Incito MentisA blog by Syed Abdul Karim

I just finished reading Freakonomics. Quite a book. It was long overdue but when I got to it, it flew like a breeze.  Stephen Dubner did a wonderful job capturing the insightful research and anlaysis by Steven Levitt. What really inspired me was his writing style - very engaging and purposeful. I will probably take a break with another book or two before reading Super Freakonomics. But I must say this was hardly like the Economics textbook from way back in business school.

So what was some of the key learning. For one, things are not always what they seem. ‘Conventional Wisdom’ maybe conventional but it is certainly not wisdom. It may seem quite obvious that the risk of a child getting shot by accident in a household with a gun maybe far greater than a child drowning in a house with a swimming pool. But quite the opposite is true. In fact most people would find a swimming pool a great thing to have in a home. Statistically however it has been proven that more children die from drowning than from a gun shot accident.

The same is true for riding in a car and flying in a plane. Mosy people are afraid of flying than they are of riding in a car. Why is that? Data again proves that flying is safer than riding in a car. In a car we feel more in control, especially when we are in the driving seat but in an airplane we are in the hands of someone we usually don’t even see and the unknown sparks a far greater fear in us. We intrinsically fear uncertainty. The more unknown the variable the greater our fear. But the point is this, what we believe or know to be conventional wisdom is not necessarily true.

Looking underneath the surface usually reveals a completely unexpected picture. Like the case of the sudden drop in crime in the United States and more specifically in New York. Surprisingly this topic has been a subject of many books and quite amazingly now looking at some of the examples in retrospect, this case has been used nicely to fit the context of whatever that was being talked about.

I don’t want to be the judge on who is right and who is wrong but in the ‘Tipping Point’ the context was that when small things are taken care of, when graffiti on the streets is removed, when broken windows and damaged street property is kept in shape it eventually leads to a Tipping Point in crime when suddenly the larger crimes being to reduce leading to an overall decline in crime rate. This was the apparent strategy by Mayor Giuliani to bring crime rate down in New York. In Freakonomics the reason for this reduction is completely different. After exploring a number of possible angles and then negating them Steve Levitt concludes that it was the legalization of abortion in the 1970s that eventually led to the reduction in crime in the 1990s. His theory being that women who usually seek abortion are women who for whatever reason are not in a shape or condition to raise a child, from being too young or too poor to everything in between. Therefore when they were allowed abortion it reduced the number of unwanted babies, babies who would not have been cared for, raised, educated and groomed in the same way as a mother who wanted a child and as result are more likely to perform poorly at school, drop out and eventually turn to a life of crime. Quite a theory but very interesting nevertheless.

Now having read Malcolm Gladwell’s Broken Window Theory to crime reduction in New York and Steve Levitt’s Abortion Theory you can’t help but think that it is unlikely both theories are true. I will let you draw your own conclusions, feel free to tell me what they are in the comments below. But I learnt one important thing. It is amazing how powerful writing can be as a tool to convince people and change their opinion. At the time of reading both perspectives I was equally convinced by each. Upon further research for this blog post I learnt that perhaps both are questionable but they both made a damn good case of what they were saying and they surely had me convinced.

These were just some of the highlights from the book. There are a lot more interesting examples and observations in Freakonomics that I would like to talk about. Perhaps in a future blog I will cover those as well, which if I keep to my promise should be not too far away.

It is amazing how the human brain works. Some of the findings from behavioral economics on our decision making abilities are both shocking and fascinating, to say the least. It’s like looking at an engine from the inside and seeing how everything works. As a planner understanding human behavior is always a cherished and critical part of my work. While reading about some of these concepts I could not help but realize how obviously we err when it comes to making a decision.

I have talked about Behavioral Economics in earlier posts as well. Here I would like to talk about the concept of anchoring. Let’s see how it works. What if I were to tell you that you have to guess the price of a premium chocolate bar and before doing so I make you write down the last two digits of your ID card. What would happen? You are most likely going to select a number that is close to your ‘anchor’ (in this case the last two digits of your ID card).

Don’t believe this. A number of experiments with students from MIT have been done with a similar setup. When the results were analyzed it was noted that all respondents chose a number that was close to their respective anchor*. This is known as ‘arbitrary coherence’. If we reflect on our lives we will find many occasions when our own anchors have influenced our decisions. Remember the price of the first Widescreen TV that you may have bought and then think about all future upgrades. The price you paid for the first TV will be your anchor for all future purchases.

What are the implications of “anchoring” on us at a personal level? For one not all our anchors may be in our best interest. Owing to some arbitrary coherence we may have anchored on values that are much higher than what they should be (at least from a rational perspective). Knowing how our brain works and our tendency to anchor so irrationally we can perhaps make better decisions.

So what’s the implication of this concept in marketing and branding? One brilliant example that comes to mind was the launch of a soft drink in the United Kingdom (I just can’t remember the name). In a highly competitive category with a limited budget this brand used anchoring to influence consumer behavior with great effect. What was the big idea? Outside the stadium before the end of a big game the company dumped hundreds of empty cans in and around all the trash bins filling them up to create the effect that this drink was consumed by hundreds of people from the audience. When the match finished fans leaving the stadium noticed these cans wondering why they did not see this drink anywhere. This creatively introduced the brand to thousands at the stadium for a minimal cost and triggered them to inquire retailers about the mystery beverage facilitating the soft drinks eventual arrival to the trade. This is a great example of how an anchor was used to cue popularity when launching a new product. Have you come across other examples of anchoring used in marketing?

*You can read more about this in Dan Ariely’s Predictably Irrational.

We are talking about a Lamborghini here. Does it need a pitch? Who does not want to own a Lamborghini? Those who can afford an Enzo or those who already own the last two I guess! Why would you need to make a TV ad for a Lamborghini? Probably the same reason why I am writing this blog. Do something so great and awesome that people end up talking about it. Probably that’s why.

I have seen a lot of TV Commercials. The memorable ones usually make a good thing really great. This is one of them. What makes it great? The key insight. If I were to imagine the brief for this ad I believe the insight would have read something like this – “What makes something great depends on what it is being compared to”. It is all about the ‘power of the relative’. You put something in a different context and suddenly it looks different. I have seen a number of behavioral economists talk about this concept. Allow me to illustrate:

You want a buy a pen that costs $20. You learn there is a place 30 minutes away that is selling the same pen for $10. What do you do? Most people would go for the $10 pen. Similarly there is a suit that you like and it costs $1000. Again you learn that about 30 minutes away another branch of the same store sells the suit for $990. What do you do? Like most rational people you would go for the $1000 suit. This is the power of context. The same $10 would be saved for the same effort of driving 30 minutes away but because of the difference in context a completely different decision is made.

This is what the creative team has done here. They have used this power of context to their advantage. It’s not about comparing a Lamborghini to a Ferrari or a Porsche. No sir! It is about comparing the opportunity to own a Lamborghini to something rarer than giving birth to a Nobel Prize winner or being able to successfully climb Mount Everest!

And therefore as a result, they have managed to make something hot even hotter. This is the power of context. An extremely valuable tool for great advertising I think.

What can I say about Dan Ariely! This book is simply awesome! It’s a goldmine of insights. A must-read for planners looking to understand human behavior. This whole idea of behavioral economics is very intriguing (I did a post earlier on the same subject). Through a series of experiments Dan repeatedly proves his point about the infallibility of our mind that drives us to make decisions and do things we rationally cannot imagine doing. The scope of his research covers various dimensions of life from society to economics, from the mundane to the extraordinary. The findings are shockingly counterintuitive. For example, how a decoy on the Economist Subscription page leads people to go for the expensive print plus web subscription because the decoy makes it seem that the web subscription has been thrown in for free. Whereas without the decoy experiments have proven that most people went for the cheaper web-only option. See image below (although this has been changed now!). How can we be manipulated so easily?

I would like to talk about a whole bunch of such intriguing examples and insights, but I guess I would save those for later posts. But I would like to point to a section towards the end of the book which I think captures it’s essence. It is surprising to see how in a world where “change is the only constant” some old ways of looking at the world continue to dominate popular thinking. The analogy that Dan draws on is how man is clear when it comes to his physical limitations and is using all resources and technology to overcome these limitations but when it comes to the mind he believes he is limitless, flawless and continues to operate under the age-old framework of rational economics to explain how he would behave in real life. This he proves through the course of his book is far from true. He also states that continuing to operate under this framework is dangerous as some key issues facing mankind need to be addressed like how to avoid getting into another big economic crisis, how to create better educational systems, how to model health-care etc. It is time for us to look more openly and challenge these conventional ways of dealing with societal and economic issues.

Not surprisingly Dan also spoke about the core concepts of his book in a talk at TED. I have posted the video here. Check it out !

Finally after much deliberation I have setup my blog! For the first post I wanted to share a Talk from TED by Rory Sutherland! Oh this guy is amazing! For one he is from Ogilvy. The agency where it all started for me some 10 years ago as I began my journey as a Strategic Planner.  Ogilvy has a special place in my heart as it laid the foundations of my career and played a big role in helping me do what I do today. Anyways, Rory’s talk is insightful and highly entertaining. It is a must watch for anybody who has anything to do with branding and advertising. I see a pattern between what he talked about and what Dan Ariely covered in his book “Predictably Irrational”.  They both have touched upon ‘Behavioral Economics’ a subject that really intrigues me. I have never been a big fan of Economics but this field looks at things from a very human angle. A whole lot of insights for us planner species.  It’s a subject I will definitely be exploring further in days to come! God Willing! For now enjoy this!