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Behavioural Economics

On Sunday evening, my daughter, her boyfriend and I watched amazed as two bright orange globes traversed the night sky in perfect formation. Within a minute they were followed by a third, identical to the others, describing the same southerly parabola.

 

They weren’t aircraft. They weren’t fireworks. They made no noise. They were definitely flying objects, – and – as far as we were concerned – unidentified.

 

So I did what any right thinking, new age star gazer would do. I posted a report on sightings@uk-ufo.co.uk.

 

Was I planning to view a celestial newcomer at that time? Indeed I wasn’t. My modest plan for the evening was Downton Abbey and an early night before the rigours of the working week. If I had had half a mind to the interruption model, it was more about catching the latest blockbuster commercials that tend to be slotted into the closing sequence of X Factor. Just before my Sky at Night moment, I did in fact see a distinctly odd spot for the splendidly rebranded Eurostar (all credit to the design agency Someone), starring Jarvis Cocker (why?).

 

The “UFO” experience made me think about unpredictability, and how refreshing it is to be surprised now and then by something completely unexpected.

 

It also made me revisit a powerful piece of thinking that was new to me when my friend Serge Nicholls brought it to my attention.  

 

It is about two types of reasoning – one which starts by setting a goal and working rationally towards its achievement. The other does not begin with a specific goal. It starts typically with a group of people, and allows goals to emerge contingently. This came out of a study into 30 entrepreneurs in the US, and what makes them tick. The author of the study “What makes Entrepreneurs Entrepreneurial” (2008) is Saras Sarasvathy of the University of Washington Business School. She calls the goal-driven reasoning “causal”, and the more lateral, discursive sort “effectual”. It is effectual reasoning, or effectuation, that is characteristic of almost all entrepreneurs.

 

Apparently most entrepreneurs consciously or instinctively plan on the basis of three assets:

 

·        Who they and their friends are, and what they all bring to the party

·        What they know – education, training and experience

·        Who they know – in terms of social and professional networks

 

Sarasvathy contrasts a goal-driven warrior like Genghis Khan (objective  – conquest of the known world), with the explorers like Magellan and Columbus who set out on voyages across uncharted waters, with confidence in their own abilities and not a lot else.

 

There are a couple of quotes from Saravathy that I particularly liked. The first was: “Entrepreneurs…act as if they believe that the future is not out there to be discovered, but that it gets created through the very strategies of the players”. I suppose one of the great explorers would have concluded that it doesn’t matter if you don’t know where you have arrived, as long as you do something useful when you get there!

 

The other quotation was: “Expert entrepreneurs explicitly stated that being in a market that can predicted was not such a good idea, since there would always be someone smarter and with deeper pockets who would predict it better than they would. But being in an unpredictable market meant that the market could be shaped by their own decisions and actions”.

 

Armed with effectual logic, we can cope better with surprises – good or bad. I will return soon to what I believe are the implications for decision theory, at least for “effectuators”.

 

Meanwhile my new friends at www.sightings@uk-ufo.co.uk have solved the mystery of our orange globes. Chinese Lanterns. Did you know they can reach a mile high or more? Scary!

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Everywhere we look, there is spin. Not the Swanny sort. Nor the spider type. It’s the Alastair Campbell variety. 

When Thatcher’s spokesman was Bernard Ingham, no one called him a spin doctor, but everyone knew his job was to present things in a way that showed the PM and Government in the best possible light. In the Blair years Campbell was called a spin doctor, and the art had developed to the point that he was planting ideas, policies and scuttlebut, as well as speaking on behalf of his boss. 

Now we have politicians, business leaders, football and rugby managers (to name a few) spinning cheerfully for themselves, while every organisation even remotely in the public eye hires publicists and spokespeople to do it for them. Very few public figures make straightforward statements or answer direct questions. 

What are we to make of it? Does it matter? Is it a sign of lower standards in public life? Does it suggest that there is much less respect for the truth? 

Or is there another explanation? Is it the media’s fault for being much more aggressive and intrusive than in former times? 

Yes, I believe it is. Interviews and discussions on radio and television are more gladiatorial. The level of politeness that you would expect in a private conversation or a business meeting is absent. Listening and courtesy have disappeared, to be replaced by hectoring and rudeness. Where once there was wit, there is now even more strident assertiveness. 

Faced by this kind of journalism, is it surprising that interviewees have to be coached in evasiveness? Statements and press releases are often carefully worded to avoid vouchsafing the real story or the real truth. 

Is this another example of the Law of Unintended Consequences? 

  • Journalists determined to pursue their goal of investigating issues in the public interest
  • Public figures (could be the Prime Minister, could be the CEO of BP, could be the England Rugby Manager) become more skilled at evading and blocking
  • Journalists decide to be more aggressive
  • Some success in the short term as interviewees fold under pressure
  • PR and communications advisors deliver more effective media training in spinning stories
  • Interviews and discussions become increasingly acrimonious, and the public figures give less and less away
  • Stalemate…
  • …but worse – what happens in public view on TV and radio starts to influence how everyone else behaves, especially young and impressionable people. 

In his entertaining autobiography “Parky”, Michael Parkinson puts his success on TV down to being able to get more out of celebrities with a gentle and courteous approach. Maybe more civilised behaviour on both sides of the average interview would pay off: less rudeness, less spin.

It has to be worth a try.

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This week a procurement client sent an SOS for material to help him write a board paper on a significant industry issue – the tension between marketing and procurement. I found what I thought was a perfect backgrounder – a deck of charts produced by my US partner for an ANA webinar.

My client’s response was a bit of a surprise. “Very interesting, but very logical”, he wrote. “The most interesting aspect in my eyes is getting over to marketing teams that we can add skills when they think they are doing everything well”. 

I guess I am predominately a left brain kind of person, so logic is where I start. Yet so often persuasion is best achieved by ensuring a balance between rational and emotive thinking and language. I had made a trite assumption that left brain thinking would work better with procurement. If a marketer had made the request, I would have probably tapped into more of a right brain approach. 

So obvious and so uninventive. 

I want to share a related thought triggered by this episode, and also by having sat this week through some final agency presentations in my day job as a client adviser on agency selection . My observation is that there is a physical characteristic common to most successful people, most good communicators, most effective problem solvers – and, I suspect, most good decision makers. 

I call it Bright Eyes. It is a gloriously unscientific description. And here I am talking about people, not rabbits!

There definitely isn’t an ‘ometer’ to measure ocular luminosity. But I am sure you all know what I mean. People with bright eyes are just so much more convincing, more appealing, more likeable, easier to follow and agree with. They tend also to manage meetings better.

It is an emotional appeal, not a logical one. Yet it helps us single out winners, good potential recruits, people we want to work with and for. In a logical left brain world, dominated by data, numbers and rational arguments, how refreshing to think that we can sometimes put the criteria and sub-criteria on one side, and instead be swayed by a look and a feel that some people have, and others don’t. 

Viva Bright Eyes. There is even an anthem about it.

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Google it, and you will find stuff about the need to inhale before a big physical effort (eg serving), and then exhale as soon as you’ve hit the ball. Interestingly Connors and Agassi were big grunters. But nowadays it is mainly the women, with the Belarussian Victoria Azarenka shrieking so loudly at Wimbledon this year that you could hear her at Queen’s! There is even a book on the subject by Professor Alison McConnell of Brunel University 

Some have credited famous coach Nick Bollettieri with encouraging the grunt – for tactical as well as physiological reasons. But I believe that we owe this noisy accompaniment to tennis, indirectly at least, to another of my heroes – Tim Gallwey (now 73), author in 1975 of “The Inner Game of Tennis”. 

The scientific answer according to Gallwey would have been because Self 1 is using the grunt to tell Self 2 to get in the zone! What is all this about? 

Gallwey was a good enough tennis player to captain the Harvard team. He went on to become a professional, and later a coach. He studied under Guru Maharaj Ji, and became fascinated with the psychology of tennis. He wanted to understand why the greatest players could make stupid mistakes despite having immaculate technique and being super fit. Also why coaching for beginners and club players was often so ineffective. The player knew what he or she was supposed to do, but failed on court. 

His discovery was that we have “two selves”. Self 1 is the thinker and teller. Self 2 is the listener and doer. Self 1 knows what to do, and can’t understand why Self 2 is so inept. Trouble is, Self 2 would be fine, left to his/her own devices, but freezes when Self 1 says “break point” just as Self 2 goes for a cunning drop shot! 

Gallwey’s Inner Game is what sports commentators and psychologists now call the “zone” – the state of concentrating hard and shutting out the external influences and thoughts which can distract the player from peak performance and faultless decision making. 

He was a true pioneer, and wrote subsequent books about golf, music and skiing. Unsurprisingly sports-mad businessmen then clamoured for his motivational services, and Gallwey wrote “The Inner Game of Business” as a focus for his burgeoning consulting and executive coaching business. 

Having studied considered decision making, and been puzzled at how teams of competent and intelligent people can use such poor process, I am constantly impressed by the efficiency of short-order decision makers, who usually have only seconds to decide. I am talking about such disparate performers as soldiers, pilots, firefighters, police officers, triage nurses and referees. But it applies to us as well, as we drive our cars and walk the pavements well enough to avoid collisions. It has to be down to training and experience. 

All of them (and us) must have Inner Games and well-trained Self 2’s. When I hear you grunting at the wheel or walking down Regent Street. I’ll know for sure.

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A small tribute to a philosopher with a mighty wingspan 

I’ve embarked on a serious mission

To raise the humble decision

From just one of the things we can

To a towering achievement for man

The prophet who showed me the way

Wore hats, but none of them grey

He is the thinking man’s thinker from Malta

De Bono: the lateral exhorter

Schoemaker gave us the rules

And Belbin told us the roles

But de Bono allowed us to learn

By playing each role in turn

Wear the red hat for passion

And the black one for trashin’

Yellow hat says you are sunny

And green that you are creative and funny

But the cleverest hats are the blue and the white

White hat means you only say what’s right

No editor’s gloss on conversation,

Just unvarnished truth and information

Blue is the smartest hat of all

You’re the conductor in the hall

Fusing the sounds the hats are making

By thinking, solving, decision making

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We have become accustomed to positive stories about how the application of decision science has helped companies, government departments and other organisations influence behaviour in a beneficial way.

There was a news story this morning that reminded me that it doesn’t always work like that.

No, it wasn’t the one about Ken Livingstone comparing Boris Johnson to Hitler (and bizarrely himself to Churchill). Nor the coverage of Sally Bercow, wife of the Commons Speaker) entering the ‘Celebrity’ Big Brother House. Neither Mr Livingstone nor Ms Bercow can have expended much energy on their decision making, and it doesn’t take a Geiger Counter to calculate that both decisions were poor. They must have failed to spend any meaningful time on a reward/risk analysis, so it is not worth our making even a cursory comment.

The story that fascinated me was about a study that paediatricians have conducted on the increasing levels of Vitamin D deficiency in babies born in Britain. On Radio 4 this morning, one of the authors of the report agreed that sunshine is a significant source of the Vitamin for mothers and their new-born children. Obviously by world standards the UK has a disappointing lack of sunshine, but that situation has not changed. So how to explain the increasing level of deficiency?

The report thinks that one of the factors could be mothers using substantially more effective sun-screen products.

If true, this makes sun cream, which we have been told to use to prevent skin cancer, a potential ‘culprit’ in putting babies at risk of rickets and infections. This is the Behavioural Economics of well-meant medical advice giving with one hand and taking with the other.

Another example might be the widespread practice of parents taking their children to school by car. The motivation is clearly the peace of mind that comes from making sure the children are safe. But I can think of at least five actual or potential negative consequences:

  • Children who are less active and fit (less walking, cycling etc)
  • Children who are less self-reliant
  • Congested roads
  • Less use of public transport
  • Carbon-negativity on a grand scale

Then again the building of out of town shopping centres was encouraged by planners to increase amenity and prevent bottlenecks and crowding in city and town centres. What has happened?

  • High streets have suffered
  • Many village and small town shops have closed down
  • We have sharply increased imports (particularly of food) as these centres have stimulated consumer spending (convenient car parks / filling car boots instead of baskets and bags)
  • Britain’s farmers and manufacturers have suffered from higher levels of imports

Simply predicting consumer benefit from a change or injunction is not enough. Just like good decision making, we need to look at all valid options and conduct multi-level reward/risk calculations. The upside we are looking for may be outweighed by one or more slightly less predictable downsides.

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Yesterday I was doing a bit of chest beating on behalf of larks.

Whether I am right or not in my belief that they (we!) are the master race, I think it’s fair to say that owls are never going to be as well placed until the day your diary is full of meetings from 6pm, 7pm, 8pm, and so on.

As it turned out, my yesterday turned into today on a conference call with California, so I have had a taste of being an owl. However owls don’t then have to drive to London at 5.15 in order to resume life as a lark!

Personality is a big influencer of decision making – as in all business activities. Of course our personality profile is determined by a lot more factors than relative effectiveness at different ends of the day. Let’s look at other elements of our make up:

  • There is the Driver, Expressive, Amiable, Analyst spectrum, developed by Peter Urs Bender and others:
    • Drivers (Eagles) are leaders and achievers
    • Expressives (Peacocks) are extroverts and visionaries
    • Amiables (Doves – or Pussycats!) are team players and patient
    • Analysts (Owls) are thinkers and rigorous
  • And we all know about Myers Briggs (probably the only daughter/mother team responsible for a major invention):
    • Extroverts (wide world) versus Introverts (my world)
    • Sensors (take information on board) versus Intuitors (interpret and add meaning)
    • Thinkers (logical, task driven) versus Feelers (emotive, people-focused)
    • Judges (quick decisions) versus Perceivers (need more information)
  • On both scales we are combinations of characteristics, rather than being one or the other – but it is more helpful to understand the primary factor than to become lost in cocktails

Importantly we know from the work of Meredith Belbin that winning teams (especially teams responsible for making decisions) need to have a balance of personality types. Next time you are sitting in a meeting (you won’t have long to wait!), do a bit of personality profiling around the table:

  • Are you top heavy with Drivers and Expressives?
  • Or moving pretty slowly with amiables and analysts?
  • Are the Judges becoming frustrated with the Perceivers?
  • Is it tricky getting the Introverts to take a broad view?
  • And are the Intuitors getting fed up with the Perceivers?
  • Finally – and this is where we came in – are the Larks already running out of steam before the Owls have got into their stride?

The key is to know your own strengths and limitations, and to understand what all your colleagues are like, and what they are capable of. Sometimes we have to make decisions on our own. But most of the time it is a team game. A pure example of Behavioural Economics in action.

Hopefully with a basic understanding of profiling, you can prevent it becoming a contact sport!

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Behavioural Economics tells us that we can often be motivated by some ‘nudge’ or other to act in a way that doesn’t fit with the stereotype of economic self interest. In other words, we can be tempted by alternative upsides.

But to do things when we know there is a very obvious downside – that’s something else entirely. Let’s say we are talking about unwise or apparently illogical actions in our non-work life. Some of these wayward deeds will not even be the result of considered decisions: not so much mistakes, more instinctive errors.

But in other cases there will have been a decision to ignore a fairly obvious downside, and go ahead anyway with a course of action that doesn’t seem to make a lot of sense.

Now, if we can do that when we are not at work, are we also capable of poor decision making and unwise actions in working hours? The answer has to be ‘yes’. Illogicality and poor decision making process is unlikely to be compartmentalised in a pigeon hole marked ‘evenings and weekends only’.

We have also to add poor performance to bad judgement. Every day, it seems, the transmission system between brain and body fails us to lesser or greater degree. We can fail to do the right or logical thing through a failure of dexterity or memory, just as easily as through lack of will or good decision making.

Neither the great philosophers, nor you gentle reader, should be even remotely surprised by the above. After all, we are talking about human beings, where genius and frailty are equally distributed – often to the same person.

Nor would if faze religious people. Christians, for instance, are well aware that in the Ten Commandments there are only two positive injunctions (keep the Sabbath day holy, and honour your father and mother), while the other eight are all ‘Don’ts’, suggesting that God had no illusions about our likely behaviour.

My message, I suppose, is that there are so many possible ways in which we can take poor decisions or make mistakes, that if we do seriously want to be successful, it is imperative to take decision making seriously. To recap, making decisions in a better way is all about:

  • Clarity on your goal
  • Best data and intelligence – and keep looking for more
  • Frame – and if necessary keep on framing till the problem is well and truly defined
  • Structure the most viable options for solving the problem
  • Identify upsides and downsides in each option
  • Reward / risk analysis, ensuring that you are not swayed too much by the attractiveness of an option if it has a dangerous downside
  • Carefully weigh reward and risk
  • Then make the decision.

We only need rules when something is difficult, and when there is a big difference between doing it well and doing it badly.

To try and ensure we make the best possible decision, we need rules, and should you doubt it, the justification is above!

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As I wrote yesterday, The Times recruited more than 100 CEOs and Chairmen of our biggest companies to take part in a two day summit called “Ambitious for Britain”. Their communiqué was published in Wednesday’s edition of the newspaper in the form of a letter to the Chancellor of the Exchequer. I looked at the five ways to “pull Britain out of its anaemic recovery”, and pointed out that it was a slightly odd list.

In today’s blog I look at decision process. I wasn’t present at the Summit. I have no inside track. So what follows is supposition and (hopefully informed) guess work.

Let’s start by looking at what decision traps await a big group of powerful business leaders, temporarily obliged to make common cause with each other? Are there particular problems when you take these “big beasts” out of the packs they normally dominate?

There are several possible decision traps, all well documented in decision science, which might have hampered the group’s work:

  • GROUP FAILURE: Refusing to accept that a team of bright people can make bad decisions
  • PRESSURE PARALYSIS: Getting the frame of reference wrong under pressure
  • ANALYSIS BYPASS: Too much information / not enough time to analyse it properly
  • INFORMATION UNDERLOAD: Believing you have enough knowledge to proceed, when you actually need more intelligence and research
  • ‘WHAT IF’ WEAROUT: Not being rigorous in looking at possible scenarios.

But I think the greatest problem was not learning from Meredith Belbin. Belbin is the management theorist, who while lecturing at the Administrative Staff College (later to become Henley Management College) in the 1960’s, discovered that well-balanced teams would always outperform teams more or less exclusively composed of ‘stars’. His 1981 book Management Teams gave the world key membership roles like:

‘Plant’: the left field problem-solver

‘Resource Investigator’: networker who recruits outside expertise, so reducing the group’s dependence on received wisdom

‘Monitor-Evaluator’: the devil’s advocate and objective stickler

‘Completer Finisher’: detail zealot

It is highly likely that the Chairmen and CEOs were not any of the above, but a mixture of two other Belbin types:

‘Shaper’: rigorous visionary who can guide the group under pressure

‘Co-ordinator’: the one who insists on everyone being consulted and listened to.

 Another problem for the Summit delegates must have been an imbalance of personality profiles: too many drivers and expressives, too few analysts and amiables.

Overall there is a big lesson to be drawn from the Summit, I believe: a big team comprised of dominant leaders is very unlikely to be functional! In this instance, it is not a criticism of the leaders themselves, but of the idea that the Summit could ever achieve its goals.

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“Happiness is the meaning and the purpose of life, the whole aim and end of human existence”, wrote Aristotle in the 4th century BC. Two millennia later Descartes said, “Everyone seeks everything else as a means to the goal of happiness, while no one seeks happiness as a means to any other goal”.

Four hundred years after Descartes, the TCA agency (the guys who did the remarkable Bob Monkhouse Prostate Cancer campaign) celebrated their 25th anniversary by commissioning a study by Melanie Howard of the Future Foundation on what happiness represents to 25 year olds. I went to the presentation yesterday by Melanie and TCA Planning Director James Champ.

As I took notes on what are and what aren’t the drivers for happiness in young adults, it suddenly occurred to me that it is very easy to talk and write about decision making (as I am prone to do) without mentioning happiness, which is clearly at the heart of emotional motivation.

Hence the quotes from two great philosophers

Hence grateful thanks to TCA for reminding me of what should have been staring me in the face

Hence a new determination to interpret much of Behavioural Economics in terms of the pursuit of happiness

Hence two new filter questions when we are analysing the risk/reward equation on the cusp of making a decision:

  • What upside would make me/us happiest?
  • What downside would bring the greatest risk of unhappiness? 

The findings of the study are still embargoed. If you want to know more, try emailing Adam.Leigh@tcalondon.com

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