was you.

Dan: 10:52 It was a skill. It was all skill.

Mel: 10:54 So, the next thing that comes in to place the idea of the law of small numbers. Basically, it's the idea when we know that something exist in the population. We assume it's gonna also apply in the small tiny little sub section of the populations. When we have small numbers. So, for example if we flip a coin 100 times we expect that we get 50 heads and 50 tails. Right? The law of small numbers said if I would of flip a coin 4 times. You would of expect to get what.

Dan: 11:22 2 heads and 2 tails.

Mel: 11:23 2 heads and 2 tails. Right, there’s just the same likelihood that we would have 4 heads in a row as if we would have head, head, tails, tails. That sequence “head head head head” is exactly the same likelihood happening as “head head tails tails” in a small sample.

Dan: 11:44 Right. So what you're saying about this law of small numbers, we failed to see the sample is merely part of a much much bigger experience. Much bigger population and we think that's the whole universe.

Mel: 11:50 Correct. If you go back to your hot streak in basketball. Right, you've just hit 3 out of 3 of your previous shots right, even though I know that you missed the last 20 before that and you're not really a great shooter. I'm looking at the little streak and I'm only looking at that and I'm neglecting all the information prior to that. I'm neglecting your overall shooting percentage which really, let's be honest isn't that great.

Dan: 12:12 High 40's probably.

Mel: 12:13 And I'm just looking at the small numbers. That little small instance that I’ve got there making my judgement  based on that.

Dan: 12:19 So you're not assessing my skill as a shooter over my lifetime. You're saying in the last 3 minutes this guy is a 100 percent shooter.

Mel: 12:27 Yep. Whenever we restrict the available range of data, we are going to make errors in estimation.

Dan: 12:32 Sure

Mel: 12:33 The last thing that comes into play is something that we have spoken about in previous podcast episode, which is the idea of availability basis. Which is if I want to think the likelihood of the next thing happening is, my brain is going to search for the most recent available information and “oh you hit your last 3 shots? Well of course you're going to make your next one.”

Dan: 12:48 Yeah and probably made shots more memorable than missed shots unless I missed a really critical shot or missed a layup or something like that. Chances are made shot that are memorable than missed shots. So that playing into that as well. So I guess we have all those things working in our favour or against our favour. It does seem pretty clear that we are excellent constructing stories where we want to. Maybe it's further evidence of that.

It seems funny that we only make the stories where we want them to. So we talk about hot streaks for shooting but we don't talk about hot streaks for other statistics like nobody gets on a steal hot streak or a block hot streak or a successful inbound pass hot streak.  

Mel: 13:24 And look that is one of the key criticisms of this sort of research when it comes to sport, that we only look at sort of one metric, one indicator of success and we make all of that judgements about future success based on that. Where as you say there's a whole-lot of other things that could come into play that we just don't pay attention to.  

Dan: 13:38 So the question for you Doctor Mel. The Hot Hand Fallacy is it a thing or is it not a thing?

Mel: 13:44 Look I think as long as we believe it's a thing. It's a thing.

Dan: 13:48 Right.

Mel: 13:48 Which is the point of the whole thing.

Dan: 13:50 So, Doctor Mel, the truth fairy. It is a thing or is it not a thing.

Mel: 13:52 Do you believe it's a thing?

Dan: 13:54 Well.

Mel: 13:54 If you think it, it is real.

Dan: 13:56 Okay, so the Hot Hand Fallacy is not a fallacy. The hot hand attribute is an attribute.

Mel: 14:01 According to the latest research there are some evidence for a hot hand effect.

Dan: 14:05 Alright, well I think we should go with that and I mean at the core of it, it’s because people like stories and a few consecutive shots made or few consecutive hands won at a poker table, or roulette wheel give us all the ingredients we need to construct a story about how wonderfully awesome we are.

Mel: 14:19 They also make good for Hollywood blockbuster movies. Right?

Dan: 14:22 This is true.

Mel: 14:22 About sports.

Dan: 14:23 Nobody's going to see a movie about a series of random shots that may or may not go in.

Mel: 14:28 So how do we take this and how do we apply this understanding of a Hot Hand Fallacy whether it exists or not. What does it mean in brand world?

Dan: 14:35 So if we look at that underlining ingredients for the Hot Hand Fallacy it’s people's desire to create a story and a story about somebody winning. And so, brands it makes sense to do whatever we can to look like we’re on a hot streak. Right. I guess often times with brands, and with agencies and other types of organisations we will look for big news and big wins to talk about our momentum moving forwards. But, probably a great lesson out of these is we should be looking for any sorts of wins we can talk about. Whatever that is individual performance reviews, or PR marketing we do out to the audience. The more made shots we can get out there the more we're contributing to the stories people are creating in their heads about our organisation or us as an individual being on a hot streak.

Mel: 15:20 Yeah, you're just trying to set the tone. Write the narrative.

Dan: 15:23 Exactly. So talking about this there are a couple of industries that come to mind straight away. Alright, maybe the umbrella over all of these is the awards industry, and how many awards are there that are set up just to give people good news to get themselves on hot streaks. So, I have not done the research maybe you would want to do the research but it would seem that there are more awards for cars available than there are cars, available in Australia. It seems that every car has won car of the year award for something. They've usually won it at least 4 or 5 times in a row. Total hot streak get on board with that.

I think superannuation is another one where you know, all of these different funds have been voted or recognised as a top something fund for the last x number of years and of course past performance is the best indicator for future performances, the fund is on a hot streak, make sure you get involved with that.

Mel: 16:10 See it’s funny that, right? Where past performance is the best indicator for future performance. It totally depends.

Dan: 16:15 Yeah who knows but I mean, actually it doesn't really matter because we like to believe that it is, and if you look at the ads, not picking on superannuation here but you will have the first 28 seconds of the ad talking about how amazing how their past performance been, and the last 2 seconds of the ad saying “past performance is not the best indicator for future performance” basically this whole ad was bullshit.

I should just say the ad is not bullshit. It's just the conclusions that we know people will draw from that are probably bullshit. The ads are true. Don't sue me.

Mel: 16:43 Alright so to bring it back and to really sum what we have been talking about. In circumstances where we don't have a whole lot of information or complete uncertainty. We have to understand our brain is going to look for patterns.

Dan: 16:55 For hot streaks.

Mel: 16:56 We're going to look for hot streaks. We're going to look for any information that can make us feel like we're in control of whatever is going to happen next but at the end of the day it's a story that our mind just made up.

Dan: 17:05 Right and clearly for completely random events, it’s 100 percent a story and for not completely randomly events, maybe sport, investment, buying and selling shares. It's like 98 percent a story. And 1-2 percent real.

Mel: 17:20 It's pretty much a story, our brain is making up stories.

Dan: 17:24 Alright it's all bullshit. It's a good way to end.

Dan: 17:26 No, actually you know what's a better way to end?

Mel: 17:28 What?

Dan: 17:29 How do people find you on the internet?

Mel: 17:30 Well they will either Google Melissa Weinberg or they can find me @DrMelW.

Dan: 17:36 Cool and if you finish talking to Mel and you would like to talk to me you can find me at @Danmonheit

Mel: 17:42 @Danmonheit #NBASuperstar.

Dan: 17:45 Yes. I think that is it for today. What are we going to talk about next time Mel? Are we going to keep the hot streak going?

Mel: 17:49 We are going to have to keep the hot streak going.

Dan: 17:51 Yeah I reckon we definitely talk about another bad decision making heuristic.

Mel: 17:54 It's a good chance. It's a good chance that will happen.

Dan: 17:57 Good chance. Seen you then.

#14 Planning Fallacy: Why the best laid plans always go awry

Do you find that things always take longer than you thought? Are you always running late? What if we told you it was all because you’re an irrational optimist? Chances are, you wouldn’t change a thing. In this episode, Mel and Dan consider the planning fallacy, and how our optimistic view of the world makes us underestimate how long things will take, and how much they'll cost.

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Mel: 00:20 Hi and welcome to Bad Decisions.

Dan: 00:22 The podcast that helps us understand why we choose what we choose.

Mel: 00:25 Why we think, what we think.

Dan: 00:26 And how to explore this stuff for fun and commercial gain.

Mel: 00:29 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. Spin it.

Hey, you know what I was thinking?

Mel: 00:44 What?

Dan: 00:44 Well I was thinking how as you get older, so many of these things that seem like good advice or conventional wisdom are actually just completely and utterly incorrect.

Mel: 00:54 It's like all those quotes on Instagram that people say that just aren't really true.

Dan: 00:57 Yeah, but even even like pre-Instagram things. So the one that actually got me thinking about it last week was the idea that whatever doesn't kill me can only make me stronger.

Mel: 01:07 Yeah. Okay. I don't like that at all.

Dan: 01:07 No, this makes no sense. Like, especially as I'm getting older and lots of things hurt me, but don't kill me, definitely make me weaker.

Mel: 01:13 And from a psychological perspective, people are most vulnerable to psychological illness after traumatic events happen, they don't get stronger from them they actually get weaker.

Dan: 01:21 Yeah, so it's like, hey, I just had half my arm mauled off by a bear, didn't kill me, probably not going to be stronger than before. In fact, I have like a massively open infectious, gaping wound where my arm used to be.

Mel: 01:34 Makes you feel good about yourself though, to say it.

Dan: 01:35 Officially not stronger than before.

Mel: 01:37 Officially, scientifically weaker.

Dan: 01:42 And you know, other things like sleeping like a baby, that's total bullshit. Babies wake up all the time and they shit the bed, like that's no way to sleep. But actually the one that really got me thinking was this idea that if we fail to plan, we plan to fail.

Mel: 01:54 Why?

Dan: 01:55 Well, because I feel like I plan a lot and I usually get it wrong. In fact, it seems like whether you do plan or you don't plan, you're pretty much going to screw it up anyway.

Mel: 02:02 Give me an example.

Dan: 02:03 Well, what actually got me started thinking about this was I was doing some research into different iconic Australian destinations, or locations.

Mel: 02:10 Must have been a thrilling weekends for you.

Dan: 02:13 No, this is what happens in agency land. And I was looking at the Sydney Opera House and I guess for anybody that was alive when this was being built, maybe this is old news, but I almost fell off my chair when I learned that the Sydney Opera House was meant to be completed in 1963 and was actually completed, guess?

Mel: 02:27 1965.

Dan: 02:29 1973, which was a lazy 10 years, whatever. It was simpler times maybe nobody really cared, but the thing that's really crazy is not the extra 10 years it took, it's the fact that it was originally meant to cost $7,000,000, which now is like a two bedroom townhouse in Sydney anyway. So it was meant to cost $7,000,000. Guess how much it ended up costing by the time I'd finished 10 years behind schedule?

Mel: 02:51 Tell me.

Dan: 02:52 $102 million.

Mel: 02:54 That is so much more than 7,000,000.

Dan: 02:54 Yeah, so I don't know what that is, it's like 15 times over budget. And it's like, this is a big project and I should mention that the project that got launched 10 years late and 15 times over budget was actually a scaled down version of what they actually intended to do.

Mel: 03:08 That's ridiculous.

Dan: 03:08 It is ridiculous. So it shows that even on the most high profile projects where there's best people working on them, planning doesn't really seem to help.

Mel: 03:16 So it's interesting you mentioned this and I think it's the same sort of thing that explains why I'm always late to everything. Even though I know there's a possibility of traffic, like if I'm going home I feel like it's going to take me 10 minutes.

Dan: 03:27 Yeah. Why would there be traffic - we're optimists?

Mel: 03:30 Yeah. I can just like scoot over it, flying right over the traffic. It's also the same belief that makes me think that I'm going to get a whole bunch of work done on the weekend, so I'll take a whole bunch of stuff home, and then sit and watch the footy all day.

Dan: 03:44 Yeah.

Mel: 03:44 Yeah, you know what it is?

Dan: 03:44 What is it?

Mel: 03:45 It's called the planning fallacy.

Dan: 03:47 The planning fallacy.

Mel: 03:48 And we're all victim to it.

Dan: 03:49 Every single one of us.

Mel: 03:50 It's something that particularly bothers me and I'm sure it affects you as well in sort of the consulting world where people are planning projects and stuff because people are really bad at planning how long things are going to take and how much things are going to cost.

Dan: 04:03 But you know where we're really good at?

Mel: 04:03 What's that?

Dan: 04:05 Being pressured into saying “yeah, yeah, we can do heaps of stuff in not very much time at all” and clients expect it.

Mel: 04:09 And I think it's the industry that both of us are in that when you're trying to win a contract or when you're trying to compete against other firms or other agencies for whether it's grants or whether it's projects, that you have to actually pitch yourselves as being able to do a whole lot of stuff in minimal time.

Dan: 04:25 Yeah, which optimistically you'll probably be fine to do, but realistically might be tougher than you anticipated.

Mel: 04:30 So this is the planning fallacy and we're all victim to it. It's the tendency to hold a confident belief that one's own project is going to proceed as planned even while knowing that the vast majority of similar projects have run late.

Dan: 04:44 Yeah, because the normal rules of the universe don't apply to me, just everybody else.

Mel: 04:44 Exactly.

Dan: 04:49 I mean, it feels like a silly question to ask, but do you have any research to support this?

Mel: 04:53 As a matter of fact, I do.

Dan: 04:54 Let's get the research music.

Mel: 05:02 So today's research comes from 1994.

Dan: 05:05 You get a certain glow about you when you start talking about the research.

Mel: 05:06 As I talk about the research can you tell I'm passionate?

Dan: 05:09 Which is not apparent in any other components of the podcast. I'm just saying.

Mel: 05:13 So 1994 Buehler, Griffin and Ross were exploring the ways that people have these self serving optimistic biases when it comes to planning things. And these research is particularly close to my heart because it involved honours in psychology students. I completed my honours in psychology, I supervised...

Dan: 05:35 Do you have a qualification? I was not aware.

Mel: 05:35 And I even supervised a number of students to gain their fourth year qualifications in psychology. So this is really close to my heart.

Dan: 05:43 You know if I said I observed a number of students it would be creepy, but when you do it is fine.

Mel: 05:46 Supervised.

Dan: 05:47 Supervised. Okay, all right, go on.

Mel: 05:49 Don't you go observing any students, it's weird. And basically what they did was they had people in their final semester, students in their final semester and they asked them to estimate how long it would take you to finish your thesis? You should be pretty close to the end of it, right? Your finals semester.

Dan: 06:05 And you're probably pretty smart by this part of your education.

Mel: 06:08 Well, it depends which of my students you were but... Okay, okay I'm kidding, I love all my students, they're all good.

Dan: 06:14 You're all above average.

Mel: 06:16 Just remember that. How long will it take you to finish your thesis? You're in your final semester so you're getting through it and most people said that at that time, yeah, I think it's going to take me about it's like 34 days, okay? Now, assuming like most people at this stage, they've got a plan, they're writing it, they've got their data, they're just writing it up, right all they have to do is really write it up.

Hopefully they’ve got a good supervisor who will get them through. They also ask them to say, you know, look if everything goes totally according to plan, how long is it gonna take? And they said “look, if everything going totally according to plan, I'll give myself a week less maybe 27 days”. And also what about if like everything stuffs up, what about if everything that could possibly go wrong goes wrong? And they say “yep, that's 48 days”

Dan: 06:57 So we got 27?

Mel: 06:59 At best.

Dan: 06:59 34?

Mel: 07:01 33, just saying how long, yeah.

Dan: 07:03 And 48?

Mel: 07:04 48 at absolute worst.

Dan: 07:05 Okay, yeah.

Mel: 07:06 And you know how long it took, the average that they took these people to finish?

Dan: 07:09 How long?

Mel: 07:10 55 days.

Dan: 07:11 That's upsetting.

Mel: 07:12 So even when they thought about everything that could possibly go wrong, it was another week on top of that and that average did not include a number of students whose final numbers couldn't even be included because they hadn't even finished by the time the data collection for this research was finished.

Dan: 07:25 Humans. This is a weird thing. Like I just think in most of the heuristics we've talked about, they kind of at least try to set us up for success and this just seems like a weird thing to have had this hardwired thing in our brains that makes us constantly disappoint ourselves and those we love.

Mel: 07:42 It's like you think something's going to happen. You plan for something to happen. And you're wrong.

Dan: 07:46 Yeah, but all the time, constantly. Why would this be like, does the universe want my wife to be constantly angry with me because I'm home later than I said I would be because why would there be traffic?

Mel: 07:55 Look at it does serve a motivational function, which is that at least makes us think that things are doable, things are achievable because if you think too far in advance, if you think that things are just too big and too grand and too expensive, you're not going to do anything. So it serves a highly motivational function. It makes us think that we can actually do something, we can actually get things done. We can get things done on time, we can get places on time and it drives us to actually do it.

Dan: 08:17 So if I understand correctly, what you're saying is if we were actually realistic and rational about how we saw our chances of completing things-

Mel: 08:24 We'd never get anything done.

Dan: 08:25 We wouldn't even bother starting. We'd all be miserable and depressed.

Mel: 08:28 Yeah. Well that's the flip side of things that you're constantly planning for failure and constantly planning for the worst case scenario. And that's not a good way to live.

Dan: 08:33 No, those people suck.

Mel: 08:34 Yeah.

Dan: 08:35 All right. So obviously you know, when human beings try to complete projects on the balance of probability, things are not going to go as planned. And so I would suggest that there are two giant contributors to this, one set is to do with people and the other set of giant contributors is just to do with the nature of projects. So how about we tackle one of these each? Maybe we can flip for it.

Mel: 08:56 Okay. I'll talk about the humans.

Dan: 08:58 Okay, you do humans.

Mel: 09:00 I win humans please, you talk projects.

Dan: 09:02 All right. What do you got?

Mel: 09:03 To explore the human factors that contribute to these, we're actually going to go back to one of the first papers, would you believe one of the first research papers that I ever read when I was studying well-being and human performance. And it was... Yeah, it's nice, it's got a bit of meaning to it this one. It's a study by Taylor and Brown in 1988. Sorry for more research, but it's obviously the thing I like and it's about how people have these positive mis-perceptions like those things you were talking about at the start those sayings that are not true, but help us feel good. There were three main things that we do that are called illusions because that sounds really magical, we call them positive cognitive biases. What Taylor and Brown in 1988 were talking about and what they actually challenged was this conception that a mentally healthy mind was a rational mind. Right?

What they actually showed was that a mentally healthy mind is one that is actually completely irrational. Sounds a little bit contradictory to what we would think, but in order to maintain our well-being, our motivation all these sorts of things, what we need to do is actually have these misguided views of the world and we do that according to three things. The first is that we think that we're better than everybody else, so we have this exaggerated sense of self esteem, which is why when it comes to the planning fallacy, we think, I know everybody else has failed at this, but I'm not going to do that.

Dan: 10:20 Because I am awesome.

Mel: 10:20 I am so much better than everybody else, but yeah, they've all stuffed up, but I'm going to be fine.

Dan: 10:24 Look I know I haven't done stats, probably to the great degree that you have, but it's pretty much impossible for us all to be above average, right?

Mel: 10:30 Correct. You can do that with minimal statistical knowledge.

Dan: 10:36 It breaks the definition of average, but we all think we're above average.

Mel: 10:38 The other thing is that we all think we can control the future and as nice as it sounds, we are very bad at estimating how unpredictable the future is and there are a lot of double negatives in that sentence I just said, but basically we fail to predict how unpredictable the future is.

Dan: 10:54 And it's kind of funny to think that we can't control the future at all, but there are like huge industries set up just around helping us create the illusion, do we need magical music? The illusion that we can control all of the project planning software and the gantt charts and the spreadsheets. We're all just making shit up, let's be honest. Unless you're one of my clients, in which case we know exactly what we're doing and it is going to follow this gantt chart exactly.

Mel: 11:19 And where everything will be done and delivered on time and to budget. The final thing, and we've talked about this before, is that we have an an unrealistic sense of optimism, right. We think that everything's going to go fine and the bad things are going happen to everybody else and not us, and our project is going to go completely according to plan. So all of these factors, the idea that we have, and enhanced sense of self esteem, and enhanced sense of control over the world, and an enhanced sense of optimism all contribute to us making massive errors when it comes to planning.

Dan: 11:47 Right. Yeah. So that's a pretty dangerous triad of afflictions that we all suffer from. It's like you know that that sentiment that like everything happens for a reason?

Mel: 11:57 Mmm it doesn’t ...

Dan: 11:58 Well sometimes the reason is that we're idiots.

Mel: 12:01 Yeah that's true, that's the underlying reason.

Dan: 12:03 That's the reason, right. Okay. So just humans are basically not wired to be very good at planning projects. We all think we're going to smash it and we're better than everyone else and we can control our future but even if that was aside, there's just stuff about the nature of projects that makes them really, really hard to plan for accurately. So I'll see your three and match it with three.

Mel: 12:03 Give me three.

Dan: 12:23 Well, the first one is that there's this natural asymmetry of information you find out as you start a project, so you go into a project knowing that you don't really know what's going to happen in there, and you're going to discover new things, but there's a natural asymmetry between the amount of bad or adversely effective things that you find versus the number or the amount of good things that you find.

So of all the things that you don't know that you're going to run into, more than half of them are going to be bad. You might find a couple of nice little upside, you might go hire somebody halfway through the project who freakishly has done this exact project before, but chances are most new information will be bad information.

Mel: 12:59 That's a scary thought.

Dan: 13:00 Yeah. So that's one. The second one is just issues inherent with scaling. So we tend to underestimate how hard scaling is and the problems and issues are not linear. So if you are building one bridge, or you've built one bridge before and you think you kinda know what you're doing and what sort of issues you're going to overcome, and then you decide that you're going to build two interconnecting bridges, the issues will not be doubled.

Mel: 13:23 Right, so you're talking about up-scaling but not understanding how the errors associated with that work.

Dan: 13:29 Yeah, so it's like you could double the size of a project and you will get more than double the amount of errors in the same way if you think about what it takes to run a 50 person business is not double what it takes to run a 25 person business. It's more because let's say at 25 people, as an owner, you kind of know everyone and can manage everyone and you've got visibility over every project and every client and every person, whereas at 50 you don't. So it's not like running two 25's because you need a whole layer of management, you need systems, and processes, and performance reviews, and career progression plans, and all of these sorts of things. So every project grows in complexity more than it grows in size or disproportionately to how it grows in size.

Mel: 13:29 That makes sense.

Dan: 14:10 Yeah. So there's the natural asymmetry, there's the scalability issues, and then the third one is something I discovered called Brook's Law. Well Brook's Law is an observation that relates to software projects but probably relates to most things in business and in life.

Mel: 14:25 What's Brook's Law?

Dan: 14:26 So Brook's Law is the idea that if a project is already running late, which as we've learned today, most projects are already running late before they even started and you add a new person to the project.

Mel: 14:36 Right, to help it along.

Dan: 14:37 Yeah. To help it along, chances are it's going to be later than if you hadn't added that extra person or extra people. So there's a whole bunch of reasons for this and if you work in in software like you see this happen all the time. So number one, the new person or the new people that come in need ramp up time, so you get loss productivity while everyone's trying to catch these people up. The second thing is around communication overheads, so as you add more and more people to the project, you need to spend more and more time explaining to everybody what's going on and having pre-project catch-ups, and mid project catch-ups, and making sure everybody knows what everybody else is doing so that takes time and further blows things out.

And then the third thing is the non divisibility of work, so sometimes we think that if you have a person doing something that's going to take a day, if you just put two people on it, it's going to take half a day, but a lot of projects actually don't work like that and you can't effectively break up a task evenly into little pieces for more and more people to get involved. Sometimes it's like putting something in a microwave, you can't put something in two microwave for five minutes each at the same time instead of just putting it in one microwave for 10 minutes.

Mel: 15:39 All of that would change my cooking but, yeah. I also wonder whether when somebody comes in late to a project because they know it's already late, it's almost like they have this idea or this view that you know what, it's acceptable in the scope of this project, lateness is acceptable and lateness can be fixed. So there's almost like no pressure or not as much pressure to be done on time because lateness is something that is part of the project.

Dan: 16:00 Or the person's come in and it's already fucked, so like you can't fall off the floor and the thing is most projects, in fact, I would almost say almost every project has a new person added to it somewhere beyond the halfway mark. So between the natural asymmetry of what we've learned about projects as we take them on, the inherent issues in scaling, and the fact that adding new people to an already late project is just going to make it even later it honestly is a wonder that we ever get anything done.

Mel: 16:24 It's amazing.

Dan: 16:25 And sometimes I've just wish I had a psychologist friend that I could turn to and say with all of this stuff stacked against us, with the issues of being human, and the issues of working on projects, whatever can we do?

Mel: 16:36 Well, Dan, let me be that psychologist. I'm going to offer you a couple of things that people can do and then you'll tell me some brand new applications.

Dan: 16:45 Sure.

Mel: 16:45 Okay. We'll do a trade.

Dan: 16:46 That's my job here.

Mel: 16:47 So, the first thing that we can do is when we're planning how long something is going to take and how much something is going to cost, it can really help to have somebody play devil's advocate because we're all vulnerable to these things at an individual level and like I think I'm going to get everything done, but you maybe not so much, right? If I'm overlooking your project, then I might be able to highlight some things that could potentially go wrong with your project that maybe you wouldn't have seen and it could be really hard for you to hear that because obviously you think you're fantastic and everything's going to go according to plan and nobody likes to hear that sort of negative feedback, but it can be really important in terms of planning properly. It's basically conducting a pre-mortem of the project of going what are all the things that could possibly cause this project to fail and work backwards from there.

Dan: 17:31 So it's like ‘bring a hater to work’ day.

Mel: 17:34 Pretty much you can do that.

Dan: 17:35 You just got to invite someone whose going to shit all over your project, it's sounds fun.

Mel: 17:40 And go from there. Yeah, right fun ways to work.

Dan: 17:42 It's so much more enjoyable to just assume everything's going to go great.

Mel: 17:45 Yeah. The next thing that we could do and in terms of a budget perspective and thinking how we tend to underestimate how much things are going to cost, if possible you can put some contingency planning in your budget. So you could have an amount of money that just goes under contingency in the budget. It's like, we're not quite sure what we're going to spend this money on, but we're fairly sure that we're going to need it for something, so let's just have some spare change in the back that in case shit hits the fan, we've got some money to cover it and it's part of our budget.

Dan: 18:11 And when you say in case what you actually made news in the highly likely event that everything goes wrong.

Mel: 18:17 We're planning for the inevitable uncertainty.

Dan: 18:19 At least we'll have money to have a party.

Mel: 18:21 It's like we don't know what we're planning for, but we're planning for it.

Dan: 18:21 And it's going to cost cash.

Mel: 18:24 And when it happens, we're going to say we knew about it. The last thing we can do is that we can break down tasks. Okay, because looking forward into the future, things seem so abstract, so vague in the more abstract something is, the harder it is to conceptualise it. So if we break it down into small tasks, sort of like goal setting, right? If we break it down into things that we can achieve where we have more certainty about it, things that we know we can do, things that we know how long it will take, even if they're like minimal tasks, the more concrete we can make it, the more we're able to accurately estimate how much time it'll take and how much it's going to cost.

Dan: 18:58 For sure. I mean first hand experience, I can attest to this, like in the agency  we work on lots of big complicated projects where at the start you really have no idea of even what you're doing. And so we force ourselves as a team to go through and turn this big ambiguous project into a whole bunch of cards, task cards. And a task card is four hours worth of work for somebody to do or less. And if a task is more than four hours, we need to split it into multiple tasks because four hours, like half a day you can kind of accurately estimate what you're going to get done but anything beyond that, we're basically just guessing.

Mel: 19:32 So putting it into much more practical, realistic terms.

Dan: 19:35 Bite size chunks.

Mel: 19:36 Bite size chunks?

Dan: 19:37 Yeah. So I mean look, as agencies and service providers, that's one thing that we can do but some of the other things we can do when we're trying to sell stuff is to really let this bias work in our favour. So really anytime you've got a service offering where you can let people self project, how often they'll use a product or service, chances are they're going to overstate how much they're going to use it. So if you imagine like selling an annual pass to a gym or to a swimming pool or something like that, people are doing the calculations on three or four times a week because of the planning fallacy they assume they're going to be able to organise their life to get that three or four times a week but in reality...

Mel: 20:15 Well, that's the thing and with the gym membership, all of a sudden it becomes, yeah, if I go four times a week, it's only going to cost me like $2 a session.

Dan: 20:21 Yeah, yeah, so that's why we have things like unlimited class passes because that lets the person do the calculations themselves and what do you know, they come up with a really optimistic answer. Similarly, like when you go to Queensland, you can get these three park super passes, and basically anything that's bundled and relies on people assuming they can do a certain number of things in a certain amount of time is going to work in your favour as a brand because they're probably not going to be able to do that. Let's just be honest about it.

Mel: 20:47 Yeah, and people just aren't as fit or as keen as they think they are to go to Dreamworld, Wet and Wild. What else? Movie World.

Dan: 20:54 Yeah, we're just, none of us are as organised as we think we might be.

Mel: 20:58 It sounds like a really good idea and then you get there and you're like, no, I just rather sit by the beach.

Dan: 21:02 Yeah. How good's the bench?

Mel: 21:03 Yeah, humans are lazy.

Dan: 21:04 Well, I think that's what we've learned today.

Mel: 21:07 You know Dan, at the end at the end of the day, you could always just apply Mel's theory.

Dan: 21:10 Mel's Theory?

Mel: 21:11 Yeah Mel's theory of planning.

Dan: 21:12 Should I check Wikipedia or are you just going to tell me what it is?

Mel: 21:13 Not yet, it’s not yet a thing - I'm telling you now, you're the first to hear this.

Dan: 21:18 Okay you heard it first listeners.

Mel: 21:19 Mel's theory when planning, when you have a project and you're thinking about how much time it's going to take you to do, estimate that amount of time and then just chuck on two weeks.

Dan: 21:28 What if it's like a three day project?

Mel: 21:29 I don't have three day projects.

Dan: 21:32 All right great theory, Dr. Mel.

Mel: 21:34 Thank you. I’m still working on it …

Dan: 21:36 So if you guys got thoughts on the planning fallacy or just on the show or just on Mill's theory.

Mel: 21:41 Any negative feedback is welcome @DrMelW.

Dan: 21:43 Yeah. Positive feedback is good for me @Danmonheit. I will see you guys next week, which is going to be here way quicker than any of us realise.

Mel: 21:50 See you next time.

#13 Mental Accounting: Why we’ll probably die broke

A hundred dollars is a hundred dollars is a hundred dollars, right? Well, no. Not according to our brains. In this episode, Mel and Dan explore how mental accounting influences the way we spend and save, and how brands can use this knowledge to make bank.

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Dan: 00:20 Hey, and welcome to Bad Decisions. The podcast 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 I'm Dan Monheit, co-founder of Hardhat, a creative agency built for today.

Mel: 00:34 Let's do this.

Dan: 00:42 Alright Mel, we're gonna get right into this one today.

Mel: 00:44 Sure.

Dan: 00:45 Actually before we do, in this episode, there is a whole bunch of stuff that may be misconstrued as financial advice.

Maybe also nutritional advice, so let's just be very, very clear. Do not do anything with your money or with your body purely off our recommendation.

Mel: 00:59 If you choose to do stuff based on your own idea, that's fine. Just don't blame us for it.

Dan: 01:04 Yeah, this is not financial advice.

Mel: 01:07 It's good that we're aware of our limitations.

Dan: 01:09 Yeah, it's just some people talking about some stuff.

Mel: 01:10 Yeah.  

Dan: 01:11 Alright. I want to ask you two questions.

Mel: 01:14 Okay.

Dan: 01:15 The first one is, you need to imagine that you are going to go and buy a new stereo. Do people still buy stereos?  

Mel: 01:21 No.

Dan: 01:21 Is that a thing? A new iPod?

Mel: 01:21 An iPod.

Dan: 01:22 Alright. You're gonna go buy a new stereo, and you go to the shop, and you park and you go inside, and you look around, and you find a stereo that you want, and the stereo is going to be $550.

Mel: 01:33 That's a big stereo.

Dan: 01:34 Yes, it's a good stereo. Not like a barbecue, but it's still good. You're at the counter you're about to pay. I walk into the store and I see you there and I run over. I'm like, "Hey, Mel, how you doing?" You're like-

Mel: 01:44 "Hey, Dan."

Dan: 01:45 I'm like, "Hey, what are you buying?"

Mel: 01:47 "This massive stereo?"

Dan: 01:48 "Yeah? And it's how much?

Mel: 01:50 "550 bucks."

Dan: 01:51 I was like, "Oh, you know what? I actually just saw this exact same stereo for $400 where I came from, which is about, I don't know, probably a 10 minute drive from here".

Mel: 01:59 "Oh, my God. I'm gonna go get it."

Dan: 02:00 "Yeah. $150 saving."

Mel: 02:00 "Thank you so much."

Dan: 02:02 550 down to 400. You are out the door and you're going to get it.

Mel: 02:05 Yeah.

Dan: 02:06 Right, makes sense? Now, let me put you in another scenario.

You're about to buy a new car. You're at the dealership. You've done all the negotiations. You've managed to get him down to $28,400 for your new car.

Mel: 02:20 Bargain, I think. I don't know. What sort of car?

Dan: 02:20 I don't what car it is. I don't know.

Anyway, it's $28,400 and you're about to pay for it, and what do you know? It's your stalker/friend Dan. I walk into the dealership, I'm like, "Hey, Mel, what's up?" You're like-

Mel: 02:33 "Dan, what are you doing here?"

Dan: 02:34 I'm like, "Oh, I was just stopping by, and I saw you in here. What are you doing?" You're like-

Mel: 02:39 "I'm about to buy this car at $28,400. Great deal."

Dan: 02:42 I'm like, "Wow, that is great deal. Except, believe it or not, I was actually just at another dealership, which would probably be, I don't know, maybe 10 minutes away. And they had this exact same car for $28,250. That's $150 cheaper. What do you reckon?"

Mel: 02:55 "Yeah ... oh, 150 bucks?"

Dan: 02:57 "Yeah."

Mel: 02:58 "Nah. Nah, I'm good."

Dan: 02:59 "Not worth it?"

Mel: 03:00 "Nah, I'm just gonna stick here."

Dan: 03:01 Yeah. Now, that's weird right? Because two minutes ago, you were very happy to drive 10 minutes to go and save $150, and now with some different extraneous variables, you are now not willing to do it.

Mel: 03:15 You know what it seems like?

Dan: 03:16 What?

Mel: 03:16 It seems like I've made a bad decision.

Dan: 03:18 Seems like you made a bad decision. It seems like you made a bad decision around the idea of mental accounting.

Mel: 03:23 Mental accounting. Welcome to the episode.

The questions that you're asking about willingness to spend the same amount of money in different situations is reminiscent of the original questions that Kahneman and Tversky inspired by Nobel Prize winning economist Richard Thaler. I'm wondering, is there a Nobel Prize winning podcaster?

Dan: 03:55 I don't know, but if there is I'm sure they'll call us about it.

Mel: 03:58 Definitely. The questions they posed back in the 80s were with regard to people's willingness to spend money on tickets to see a play. Okay, there's two scenarios. The first is if you imagine that you've decided to go and see a play and you've spent $10 on the ticket. You're walking into the theatre-

Dan: 04:15 It's like a school play. $10 is pretty cheap.

Mel: 04:16 It's the 80s.

Dan: 04:17 Ah, 80s. Okay, cool.

Mel: 04:19 As you're walking into the theatre you realise that-

Dan: 04:21 It was probably Cats, yeah?

Mel: 04:22 Something like that.

Dan: 04:24 Okay. $10. Got it.

Mel: 04:24 You're walking into the theatre, you realise that you've lost your ticket.

Dan: 04:27 Oh, no!

Mel: 04:27 You're already there though. But you've spent $10, you've now lost your ticket. Are you gonna pay $10 for another ticket?

What happened was that about half the people said, "Nah, I'm outta here. I spent my 10 bucks. Well, didn't get to see my play, too bad. My fault. I'm out".

Dan: 04:27 "Lost the ticket. I'm an idiot."

Mel: 04:44 The other situation is that imagine you've decided to see a play and you pay on entry. The admission is $10.

Dan: 04:50 Is this still Cats in 1984?

Mel: 04:52 Yep.

Dan: 04:52 Good.

Mel: 04:54 As you go into the theatre this time, you put your hand in your pocket, and you realise, "Hang on a second. I had 10 bucks in here, and that $10 bill that I had is gone".

Dan: 05:01 Gone. Dun dun dun.

Mel: 05:03 But are you gonna spend $10 and buy a ticket to the play?

Dan: 05:06 Well, it's not the play's fault I lost $10.

Mel: 05:08 Well, and that's what most people say. In this situation 88% of people said, "Heck yeah, I'm here to see a play. I'm gonna pay 10 bucks".

Dan: 05:14 88% of people who lost $10 but were happy to pull out another 10 and buy a ticket, whereas only 50% of people who had already bought the ticket, and then lost the ticket, and had to spend another $10 on a ticket were willing to do that?

Mel: 05:27 Yeah, I think you summed it up there. I'm not sure if you summed it up or if you made it easier to understand or more confusing, but either way.

Dan: 05:33 I'm here to simplify, that's my main thing.

Mel: 05:34 The question is why are so many people unwilling to pay another $10 for a new ticket, when they would pay it if they'd lost the equivalent amount in cash?

Dan: 05:42 Right, because it's the same thing? At the end of the day, you are down $20 and you are up one ticket to Cats in 1984.

Mel: 05:48 Yeah, and the reason has to do with the way that we mentally account for the loss.

In the first scenario, we rationalise that we've paid $10 in exchange for seeing the play. To us that's what the play is worth.

If we have to buy another ticket, we're paying 20 bucks to see the play, and it's not worth that. Everyone else has only paid 10 bucks, so we feel like we're getting ripped off.

Whereas in the second scenario, the loss of a $10 bill from our wallet is totally unrelated to seeing the play.

Dan: 06:15 Yeah, not the play's fault. That's what I said.

Mel: 06:16 Exactly.

Dan: 06:17 I told you I'm helping.

Mel: 06:17 The $10 that we paid to see the play is stored in a separate mental account to the $10 that we lost from our wallet, so even though in both scenarios the net loss is the same, it's the way that we mentally account for it that ...

Dan: 06:29 Messes us up. Let's be honest.

Mel: 06:31 It's the way that we mentally account that predicts actually our future behaviour.

Dan: 06:34 I think that the big, fundamental concept that us silly humans are missing here is this idea of fungibility.

Mel: 06:42 Oh, big word.

Dan: 06:43 Yeah, it's a real word too. Do you wanna say it slowly? Fungibility.

Mel: 06:43 Fungibility.

Dan: 06:47 I'm actually not sure if fungibility is the correct conjugation of the word, but there's an idea that money is fungible.

Mel: 06:47 There's another big word.

Dan: 06:54 Fungible means that all money is the same. It's completely interchangeable. The $10 in your pocket is the exact same as the $10 that's now not in your pocket because you lost it.

It's the exact same as the $10 that you spent on a ticket, which is the exact same as $10 you could have spent at the supermarket. All the $10s are exactly the same.

Mel: 07:10 All the $10s.

Dan: 07:11 Yeah, and if we realised that money was fungible and completely portable between all of these different ways we could spend it, we'd probably make much better, much more rational decisions. But we don't. We do this weird form of mental accounting.

Mel: 07:25 We often these things where you'll say things in some language and I'll be like, "Well, here's how we say it my language".

What I'm taking from this is that there's an objective aspect to the amount of money, which is that it's $10, or it's $100, or whatever it is, it's that amount of money.

And yet, subjectively we impose some meaning, or some value, or some interpretation of what that money means to us, and because of that, that directs what we're gonna do with it.  

Dan: 07:51 Exactly. Somewhere between our objective part of our brain and our subjective part of our brain, we decide that all $10s are not the same.

Mel: 07:59 They're actually different. Cool.

In unpacking mental accounting, we're gonna break it down into three different theoretical perspectives on them. The first has to do with the origins of the money. Where this money has come from.

Dan: 08:14 This is a weird thing. Money is money is money, but for some reason, depending on where the money has come from, we tend to think about it differently.

For example, money that we've earned through our normal course of our work, the money that turns up in our bank accounts, fortnightly or monthly, is spent very differently to money that we just happen upon. Things like a one time bonus.

Mel: 08:37 Yeah. Tax returns.

Dan: 08:38 Tax returns. Great example of this. Money that just turns up, maybe if it's money you just found in the street.

Objectively, the $1000 that you just got as a tax return or as a bonus, is fungible. It's exactly the same as any other $1000 that goes in or out of your account, but we seem to grant ourself weird permission to spend it more frivolously than other types of $1000s.

In fact, there's a term for this. It's called house money.

Mel: 09:04 House money? Yeah, I like it.

Dan: 09:06 Yeah, yeah. Money in the house. If you're a gambler or you know gamblers, and you go in with the money that you start with, and then any money you win is the house money.

It's not yours, you never really earned it anyway, so you just spend it differently and more freely.

Mel: 09:19 It's like there's this trade-off, because you didn't really do anything to earn it, you're relieved of the guilt associated with spending it.

Dan: 09:25 Exactly. Even though objectively, it's the same $1000 that probably should go on a credit card, or go in your savings account, or whatever, we think about it differently and we just flutter it away. Flitter it away? We just spend it.

Mel: 09:25 We spend it.

Dan: 09:36 Whatever. I guess there's a political masterstroke, in 2009 on the brink of global financial crisis stuff, and Kevin Rudd, our Prime Minister at the time, just decided, "You know what? We'll fix this. $1000 for everyone! You get $1000! You get $1000! You get $1000!" Provided your tax returns were up to date.

I think it was actually 950, but it was some arbitrary number that just turned up in the bank account of millions and millions of Australians overnight.

Mel: 10:05 And let me guess, they all saved it? They all put into their long term savings account and took good care it.

Dan: 10:11 Not only did we not save it, a lot of actually spent it twice. We got told that we're getting $950 into our bank. For free, for doing nothing. And it's like, "Wahoo!"

Mel: 10:21 Free money!

Dan: 10:23 We went out and spent $950 on something. And then six, eight, 12 weeks later the actual $950 turned up in our accounts, and we're like, "Wahoo! Free money!" And we went and spent it again.

Mel: 10:33 God, we're dumb. But what we did do was stimulate the Australian economy.

Dan: 10:36 Yes. Yeah, and if we had gotten that $1000 as $10 little increments over the following two years, it probably wouldn't have had that sort of an impact.

But getting it as a one-time bank error in your favour Monopoly style, people went out and spent that shit and ... Go Australia!

Mel: 10:56 Well played Kevin Rudd. Well played.

The next theoretical explanation for mental accounting has to do with the intended purpose of the money. We make this determination about what the money is for, and then that guides how we spend it.

Dan: 11:08 Exactly. Again, ignoring fungibility, which is just a word I'm going to try and say as many times as I can in this episode, we designate money to go on different things.

This $5 here, this is going in a holiday account. See this $10 here-

Mel: 11:21 It's not gonna get you very far.

Dan: 11:24 Well, it's saving. It's a long road. Whereas this $5 here, that's actually for groceries, and there's another $10 here and that's going for takeaway food. This causes us to do some weird things.

For example, we will set up a savings account, because that feels like a good thing to do. A savings account might be getting ... say 4% interest. We do that at the same time as we have a mortgage, which we're paying 7% on.

Instead of putting say five grand into our mortgage, and not paying 7% interest, we put into a savings account where we do get 4% interest, basically costing us 3% interest.

Mel: 11:54 But at least we feel like we're saving.

Dan: 11:56 We feel like we're saving, but we're not. We're damaging ourselves.

An even worse example of this, at least that example you're getting 4% but you're paying 7%, worse example is where people have a coin jar. A savings jar, which is earning 0%, and they have that instead of paying off a credit card, which they're probably paying 17% on. That little savings jar is actually costing you way more than you realise.

Mel: 12:20 It's an interesting irony there to look at the cost of actual saving.

Dan: 12:24 Yeah, you're saving money but it is costing you 3%.

Mel: 12:28 Right. The last explanation that we're going to give for mental accounting is called category spends, and it's the idea that we're gonna artificially create different categories within which we'll hold our money.

We're gonna have a category that we allow for holiday. We'll have a category that we allow for spending on food. We'll have a category that we allow for indulgences. We'll have a category that we allow for entertainment. And we're really rigid in our willingness to shift money or move money between these categories.

Dan: 12:52 Yeah, and what's weird about this is that they're completely arbitrary, and the same thing could maybe fit into a few different categories. Let's say you were the zoo, and you-

Mel: 12:58 I'm the zoo?

Dan: 13:00 You are the zoo. And you want to promote yourself. Knowing that these category spends exist, you might have trouble positioning yourself as a form of entertainment, knowing that well, people have a mental bucket for what they'll spend on entertainment. And if you wanna be in that bucket, then if they went to the movies last week, you're probably not gonna get a look in this week.

Mel: 13:17 You're determining who your competition is essentially.

Dan: 13:19 Exactly. You might say, "Well actually, people probably have a less indulged in mental bucket for cultural experiences or educational experiences, and so maybe they'd be less competition and less pressure for the same person's money, if we put ourselves in that bucket".

Mel: 13:33 Right, and going back to what we were talking about before, you were talking about people having literally different bank accounts, and having a savings account, you might have five grand that you keep in your savings account, but meanwhile you've got 11 grand on your credit card earning interest.

There's something though about people feeling good about having that buffer of five grand savings, whereas I'm willing, I know that there's 11 grand on my credit card and I know that that is actually costing me, but it feels good to me. I feel safe, and I feel like I'm in control of my world if I have that five grand in savings sitting there as well.

I think that this idea of control comes into play a lot with mental accounting. The reason that we break our money and our accounts up mentally is because it's really hard to think of our overall net wealth, and so one way that we do it is to break it down into more manageable, smaller components. Little artificial buckets, if you will.

Dan: 14:24 Which is all well and good, expect for the fact that when you go on holidays, it's not just the Mel that's saved five grand that goes on holidays, it's the Mel that saved five grand, but also has 11 grand on her credit card that goes on holidays.

It is your net person and your net wealth that is the recipient or the beneficiary of all of this stuff.

Mel: 14:41 It's a way more fun holiday if we can keep that Mel in debt behind.

Dan: 14:43 That is true.

Mel: 14:43 She can just stay at home.

Dan: 14:44 She can stay in Melbourne and do some work, and I'm gonna go shop up a storm over here.

Mel: 14:49 Alright, let's talk about what the implications are for brands. If we understand mental accounting, if we know that this something that happens then, basically if you're a financial institution then one of the things that you can do is you can allow your customers to store their money in ways that mimic what their brain is doing.

If you know that your customers are mentally dividing their money into different categories, there are financial institutions that will let you break down your accounts into subcategories that reflect exactly what your brain's thinking.

Dan: 15:14 Yeah, which I think it's a pretty new thing that banks are letting you do that. I always used to find it weird that they wouldn't. That they couldn't let you artificially split one savings account into three or four things. You'd have to go and open completely separate accounts. It's good to know that they've fixed that.

Something else for brands to consider is where are you gonna position yourself? And even within that positioning, how you're going to break down your offering. We talked about the zoos just a minute ago, about whether the zoos wanna be in the bucket for entertainment or the bucket for education.

But if you think about say a online retailer example, the conventional wisdom is give people free shipping, and just work it into the overall costs of things. But if charging $10 for shipping and handling lets you reduce the price of say a pair of shoes from 160 to 150, you're probably gonna have a better chance of fitting in that acceptability threshold for that category, and the $10 that they're spending on shipping and handling is a separate-

Mel: 16:04 It comes from a different bucket.

Dan: 16:05 Absolutely. The other things that brands can think about. Number one, if you can, open at the casino.

The casino is just filled who have got money in a short term windfall kind of way, and they're happy to suspend their normal rules for spending and go out and buy new watches, and shoes, and suits, and whatever it is because it's house money. Why wouldn't I spend it?

Mel: 16:26 Capitalise on the fact that people have just come into house money?

Dan: 16:29 Yeah, exactly. We talked about how to exploit this stuff for fun and commercial gain.

Mel: 16:33 It's consistent with our overall theme, isn't it?

Dan: 16:35 That's what we promised, and we deliver what we promise. Look, this last one might be a little bit tricky, but depending on your customer base, you might have groups of people who all get paid bonuses at a really similar time of year.

That's a thing you might see in law firms, or in financial advisory services. Quarterly or end of year bonuses. You know that bonus money is gonna get spent like it's hot, so position yourself to be there.

I'm not saying you should be trawling the condolence messages in the local newspaper to find recent widows-

Mel: 17:01 "Hey, I've just got a massive inheritance! Let me see what I can buy."

Dan: 17:04 That is a great time to get somebody into the showroom.

Mel: 17:07 Let's move to the individual now.

Dan: 17:09 Respectfully.

Mel: 17:09 Respectfully. But moving to the individual level now, what do you do as an individual consumer if you know that mental accounting exists?

Well, the first thing is you can question your own behaviour. With this understanding that maybe I'm not willing to ... maybe when it comes to petrol, I'm willing to spend up to $1.40 on petrol.

Dan: 17:27 That's your arbitrary limit.

Mel: 17:28 That's my arbitrary limit, but if I see that petrol's at $1.44 per litre, well, you know what? I'm actually gonna go for a half hour drive somewhere a little bit further out of the city where I know that it might be about two cents a litre cheaper, and I'm gonna go out there and I'm gonna do that. Stupid decision! Bad decision, Mel. Again.

Dan: 17:47 You would fail first year economics, because this is a thing called opportunity costs.

Opportunity costs says, there's no such thing as a free lunch because while you're at the free lunch, you are foregoing all sorts of other value creating activities you could do.

In your example, driving around for half an hour is probably gonna cost you more than the four cents a litre that you were hoping to save.

Mel: 18:04 But it just feels so good to save it.

Dan: 18:06 And you've got the buckets, you didn't violate your rule of buckets, of $1.40 per litre.

Mel: 18:11 And I stick to the rules, goddammit.

Dan: 18:12 Yeah, exactly.

Mel: 18:14 The more that we understand about this then the more that we can catch ourselves in the process of making bad decisions, and we can think about, "Do I really wanna go ahead and make that bad decision? Hell yes, I do," or, "No, I've listened to Dan and Mel, I know the Bad Decisions podcast, and I'm smarter than my brain".

Dan: 18:29 Exactly. Look, really I think at the end of the day this is about zooming out.

When we're zoomed in, or we're in the category or in the purchase decision we're trying to make, we have these rules, but if we just zoom out a little bit and think about stuff in the broader context, often we'll realise that, you know what? Paying two bucks to withdraw $500 from an ATM is not the worst thing that can ever happen.

Mel: 18:48 Zooming out is probably a good idea in other parts of our life as well, right?

Dan: 18:52 Absolutely. We're not gonna get all spiritual on you people, but if we think about things like nutrition and diet, I read something really interesting that said if you're trying to lose weight or get into shape or whatever, what you ate for lunch today doesn't matter, what you ate this month matters.

I think it's the same thing. What you spent on coffee today doesn't matter, but what you spent on everything in the last month matters.

Mel: 19:11 A bit of context and bit of perspective goes a long way here.

Dan: 19:13 Exactly. Context, perspective, but not financial advice. We are not giving financial advice.

Mel: 19:19 But if you do want any advice from us in general, please feel free to hit us up on social media. You can find me @DrMelW.

Dan: 19:25 You can find me @danmonheit, and we are both all over the internet.

Mel: 19:30 We're all over it.

Dan: 19:32 Everywhere.

Mel: 19:32 We basically are the internet.

Dan: 19:33 Everywhere.

Mel: 19:34 We're not.

Dan: 19:35 What? I think it's time.

Mel: 19:37 You know what I think we did today? You know what I think you did today, Dan?

Dan: 19:37 What?

Mel: 19:40 I think you put the "fun" in fungibility.

Dan: 19:42 Ah, good one! Alright, that's a wrap. We're done.

#12 Peak-End Rule: Why we all love a lolly bag

We’d like to think it’s all about the journey, but our brain prefers to remember the outcome. In this episode, Mel and Dan discuss the peak-end rule, and how neglecting to pay attention to the end could be costing you dearly.

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

Dan: 00:21 The podcast that helps us understand why we chose what we chose.

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.

Mel: 00:42 So, ordinarily it'd be time for one of us to present some sort of personal story about a bad decision that we've made. And it would just coincidentally represent a heuristic.

Dan: 00:53 Yeah, we usually put a lot of work into that part of the episode.

Mel: 00:56 We do, but the heuristic that we're gonna talk about today basically tells us that it's a waste of time.

Dan: 01:01 Yeah we are gonna stop doing that, it's complete bullshit.

Mel: 01:03 We are gonna hack ourselves, it’s fun.

Dan: 01:04 Yeah, cause what you're gonna learn today, if you don't have the 17 or 18 minutes to listen to the whole show, and I must admit the best bits are at the end. What you're gonna learn is that having the best bits at the end is really important.

Mel: 01:16 In fact, it's pretty much all that matters.

Dan: 01:18 Yeah, this could be complete horse shit for the next 15 minutes as long as you guys stick with us and get to the goal of the end you are gonna remember this show as being unbelievable.

Mel: 01:27 Alternatively, if you only want a 3 or 4 minutes podcast just fast forward right through to the good stuff.

Dan: 01:31 Exactly.

Mel: 01:31 Or don't though.

Dan: 01:33 Also don't, I'm confused. Anyway, what are we doing today? What is today's heuristic Dr. Mel?

Mel: 01:38 So today we are gonna talk about the peak-end rule.

Dan: 01:41 Peak-end rule.

Mel: 01:42 Yeah, which is basically the idea that when it comes to us judging or evaluating an experience, we don't base that judgement on a calculated average of the enjoyment of every moment of the experience. Which I guess, you know, in a rational mathematical brain that's what we would do, take the emotional experience of every single moment and average it out. But that's not what we do, because there are some parts of the experience that has a disproportionate impact on our memory. For example, the peak of the experience, or the most emotionally intense experience, and the end of it.

Dan: 02:18 So the really good bits, the really bad bits, and what happens in the end.

Mel: 02:21 Pretty much everybody forgets what happens in the middle anyway.

Dan: 02:23 Well the middle's bullshit.

Mel: 02:24 So part of the reason that this peak-end rule is such a powerful heuristic has to do with the way our brain processes information. How we store memories, right? So most people are familiar with the idea of the recency effect.

Dan: 02:37 Yep, I've heard of that.

Mel: 02:38 So the recency effect basically explains that if I were to give you a random list of words to record. A bunch of words that mean absolutely nothing to you, you would be more likely to recall the words that I said at the end of the list, followed by the words at the beginning, and you know if you got a really good memory you might remember the ones in the middle. But pretty much the ones at the end are gonna stand out.

Dan: 03:01 Right, cause the middle is bullshit. I think that's what we are learning today.

Mel: 03:04 Yeah don't worry about the middle right? And a happy ending makes everything better.

Dan: 03:08 Well, now what happens? That's awkward. So speaking of happy endings, or not speaking of happy endings at all. I guess one of the places that this seems to come to the fore, is when you think about holidays. Where it doesn't really seem to matter whether we've been away for a week or two weeks, if somebody asks us for a little snapshot of what our holiday was at the end of the holiday, I am probably going to remember it based on something really good that happened, or something really bad that happened, and how everything kinda wrapped up. And that story probably wouldn't change if we were away for 4 days or 3 weeks.

Mel: 03:39 So you know I've got some research to support the idea of a peak-end rule.

Dan: 03:43 No you don't.

Mel: 03:43 Would you believe.

Dan: 03:43 I thought you were just making this shit up.

Mel: 03:45 Nah, I've actually got some research.

Dan: 03:46 Okay.

Mel: 03:46 So let me tell you about a little bit of research. Can we just get some research music please. So in a 1993 study from Kahneman and some of his colleagues, what they did was they exposed participants, the same participants with two different conditions, and both of them involved an unpleasant experience where they had to submerge a hand in cold water. So it was like 14 degrees Celsius, which is I think what it was, and they had to submerge it, the hand in that water bucket of ice water whatever it is for 60 seconds.

Dan: 04:22 Yeah

Mel: 04:22 Clearly not a fun thing to do.

Dan: 04:24 Not fun at all, but science is hard.

Mel: 04:26 Alright look, sometimes you gotta sacrifice for the sake of science. But in the first trial, the participants kept their hand in the water for 60 seconds and at the end the experiment, the trial was over. Okay? In the second trial the same participants kept their hand in the water for an additional 30 seconds after that 60 second period. But in that additional 30 seconds, the temperature rose by 1 degree celsius. Providing some much needed relief from that unpleasant experience.

Dan: 04:55 Right so the difference was in 15 and 14, is enough for it to feel good?

Mel: 04:59 It was enough to change the participant's overall memory of the experiment. So then what happened was, when they asked participants when they basically said to participants afterwords, "Alright, you're gonna do this again. Which trial would you like to do again? Would you like to do the 60 second one, or would you like to do the 90 second one?" A stupid amount of people said they would like to repeat the 90 second version of the experiment. So they are going to totally discount the length and the time that the experiment took and they're going to be more likely to want to do that 90 second study because they get that last 30 seconds where they get that little bit of relief. Which influences the overall memory of the enjoyment of the experience.

Dan: 05:39 So, like a little bit of a happier ending can overcome a far worse experience.

Mel: 05:44 One degree celsius is enough.

Dan: 05:45 Is all it takes.

Mel: 05:46 Yeah, and going back to what you were talking about with holidays, it doesn't matter how long the holiday is, in that sense, because we have what's called duration neglect. We literally will neglect the duration of an experience in favour of how emotionally intense that ending was.

Dan: 06:02 Right so, I guess once you know that people care way more about the highs and the lows of how something ends, it just makes you realise how many industries get this kind of right, and how many industries get this diabolically wrong.

Mel: 06:17 Give me an example.

Dan: 06:17 Yeah so I mean we are talking about a holiday's right? So you think about all the sorts of things that happen on a holiday, one of the obvious ones is around car rentals. And, you know, there's not a lot of great car rental stories out there in the world, I wouldn't think. But of all of the experience that happens with interaction with a car rental company, most of it comes down to what happens in that last 15 minutes, right? And so you've hired a car, you've probably forgotten what you've paid for it, you've just had it for a few days or a week or two, you've driven around, you've had a lovely holiday.

Mel: 06:46 Yeah, what do you have to do before you return it?

Dan: 06:48 And then you go like 15 minutes, because you are probably running late to the airport. You are then driving around trying to work out, should I drive around the industrial business park that surrounds this airport and try and find somewhere to fill up the petrol tank? Or do I roll the dice and return it 7/8ths full and get stung 4 bucks a litre or whatever they are going to charge me to fill it up? Once I drop it off, are they gonna find some chip or scratch or scrape that I absolutely didn't do, but like who knows? And even in neutral experience, when none of those things happen, you're basically just dumping the car in an empty lot and then running off the make your flight.

Mel: 07:24 Cause you're always late.

Dan: 07:24 Cause you're always late. So, at best, car rental experiences end neutral, though usually end pretty badly.

Mel: 07:30 Well, I mean from the stuff you're describing the end of the experience with a car rental company is associated with a whole lot of panic, worry...

Dan: 07:30 Anxiety.

Mel: 07:39 Anxiety around whether or not you are gonna be busted for something you didn't do. It sounds pretty awful. Talk about neutral.

Dan: 07:44 It's terrible, and the thing is, you get used to having to pay for an experience at the end, which kinda sucks as we've learned about this peak-end theory. Paying at the end sucks, but add onto that the anxiety of not knowing exactly how much you're going to have to pay, it's just enough to ruin the whole thing.

Mel: 08:00 Yeah, car rental companies, get your shit together.

Dan: 08:02 Get your shit together. Similarly, if you think about hotels, who invest so heavily in the check-in and the welcome process, and you get there and you get some drinks on arrival, and they guide you around, and they show you around the place, even if you don't really want them to. They really insist on doing that. And you contrast that with what happens at the end, where you basically get a slot to put your key into and then you're just off on your way. And how much more important the ending of that experience is, and how you recall the whole, the whole time you spend at the hotel.

Mel: 08:32 So I'm starting to the get the picture that there are sometimes there are little things that we can do, or things that we can not do, that's actually gonna make the ending of an experience, which is the most memorable part of it. We can actually improve the quality of that experience for the customer.

Dan: 08:46 Absolutely, so yeah for hotels maybe champagne on departure not champagne on arrival. Or maybe it's both. We couldn't do an episode without talking about restaurants, and it's a thing we all know and love and indulge in. And I just think about how many otherwise great restaurant experiences are ruined by the last 3 minutes. You know, when the person comes out to give you a bill, and they want to be difficult about the credit card payments, you know they don't want to split it between 4 people, they have some arbitrary number like "we can only split a bill between 3". And you're out there as 4 couples, and it’s like what the actual fuck guys, it doesn't cost you anything more. Or when you go to places, like your normal café, and they have minimum EFTPOS spends.

Mel: 09:27 I hate that.

Dan: 09:27 Hate it. You know what guys, come on, I'm here everyday.

Mel: 09:30 Yeah.

Dan: 09:31 It doesn't cost you anymore.

Mel: 09:32 No and they also say like the minimum must spend, is $10 dollars, and like where coffees don't add to 10 dollars.

Dan: 09:38 No, no.

Mel: 09:38 Multiples of coffees don't add up to 10 dollars, so you end up having to get 3 coffees just so you can make that maximum, or minimum.

Dan: 09:42 Yeah, I'm not buying a coffee and two muffins just so you don't have to give me the privilege of swiping my card with this machine that is just sitting there idly by while I try and give you money.

Mel: 09:51 Yeah, just process the payment, do you want my money or not?

Dan: 09:54 Process the payment, and instead we've gone from a good or at least a neutral experience to something that is kind of annoying and like begrudging which just seems like a huge missed opportunity.

Mel: 10:03 Yeah.

Dan: 10:04 So it's also interesting when you look at restaurant review sites, like Yelp, like what huge proportion of the reviews actually talk a lot about things that happen in those last few minutes of an interaction. So it is a lot of people bitching and moaning about split bills and EFTPOS fees, and that sort of stuff, but also some really wonderful stories about somebody leaving their keys or their wallet or something at the restaurant, and a matradee or a waiter or waitress running out after them to make sure they didn't leave without it and what an amazing uplifting thing that can do for the whole experience.

Mel: 10:32 Something as simple as giving a mint at the end of the meal, or putting a couple after-dinner mints with you know, with the bill.

Dan: 10:39 Yeah or putting a smiley face on the bill.

Mel: 10:41 It's just a nice little touch.

Dan: 10:41 Which often can attract tips.

Mel: 10:44 It changes the emotional tone at the end of the experience.

Dan: 10:46 Yeah now the guys who do this really well, there's a, you know, a hoity toity fancy restaurant in Melbourne called Vue de monde, and I'm not sure if these guys still do it, but I assume they do, I have young kids now, I'm not eating at Vue de monde these days. But if I did, I would imagine this would still happen. So what happens is you go to this incredible restaurant you have some sort of 7 or 15 course degustation meal, you get to the end of the meal, you’re feeling pretty great about it. The bill comes out, you’re feel slightly less great about it cause you just spent like two weeks wages on a great dining experience. But then, as you go to leave, they present you with this little breakfast bag which has got a couple of eggs, and I think some brioche buns in there...

Mel: 10:46 Delicious.

Dan: 11:25 ...And some little instructions about how to make some wonderful scrambled eggs or something in the morning. And you know, it probably costs them 4 bucks on a scheme of a $1000 dollar dinner.

Mel: 11:33 What's a couple of eggs?

Dan: 11:34 Yeah, a couple of eggs, seriously. But the last thing you remember is not the bill, the last thing you remember is, and they gave me this little bag with like this little card and the things I need to continue the experience all the way into the next morning, which is wonderful!

Mel: 11:49 You should be familiar with this experience, because like you said you have young kids. You're going to kids parties, you're getting lolly bags at the end!

Dan: 11:55 You know what, you are absolutely right.

Mel: 11:57 Vue de monde is giving you a lolly bag!

Dan: 12:01 Giving me a lolly bag. Thankfully, they don't have those bubble blowing things, those bubble sticks in there, drive me crazy. But you're right, I mean, kids know this, kids understand inherently the peak-end rule is a real thing.

Mel: 12:12 Yeah and they figure out, was that a good party? I don't remember but hey I got this awesome lolly bag.

Dan: 12:15 And it's got a bouncy ball in it!

Mel: 12:17 I love parties!

Dan: 12:20 Best party ever!

Mel: 12:20 So, getting back to the idea that we are actually willing to endure a whole lot of pain, so long as we get some relief, or some pleasant emotion at the end of it. Let's talk about endurance events.

Dan: 12:31 Absolutely, what do you want to talk about? This show? This show right now? So what we know is people seem to fall into one of two camps from entering either marathons or iron man. People will just do one and they are like a bucket list athlete, and they just need to get it done. But there are people that just go over and over and over again. And when these people think about the experience of completing a marathon or completing an iron man, we very, very quickly forget the pain and the suffering and the grit and the gruelling and sucking down your 35th GU gel, you know, as you're trying to get through the last 10K's of the run. And what we remember is the elation, the endorphins of crossing the finish line or hearing your name, "Dan Monheit, you are an iron man", which I have never heard but I will hear one day. And it's no coincidence that a lot of these events will ask you to sign up for the next event...

Mel: 13:25 Immediately after?

Dan: 13:26 Literally as you are crossing the finish line. "Here's your ribbon and here's a form to sign up for next time."

Mel: 13:31 I wouldn't know I've never run further than about 10K, but anyway. If we're talking endurance events, it would be completely remiss of us to not mention the ultimate endurance event, childbirth.

Dan: 13:41 Right.

Mel: 13:42 And if the peak-end rule didn't exist, nobody would ever have more than one child.

Dan: 13:45 I gotta say, I've never done it. Seen it, didn't look that much fun. And you know what, right at the other end of our life as well, the peak-end rule seems to kick in. Where when, you know, think about how people describe elderly relatives or people who have passed. We tend to talk about how they were at the end, how dignified they were and how inspiring they were, and how together they all look, all the way until the end. And you know, we just kind of gloss over the bullshit bit in the middle, the 75, 80 years that they actually did cool stuff. It's how they were in that hospital bed in the last couple days.

Mel: 14:14 That's what really defines a person.

Dan: 14:16 Yeah.

Mel: 14:17 So, because of the peak-end rule there are things that people have figured out to do that makes the end stand out more.

Dan: 14:24 Yeah, it's kind of like this self fulfilling thing, ay? So like we know that the ends are going to stand out more, so we try and do things that try to make the ends better. So, one of the ways that we do this, we were talking about marathons before, I mean what's crazy is that you are something like 2 or 3 times more likely to run a marathon...

Mel: 14:40 I love the way that you talk about research. Go on..

Dan: 14:42 What?

Mel: 14:43 Nothing, I'm sure it's completely legitimate.

Dan: 14:44 You are 2 or 3 times..

Mel: 14:45 Go on. Just don't play the research music yet, so we know it's not real.

Dan: 14:48 Well, its real! It's just I haven't googled it, but it's basically true. Look I saw somebody else present the research okay?

Mel: 14:53 Case and point.

Dan: 14:53 Daniel Pink, he is very smart. Alright? Thank you Mr. Pink. So he talked about how you are 2 or 3 times more likely to run a marathon at the age of 29 compared to the age of 28 or 30. And it's a very similar thing at the age of 39 versus 38 or 40.

Mel: 15:09 So the idea is that you're coming towards the end of a decade, a period of your life.

Dan: 15:13 Yeah and physiologically you really not in a significantly better or worse shape, 28, 29, 30, 38, 39, 40. But mentally, we are coming to the end of a thing, and I want a good ending and I'm going to remember my 30 as the year that I did my first marathon and so that's what we seem to do.

Mel: 15:29 Right so, we put a highlight at the end of that period.

Dan: 15:32 Exactly.

Mel: 15:33 So we can, there's another example with regard to chocolates, yeah?

Dan: 15:37 So yes, actually in the same presentation there was a conversation around Hershey's kisses, which I'm just gonna say, they kind of suck as a chocolate let’s be honest.

Mel: 15:47 I mean I have no affinity towards it, no.

Dan: 15:47 They are like cut small, and not that delicious.

Mel: 15:49 I think, isn't it that the point? They're like bite size?

Dan: 15:51 I don't know. Anyway, whatever. They did this experiment where they gave two groups of people 5 Hershey's kisses. So to the first group, they said "here's a chocolate, here's a chocolate, here's a chocolate, here's a chocolate, here's a chocolate." And after eating each chocolate people rated the overall pleasure of eating that chocolate. The second group, they said "here's one, and here's another one, and here's another one, and here's another one, and now this is the last one I'm gonna give you, here you go."

Mel: 16:18 Oh, that last special chocolate.

Dan: 16:19 And what do you know, just knowing that it was the last one, people rated that shit through the roof. It was like twice as enjoyable for these people as every other chocolate that they've consumed. Just because I knew it was going to be the last one, I guess they knew that the last one was going to stand out so I'm gonna hack myself into making this delicious.

Mel: 16:38 So there's a big message here for brands right?

Dan: 16:40 Absolutely.

Mel: 16:40 In terms of focusing on the end of the experience.

Dan: 16:40 Exactly.

Mel: 16:43 I mean as we come towards the end of this episode, I think it's really important that we remember that we need to make this good.

Dan: 16:49 Yeah so, let’s give some real punchy takeaways here.

Mel: 16:51 Yeah let's do it.

Dan: 16:52 I mean I think for brands we often think a lot about the start of an experience, we think about how we're gonna attract clients, we think about how we are gonna onboard clients and get them into our system and get them moving as quickly as possible. But we don't think very much about how things are gonna end.

Mel: 17:08 And its important that we do. It's super important that we do think about when the relationship with the customer ends, because actually what we want is for that relationship to continue. And sometimes there is no end point.

Dan: 17:20 Exactly, so you know in some business-customer transactions there is a definity of endpoints, so you drive out of the dealership with the car, or you walk out of the store with your bag with your new jeans and your whatever it is. And so we need to think about how do you make that as interesting and as memorable and as emotionally charged as possible. But similarly, in like professional services, often there is no natural end point. And I think it would be really worth exploring ways to add sort of like artificial end points, whether it's a post-campaign celebration or you divide a year up into quarters, like we used to do in school, like school we knew its...

Mel: 17:53 Kids had this figured out, lolly bags in school terms.

Dan: 17:55 It's true, like you know your springing to the end of a term and you get to the end and its awesome and it's fun, you have a little class party.

Mel: 18:01 End of term party.

Dan: 18:01 Yeah and you're on to the next one.

Mel: 18:02 And then you get lolly bags!

Dan: 18:03 Lolly bags, I think the answer to everything is lolly bags.

Mel: 18:06 Lolly bags.

Dan: 18:06 Yeah, so I mean we spoken quite a bit about end. I mean I think peak is kind of, maybe just worth touching on quickly. Where we do have industries where a long term relationship with the client is defined by some peak experiences.

And so if we think about say an insurance company, alright? Well you might have a relationship with an insurance company for 5 years. And when somebody asks you, "Ah how is insurance company XYZ to deal with?" You're gonna search around in your head and you’re not gonna give an average answer, an answer that is the average of the total 5 year experience. You are going to think about that one moment when you needed to call them, because you had a car crash or you needed a hip replacement or whatever it was given the type of insurance.

And so, while it is important to have, again, great onboarding experiences for consumers it may be good end experiences for consumers, knowing that that peak moment, that moment of crisis that is gonna turn into a moment of joy or a moment of despair, is really the only thing to worry about, everything else is kind of bullshit. We really have to figure out how we can make that a 5 star, 7 star, best in class experience, knowing that's what's going to pay the dividends.

Mel: 19:15 It's so important, I think there are so many things that can be taken away from this idea, because it is one of those things that I think we've seen the research shows that its a thing, and I just don't think people pay enough attention to it.

Dan: 19:24 Yep, so I think we have paid a lot of attention to the end of this episode.

Mel: 19:28 Yeah.

Dan: 19:28 Feels like it was good, it was value.

Mel: 19:30 I think this was a fantastic end to the episode.

Dan: 19:32 Yeah, I mean the stuff in the middle is kind of rubbish but this...

Mel: 19:35 This is it right? Yeah.

Dan: 19:37 You know what would be even better?

Mel: 19:38 If we had lolly bags?

Dan: 19:39 Yes, and also if you told people what your social media handles were and then how they can get in touch with us. People love that shit.

Mel: 19:45 Oh my god, I know they do. Alright. Please, please find us on social media; LinkedIn, Twitter, Instagram, any other things. What do you usually say? Google?

Dan: 19:54 Yeah, whatever.

Mel: 19:55 You know what? Google Scholar, you can find some research articles on there.

Dan: 19:58 Oh from you?

Mel: 19:59 Some, well the ones that I've published.

Dan: 20:01 Really?

Mel: 20:01 Yeah!

Dan: 20:02 Nothing from me.

Mel: 20:03 Anyway you can find me @DrMelW.

Dan: 20:05 And yeah I'm @DanMonheit. Across a bunch of the internet, we are not going to talk about the doctor thing. Right?

Mel: 20:11 No.

Dan: 20:11 Good. Cool alright well hey thanks for listening to Bad Decisions. Hey probably worth noting, we are on Spotify now as well.

Mel: 20:17 Yeah, good call.

Dan: 20:18 Yeah, so that's like platform agnostics, so that's good tell your friends.

Mel: 20:21 I think that's it!

Dan: 20:22 Alright, we out.

Mel: 20:23 Let's go to Vue de monde.

Dan: 20:24 Let's.

#11 Sunk Cost: Why we behave so badly at the buffet

Everybody makes bad decisions, but how do we make amends? Turns out our instincts often guide us to follow bad decisions with worse decisions. In this episode, Mel and Dan explore the sunk cost fallacy, and how knowing when to cut your losses can be the smartest decision of all.

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Mel: 00:18 Hi and welcome to Bad Decisions.

Dan: 00:20 The podcast that helps us understand why we choose what we choose.

Mel: 00:23 Why we think what we think.

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

Mel: 00:27 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 today. Do it.

Dan: 00:41 So Mel, I was thinking right.

Mel: 00:43 Yeah.

Dan: 00:44 The way Ikea is set up is completely wrong.

Mel: 00:50 Okay. They seem to be pretty successful.

Dan: 00:50 Yeah, I know. But it's because they're not doing what I think they should do. They should literally just take my wallet when I get there.

Mel: 00:56 Okay.

Dan: 00:57 Because I think as anybody who has been to Ikea would know, that it is a forgone conclusion that once you are there, there is no way you are leaving without buying something.

Mel: 01:07 It's hard not to fall for that, isn't it.

Dan: 01:09 Yeah. Because, you know, they're usually like, not in the middle of the city. There's usually some sort of a drive to get out there and then you sort of circle the parking lot for a while and you park your car. That's not even really the start of it. 'Cause then you get in and instead of just giving you, like, a few simple aisles to walk down, they try and take you on this magical, fantastical journey, which requires a minimum, let’s be honest. A minimum of 45 minutes.

Mel: 01:33 Yeah. I mean, I've tried to do it faster and you end up just getting distracted by things you don't need.

Dan: 01:37 Yep.

Mel: 01:37 Kitchen appliances...

Dan: 01:38 Yeah. So you're gonna be in there 45, let's call it an hour, right. Plus the half hour to drive there, plus the half hour to park. You are in the haul for a minimum of 2 hours.

Mel: 01:46 Yeah.

Dan: 01:47 And there is just no way you are going to find yourself, at the end of that two hours, at the checkout saying “no nothing, nothing really for me this time. I'm just gonna leave.”

Mel: 01:58 What do you do instead?

Dan: 01:59 You buy something right.

Mel: 01:59 Just buy anything.

Dan: 02:01 You just like, I need some sort of a memento of my time, that Ikea and I spent together. I'm gonna go buy some more forks for the office. No office ever has enough forks. Maybe I'll just buy some cute kitchen gadgetry, that is probably never gonna get used, but at least I bought something right.

Mel: 02:19 It's like you made the bad decision to actually go to Ikea without first of all, checking online if they actually had what you were after.

Dan: 02:25 Yeah.

Mel: 02:25 Right.

Dan: 02:26 Don't rub it in.

Mel: 02:26 There's one bad decision. Then in order to try to mitigate that initial bad decision, you make another bad decision, which is to buy something that you really don't need.

Dan: 02:35 Yeah, 'cause I wasn't gonna let Ikea win. I was not gonna let them take two hours of my life and for me to just leave empty handed. I showed them. I bought something.

Mel: 02:35 You won.

Dan: 02:43 I won.

Mel: 02:43 Okay.

Dan: 02:44 I won. My extra forks are the trophy.

Mel: 02:50 What you're talking about Dan is another irrational decision that we make. Funny that.

Dan: 02:54 Yeah.

Mel: 02:55 How surprising that it would come in this, while we're sitting here recording. We're gonna talk about the sunk cost fallacy.

Dan: 03:03 Sunk cost.

Mel: 03:04 Yeah.

Dan: 03:04 Sign me up.

Mel: 03:05 We can talk about the psychology of sunk cost, which actually happened to be the title of a research paper.

Speaker 3: 03:17 Movie quote: “What do you want?”

Dan: 03:18 A research paper.

Mel: 03:19 Yeah.

Dan: 03:20 How surprising.

Mel: 03:21 By Arkes & Bloomer back in 1985. They're building off the work that Kahneman and Tversky did. What they were looking at was instances where people had already made an investment of either time, effort or money.

Dan: 03:34 Mm-hmm (affirmative).

Mel: 03:35 Like you did at Ikea. What their behaviour was like after that, once you've already made the investment. The idea is that we have this tendency to make further bad decisions once we've made an investment in something.

Dan: 03:48 Right. It's just like what we would casually refer to as throwing good money after bad.

Mel: 03:52 Yeah, exactly. The idea is, they did a bunch of experiments, and one of them was, and it's from the 1980's, so we're just gonna excuse the numbers and the places here because this was a 1985 US study.

Dan: 04:04 So you and three friends bought a hyper-coloured t-shirt and happy pants.

Mel: 04:10 Well actually, in this experiment, the idea is, the example is, okay. Imagine you've just spent a hundred dollars on a ticket for a weekend ski trip.

Dan: 04:10 Bargain.

Mel: 04:19 Decide to go to Michigan. Yeah a hundred bucks, weekend ski trip. I'd do it!

Dan: 04:22 For sure.

Mel: 04:23 A couple weeks later, you're thinking about planning another ski trip and you buy a fifty dollar ticket for a weekend ski trip to Wisconsin.

Dan: 04:29 Wisconsin.

Mel: 04:30 Yeah.

Dan: 04:30 Okay.

Mel: 04:31 And you really want to go to Wisconsin. Like, this fifty dollar ski trip to Wisconsin is gonna be the best ski trip you've ever had.

Dan: 04:36 Who doesn't love Wisconsin?

Mel: 04:37 Wisconsin's great.

Dan: 04:38 People haven't been there.

Mel: 04:39 Anyway. You then realise that you've actually double booked. You've actually booked the two weekends away for the same date and you can't change the date.

Dan: 04:49 Totally something I would do.

Mel: 04:52 Well, you've got a choice basically. You can't sell the tickets, okay, they're non-refundable.

Dan: 04:56 Yep.

Mel: 04:56 You can't exchange. You've gotta go on one trip or the other.

Dan: 04:58 Yep. So I paid fifty bucks for Wisconsin.

Mel: 05:00 Which you're gonna love.

Dan: 05:01 Yeah, and I paid a hundred bucks for?

Mel: 05:03 Michigan.

Dan: 05:03 Yep.

Mel: 05:04 You're faced with this decision. You've got two ski trips.

Dan: 05:07 Mm-hmm (affirmative).

Mel: 05:07 One of them, you really want to go on.

Dan: 05:09 Yep.

Mel: 05:10 The other, like, well you sort of want to go on.

Dan: 05:10 Yep.

Mel: 05:13 It costs a bit more.

Dan: 05:14 Yeah.

Mel: 05:14 Anyway, the cost is spent.

Dan: 05:14 Yeah.

Mel: 05:16 There's nothing you can do about it. You can't reclaim those costs. Either way, you're gonna miss out on something.

Dan: 05:20 Yep.

Mel: 05:20 The rational decision maker would think, well I really want to go to Wisconsin.

Dan: 05:23 Yeah. Sign me up.

Mel: 05:24 That's the one I'm gonna enjoy more. Off we go, pack the skis. Let’s go. Actually what happened, when the researchers asked people in this example, which ski trip will you go on, over 50 percent, said that they would choose to go on the 100 dollar ski trip to Michigan.

Dan: 05:24 Right.

Mel: 05:39 The one that they were gonna enjoy less.

Dan: 05:42 Right.

Mel: 05:42 Or not as much.

Dan: 05:43 Why?

Mel: 05:43 Instead of the 50 dollar ski trip to Wisconsin.

Dan: 05:46 Why?

Mel: 05:47 The idea is that we've already, we feel like we've already spent the money. We've already spent a 100 dollars on going to Michigan, so even if we're not gonna enjoy it as much, we should go because it would be wasteful not to.

Dan: 05:57 Right. Just like I showed Ikea who was boss.

Mel: 05:57 Exactly.

Dan: 06:00 They're gonna show Michigan “you took my 100 dollars, well I'm gonna turn up and enjoy you less than if I'd just gone to Wisconsin.”

Mel: 06:05 Sounding like a true winner there. Somebody's really happy with their victory.

Dan: 06:08 Yes. I guess we see this happen in lots and lots of places. That was a nice, cute 80's example. I mean this happened to me like, not even 12 months ago, where wifey, bless her, went and decided it would be a great thing for us to go and learn some wine appreciation. I'm pretty much a heathen when it comes to this stuff. We should go and do a wine appreciation course. Right. Now this thing was six nights.

Mel: 06:31 Why did you need to do a course? I mean, I appreciate wine.

Dan: 06:32 Yeah, talk to her about it. This was a six week course, one night a week.

Mel: 06:38 Okay.

Dan: 06:38 Yeah, it was like a Wednesday night.

Mel: 06:40 Mm-hmm (affirmative).

Dan: 06:42 I really didn't want to do this, but you know, sometimes you know marriage is about compromise. I decided I would go to this thing. I went to the first week and we have the parental advisory thing, yeah. It fucking sucked. This was terrible. Like 15 minutes into this two hour thing, I just wanted to get the hell out of there, after killing everybody in the room.

Mel: 06:59 Okay.

Dan: 07:00 I was like, you know what, it was just the first week, maybe it's gonna get better. So I went back the second week, and guess what happened the second week?

Mel: 07:05 You'd already paid for it, so you might as well go back the second week.

Dan: 07:07 Well this is what happened right. I went back the second week, I thought maybe I'm gonna get into it, I was just a bit rough. Second week sucked worse than the first week.

Mel: 07:07 Oh God.

Dan: 07:13 Right. I'm like, why on earth would I sign myself up to spend four more weeknights like this?

Mel: 07:20 But you went didn't you?

Dan: 07:20 But of course I ended up doing it because number one, I was already invested, I'd been to the first two weeks. And number two, like I guess I was kinda invested in the marriage. So, I needed to really see that through.

Mel: 07:31 Kind of.

Dan: 07:31 Yeah, it's probably not the best, you know, eight hours that I've ever spent in my life. But I for some strange reason, I felt completely obliged to do it.

Mel: 07:39 We do this in other situations where we feel like, we've already committed time, so we don't really want to be wasteful of that. An example might be from, if you're waiting on public transport, right. You're standing there, you're waiting for the bus.

Dan: 07:39 Mm-hmm (affirmative).

Mel: 07:52 The bus is supposed to come, but it's public transport, so it never comes when it's supposed to. You've been standing there for a good 15, 20 minutes waiting for this bus, have no idea really when it's coming. But you could call a cab or an Uber and you could get one in three minutes.

Dan: 08:09 Yeah.

Mel: 08:09 But most people will be like, oh but I've already spent 15, 20 minutes waiting for the bus, I'm gonna wait for this damn bus.

Dan: 08:15 Yeah. I think what we see, the theme with all this stuff is, there's no rewind button on life. Right. But we don't seem to be able to realise that when we're making decisions. We somehow let the sunk cost, the bits that we've already invested, shape what we do next.

Mel: 08:31 We've talked about a few heuristics over the previous episodes that come into play with this right. One of them is the idea of loss aversion.

Dan: 08:38 Yep.

Mel: 08:38 Right. Which as come up a few times, because it's a big heuristic. We're so against the idea of feeling like we've lost something, if it's time, if it's money, if it's effort, that we're highly motivated not to feel like we've lost something. Right. We're gonna wait for that bus because I don't want all that time to be lost, for nothing. I want that time to be for something.

Dan: 09:00 It's interesting that we feel such a strong fear of loss for things that have happened in our past. Like we’ve already invested that money, that it overrides the idea of losing things in the future, which we could still change.

Mel: 09:12 Right. We have a decision there to make. The cost is gone either way. We could choose to actually make the cost worse, by investing more like you said. Sort of putting good money after bad money. We can make that choice, which is a rational choice, we know what we should do, but so many of us, in all sorts of different situations are just gonna continue it. We see this happening with regards to time spent and then sort of wanting to pay money or pay more, or invest more time to make up for that bad time or bad money lost.

This also extends to more emotional decisions. For example, there are a lot of people that will stay in bad relationships or in bad jobs, just because they've invested a lot of time in it. They're like “this guys is an absolute asshole, but I've been with him for five years. This is five years of my life I'm not willing to give it up. I don't want that to be for nothing.” So you continue to stay in an unhealthy relationship because, well you've already been in it for so long, you may as well just continue.

Dan: 10:06 I'm feeling like we're starting to move into Dr.Phil territory here.

Mel: 10:10 Dr. Mel!

Dan: 10:12 You got to move on.

Mel: 10:14 People do the same thing with jobs. And even with careers. Like, people might be in a career that they don't like, but they feel like, oh my God. I spent four years at Uni getting this degree...

Dan: 10:22 Yeah.

Mel: 10:22 Now I have to do this job for the rest of my life.

Dan: 10:25 Yeah, and so absolutely, employees think about it when they're staying in a job. But also, I think from an employer perspective, you might have a staff member who it's just become really apparent to you that they're probably not right and they're probably not gonna be a person for the future of the team or the organisation. But oh God, like, they've been here for so long and we've spent all of this time together and they've seen things come and go. It just feels like it would be way too painful to send them on their way. So we end up ploughing another bad six months, year, two years, three years into this person, who really we didn't need to.

Mel: 11:00 You know, and we've talked about this in relation to time, in relation to emotions. I'm thinking as well of some examples in relation to food and sort of the retail industry. The idea of food, first of all, is like, you'll go to a restaurant and you'll look at the menu and with your hungry eyes, you'll order a whole bunch of stuff. So you've effectively paid for it.

Dan: 11:00 Yep.

Mel: 11:17 Right. Then you start eating, You feel like you've eaten enough. You feel pretty sick right now, but you're like “damn it, I paid for these 15 dumplings, I'm going to eat every last one of them!”

Dan: 11:30 Yeah, and you know this is also... I don't know if there's a migrant parent heuristic, but like, “you finish what's on your plate or you are not leaving the table!” Probably, that's got something to do with it as well.

Mel: 11:38 For sure.

Dan: 11:39 But you definitely see that come to the party, at things like buffets as well. Where you've got a bad buffet behaviour, where if you're at a buffet and you're trying to decide whether to go up for another round on the dessert bar. What you rationally should be thinking about is, well am I gonna feel better or worse after consuming the fourth round of dessert for this sitting? Actually what most people end up thinking about is the fact that they've already paid for the buffet. That is a sunk cost, so their only objective now is to get the absolute maximum they can out of the money they've spent.

Mel: 12:08 Optimising buffet performance.

Dan: 12:09 Yeah. Which I guess the, Pizza Hut works creators, probably should have spoke to us about. 'Cause there's really no way that was ever gonna work. $4.95, all you can eat, pizza, pasta, salad and dessert. You're just baiting people to put you out of business.

Mel: 12:25 If we know that people are vulnerable to making bad decisions like this and to wanting to continue to invest in something that they've already invested into. What do we do with it?

Dan: 12:34 Awesome. I thought you'd never ask. As businesses, this is like a really interesting one for us to explore. If we know that people feel committed to things that they've already started to invest in. One of the things we can do as businesses or as brands, is to try and get people to sink a little cost early on.

Mel: 12:52 Mm-hmm (affirmative).

Dan: 12:52 Right. This is where things like offering free trials or helping people import all of their contacts from an old system into a new system to get them going, can really start to pay dividends.

In a retail environment, a well trained retail person knows that when you approach a customer, the first question you should ask them, should not end with no. So Mel, if you're in the store and I walk up to you and I'm like “hey can I help you with something?”

Mel: 13:17 No.

Dan: 13:17 Yeah, right. So, that's terrible.

Mel: 13:17 Go away.

Dan: 13:19 You've just shut me off and now there's no investment. Right. But if I can go over and start engaging you, even just a smidgen, teeny bit, right.

Mel: 13:19 Mm-hmm (affirmative).

Dan: 13:27 And get some yes's early.

Mel: 13:28 What would you ask me?

Dan: 13:29 I'd say “hey Mel, are you finding everything you're looking for?”

Mel: 13:33 “Yes, thanks.”

Dan: 13:33 “Did you notice we've got some of the new season stuff up the front?”

Mel: 13:36 “Oh, new season.”

Dan: 13:37 “There's sale stuff up the back.”

Mel: 13:37 “Sales.”

Dan: 13:39 “Maybe I'll leave you to have a browse, then I'll come back and check in a few minutes.”

Mel: 13:42 “Sure, thanks.”

Dan: 13:42 Great. You've just started committing to me. Right. Just a little, teeny bit. Like we're not getting married anytime soon. But you have the start of a commitment and over the course of a conversation or a sales interaction, I can start building and building and before you know it, you're me, and I'm Ikea and you've just spent 45 minutes with me and there's no way you're gonna leave with nothing. In sales, this is what we call incremental buying, getting little yes's along the way and all of a sudden, the person you're selling to feels like they're in too deep and they'd be betraying themselves to back out.

Mel: 14:11 I feel like this reminds me of those annoying guys at shopping centres who try to sort of call you over to sell you some...

Dan: 14:16 Oh chuggers.

Mel: 14:17 Yeah, chuggers.

Dan: 14:18 Chuggers, they're like charity muggers.

Mel: 14:21 I like it. I like it.

Dan: 14:21 They basically mug you in plain sight. They mug you by trying to get you to donate to a charity for the rest of your life.

Mel: 14:25 Yeah, so they're just trying to entice you in a little bit, right.

Dan: 14:28 Yeah, so these guys don't stop you and say like “hey do you want to give 15 dollars a week for the rest of your life to some charity?” 'Cause obviously you're gonna say no. What they'll do is they'll try and get you to do anything. They'll just try and get you to stop. They'll ask you how your day is going. They'll do magic tricks. They'll ask you for the time. They'll do anything just to get you starting to sink a little bit of cost with them. Before you know it, you've signed yourself up to go on a Greenpeace boat and campaign against whaling in Japan or whatever it is they want you to do.

Mel: 14:54 Bloody chuggers.

Dan: 14:55 It happens. Chuggers, they ruin lives.

Mel: 14:59 I think the thing to remember, have we got anything else in terms of what we do, from sort of the brand perspective or from the sellers perspective?

Dan: 15:05 Well I mean, one of the things you might have realised as a retail consumer is this concept of you know, completing a look.

Mel: 15:11 Yeah, like if I've bought something, well I can't just have this pants without the top to go with it. Is that what you're talking about?

Dan: 15:16 Exactly. Once the retail person realises they've got you to commit to the pants.

Mel: 15:19 Yes.

Dan: 15:19 That's now sunk. They might as well try and leverage that into another sale with a, hey complete the look and get the top or the whatever else to go with it.

Mel: 15:26 Right. 'Cause I've already made the commitment to the entire look and if I just buy part of it, it's gonna feel incomplete.

Dan: 15:30 Exactly. You're gonna feel like you've wasted just buying the pants. You might as well buy the top as well.

Mel: 15:35 Very clever.

Dan: 15:35 Which extends us into the whole world of collectables and sets and there's a different one available each week. People make wildly irrational decisions to complete a set.

Mel: 15:44 Just to complete, just to feel that sense of closure right.

Dan: 15:45 Yeah, it's like, oh my God, if you had eight out of the nine possible happy meal toys that were available in that collection. How could you live with yourself?

Mel: 15:53 Yeah, you couldn't.

Dan: 15:53 No, you should drive across town and find the one that you don't have. Just so you can sleep at night.

Mel: 15:57 Make sure you complete the set.

Dan: 15:59 Yeah.

Mel: 16:00 From the consumer side of things, I think it's important to remember that you always have a choice. Right.

Dan: 16:05 Yeah.

Mel: 16:06 You do have a choice.

Dan: 16:06 You do.

Mel: 16:07 Your choice can either be rational or it can be emotional, right.

Dan: 16:07 Yeah.

Mel: 16:11 If you want to be a smart consumer, like we all sort of always say, don't, once we know that we have these tendencies to make irrational decisions, we can outsmart ourselves.

Dan: 16:20 Yeah. What you're saying is that you gotta be able to just flush your past. Just like reformat.

Mel: 16:25 We've gotta be able to accept that whatever it is we've invested, whether it's time, effort, money. It's gone and it's not coming back.

Dan: 16:32 Yeah.

Mel: 16:32 We can continue to chase after it and try and make it better, but we end up sort of like a bad gambling addict, where you just try to chase losses all the time.

Dan: 16:40 Yeah.

Mel: 16:41 Continuing to spiral into some serious, bad decision after bad decision after bad decision. As a consumer, you have a choice and you have a choice to be smarter than your brain.

Dan: 16:52 Yeah. I mean, one of the ways I've sort of found that I can hack myself into thinking about this stuff correctly...

Mel: 16:58 I like these self hacks.

Dan: 16:59 Yeah, yeah. Other than just having really no emotional connection to the things that have happened historically.

Mel: 17:02 You can do that too.

Dan: 17:02 I can maybe see you in your other professional capacity to talk about that.

Mel: 17:05 Okay, Mr.Robot.

Dan: 17:08 I think something that everybody would relate to is, starting a book and getting, I don't know, a quarter of the way in...

Mel: 17:15 There's so many unfinished books.

Dan: 17:16 And realising this book just sucks. I had this real problem, as far as problems, I mean this is not like a heroin problem. It's not such a bad problem but, I had this real problem that I would just persevere through books that I hated and it would be the same for movies, it would be the same for Netflix series. Because I started it and the idea of a book that I hadn't finished sitting on my shelf, I felt like a fraud or an imposter. You know.

Mel: 17:40 It was incomplete.

Dan: 17:40 It was incomplete.

Mel: 17:40 Yeah.

Dan: 17:41 I found a couple ways to get around this. Number one, Kindle changed my life because their unread books don't taunt me anymore, because I can't see them.

Mel: 17:48 It's such a difference.

Dan: 17:49 That's one. The other thing is I realised that, I'm a pretty slow reader right. I've got young kids, I've got a pretty busy life. Optimistically, to be honest, very optimistically, I could maybe read one book a month.

Mel: 18:02 Okay.

Dan: 18:02 Right. I can read, let’s just make this easy, I can read ten books a year.

Mel: 18:06 Okay.

Dan: 18:07 And I've probably got realistically, I don't know, 50 years left.

Mel: 18:11 I'll give ya 50 years.

Dan: 18:11 50 years left.

Mel: 18:13 50 years with good vision, enough to read.

Dan: 18:15 Yeah. I'm gonna be able to read 500, you know what, lets round me up. Let's say I'm gonna have a bit more free time when I'm older. Maybe I'm gonna be able to read 700 books.

Mel: 18:23 So optimistic. 700 books.

Dan: 18:24 700 books is the total number of books I will be able to read for the rest of my life.

Mel: 18:29 You better choose carefully.

Dan: 18:31 There are like a billion books out there.

Mel: 18:31 Yeah.

Dan: 18:33 Right? So if I'm 20 pages into a book that sucks, and I'm pretty sure this is not gonna be in the top 700 books I'm ever gonna read in my life, turf it, move on. I guess my mental hack is I've realised that FOMO, and like reminding myself that there's other things out there, other ways I could spend the next ten minutes or the next hour or the next year of my life, seems to overcome or outweigh the desire to want to make good on a bad investment.

Mel: 19:01 Okay. For more of Dan's self hacks against cognitive biases or if you have any hacks that you use to overcome these biases. We'd love to hear about them. Please find us on social media. My Twitter handle is @DrMelW.

Dan: 19:16 Just Twitter for you this week?

Mel: 19:18 I mean, whatever social media, find me. Just Google Melissa Weinberg.

Dan: 19:21 Yeah. Dr. Melissa Weinberg.

Mel: 19:21 Of course.

Dan: 19:23 Yeah and I'm @DanMonheit, no Doctor. Still waiting on that honorary Doctor to come through. If you or anybody you know is able to give them out, you know where to find me.

Mel: 19:32 Professor Dan.

Dan: 19:33 That's right.

Alright. Is that it?

Mel: 19:33 I think that's all.

Dan: 19:37 You know, I feel like we've come this far, maybe we should just do a little bit more.

Mel: 19:39 You know I feel like that people have already been listening to us for the last sort of, 15 minutes, they're just gonna keep listening to the rest anyway.

Dan: 19:45 You know, actually, honestly really and truly, one thing we didn't talk about at all in this episode, which maybe if you got thoughts, let us know, is how people stay in really bad financial investments, holding onto stocks and things for way too long. Anyway, that's a whole separate show. We'll do something about money later. Yes?

Mel: 19:58 Sure.

Dan: 19:59 Cool. Alright.

Mel: 20:00 Sounds good.

Dan: 20:00 Don't forget to tune in next time for more bad decisions.

Mel: 20:03 Plenty more bad decisions.

Dan: 20:05 Peace out everybody.

#10 Default Bias: Why Australians take their organs to the grave

With thousands of decisions to make every day, wouldn’t it just be way easier if some of them were made for us? In this episode, Mel and Dan unpack how the default bias influences everything from binge-watching to voter turnout, and explain how marketers can become the Kleenex of their category.

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Dan: 00:19 Hey, welcome to Bad Decisions. The podcasts that helps us understand why we choose what we choose.

Mel: 00:23 Why we think what we think.

Dan: 00:24 And how to explore this stuff for fun and commercial gain.

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

Dan: 00:30 I'm Dan Monheit, co-founder of Hardhat, a creative agency built for today.

Mel: 00:34 Here we go.

Dan: 00:42 Hey Mel.

Mel: 00:43 Yeah.

Dan: 00:44 I want to take you all the way back to one of the earliest moments where I honestly felt myself falling truly and deeply in love with behavioural economics.

Mel: 00:44 This sounds really romantic.

Dan: 00:54 This is kind of romantic. I was sitting at home by myself watching a video of a guy who I may or may not have a gigantic man crush on, Dan Ariely.

Mel: 00:54 Okay.

Dan: 01:02 Hi Dan. I know you're a listener, and he was talking about the outrageous situation that exists in America that I've since learned also exists in Australia around organ donation rates, and it's this crazy situation where despite us being the lucky country and a very well developed, very progressive first world nation, lots of great things going for us - the proportion of us who actually end up with our tissue and organ donated once we die is less than 10 percent.

Now, this doesn't just sound bad. This really is bad, especially when you look at it by global standards. Other countries in the world like Austria, Belgium, France, Hungary, Poland, Portugal, these guys have organ donation rates of 98 percent or higher. Some of them even have organ donation rates of 100 percent. And here we are, we're all the way on the other side of the world. Maybe we just get a little selfish or something on our island over here, but less than one in 10 of us actually end up donating our organs and tissues when we die, which is just diabolical.

Mel: 02:02 So basically Australia is a really lucky country as long as you're not dead.

Dan: 02:06 Yeah. Or on the organ waiting list.

Mel: 02:09 Right.

Dan: 02:09 Other than that, great place to live. Send your friends and family out here.

Mel: 02:13 The interesting thing about this, particularly from my perspective, is that when you actually ask Australians whether they would like to donate their organs, three in four people say, “yes, of course I'd love to.” There's this huge discrepancy between the 10 percent of us, or less than 10 percent of us who actually donate our organs and yet 75 percent of us really would like to. We really want to do the right thing.

Dan: 02:35 Yeah. Which just goes to show we are not only selfish, but we also lie. Are we lying? Is that what's happening? Most of us also lying?

Mel: 02:43 Pretty much.

Dan: 02:44 I think it's called, is it virtue signalling?

Mel: 02:46 Maybe.

Dan: 02:46 Anyway, that's another episode.

Mel: 02:48 Let's look it up.

Dan: 02:48 Okay, cool.

Mel: 02:48 So the thing that's happening here and the reason that we are in this situation where you've got a whole bunch of people who say that “this is something that I'd really like to do, a morally great thing to do, count me in” and yet barely any of us do it is because the default in Australia is not to donate our organs.

Dan: 03:08 Exactly. Because what happens in these other countries that I've just mentioned before is that as soon as you get your driver's licence, you're an organ donor, unless you specifically want to go to the trouble of opting out and as we all know in Australia or for our Australian listeners, hear you are not an organ donor, unless you specifically go to the effort of going to the website and registering your details and opting yourself in.

Mel: 03:29 So the reason we're talking about this is that it demonstrates the power of what we know as the default bias.

Dan: 03:35 Oh, did you say default bias?

Mel: 03:37 I said default bias.

Dan: 03:37 Is that our heuristic for the episode?

Mel: 03:39 It is. We need some default music. It should just be something really plain and boring and just whatever. Whatever you've got really the closest easiest thing that you've got, just as the default.

Dan: 03:48 I would like actually, Kops can you just get your iPod and put it on shuffle and just whatever the first thing that plays is, that's what we're going with.

Speaker 3: 03:54 (Shania Twain singing) Oh, oh you think you're special, oh, oh you think you're think you're something else. Okay, so you're a rocket scientist, that don't impress me much, so ya...

Dan: 03:54 Okay. Kops is a big Shania Twain fan.

Mel: 04:15 So the default bias refers to the idea that basically whatever we put as the default, even if it's something completely random, the default option has a disproportionately higher chance of being selected.

Dan: 04:29 This sounds terrible. This sounds like these are going to cause us to make all sorts of terrible decisions in life.

Mel: 04:34 This is the thing. It could be hugely problematic if people use it for the wrong reasons.

Dan: 04:38 I mean, not even could be like let's be honest here, six out of 10 people who would be very happy to donate organs and tissue actually take the organs and tissue with them in a box in the ground when they're dead, when they have no need for such organs and tissues anymore just because of this one dirty little heuristic.

Mel: 04:56 Like in this case, it works out not in our favour from an Australian perspective, but we also live in a country where the default option is to vote. On the flip side, yes, maybe not as many of us donate our organs as in many other countries, but to maybe compensate for that, we have large voter turnout rates.

Dan: 05:16 That's great.

Mel: 05:17 Right. So we had something like 94 percent of Australians of eligible Australians. Not sure what the other six percent were doing, 94 percent of eligible Australians voted in our last federal election. Whereas for example, in the US it was something less than 60 percent, and look how that turned out.

Dan: 05:33 Well look how ours turned out, and I don't really think that I'll go on and tell people on the organ waiting list that, you know what, at least you know, that you're in a country that votes the next election is really any consolation.

Mel: 05:43 The thing is that, like from a broader of societal perspective, these have actually big implications. Like voter turnout is a sign of civic participation, which is associated with social capital, and we can go on and talk about all the benefits these has for actually building strong communities, but something as simple as putting voting or making voting as the default that you basically have to vote unless you have a very, very good reason or want to get fined has huge implications for the way we actually function the society.

Dan: 06:10 Also excellent for sausage sizzle sales.

Mel: 06:12 Okay.

Dan: 06:13 Are there particular places in our life where we are especially vulnerable to default biases?

Mel: 06:19 Well, like with any of the heuristics that we talk about here, situations when we're low on information...

Dan: 06:25 Mm-hmm (affirmative).

Mel: 06:25 Or where we don't really care.

Dan: 06:27 Yeah. I guess there's this idea, especially if you're in the marketing world, that we think that people really want to optimise every purchase they make. If we happen to be a marketer working for a washing detergent company, we would like to think that when people go and buy a washing detergent, they are really trying to get the best value for their money, buy a brand that they feel great about. It's going to deliver them everything that they want.

Mel: 06:50 And you want like the brightest colours, the whitest whites.

Dan: 06:53 The loveliest smell.

Mel: 06:54 Of course.

Dan: 06:55 But the reality is, for all but a very small handful of purchases that any one of us make in a year or even a lifetime, we're not optimised as we are, what we call satisfices. We might all optimise for one or two categories in our lives. For some people it's when they buy a car, they really want to go through all the details of getting the best thing they can get or for other people it's sneakers or whiskey or handbags or whatever it is. But the vast majority of things in life, the vast majority of things we purchase, we're just trying to satisfy us. We're just trying to buy the thing that gives us the least likelihood of dying either actually or socially.

Mel: 07:30 Here's the part of the show where I give you a big word...

Dan: 07:30 Come on.

Mel: 07:33 To describe the little words, that you use even though optimised and satisfice are pretty good.

Dan: 07:37 Good.

Mel: 07:38 Like well done.

Dan: 07:38 Thanks. Not feeling patronised towards at all. Do you want to sound it out for me. What's the word?

Mel: 07:44 Say it with me, it's called the acceptability threshold.

Dan: 07:48 I got this, the acceptability threshold.

Mel: 07:48 Easy.

Dan: 07:48 See. Nailed it.

Mel: 07:52 The acceptability threshold is basically the minimum standard that we're willing to accept.

Dan: 07:56 Like what you look for in a podcast co-host?

Mel: 07:58 Something like that.

Dan: 08:00 Proud to have met your accessibility threshold ...

Mel: 08:03 Acceptability.

Dan: 08:03 Damn it. Acceptability threshold.

Mel: 08:06 There we go, we'll get there.

Dan: 08:07 Yep. I guess what we're seeing here, is that for all but a couple of categories where we're really looking to optimise what we're doing, we're happy to just take whatever will just get us through, whatever passes our acceptability threshold and that's really because, to be honest, we're kind of lazy, we're kind of busy and we're just looking for some sweet, sweet relief from the thousands upon thousands of decisions we'd have to make every day from scratch if default options didn't exist.

Mel: 08:33 The default option serves a hugely important function. It can guide us towards sort of maybe the right direction...

Dan: 08:40 Mm-hmm (affirmative).

Mel: 08:40 Or the best direction for us, or it can totally detract us and take us towards something that will just be like, you know what, close enough is good enough. I'll just take that. The thing that I love about the default option, and I want to bring this in, is that when I was thinking about it, the default option is like a super heuristic.

Dan: 08:58 Super heuristic!

Mel: 08:59 It's like the superhero of heuristics because it actually incorporates a few of the heuristics we've talked about into sort of understanding why it works and the power that it has. The default option works for a number of reasons. One of the reasons is that there's an element of social proof in it. So we've talked about social proof and how we'll basically just do what everybody else does. When we see a default option, we pretty much believe that that's what everybody else is doing and if it's good enough for everybody else, it's good enough for me.

Dan: 09:26 Okay. So like when you're on a website trying to buy some sort of online software as an example, and you say the popular package that people buy: so there is the cheap, there's the medium, there's the premium. The popular one is always the medium one. So I guess that is a default option, and it's also social proof.

Mel: 09:42 Correct. Another thing that comes into play is the idea of decision fatigue. We talked about this when we talked about choice paradox and the idea that, even though we'd like to think that we have so many choices we're really not very good at making decisions when we have a whole lot of choice. The default gives us an easy here you go, just take this, let me take the worry away from you and all the complexity of making a choice away from you and just take the default.

Dan: 10:06 Yeah. So anybody who's been to McDonald's or has worked at McDonald's would know that if you go up to the counter and just order a big Mac meal, if the person on the other side of the counter knows what they're doing, they will say to you “oh, is that a large meal?” Because they know that one option is to stand here and evaluate, “well, I don't know. Is it a large meal? How hungry am I? How thirsty am I? When is the next time I'm going to be able to eat or drink something? When did I last eat or drink something?” Or the other option is just to go, Yes! And just get on with it and pay them the money and go away for your food to come out.

Mel: 10:34 Way easier.

Dan: 10:34 Way easier.

Mel: 10:35 And this is the thing. This sort of speaks into the next one that comes into play, which is that there's a confirmation bias involved as well, which is if the default option is presented to us, I mean we have to have a pretty strong reason to not go with that option.

Dan: 10:46 Mm-hmm (affirmative).

Mel: 10:47 We've got to be pretty sure that that's not going to be the right thing for us when it's way easier. Like you said, just go. Yep, Yep, that sounds good and to think of all the reasons why, yep that'll be good enough for me.

Dan: 10:55 I mean the person who suggested it is wearing a visor and a name tag, so clearly they're the expert.

Mel: 11:00 They look pretty reputable.

Dan: 11:01 They know that large is the right way to go.

Mel: 11:03 They know fries.

Dan: 11:04 And who am I, just as a layman to argue with that. Yeah. I'll have a dessert too. Thank you.

Mel: 11:09 Default bias is a super heuristic, and I'm going to coin that term because I don't even know if it exists, but you heard it here first, super heuristic.

Dan: 11:16 I feel like it's the Voltron of heuristics.

Mel: 11:18 It can be.

Dan: 11:19 Like all the other heuristics come together and unite to make default bias.

Mel: 11:22 Yeah. This is captain heuristic right here at West Cape.

Dan: 11:25 I like it.

Mel: 11:26 That's how we know it's super. But it really is one of those things where it's so hard to avoid and so powerful because it pretty much brings together a few of the other heuristics that we've talked about.

Dan: 11:36 Yeah and I guess the thing about the default bias is once you realise it's happening, you start noticing it everywhere.

Mel: 11:44 Let's talk about some of the examples of where we find it.

Dan: 11:46 Lets. Oh, you want me to talk about some examples?

Mel: 11:46 If you wouldn't mind.

Dan: 11:49 Okay, sure thing. I guess one of the places that you often see this is when somebody who knows what they're doing is emailing you, trying to set up an appointment, they'll always suggest a time. Rather than saying, “hey, it would be great to catch up some time, let me know when you're free.” It's like, Oh God, that's putting a lot of work on the other person. The default bias would encourage that person to “say, hey, we should really catch up some time. How are you Wednesday at 2:00 PM or Friday at midday?” What they've done is they've given two great default options I could take, which makes it a path of much less resistance to just say yes and end up going to a meeting I probably don't want to go to.

Mel: 12:21 That applies also, it applies one thing in terms of setting up meetings, but it applies more generally as well. Let me give you some research if I may.

‘Doc’: 12:32 [Back to the Future soundbite] “If this baby hits 88 miles per hour, you’re going to see some serious shit”

Mel: 12:38 We're going to talk about a study that was looking at the opt in versus opt out scenarios with regard to flu vaccination. Basically, we've got a workplace here, and they set up two conditions. It was a condition where a group of employees were sent an email that said, listen, we're going to offer you all the chance to have the flu vaccine. Please call this number to make an appointment and book in your time.

Dan: 12:59 That's sweet of them.

Mel: 13:00 Yeah. The other email that was sent to another group of employees basically said, specified a date and a time. So yours might've said, “hey Dan, we`re really pleased to offer you the chance to have a flu vaccine at your workplace. Your appointment is next Tuesday at 4:00 PM. Please call this number if you'd like to change or cancel."

Dan: 13:15 Got it.

Mel: 13:15 Some people have a time and date specified, other people have to opt in essentially, and basically what happened was the people who had their time and date specified were much more likely to attend their appointment and get the flu vaccine because all they had to do was just go along with the default that was set for them.

Dan: 13:31 Makes sense. I guess it's interesting in a lot of service based businesses that the default bias is kind of wrapped up in good customer service, and at some point you're just being preemptive and doing the right thing for the customer and sometimes that also aligns with the thing that you would most like them to do.

Mel: 13:47 It's like if you go into a retail store, and you grab something off the shelf and you haven't even maybe picked the right size and all of a sudden the salesperson comes up to you and he's like, hey, can I put that in the change room for you? And all of a sudden the things already in the change room and once it's in the change room you've basically bought it.

Dan: 14:01 You have to go and try it on at least.

Mel: 14:03 So you're basically being defaulted not into purchasing the product but into the behaviour immediately before it, that strongly predicts your purchasing behaviour.

Dan: 14:10 Trying stuff on is a good leading indicator for actually purchasing stuff.

Mel: 14:14 Yep.

Dan: 14:15 For me, I was going to say I try and steer away from religion in this show, but I really don't. I think this is like one of the most striking examples of default bias that of all of the religions in the world and who knows, there must be hundreds or thousands of religions in the world. The vast majority of people stay with the one they were born with it.

Mel: 14:31 Just lazy.

Dan: 14:32 So lucky for them, they were born into the exact right religion and they can just go down that path as opposed to going through the arduous, very tiring task of evaluating all of the world's religions and then deciding which if any, are actually the right choice for you and subscribing to that.

Mel: 14:50 Well `cause once you've been defaulted into it, you then spend the rest of your life in a confirmation bias.

Dan: 14:54 Exactly.

Mel: 14:54 Going about activities that reinforce the fact that your default option was the right one for you.

Dan: 15:00 Exactly. But hey religion is great, if you enjoy it good for you.

Mel: 15:03 And look anybody who watches Netflix is vulnerable to the default biases as well.

Dan: 15:07 I don't know what you're talking about. I absolutely sat down with the intention of watching four episodes back to back. It has nothing to do with that little next episode automatically starting in five, four, three, two. Okay, You got me.

Mel: 15:19 I’m in.

Dan: 15:21 I think they’ve actually reduced the time before which the next episode starts as well.

Mel: 15:25 To make it even harder for you...

Dan: 15:27 To stop. It's like, wait, where's the remote? It's started.

Mel: 15:30 It's already started, opening credits are rolling. May as well just watch the whole thing.

Dan: 15:34 Exactly.

Mel: 15:35 Alright. So tell me how brands can use this information

Dan: 15:38 Ethically. I mean for brands the most obvious, there's sort of the tier one way of using this is to say, look, anytime we put out options for people they're going to choose something, right? And if we make one of those options, the default, it will be selected a disproportionate amount of the time. It would be crazy not to set a default option that matches up with the thing that we would most like to sell. Whether that is the type of package or the way you structure a contract with the client about whether they pay at the start or the end of a phase or you know, just how long the service agreement goes for. You could set a default option of 12 months, or you could set a default option of 24 months and see if people argue with that, chances are they probably won't.

Mel: 16:18 Okay. That's tier one. What's tier two?

Dan: 16:20 I guess the next thing is a bit bigger and a bit meatier and it's that question of what things do we as a brand want to be the default option for? What do we want to be famous for?

Mel: 16:29 Mm-hmm (affirmative).

Dan: 16:30 And I think one of the most interesting recent examples of this is Beats Headphones. What these guys have done is all of their communications and all of their messaging of late is about the pregame ritual, right? They don't really show athletes playing the sport that they're famous for, but they show athletes in the team bus, in the locker room, coming through the tunnel, always with their Beats headphones on. And they sort of positioned themselves as the default choice for pregame preparation.

Mel: 16:57 Okay.

Dan: 16:57 Which is, you know, it's kinda like uncharted territory. Nobody had really owned that moment before. Everybody knew the moment happened, but nobody had really seized it. When you're seizing a new moment, you get a wonderful opportunity to present yourself as the default option, the Kleenex, the Blu Tack, the whatever it is for that particular category.

Mel: 17:15 Awesome. Is there a tier three?

Dan: 17:17 There's no tier three.

Mel: 17:17 Okay.

Dan: 17:17 Well, maybe you're the tier three. Can you elevate it?

Mel: 17:20 Well, let me flip it a little bit and instead of talking about brands, let's talk about the people on the other side. All right? If you are a smart consumer, you have to be aware that there is likely going to be a default option set for you. Right? And the question you have to ask yourself is, hang on, do I want to be defaulted? Do I care enough to not be defaulted? Right? Because the default option may be a completely random option that has no thought behind it at all. Or you may be dealing with a smart brand, who is trying to push you into … maybe pushed sounds a little rough.

Dan: 17:51 Encourage you into?

Mel: 17:51 Maybe they're trying to nudge. They're trying to nudge you into making a decision that actually benefits them. And may not be the best thing for you. So smart consumer will consider, do I really care? Am I happy to go with the default option or do I really know what I want and am I going to tell them what I want and not let them tell me.

Dan: 18:10 Maybe are you suggesting that we don't just have optimising and satisficing?  Maybe we need like a satisficing plus, like just give a little bit of a crap about this.

Mel: 18:18 Now we're going to have a whole choice paradox about whether you want to optimise, satisfice, satisfice plus.

Dan: 18:23 I guess what you're saying is, as consumers we need to be aware of when these default options are being pushed in front of us and even if you are just going to lie back and take it, at least be conscious that that's what's going on.

Mel: 18:33 Own it.

Dan: 18:33 Own it.

Mel: 18:34 All right, let's wrap it up.

Dan: 18:35 Cool. What we're talking about today is the default bias, which is the tendency to take the option that has been recommended for us as the default choice. And as it turns out, that option gets selected a disproportionately high amount of the time

Mel: 18:48 And it happens because we have so many decisions to make in our lives that sometimes then if it's something particularly we don't care about that much, it's easier to just go with the option that's presented to us and that's fine, but let's be aware of it. And let's own that space.

Dan: 19:00 That's right. And as marketers we need to think about a couple of things. One is when we're asking consumers to make choices, what is the choice that we most want them to select and how do we present that as the default option and as a business or as a brand, is there something that we want to become the default option for?

Mel: 19:16 Alright, where do we go from here?

Dan: 19:18 Well, this is the bit where we do our social media handles.

Mel: 19:20 Okay, let's do it.

Dan: 19:21 You go first

Mel: 19:23 Alright. You can find me on twitter, on Instagram @DrMelW. So, Dr. Mel W. You can also find me on LinkedIn.

Dan: 19:31 You can find me on a bunch of those sites as well. And I am @DanMonheit, no doctor as we painfully learnt, a couple episodes back.

Mel: 19:39 Still hurts, does it.

Dan: 19:40 Still hurt.

Mel: 19:41 If you guys have enjoyed this episode and we really hope you have, please feel free to give us a review by iTunes or Stitcher.

Dan: 19:48 Yeah. Ratings are good too. And also you should totally subscribe.

Mel: 19:52 Yeah, 'cause that way you can listen next time.

Dan: 19:54 Exactly. And the next episode, we'll just start in three, two, one.

Mel: 19:57 Two, one.

#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.