Tell me about your work: how does decision making psychology fit in it? First of all, I should issue a disclaimer. I am not a researcher in the strict sense of the word: I have no qualifications in either psychology or economics – at university I was a Classicist. Today I occasionally describe myself as a Behavioural Science Impresario: one of my part-time jobs is to help make the best “real” behavioural scientists deservedly rich and famous. When Shlomo Benartzi’s tour-bus is overturned by screaming Japanese schoolgirls, I shall know I have succeeded.
But my main job is as Vice Chairman of Ogilvy & Mather in the UK. You would think, wouldn’t you, that the advertising industry and marketing in general would be awash with behavioural scientists and psychologists – and to an extent this was true in the 1950s in the United States, the era of the early Mad Men episodes. (The line “Plink Plink Fizz” was written at the bidding of a psychologist who suggested that, if you could create a social norm around using two Alka Seltzer tablets at a time, sales would double. The de Beers line for engagement rings “How else can a month’s salary last a lifetime?” shows an obvious understanding of the concepts of anchoring and framing.)
But, for a number of reasons, these connections broke down. In part because the advertising industry became convulsed with fear over accusations of unconscious manipulation in response to books such as The Hidden Persuaders. It’s also fair to say that the social sciences “went a bit strange” in the same period: I imagine that for a social scientist in 1970 to get involved with commerce might have been career suicide – perhaps it still is. But however noble the motives may have been for social scientists in distancing themselves from commerce, the net result was catastrophic, since their departure cleared a space for neo-classical economists, with their psychologically blind models of human behaviour, to gain a stranglehold over business and government decision-making. Because these people appeared to use clever mathematics, they were accorded a level of influence they often did not deserve.
Richard Thaler makes this point very well. As he remarks, economists are generally hostile to monopolies, but they seem to have no problem at all with the monopolistic influence they themselves enjoy in influencing decision making. In particular their narrow, normative definition of “rationality” has often led to terrible decisions being made. Not least a complete fixation with financial incentives as the only means of encouraging behavioural change. I see my job now (and for the two earlier years whenI was president of the Institute of Practitioners in Advertising) as an attempt to break this stranglehold of naive economic thinking, and to help rebuild useful connections, in all directions, between the social sciences, business and policy making.
How did you first become interested in decision making psychology? I arrived at this field through first discovering economics. I think my first economics book was Robert H Frank’s “The Economic Naturalist”. I remain a huge fan of Frank’s: “The Darwin Economy” is a must read, especially for those prone to excessively Libertarian leanings. But, as I then read more about conventional economic thinking, in company with many devotees of the decision sciences, I found my reaction increasingly confused – “like watching your mother-in-law roll off a cliff in your new Jaguar” as one person defined “mixed feelings”. Yes, the models were elegant, the vocabulary and concepts were useful – but from my years in advertising and marketing it was abundantly clear that the theoretical people (“Econs” or “Homines Economici”) found in the models bore very little resemblance to anyone found in reality. Or anyone you’d actually like to meet, at any rate.
I was then and remain very interested in Darwinian Psychology. You don’t have to read much of this to realise that the theoretical race “homo economicus” would not be very successful as a social species. Without the propensity to punish free-riders, even at cost to themselves, without devices such as reciprocation, empathy and social copying, and without the feedback mechanism of reputation, they would rapidly disintegrate into psychopathy. A race of Vulcans would neither live long, nor would they prosper. Social rationality is very different from traditional, economic definitions of “rationality”.
When I discovered Behavioural Economics (and also Austrian School Economics, itself a great source of economic thinking which is not blind to human psychology), I found my mixed feelings about economics were resolved almost immediately. When I read about the Save More Tomorrow Pension, it was like a Road to Damascus moment. I had long believed that there was a missing link in the design of financial products, and here I had found it at last.
But to give economists their due, many have spotted the problems with their own field. If you need to understand why marketing and advertising (and reputation and brands) are important to the functioning of markets, Akerlof’s paper “The Market for Lemons” is essential reading. So too is his excellent and underread book “Identity Economics” written with Rachel Kranton. The problem is not with economics as practiced by great economists – it is the unquestioning adherence to the dumber assumptions of Basic Economics 101 as unthinkingly absorbed by the product of a thousand business schools.
You are particularly made aware of the pernicious influence of bad economics if you work in advertising. Even when advertising demonstrably works and is highly cost effective, people in finance and in the boards of companies don’t seem to like it very much. Since they have a mental model of the world in which everyone has perfect information, they have of course constructed in their heads a vision of the world in which marketing shouldn’t exist.
To a good decision scientist, a consumer preference for buying advertised brands is perfectly rational. The manufacturer knows more about his product than you do, almost by definition. Therefore the expensive act of advertising his own product is a reliable sign of his own confidence in it. It is like a racehorse owner betting heavily on his own horse. Why would it be “rational” to disregard valuable information of that kind?
Do you see any challenges to the wider adoption of decision making psychology in your field? I am almost insanely optimistic. I truly believe that “The Next Big Thing” is not a technology at all. Most progress in the developed world in this coming century – economic, social, hedonic – could in fact come from improvements in the social sciences. This is bigger than the Internet.
Will it ever be a perfect science? No, of course not. That attempt to model economic behaviour as though it were Newtonian physics was responsible for many past mistakes. This is closer to weather forecasting than to conventional physics as a science. But it is still a science and can still make progress like a science. And the great news is that we are starting from such a low base. If our ability to understand and predict human behaviour only improves by a few percent a decade, the benefits will be immense. And even a tiny reduction in misdirected effort (by abandoning daft, ineffectual sunk-cost-plagued endeavours such as the war on drugs or, at a more modest level, badly conceived choice-architectures in a new range of cars) all can be economically transformative. The British Government’s Behavioural Insight Team is a valuable first step in this – but it should be ten times bigger.
The problem we all face is “The physical fallacy”. All of us, even those the social sciences, have an innate bias where we are happier fixing problems with stuff, rather than with psychological solutions – building faster trains rather than putting wifi on existing trains, to use my oft cited example. But as Benjamin Franklin (no mean decision scientist himself) remarked “There are two ways of being happy: We must either diminish our wants or augment our means – either may do. The result is the same and it is for each man to decide for himself and to do that which happens to be easier.”
There is no reason to prefer one solution over than another simply because it involves solid matter rather than grey matter. This is an interesting area where the advertising industry and the environmental movement (rarely seen as natural bedfellows) sometimes find common ground. Intangible value is the best kind of value – since the materials needed to create it are not in short supply.
One other contribution the decision sciences and neuroscience can make to the commercial world is in questioning the sometimes excessive influence which market research (ie asking people to explain how they decide and what they want) has on business decision making. The insight that much of our decision-making is heuristic and instinctive, made by parts of the brain inaccessible to introspection, is of enormous importance in killing off the naive assumption that people can always tell you what they want.
How many great new ideas have been killed off because they failed in research? The Sony Walkman failed in research. Steve Jobs, interestingly, refused to research anything.
How do you see the relationship between academic researchers and practitioners? Symbiotic.
What advice would you give to young researchers who might be interested in a career in your field? If you are talented, greedy, impatient and slightly slapdash, leave academia and come and work in business. Academia is much more rigorous than business – a single misplaced decimal point in a paper can kill your whole career. But we in business have one advantage. For an idea to succeed, it does not have to be perfect, it merely has to be less stupid than your competitors’ ideas. Academia can have its disadvantages: here’s John Tooby, the father of Darwinian Psychology, writing at Edge.org:“Because intellectuals are densely networked in self-selecting groups whose members’ prestige is linked (for example, in disciplines, departments, theoretical schools, universities, foundations, media, political/moral movements, and other guilds), we incubate endless, self-serving elite superstitions, with baleful effects: Biofuel initiatives starve millions of the planet’s poorest. Economies around the world still apply epically costly Keynesian remedies despite the decisive falsification of Keynesian theory by the post-war boom (government spending was cut by 2/3, 10 million veterans dumped into the labor force, while Samuelson predicted “the greatest period of unemployment and industrial dislocation which any economy has ever faced”). I personally have been astonished over the last four decades by the fierce resistance of the social sciences to abandoning the blank slate model in the face of overwhelming evidence that it is false. As Feynman pithily put it, “Science is the belief in the ignorance of experts.”
Sciences can move at the speed of inference when individuals only need to consider logic and evidence. Yet sciences move glacially (Planck’s “funeral by funeral”) when the typical scientist, dependent for employment on a dense ingroup network, has to get the majority of her guild to acknowledge fundamental, embarrassing disciplinary errors. To get science systematically moving at the speed of inference—the key precondition to solving our other problems—we need to design our next generation scientific institutions to be more resistant to self-organizing collective delusions, by basing them on a fuller understanding of our evolved psychology.
Capitalism is in many ways rather nasty – it’s certainly far from perfect. But one virtue it does have over pure, government funded science is this: if you’re right and your peer-group is wrong, you may lose a fair bit of peer-group approval. But you do sometimes make enough money not to care.
One other piece of advice: do not feel that if you work in the advertising business you have to leave your morals at the door. You will be surprised, for a start, at how left wing many advertising people are.
Now I think it is only fair for all of us to acknowledge that it is possible to put the learnings of behavioural economics to evil ends – in displaying “only four seats left at this price” when there are in fact 28. But good brands do not do this. I would like to say that this is because they are noble endeavours deeply committed to the improvement of mankind, but in truth it is because they are afraid of being found out.
That’s one of the things that my Classical education taught me (through Plato’s story of Gyges and the ring). It’s mainly reputational paranoia that keeps us all honest. Great brands, built at prodigious expense over many years – are about the only thing that makes business (just about) work in the consumer interest (most of the time).
Reputational game theory. If I can encourage you to do work in any field, it’s that.
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