Podcast Notes: June 2017

Rory Sutherland on The Psychology of Advertising, Complex Evolved Systems, Reading, Decision Making – May 20, 2017


“By getting us to shift our focus to what’s good about something rather than what we assume to be bad about it, you can synthesize happiness out of nowhere.” -Rory Sutherland


“The biggest source of economic waste is when people produce something that’s objectively brilliant or they produce an invention which should be life changing, but then they tell the wrong story about it and it doesn’t sell. So a great product badly marketed is exactly like a Michelin starred restaurant where, unfortunately, the drains have backed up and there’s a smell of poo that pervades the whole thing.” -Rory Sutherland

Video conferencing should have been marketed as the rich man’s phone call instead of the poor man’s alternative to air travel.


“A very large part of marketing is, really, costly signaling.” -Rory Sutherland [We pay more attention to costly signals because it took more effort to produce them so we assume they are important.]

[We pay more attention to costly signals because it took more effort to produce them so we assume they are important.]


“The cost of something, particularly the upfront cost of something which may only pay off over time, is a very reliable gauge of commitment.” -Rory Sutherland

Example: Black cab drivers in London spend 4 years preparing for the driver knowledge test where they have to know every street and route by memory. Passengers trust the drivers since who would risk losing a career they spent 4 years to start?

Book recommendation: “The Strategic Value of the Emotions” by Robert H. Frank


“It’s impossible for anything rational to successfully evolve because the byproduct of being optimally rational and efficient would be that you’d be predictable, and if you’re completely predictable, you’d be dead.” -Rory Sutherland


Richard Thaler beach beer example: You’re on a beach. There’s a place selling drinks 0.75 miles away. Your friend offers to buy you a beer and bring it back. Since neither of you know the price, your friend asks how much are you willing to pay? If the place selling drinks is described as a shack, people are willing to pay about $3. If the place is described as a boutique hotel bar, people are willing to pay about $6. This seems strange since you’re getting the same thing either way. The expected utility of the cold beer should be the same. However, people aren’t necessarily being irrational. They reason that the boutique hotel bar has higher costs, so they need to pay a higher price to get the drink. “The assumptions of just maximizing expected utility aren’t the whole story in explaining willingness to pay.” -Rory Sutherland

[This is an excellent point! When people buy things, they don’t just think about what they get out of it. They also think about the other side, what others will think, etc.]


“There’s the value we get from the ownership or consumption of an object, and there’s the immediate positive or negative feeling we get from how much we pay for it and under what circumstances” -Rory Sutherland [This explains why sales work so well. Yes, you get the thing you buy, but you also get the emotional satisfaction of buying it below the normal price.]


“Self-deception is evolutionarily advantageous. We deceive ourselves the better to deceive others because the best way to bullshit is to start by believing your own bullshit.” -Rory Sutherland on Robert Trivers’ work on self-deception


“The problem with economics isn’t only that it’s wrong, it’s that it’s incredibly creatively limiting because it tends to posit a very one-dimensional view of human motivation. And therefore, if you wish to change human behavior, the only two ways you can do it are by bribing people or fining them. So once you’ve defined something as an economic problem, essentially your answer will boil down to a very, very simple assumption about human motivation.” -Rory Sutherland


There are always really expensive hotels in very poor countries. You would think the prices would be lower because the cost of labor and such are so much lower there, but it’s probably the case that people who are used to spending $400 per night won’t go to a hotel that only costs $200 per night because they will assume they are getting lower quality.


“When you reduce something to an economics problem, what you effectively do is create artificial certainty.” -Rory Sutherland

“What prior conditions might make this more likely” [Question Rory Sutherland asks trying to figure out what advertising needs to do to get something to sell.]


“We’re not really a rational animal. We’re a post-rationalizing animal.” [We come up with the explanation after we’ve decided.]


“Particularly with low-cost items, effort can destigmatize low price.” -Rory Sutherland


“Rival risk forms of costly signaling can lead to extraordinary economic inefficiency and absurdity.” -Rory Sutherland [citing others]


“We instinctively know as human beings that the importance of a communication is proportionate to the cost of its generation and transmission.” -Rory Sutherland


“Anything that costs now and only pays off in the long term is a reliable signal of a business or an individual who is playing the repeat game, not the one off game. Since he’s playing the repeat game, it will pay him to care about reputation and care about probity and to do well by his customers. So you can define marketing as the costly signaling of faith in your futurity.” -Rory Sutherland


“Once you understand satisficing you realize that what we’re really trying to do when we make decisions is not to obtain perfection, it’s to avoid disaster. …Once you understand that, a lot of human behavior which economists think is irrational becomes rational.” -Rory Sutherland


“That hunch that actually what we’re doing when we make decisions is looking for ways to minimize the worst case scenario—reliable signals that the worse case scenario isn’t going to be that bad or that likely, almost more than we’re attempting to maximize our expected outcome… Once you understand that, a lot of human behavior which economists think is irrational becomes rational.” -Rory Sutherland


“A habit is also perfectly rational once you understand that people are trying to avoid catastrophe rather than obtain perfection.” -Rory Sutherland


Question posed to America’s best car salesman: What makes you such a good salesman? “Everytime I sell someone a car, I’m really thinking about the next car I’m going to sell them.”


“One of the things we talk about: the right of movement of labor. The only interesting thing when you’re always talking about rights of movement, which is easy to forget, is that 90% of people, particularly above a certain age, just want to stay put. And it’s always worth remembering when you’re talking about the rights of movement [the free movement of labor] you never qualify it with, what about the rights of people who just want to stay in the same place and not suffer from much change?” -Rory Sutherland


“David Ogilvy said—different era, different language—but he said, ‘The consumer is not a moron, she’s your wife.’ And equally, the Brexit voter is not a moron, he’s your Dad.” -Rory Sutherland


“The slightly obsessive signaling of openness among young college educated people is a bit pathological, to be absolutely honest. It’s not even as if the American cities, which are the greatest proponents of tolerance… Actually, a lot of those American cities, they’re not actually that well integrated. Now strangely, you go to cities in the South and there is a whole load of people of different ethnic groups all necking beers together, which you don’t see in New York very much. …It’s not as if, necessarily, the people who manifest the opinions most strongly necessarily also manifest the behavior. … There are massive proponents of integration but they’ve never gotten drunk with a minority cab driver.” -Rory Sutherland


“Scientists would rather believe something that was wrong than believe something that got them disinvited from conferences.” -Rory Sutherland



“Standing around for 15 years of your productive life wearing ridiculous clothes on a Florida golf course is considered totally virtuous, right? But actually having, like, four weeks vacation when you’re 38, no no, that’s lazy. Why don’t you work a bit late and have a bit more holiday throughout your life? That downtime makes you more productive anyway.” -Rory Sutherland


“What tends to happen is the left disproportionately focuses on things which excessively annoy people on the right. Because the tribal thing is if you want to signal your membership of the ‘in’ group, the best way to do that is by focusing on those things which are disproportionately annoying to the group who don’t agree with you. And so there’s probably an element where political consensus becomes harder and harder simply because of the urge people have to signal their loyalty to one particular group by driving the other group practically insane.” -Rory Sutherland


“If you take the protests, there’s a total asymmetry to the business of protest, isn’t there? Which is that, basically, right-wing people don’t do the demo thing. The only reason a right-wing person would stand on the street holding a placard would be to advertise a golf sale.” -Rory Sutherland


“The monarch plays exactly the same role in a state as the king does on a chess board: not very powerful in itself; the purpose is in the spaces it denies to the other players. Which is that it prevents your prime minister from living in a bloody great palace and getting delusions.” -Rory Sutherland


“There’s a huge tendency for people to crave artificial certainty.” -Rory Sutherland


“Nothing in marketing always replicates because context always matters.” -Rory Sutherland


“If you test counterintuitive things, it’s much more valuable when they pay off because your competitors won’t. It’s a much more valuable discovery.” -Rory Sutherland


When the cost to test is small the and the potential upside is high, you should test as much as possible!


“Artificial certainty is less valuable in the modern digital age than it was historically, and yet, weirdly, people are cleaving to it more.” -Rory Sutherland



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