« Freakonomics Radio

198. The Maddest Men of All

2015-02-26 | 🔗
Advertisers have always been adept at manipulating our emotions. Now they're using behavioral economics to get even better.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This podcast dynamically inserts audio advertisements of varying lengths for each download. As a result, the transcription time indexes may be inaccurate.
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but probably not worry, Sutherland, I'm the vice chairman of Ogilvy Meda, in the UK. Now that is a pretty impressive title, but we should say you hardly had a typical climb up. The corporate batter did you leave you ve been described as the worst trainee quote. Neither ever had yes, I was actually so bad that I was booked onto a time management costs and I got the data, so I turned up at this empty building, time management goes only to find it was the following week over we may there is a gigantic global marketing and advertising form part of the even more gigantic. W p p m was. founded in eighteen, forty, eight by David Ogilvy, a legend on Madison Avenue, born in England as China
he lived in a house where Lewis Carroll used to live the headmaster at his boarding school wrote that Ogilvy had quote distinctly original mind inclined to argue with his teachers and to try to convince them that he is right in the books. Are David Ogilvy peers, went on to become doctors, lawyers, politicians. He became He would later right a chef in Paris the door to door salesman, social worker, the Edinburgh slums and associate of doktor gallop in research for the motion picture industry and a farmer in Pennsylvania. Ultimately, he took up advertising. Ogilvy firm was responsible for a number of commercials with which you are likely do you know me? I created the muppets. Everybody knows them, but not made. So when I travel, I carry the American Express Card, its bites, Jim with his muppets solely
to say that David Ogilvy was my kind of classed is a bit of an understatement. You get the sense tat. He would have approved mightily. Very subtle the instrument in market research you'll occasion. We have a group where, basically there, too people sitting on the table and one was a bit of an asshole not long ago, Sutherland cofounded small unit within Ogilvy. May there called Ogilvy chain The main purpose of ably change is really to imbue the agency with the best work that is being done in behavioral, science but Ogilvy being alive. I think for the what you might call renascence behavioral economics. I think he would have an enthusiastic supporter, an enthusiastic supporter. That is the kind of risk We talk about in this programme all the time the work of people like Richard Sailor, the economy, to worry Sutherland. These men are like gods, not only because their interesting, because their useful,
I'm, not a behavioral economist, I'm not an economist. I noticed psychologist. I've had twenty five years experience in advertising industry and really my role here, is to be a behavioral economics impresario, which is to make it safe for people within business, to have conversations about these topics. Let's have a conversation, I'm happy, from the w, and my see this is free economics, radio, the package that explores the hidden side of everything. Here's your house Stephen governor worry Sutherland. Is an unabashed fan boy,
of the new wave of behavioral economics research, which does not make him a fan of standard economics. The problem with economics is that it's designed for the perfectly rational, perfectly informed person possessed of infinite calculating ability. It isn't really designed for the Eu brain as it is currently involved. In other words, economists have historically thought about human behaviour in a way that very few humans actually behave that perhaps economists themselves, by assuming a world of perfect information, anonymous. Actors with stable preferences seek to maximize their expected utility in a series of stand, learn transactions, I freely admit in such a world which may exist in a parallel universe. Somewhere there will be no advertise, because why? Right because
all the information is already there, because ones preferences can't be shifted, because if everybody knows what they want and is absolutely committed to attaining it, and they know perfectly well, they can perfectly trust the person from whom they buy it. You don't need a marketing function The fact is that those conditions exist in the real world somewhere between very, very rarely and never, because those conditions rarely exist and because most of us make decisions using our emotions as much as, if not more than a reason. Well that creates opportunities. For a man like Worry Sutherland and for his fur good morning the times in the Sunday Times member services, you speak in cement today, how much we are at a call centre in, Mr England, about an hour east of London Lynn works for news UK, which owns the times and the Sunday Times
Could you please confirm to me your name and address news UK, which is a subsidiary? Newscorp? Has hired Ogilvy change come in and teach the call center employees a few behavioral tricks institutions how someone down I'm Joe and we from it besides pact is to work with me. If you can then Bennett and Juliet Hodges or what Ogilvy change course choice: architects, soldier today for teachers in psychology, it s easy to your job. There has been a tough time at the call centre, the newspapers their subscription prices. A lot of angry readers had been calling wanting to cancel maize. Uk came to us to solve a problem with that consensus that were under performing
Basically, so we were teaching them techniques to help them to retain their customers without them having to use cash incentives to get well stay. So oblebee change. Listen to some of these calls and began to coach. The calls on workers had respond. Subtle changes, often based on behavioral research here, for instance, Jew it. Hodges does some roleplaying. She pretends that she is a call center worker. I hate you. I think it is time for Sunday Times mining student. How can I help you and she has one of her students and actual call center worker named Chris, pretend to be the unhappy customer, and I would like to compliment ownership place second thief in with us for ten years on us, your such long customer? the eyes of the council, say well that the prices another really understand by using an and to be honest, I just want to council I'm not using it, and I just want to cancel white teeth on you're, not using it. I don't have time unjust of faulty busy kids after
after I work for the weak and I just don't have time. Ok with some facts established Hodgen. Is ready to start nudging, the customer in a new direction. Knowing this customers, children, for instance, she's going to suggest at times plus subscription comes with discount offers for kids activities and she's going to invoke social norming, which is essentially academic, speak for peer pressure. We thought that if they knew what people them worlds are doing, may be more like he's dead and south. The way to do this is to start with the simple phrase: many people, like you, obviously very busy and have kids to take care of use, offers on the times plus to save money on cinema, tickets or meals out in some exclusive events that we run I want you to miss out on anti cancer doomsday. I would
I want you to miss out. That is a naked appeal to it. Behavioral researchers call loss aversion. That is, we generally experienced more pain with loss. Then we experienced pleasure with a commensurate gain, meaning we hate to give up what we have even What we have is an all that valuable to us their customers. You are counselling be losing out on all these benefits are cheaper cinema. You Sonny. Can we won t for one office now the customer is hooked. Well, fake customer played by the calls in a worker still he's hooked, but he does question. Ok, I think I'll take my open and see how that goes. Am I gonna be tied into a long contract with up Juliet Hodges tells us. This is where a third principle of Ogilvy Change comes into play. Positivity lately, lotta customers been calling to complain as easy to have negative receiving that kind of feedback, but the call center
others have to stay positive. She tells him even when they talk about something as mundane is terms and conditions which are met. voluntary framework, as we as so confidently loved the product that UK council anytime we're not gonna penny down and contracts. And how well as this large of behaviour. This technique performed for the call center. We found it cause using water, more of these techniques with three times one eye to be successful and in fact, eighty percent of them. successful, save avert customer or successful sale, which remarkable is how minor most these changes are worry Sutherland again, if you want to do the business to understand the value of behavioral science, one of things you gotta get across which sons trivial, but it is vitally important, is the understanding that smell Changes can have very large effects,
another tweak that Ogilvy change made at the newspaper call center. Typically, there are three types of subscription packages available. Think of them is a b and c We simply asked the cause and the staff to change it to most people choose be, but if you I give nor are they will say, and we made a couple of tiny other changes as well. Three tiny and to be trained Mr irrelevant to pieces of information triple the convict Rachel the call centre. So three times people calling actually upgraded to a sale to the prince finding when those sentences were omitted, and you tribute that two people wanting to participate in social norms, yes to join the herd. Essentially I think there could be a variety of things, their first of all, a decision particularly on the telephone we
have evolved. I would argue we have a social, a pistol knowledge I'd, go that far and say that, for very very good evolutionary reasons, we feel a sense of comfort, doing things which other people do and a sense of mild anxiety, doing things that not many people do and The reasons for this. If you understand we ve evolved to survive, not in a world of perfect information, but in a world where information is often incomplete, we have to solve. I won't inference and we to draw those inferences from wherever weaken reliably find. It then actually copying. Other people is a pretty good safe bet. I went on You look brands work in a similar way by the way people pay a premium for brands, not because they think they're necessarily the best thing they can buy, but because A television for example, or for that matter and pharmaceutical drive that has a famous invaluable name attached to it is: less likely to be catastrophically bad,
You might find these simple manipulations to be nipped indeed, the more you learn about behavioral research, the less confident you are that we ever use when making decisions, it's almost if our reason lies dormant. Most of the time allowing emotions to rule the day, desires and fears in securities and avarice, and if you can learn how to play those emotions and other people, you will have easy time of it? What are you trying to sell em a newspaper subscription or persuade them to do something? A bit more important? Now we should make clear that this behavioral understanding of human nature is hardly knew Shakespeare, understood it. The book of proverbs, to name just one book of antiquity is full of it, but, like all universe
truth. The quirks of human decision making is constantly getting rediscovered and importantly codified. That's what's been happening. Academic psychology in economics, lately, the codification. these behavioral anomalies establish with empirical evidence. Is Rory Sutherland makes clear the academics are linked to the game. Quite alot wants me developed by behavioral scientist over the last twenty or thirty years was discovered by craftsmen and the advertising industry. Forty fifty six years As a matter of fact, we recently interview Jim Young Kim the President of the World Bank, has been trying to get that rather conservative institution excited about the insights of behaviour I ain't. He commissioned a MIDI World Bank report on the subject if you were to go to Ogilvy or any of the big publication. Scum. He's an give them there's something. I think they would laugh at us in the sense that they have been utilizing. These insights very aggressively for very long
What kind of insights worry Sutherland suggest we think about those for a limited time. Only ads you ve, heard for a limited time come in a cat seeing and pieces of freshly could from guys were only eleven. Ninety nine was absolutely known that if you wanted people to take up an offer, you Grady official and point to that often said. If you want to take up this offer it ends in he makes time. That's why we're thousand dollars by your trade this Thursday Friday seventeen times at now in paying line. Ninety nine, that's nine ninety nine percent of to visit- and they realise that you know Creation of scarcity, basically drove human propensity to act evidence against. We understood this, but what we ve never very good at his actually attempting to create a system of thought around all those things we ve discovered and to codify it in something like a recognisable scientific discipline, I can
in sum and listening to you and, thank goodness, isn't it wonderful that an advertising in March in executive is so interested in and conversant in. The behavioral science is that will make the world so much more interesting. On the other hand, I can imagine someone else's thing and saying: isn't this going to just make him and everyone else like him, even better at selling me more stuff that I dont need, some question. First of all, I would be honest about this. You can use this knowledge for evil assets. coming up after economics? Radio, ok, worry please, This is how we can use this knowledge for evil. Also, how far can and employ they are go in monitoring the behaviour of its employees? We think that that falls under the cap.
Category of clinical creepy data capture. thanks to Pennsylvania, lottery, scratch, offs, pennsylvanians or scratching their way to fund, and we new games every month, big top rises and said, enchants drawings, excitements, always in order. So try Pennsylvania, lottery, scratch offer your ticket to fund and get yours today. Keep on scratching. Must be eighteen or older. Please play responsibly benefits older pennsylvanians. Every day, economics radio is supported by zipper creator. Businesses have had to be flexible this year from working remote. We too pivoting their business models for long term survival. If you are in charge of hiring for your business. These pay. Bits of made your job even more challenging. Thankfully There is one place that you can count on to make hiring easier, zip, recruiter, dotcom, slashed, freak, zip, recruiters technology finds the
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feel insights to help call center employee sell us more news times. So that's about how Call center employees succeed with their customers, but, let's think about those call center, employee, themselves. How do you know who to higher for those jobs and how to keep em productive happy my name is Michael Housman, their chief analytics officer for evolve. Actually, Housman is now the chief analytics officer for business software. Firm, called stone on demand with bought evolve after we interviewed Housman The mission is the same there to bring science into the workplace and specifically to help firms gather data that lets them understand their employees better. It starts in the hiring process, so before their hired, they essentially run through an online job assessment and
think of it almost as a personality test. It runs typically about forty five minutes in length and it tries to get inside their heads and understand what really makes them take the behavioral in psychiatric characteristics that that matter to these people once their hired evolve software tracks employees using information let's from the company, the hire them things like when they were hired when they left. If that happens, and then ultimately thing like the supervisor shift wages, overtime, really anything that we can get to understand what Nature of the job was so. Let's say that housemaids firm is brought into a call. Like the one in England selling newspaper subscriptions. One problem with running a call centre is a high rate of employee turnover in the. U S about forty five percent annually in hiring process is expensive. In this case, Housman says: cross accompany roughly two thousand five thousand dollars per
employee. So the idea is: if people stay longer, you make your hires. You don't have to spend two to five thousand dollars to bring someone into the organization. So you know most economists and say well: if you keep people in their seats or in their job, you pay him more. I'm curious what you can tell us about the relations if the correlation, whether its causes or not, between pay and either, Activity: longevity, whatever metrics you lookin at we look specifically at pay in Research study that we had just finished we found there is no question that pay enables people to stay longer and they perform better, but the man it would have. The effects were actually not as big as we had expected. So for every ten percent increase in pay, there's a five percent reduction in quitting behaviour. With a less than one from one offset and what's more, is
when someone receives arrays. There are kind of these warm fuzzy's that are associated with receiving the rays. There's this halo effect. We found that that effect last longer than a week, but not as well, a month. So what we took away from that was that is that you should never give people raises because it doesnt work exactly. Lot wages work as one of those levers, but our researchers. There are a number of other ways to keep people around that are as effective, if not more and far less costly, like, for example, given them a better supervisor some that they jowl with a little bit more we're trying to help them find them. Knobs and levers I can really use in a in a really cost effective way and just how important is a good supervisor versus the bad one. Your supervisor alone accounts for about as much of a Hence in terms of longevity in these roles, as ever
else. Combined with the effects are staggering. Anecdotally, this seems to resonate with people, because everyone had a bad boss that made them leave job and we really made understanding that supervised. employee relationship a priority of eyes. Could I came into this? thinking that it was all about raw talent, you get the right person in the job, and everything will work itself out and that's really the key decision are. Our research has actually shown that It's actually a relatively small piece of the pie, something in the range of ten to fifteen percent evolve also wanted to measure honesty. They asked employees to choose between two statements. I follow the rules for I like to experience new things and meet new people as it turned out. Saying you're honest. It doesn't mean much and was that people who said they were honest, actually work.
Thirty three percent more likely to be terminated for policy violations. So learned our lesson, which is you don't ask people if their honest, because you tend not to get an honest answer- evolve therefore developed another way to get this question, we came up with a very creative way of measuring what we think is honesty and integrity, which is that we asked them up front early in the assessment. How are your computer skills, which are typing speed, to feel comfortable, the keyboard mouse toddling between screen so on and so forth, and then guess what about five? Six screens later we tested them. We asked them what's the short, for cutting in pasting taxed using a word processor. We actually measure their typing speed and accuracy, and what we and women compared theirself assessed. Responses to their actual technical proficiency is that there were two groups of people that came out One group was was relatively honest. They were what they said. They were in terms of their technical skills and the other group. We will
all a little bit creative in that they claim to be exceptions, but the keyboard mouse, but they couldn't type more Ten words a minute in turn evolve found that the honest employees tested better on just about every performance metric, which you might find heartening argue that honesty really is a valuable trade. But there was one metric for which honesty was not correlated with better performance sales, take all the dishonest people and put him in sales. That's the idea. I don't necessarily want to say that, especially since we have sales and marketing folks of our own and their wonderful people, we assume anything about them, but yeah the end of the day. We go about this work without me, any sort of opera, ory judgments or hypotheses about the data we like the lake. The data speak for itself. other finding in the employ data and employees. Choice of web browser might be worth paying attention to
what internet browser to use Stephen, I I hate them all and I use Firefox, ok, great, so good news for you, because we have found that Chrome and Firefox users are the best employees. They perform better on virtually every metric and stay longer. Now. Is there any causal relationship that you can? Even think about their or no, we don't know where the causality is. I dont think that finding means that our client should immediately force all their employees to install Firefox or chrome on their computers. That's it that's not where we want to go with it, but my personal view is that I think the fact that you took the time to install Firefox on your computer, shows us something about you. It shows that you're someone who's an informed consumer. It shows us that you care about your productivity and you ve made an active choice.
To do something that that wasn't default. That wasn't handed to you, but even Michael Housman admits that his field, known as workforce science, has its limits. Legal limits, natural limits and others. The use of personality tests in workforce hiring is bloomed by one estimate that two thirds of job applicants in the. U S now take one the Wall Street Journal reports at the equal employment opportunity. Commission is currently investigating whether such tests are discriminatory. We call the commission, they would neither confirm nor deny. As an economist and somebody's who loves data, I wanna get every piece of data that I can on every I want to figure out what it is that truly keeps people on the job. You know what creates a good employee. Unfortunately, there are things that legally we're not allowed to touch, and then there are also things that we have decided as an organization. We shouldn't touch
obvious legal ones. Are you now race, sex age? Those are off limits, and I completely understand why. But beyond that, we decide to take a somewhat conservative approach about what we're going to use and so when it scouring Facebook profile. When I look at your twitter feed- and why is that you say that's a choice- why we think that that falls under the category of clinical creepy data capture? We want people to be supplying this data voluntarily and we don't want them to wonder what data is being used, and so we ve made the choice to be very transparent. Of that ah, the fine line between data driven creepy, much like the fine line between the good and evil uses of behavioral science in the dark art of advertising. Ok,
worry. Can you hear me this Stephen? Yes, perfectly that these Rory Sutherland again the founder of Ogilvy change? I had asked him whether his embrace of behavioral economics is simply one more tool to get more people to buy stuff they dont need or to pay. more for the things they want. I think I would be honest about this. You can use this knowledge for evil innocence, let's example, when you go to an airline website and it says: cooks, your price for your seat to Sacramento whatever may be, and it says only four seats left the price. Now that works on me. I've spent Eight years studying the stuff. I know it's an attempt to exploit my scarcity buys, but it still makes me click affecting, but just the worldwide now implicit in that line is the subsequent seats will be more expensive, but actually the person
weasel wording hasn't exactly made that promise of they they merely set up this price up. This price is not quite clear. It could The sub is good for seeds being sold actually at a lower price, and so our wonderful, powerful, but very suggestible brains think this over or more likely don't think at all. There's a part of the brain that does the talking with necessarily connected to the public. Does the feeling, or indeed the deciding and its part does a deciding that advertisers want to reach Sutherland. You're subscribes to the theories of Daniel continent. The author of thinking fast and slow, who suggests the brain engages in two distinct kinds of thinking: system, one and system to kind of causes one can't talk it doesnt sequel. friends, our behaviour by the use, the general of argument or raise it simply Jim
its emotions, direct their aim, heat anxiety, etc. As much, faster and more efficient way of keeping us alive system two is slower, more deliberate. If it tries to interpret what system one is feeling doesn't do a very good job, we're very, very bad but explaining the reasons behind our emotions. Wonderful, phase, which is the the talking, The brain thinks it's the oval office when love the time. It's really the press office. What it's not really doing is actually come out with good at nations exactly hastily cobbling together. A plausible sounding rationalization for a decision that was actually taken somewhere else, which is what a press off is mostly duff,
and so as Sutherland sees it. If you can learn what really makes people happy or generous or kind or honest what not, then you can help them as an example, he cites a plan to build a new high speed rail line that would shave about thirty minutes. Often, eighty minute trip between London and Birmingham. It would cost more than thirty billion dollars, which southern thinks would be very poorly spent. He is argued quite vociferously and publicly that the government could make travellers this happy for much less money by simply installing topped your wifi on the current trains monument is the engineers would designing trains around a mathematical model where numerical factors such as aid journey duration, use a rolling stock with, many things they were allowed to consider wears a site, just would say no to day. The real solution here is actually not make the train a faster you'd, make it slower if you like, but simply to reach
aim. The time you spend on the train says it is pleasant. Robin annoying. This pleasure principle suddenly believes should be a foremost consideration in just about every look policy decision we make choices should now properly be designed. In line with the system, One thinking with our evolved psychology Rosalind designing a world for an imaginary species of homer economic issues. It doesn't exist and actually wouldn't survive. It did Interesting, though, is that system dominates policymaking to such an extent. It's the noisy parts of the brain. It's the talkative part the match you were in danger of actually designing a world for a very small part of the human brain faster. Aids that are uncomfortable, that kind of it, and yet he says solutions, they take advantage of the way our brains really operate are often treated with suspicion.
If you look at physical design, nobody thinks it. And you stare a car with staring ok now I've still wheels from formula one to drivers, costs related to this the little town, car, the reason, staring wills. It works well with your hands now your hands. Didn't devolved to stare cars. Good designer will design and into to work with the physical equipment we ve got. No one actually says staring wheels, absolutely scandalous, exploiting my hands for a purpose which was never intended The strange thing is when it comes to design a experiences or designing choices, we aren't aiming for the evolved brain as we design door, knobs or kettles to work with our evolve. Zeke. Instead, we design them for this weird kind of imaginary figure.
Do you mind if I ask you a personal question: knew of do not go. Ask away on twitter. You describe yourself, as quote fat bloke at Ogilvy, so I'm curious considering what you know about what people really want about, how people make decisions, etc, etc. Let me ask you this: why are you fat knowing what you know? It's very basic questions to ask, and I asked of myself skills and the pathetic Defence Rachel is that I'm a kind of method copyright in order to actually tackle the growing obesity? A problem I have dragged
experienced obesity myself thanks to worry Sutherland, Michael Housman, I'll call center folks, and thanks especially to you for listening, I'm curious to know what you thought of this episode: the ideas in it. Did they entreat you disturb you find yourself shouting back and anger. Let us know on Twitter and Facebook, at for economic, come one more thing. I wouldn't want you to miss out on any an economically. Episodes. Many people like you, subscribe to this package that Itunes or elsewhere we are so confidently. like it that we are willing to give it away for free, happy, listening and on the next economic, trivial, we're always hearing, about new ideas, new scientific breakthroughs, but maybe we should be putting more energy into killing off older
How do we get rid of ideas that are in the way that are blocking progress? How'd? You move on there's no mechanism to do this more important which ideas need to go. This is an idea that makes no physiological. Sense, and the idea that I believe is ready to retire is the universe I think an idea that is really bad debts, detrimental society, is the idea that life is. This idea must die next time on freedom, Reaganomics radio was produced by W and Y see and debonair productions are safe, includes brag resolve Ski Caroline, English Susie
Denmark and Chris Ban in with help from Christopher worry Anna higher risk, Kwan David Herman and Merit Jacob. If you want more frequent mix radio, you can subscribe to our pod cast on Itunes or go to friggin onyx dot com, we'll find lots of radio, a blog, the books and more.
Transcript generated on 2021-03-11.