A clever study by the Rotterdam School of Management analysed more than three hundred real-world projects dating back to 1972 and found that projects led by junior managers were more likely to succeed than those with a senior person in charge. On the face of it, this seems astonishing. How could a team perform better when deprived of the presence of one of its most knowledgeable members?
The reason is that this leadership comes at a sociological price when linked to a dominance dynamic. The knowledge squandered by the group when a senior manager is taken out of the project is more than compensated for by the additional knowledge expressed by the team in his absence.
I’ve been to several scientific conferences at which Professor Kahneman has spoken; and, when Daniel Kahneman talks, people listen. I am invariably among them. So I took special notice of his answer to a fascinating challenge to put to him not long ago by an online discussion site. He was asked to specify the one scientific concept that, if appreciated properly, would most improve everyone’s understanding of the world. Although in response he provided a full five-hundred-word essay describing what he called “the focusing illusion,” his answer is neatly summarized in the essay’s title: “Nothing in life is as important as you think it is while you are thinking about it.”
Today, information technology is changing the world making it more idea intensive, better connected, and ultimately more urban. Improvements in information technology seem to have increased, rather than reduced, the value of face-to-face connections, which might be called Jevons’s Complementarity Corollary. The nineteenth-century English economist William Stanley Jevons noted that more fuel-efficient steam engines didn’t lead to less coal consumption. Better engines made energy use effectively less expansive, and helped move the world to an industrial era powered by coal. The term Jevons’s paradox had come to refer to any situation in which efficiency improvements lead to more, not less consumption — one reason why low-calorie cookies can lead to larger waistlines and fuel-efficient cars can end up consuming more gas. Jevons’s paradox applied to information technology means that as we acquire more efficient means of transmitting information, like e-mail or Skype, we spend more, not less, time transmitting information.
Excerpt from: Triumph of the City by Edward Glaeser
At a school in the USA, the girls in their early teens had just discovered lipstick.
They would go into the female toilets to apply it.
Then, giggling, they’d leave imprints of their lips on the large mirror.
This made a lot of extra work for the cleaning staff.
The head teacher asked the girls to stop.
Of course, they ignored her.
So she took the girls to the toilets for a demonstration.
She said, ‘It takes a lot of work to clean the lipstick off the mirror.’
She said to the janitor, ‘Please show the girls how much work it takes.’
The janitor put the mop in the toilet, squeezed off the excess water and washed the mirror.
Then put the mop in the toilet again, and repeated the process. From that day on there was no more lipstick on the mirror.
That’s choice architecture.
My favorite example of the power of specificity was Apple’s introduction of the iPod. They didn’t give it the vanilla, global “World Class MP3 Player” treatment. They said “1,000 Songs In Your Pocket.” They were specific. They talked about the virtues of the product, not wooly melodramatic horseshit.
My direction to the creative teams who worked for me was always the same – be specific. Today the objective is to ignore the specific and “ladder up” the benefit.
Guinness and AMV publicised the slowness of the pour with “Good things come to those who wait”. The National Dairy Council alluded to the high calorific content of cream cakes with “Naughty, but Nice”. (Incidentally, that strapline was coined by Salman Rushdie while working at Ogilvy & Mather.)
Admitting weakness is a tangible demonstration of honesty and, therefore, makes other claims more believable. Further to that, the best straplines harness the trade-off effect. We know from bitter experience that we don’t get anything for free in life. By admitting a weakness, a brand credibly establishes a related positive attribute.
Guinness may take longer to pour but boy, it’s worth it. Avis might not have the most sales but it’s desperate to keep you happy.
What Palchinsky realised was that most real-world problems are more complex than we think. They have a human dimension, a local dimension, and are likely to change as circumstances change. His method for dealing with this could be summarised as three ‘Palchinsky principles’: first, seek out new ideas an try new things; second, when trying something new, do it on a scale where failure is survivable; third, seek out feedback and learn from your mistakes as you go along. The first principle could simply be expressed as ‘variation’; the third as ‘selection’.
Yet there are, when you think about it, two different approaches to business. The is the ‘tourist restaurant’ approach, where you try to make as much money from people on their single visit. And then there is the ‘local pub’ approach, where you may make less money from people on each visit, but where you profit more over time by encouraging people to come back. The second type of business is much more likely to generate trust and yield positive-sum outcomes than the firsy.
How might people distinguish the second type of business from the first? Well, the scoop of extra fried you get at Five Guys is one such gesture – an immediate expense with a deferred pay-off. It is a reliable signifier that you are investing in a repeat relationship, not milking a single transaction. Likewise, when your company pays your salary this month, it says you are worth this money for now; when it sends you to Kitzbuhel, it signals that it is committed to you for a few years at least.
Lung cancer proved to be a handy example. Lung cancer doctors and patients in early 1980s faced two unequally unpleasant options: surgery or radiation. Surgery was more likely to extend your life, but, unlike radiation, it came with the small risk of instant death. When you told people that they had a 90 percent chance of surviving surgery, 82 percent of patients opted for surgery. But when you told them that they had a 10 percent chance of dying from the surgery — which was of course just a different way of putting the same odds — only 54 percent chose the surgery. People facing a life-and-death decision responded not to the odds but to the way the odds were described to them.
All too often, we find ourselves unable to predict what will happen; yet after the fact we explain what did happen with a great deal of confidence. This “ability” to explain that which we cannot predict, even in the absence of any additional information, represents an important, though subtle, flaw in our reasoning. It leads us to believe that there is a less uncertain world than there actually is, and that we are less bright than we actually might be. For if we can explain tomorrow what we cannot predict today, without any added information except the knowledge of the actual outcome, then this outcome must have been determined in advance and we should have been able to predict it. The fact we couldn’t is taken as an indication of out limited intelligence rather than of the uncertainty that is in the the world.
The biggest thing to remember is that numbers that end in 0 inevitably feel like temporary placeholders, guesstimates that you can easily be negotiated off of. But anything you throw out that sounds less rounded — say, $37,263 — feels like a figure that you came to as a result of thoughtful calculation. Such numbers feel serious and permanent to your counterpart, so use them to fortify your offers.
1. Set your target price (your goal).
2. Set your first offer at 65 percent of your target price.
3. Calculate three raises of decreasing increments (to 85, 95, and 100 percent).
4. Use lots of empathy and different ways of saying “No” to get the other side to counter before you increase your offer.
5. When calculating the final amount, use precise, non-round number like, say, $37,893 rather than $38,000. It gives the number credibility and weight.
6. On you final number, throw in a non-monetary item (that they probably don’t want) to show you’re at your limit.
Behavioural economics is an odd term. As Warren Buffett’s business partner Charlie Munger once said, ‘If economics isn’t behavioural, I don’t know what the hell is.’ It’s true: in a more sensible world, economics would be a sub-discipline of psychology. Adam Smith was as much a behavioural economist as an economist – The Wealth of Nations (1776) doesn’t contain a single equation. But, strange though it may seem, the study of economics has long been detached from how people behave in the real world, preferring to concern itself with a parallel universe in which people behave as economists think they should.
In general people prefer something freely chosen to the same thing forced upon them. The effect is dramatically revealed in a study that did not directly involve reward or punishment. Lottery tickets costing $1 each were sold to the employees of two companies. Some of the employees were allowed to choose the number of their tickets, others had no choice but were merely handed a ticket. Just before the draw, the experimenter approached each subject offering to buy the ticket back. The subjects who had no choice were prepared to sell back for $1.96 on average, but those who had selected their own tickets held out for an average of $8.67. There could be no better demonstration that we irrationally overvalue what we freely choose.
Excerpt from: Irrationality: The enemy within by Stuart Sutherland
One of those desirable difficulties is known as the “generational effect.” Struggling to generate an answer on your own, even a wrong one, enhances subsequent learning. Socrates was apparently on to something when he forces pupils to generate answers rather than bestowing them. It requires the learner to intentionally sacrifice current performance for future benefit.
Kornell and psychologist Janet Metcalfe tested sixth graders in the South Bronx on vocabulary learning, and varied how they studied in order to explore the generation effect. Students were given some of the words and definitions together. For example, To discuss something in order to come to an agreement: Negotiate. For others, they were shown the only definition and given a little time to think of the right word, even if they had no clue, before it was revealed. When they were tested later, students did way better on the definition-first words. The experiment was repeated on students at Columbia University, with more obscure words (Characterized by haughty scorn: Supercilious). The results were the same. Being forced to generate answers improves subsequent learning even if the generated answer is wrong. It can even help to be wildly wrong. Metcalfe and colleagues have repeatedly demonstrated a “hypercorrection effect.” The more confident a learner is of their wrong answer, the better the information sticks when they subsequently learn the right answer. Tolerating big mistake can create the biggest learning opportunities.
The average expert was a horrific forecaster. Their areas of specialty, years of experience, academic degrees, and even (for some) access to classified information made no difference. They were bad at short-term forecasting, bad at long-term forecasting, and bad at forecasting in every domain. When experts declared that some future event was impossible or nearly impossible, it nonetheless occurred 15 percent of the time. When they declared a sure thing, it failed to transpire more than one-quarter of the time. The Danish proverb that warns “It is difficult to make predictions, especially about the future,” was right. Dilettantes who were pitted against the experts were no more clairvoyant, but at least they were less likely to call future events either impossible or sure things, leaving them with fewer laugh-out-loud errors to atone for — if, that was, the experts had believed in atonement.
In separate work, from 2000 to 2010 German psychologist Gerd Gigerenzer compiled annual dollar-euro exchange rate predictions made by twenty-two of the most prestigious international banks — Barclays, Citigroup, JPMorgan Chase, Bank of America Merrill Lynch, and others. Each year, every bank predicted the end-of-year exchange rate. Gigerenzer’s simple conclusion about those projections, from some of the worlds most prominent specialists: “Forecasts of dollar-euro exchange rates are worthless.” In six of the ten years, the true exchange rate fell outside the entire range of all twenty-two bank forecasts.
A second, ironic, problem is that companies fear that if they produce a truly vital technology, governments will lean on them to relinquish their patent rights or slash prices. This was the fate of Bayer, the manufacturer of the anthrax treatment Cipro, when an unknown terrorist began mailing anthrax spores in late 2001, killing five people. Four years later, as anxiety grew about an epidemic of bird flu in humans, the owner of the patent on Tamiflu, Roche, agreed to license production of the drug after very similar pressure from governments across the world. It is quite obvious why governments have scant respect for patients in true emergencies. Still, if everybody knows that governments will ignore patents when innovations are most vital, it is not clear why anyone expects the patent system to encourage vital innovations.
An experiment on Stanford international relations students during the Cold War provided a cautionary tale about relying on kind-world reasoning — that is, drawing only from the first analogy that feels familiar. The students were told that a small, fictional democratic country was under threat from a totalitarian neighbor, and they had to decide how the United States should respond. Some students were given descriptions that likened the situation to World War II (refugees in boxcars; a president “from New York, the same state as FDR”; a meeting in “Winston Churchill Hall”). For others, it was likened to Vietnam, (a president “from Texas, the same as LBJ,” and refugees in boats). The international relations students who were reminded of World War II were far more likely to choose to go to war; the students reminded of Vietnam opted for nonmilitary diplomacy. That phenomenon has been documented all over the place. College football coaches rated the same player’s potential very differently depending on what former player was likened to an introductory description, even with all other information kept exactly the same.
Engineer Marc Isambard Brunel, (father of the more famous Isambard Kingdom Brunel) discovered the perfect method for tunnelling through mud and clay to build the Thames Tunnel under London by observing the action of the shipworm, which tunnels through the hulls of boats, lining the hold with a hard chalky material as it goes. Mirroring the worm’s action, Brunel designed a revolutionary and ingenious tunnelling system, in which workers could simultaneous cut and line a tunnel with brickwork to seal it.
On its opening in 1843, the Thames Tunnel was described as the ‘Eight Wonder of the World’, and Brunel’s shipworm system is the basis of tunnelling methods still used today — a version of it was used in the construction of the 50- kilometre (31-mile) Channel Tunnel, built 40 metres (130 feet) below the seabed.
Martina Navratilova was described as “the greatest singles, doubles, and mixed doubles player who’s ever lived.”
That was some compliment, coming from former World Number One player Billie Jean King.
This is what Marina had to say about commitment:
“Other players are involved in tennis, but I’m committed. It’s like ham and eggs. The chicken is involved; the pig is committed.”
Daniel Kahneman sets them straight in Thinking, Fast and Slow: ‘If you care about being thought credible and intelligent, do not use complex language where simpler language will do. My Princeton colleague Danny Oppenheimer refuted a myth prevalent among undergraduates about the vocabulary that professors find most impressive. In an article titled “Consequences of Erudite Vernacular Utilized Irrespective of Necessity: Problems with Using Long Words Needlessly”, he showed the couching familiar ideas in pretentious language is taken as a sign of poor intelligence and low credibility.
Big doesn’t necessarily mean good. It could even be bad.
By contrast, there are tremendous advantages to making small changes.
Behavioural science has shown that tiny variations in phraseology can cause huge change.
Small changes are usually less costly, and often free.
Small changes attract less attention from bosses and meddlers, so they are easier to implement.
Small changes are easier to rectify if they don’t achieve their original objective.
So bear in mind that the ‘next big thing’ could be small.
A guy named James Webb Young, a copywriter from the 1940s, laid out a five-step process of idea generation that holds water today.
1. You gather as much information on the problem as you can. You read, you underline stuff, you ask questions, you visit the factory.
2. You sit down and actively attack the problem.
3. You drop the whole thing and go do something else while your subconscious mind works on the problem.
4 . “Eureka!”
5. You figure out how to implement your idea.
Naive realism suggests an answer: they do. It calls to mind a famous line of George Carlin’s: “Have you ever noticed that everyone driving slower than you is an idiot, and anyone going faster is a maniac?”
The worst-performing clubs were built on affective ties and primarily social; the best-performing clubs had limited social connections and were focused on increasing returns. Dissent was far more frequent in the high-performing clubs. The low performers usually had unanimous votes, with little open debate. Harrington found that the votes in low-performing groups were “cast to build social cohesion rather than make the best financial decision.” In short conformity resulted in significantly lower returns.
Take what happened when Coney Island visitors encountered entrepreneur Nathan Handwerker’s new food stand. When he went into business in 1916, the Polish immigrant decided to undercut the competition. Everyone else was charging 10 cents for the classic Coney Island meal — the hot dog — so Handwerker priced the dogs he made from his wife’s old recipe at a mere five cents. Despite the fact that Handwerker’s hot dogs were every bit as delicious as the competition’s (and were made from real beef), he attracted almost no customers. Visitors to Coney Island viewed these mysterious half-priced hot dogs as inferior and wondered what cheap, substandard ingredients went into the recipe. It didn’t help when Handwerker offered free pickles or free root beer to hot dog buyers. Sales remained flat and, if anything, giving away freebies only further cemented the value attribution.
It wasn’t until Handwerker came up with a clever new ploy that his hot dogs really started selling. He recruited doctors from a nearby hospital to stand by his shop eating his hot dogs while wearing their white coats and stethoscopes. Because people place a high value on physicians, customers figured if doctors were eating there, the food had to be good. So they soon started buying from Handwerker, and his “Nathan’s Famous Hot Dogs” took off. It makes you wonder just how many times we miss out on something worthwhile because of our preconceptions about its value.
Some people, and businesses generally, love having lots of people rushing around.
It makes them feel productive.
Regardless of what they are doing, all the frenetic activity suggests that much helpful work is being done.
People even say sometimes that they like the buzz.
But it’s a bit like a goalkeeper diving to save a penalty.
He might be just as effective staying exactly where he is.
So movement doesn’t necessarily mean progress.
Don’t confuse the two.
Paul Seward runs an NGA in Kenya called Farm Input Promotions (FIPS-Africa), dedicated to increasing the productivity of the local smallholder farmers, many of whom have just a quarter-acre of land. Seward discovered that if you paint the chicks blue, the eagles and hawks don’t realize what they are, and don’t try to eat them. The biodegradable paint washes off in ten weeks, by which time the chicks have enough yard-smarts to run for cover when they see a shadow overhead.
Because the farmers are losing fewer chicks to birds of prey, it is now more worthwhile for them to inoculate the young birds against disease. Through both of these measures, they have gone from a survival rate of 20 percent to close to 85 percent. Because the farmers have more chickens, they are eating more chickens themselves — and better nutrition means a healthier family. And because it is now a better business, more people are taking up chicken farming. Oh, and the idea has created an entirely new profession: chicken painters, who charge three Kenyan shillings to paint each chick. A fascinating example of the cumulative benefits of a simple idea across an entire ecosystem.
One day, Korzybski offered to share a packet of biscuits, which were wrapped in plain paper, with the font row of his lecture audience. ‘Nice biscuit, don’t you think?’ said Korzybski, while the students tucked in happily. Then he tore the white paper and revealed the original wrapper – on it was a picture of a dog’s head and the words ‘Dog Cookies’. Two students began to retch, while the rest put their hands in front of their mouths or in some cases ran out of the lecture hall to the toilet. ‘You see,’ Korzybski said, ‘I have just demonstrated that people don’t just eat food, but also words, and that the taste of the former is often outdone by the taste of the latter.’