Tag Archives: rationality

(Preventing) Manipulation Through Irrationality

Through the theories discussed in Dan Ariely’s Predictably Irrational (and largely based on the excerpts in Chris Yeh’s outline of the book), two articles have emerged on different sides of one topic: our irrational decision-making in terms of products and purchases.

One on how to take advantage of our irrationality when marketing products, and another on preventing manipulation by being aware of our own irrationalities.

One point from each article, per section:

Price Relativity and the Encouraging of False Comparisons

  • Offer a premium version of your product/service and make it easy to compare.
  • Realize that some premium options exist as decoys — that is, they are there only to make the less expensive options look more appealing, because they’re easy to compare.

The Fallacy of Supply and Demand and the Reinforcement of Anchoring

  • Set yourself against “premium” competitors in premium markets. Positioning is critical to the perception of value.
  • Scale your purchases to your needs, not your circumstances or wallet size. Try to objectively measure the value of what you’re buying.

The Zero Price Effect

  • Offer free stuff (especially to those whose affections/actions you desire most), but make sure you get ROI from it.
  • Do not overestimate the value of items you get for free. Resist this by viewing free stuff sceptically rather than welcoming it with open arms. What are the hidden costs involved (restriction on future choices, time and effort expended, etc.)?

The Exploitation of Social Norms

  • The mindset of volunteers vs. employees (free vs. paid) is very different — consider which behaviour set you want before deciding on the type of labour to attract.
  • Consider carefully before choosing to participate [for free].

The Influence of Arousal

  • Arouse your audience and their behaviour (especially their decision-making) changes drastically.
  • Be aware when you are being aroused (not just sexually).

Designing for Procrastination

  • Procrastination is an extremely common human behaviour — plan for it in your business and take advantage of it where it can help (trial offers that turn into paid services, for example).
  • Either favour fixed-rate, fixed-term plans — or become meticulous about cancelling unused recurring services, or services with automatic price increases.

The Endowment Effect

  • ‘Free’ products are valued less than purchased products. It’s easier to get more money from your existing customers than it is to attract new ones.
  • Be willing to walk away from–and never rely on your internal value judgment of–already purchased goods/services. Ask an impartial third party for their objective advice.

Capitalisation of our Aversion to Loss

  • Narrow your customers’ choices and they’ll be more likely to commit.
  • If your choices are artificially narrowed, don’t passively get funnelled towards the goal you’re being herding toward. Don’t pay extra for options, unless you can point to hard evidence that you need those options. Some options exist just to make you doubt yourself.

Engender Unreasonable Expectations

  • Take advantage of expectations of value creation. Position your brand so that users expect great things, and they’ll get them.
  • Let your own opinions guide you, not the opinions of others. Don’t let marketing set your expectations. Rely on evidence and facts.

Leverage Pricing Bias

  • Higher pricing means higher expectations, but also more fulfilment, even if the product isn’t actually more fulfilling. The placebo effect is strong.
  • Price often has nothing to do with value. Don’t fall prey to the ‘moneymoon‘.

The Realistic Threat of Terrorism

To think rationally about risk is to think probabilistically / statistically about the dangers we face.

Noting that “the most dangerous person you’re ever likely to encounter – by several orders of magnitude – is the one you see in the mirror every morning”, John Goekler offers some perspective on what risks we really should be more concerned about than terrorism.

A significant majority of Americans, polls repeatedly tell us, list terrorism as one of their greatest fears. Like most of our media-inspired interests and worries, however, this one has little basis in reality. […]

As the data clearly shows, the things that genuinely threaten us are the ones we are most likely to ignore or simply accept. (We’re statistically far more likely to be killed by a lightning strike than by an action of Al Qaeda, for example.) The ones that we’re scared witless of – and spend trillions of increasingly scarce dollars to avert in our boundless paranoia – are less likely to harm us than a bag of peanuts. (Deaths in America due to peanut allergies average 50 – 100 per year. Deaths of Americans due to terrorist activities […] have averaged less than 15 per year since 2002.)

via Schneier

Being Rational About Risk

Leonard Mlodinow—physicist at Caltech and author of The Drunkard’s Walk, a highly-praised book looking at randomness and our inability to take it into account—has an interview in The New York Times about understanding risk. Some choice quotes:

I find that predicting the course of our lives is like predicting the weather. You might be able to predict your future in the short term, but the longer you look ahead, the less likely you are to be correct.

I don’t think complex situations like [the current financial crisis] can be predicted. There are too many uncontrollable or unmeasurable factors. Afterwards, of course, it will appear that some people had gotten it just right: since there are many people making many predictions, no doubt some of them will get it right, if only by chance. But that doesn’t mean that, if not for some unforeseen random turn, things wouldn’t have gone the other way. […]

In some sense this idea is encapsulated in the cliché that “hindsight is always 20/20,” but people often behave as if the adage weren’t true. In government, for example, a “should-have-known-it” blame game is played after every tragedy.

As someone who has taken risks in life I find it a comfort to know that even a coin weighted toward failure will sometimes land on success. Or, as I.B.M. pioneer Thomas Watson said, “If you want to succeed, double your failure rate.”

I haven’t had a chance to watch it, but in May 2008 Mlodinow spoke for the Authors@Google series.

Superstition and Irrationality

I’d like to class myself as a fairly rational being, but we all have our transgressions, right? So are we all maybe a bit superstitious?

To answer this, Richard Wiseman offers this common thought experiment from Bruce Hood’s new book, Supersense:

Imagine that you only have two objects in your house:
1) A £10 watch that was given to you by your partner and therefore has sentimental value.
2) Another watch that’s worth £1000 but has no sentimental value.

Your house catches fire, and you only have time to save one watch. […] Which watch you would save?

If you think that the £10 is somehow imbued with the essence of your partner then you are being superstitious. Of course, you might argue that it simply reminds you of the good times the two of you have had together. Fair enough, but how would you feel if I replaced it with a watch that was absolutely identical (same scratches, markings, etc)? This replacement watch would have exactly the same memory-inducing properties, but most people reject the idea, saying they want THEIR watch. Again, this is irrational.

Of course, this assumes that sentimentality (while irrational) == superstition.

It does however remind me of a more interesting thought experiment about our irrationality when it comes to saving money when purchasing items of different prices (e.g. we’ll travel a significant distance to save £20 on a £40 coat, but not to save £20 on a £12,000 car).

The former via @sandygautam

Testing Rationality and Bias

How can we test our rationality and various biases?

Shouldn’t you get more rationality credit if you spend more time studying common biases, statistical techniques, and the like?  Well this would be good evidence of your rationality if you were in fact pretty rational about your rationality, i.e., if you knew that when you read or discussed such issues your mind would then systematically, broadly, and reasonably incorporate those insights into you reasoning processes.

But what if your mind is far from rational?  What if your mind is likely to just go through the motions of studying rationality to allow itself to smugly believe it is more accurate, or to bond you more closely to your social allies?

So just because you know of all the cognitive biases and fallacies doesn’t mean you’re not going to fall victim to the bias blind spot or actually become more rational.

This puts me in mind of this (paraphrased) quote from an anonymous advertising executive:

Those who claim to be well versed in the ‘psychology of advertising’ and to therefore be ‘immune’ not only don’t know much about psychology or advertising, but are our ideal targets.