Tag Archive for: Daniel Kahneman

Anchors Aweigh on You More than You Realize

The human mind is a fascinating creation. With it we move, breathe, consciously decide what to do and subconsciously do things with little knowledge of why or how we do them. With the help of our five senses, our brains help us make sense of the world around us. Despite its wonder our brains can be easily tricked. Consider the following:

The Placebo Effect – Many studies show when people believe they’re taking medicine their conditions improve just as if they took the actual medicine.

Magicians – These clever folks use their understanding of how the mind works to fool audience members into believing objects miraculously appear and disappear. I saw it with my own eyes!

Physical Comparisons – Have you ever gone to pick up something anticipating it was heavy and suddenly it felt light? Or perhaps you went to pick up something you assumed was light and it felt heavy. Ten pounds is ten pounds but sometimes ten pounds feels heavy and sometimes it feels light.

Sales – We’ve all bought things on sale feeling we got a great deal because we saved a certain percentage or dollar amount off of the list price. That good deal doesn’t seem so good when someone else announces they got the same item for even less that we paid!

There’s something that impacts us every day, which we give very little thought to and yet it makes a big difference in how we perceive things and the decisions we ultimately make. What I’m referring to are anchors but not the kind dropped over the side of a ship into the water. In psychology, according to Amos Tversky and Nobel Prize winner Daniel Kahneman, an anchor is “an initial value that serves as a benchmark or starting point for an unknown quantity.”

There are many things in life that we can’t accurately put a value on. For example let’s consider a house. A four bedroom, two and a half bath house with 3,000 square feet, a wooden deck, family room, dining room, kitchen and den might go for $250,000 in a small Midwestern town. The exact same home on an equivalent sized lot in Southern California might go for more than $500,000.

You might be thinking it’s because the market dictates a higher price in California than in the Midwest. No dispute there but the point would be this – the value you put on the home would be dictated in large part by the other values you learn about (the anchors).

Consider this experiment from Tversky and Kahneman.  A wheel with numbers 1-100 is spun and is set to “randomly” stop on either 10 or 65. Let’s say it stopped on 10. Participants were then asked if the percentage of African nations in the United Nations is higher or lower than 10%. Next they were asked to make their best guess on the actual percentage. Those who saw the wheel stop at 65 were asked if the percentage of African nations in the United Nations is higher or lower than 65%. Then they were asked to guess the actual percentage.

For most people, estimating the percentage of African nations in the U.N. is nothing more than a guess. However, those who saw the wheel stop at 10 guessed 25% of the African nations were in the U.N., but for those who saw it stop on 65 the average guess was 45! That’s quite a difference. Each group was heavily influenced by the anchor they were exposed to before making their educated guess.

So what does this have to do with you and me? Think about all the things we’ve encountered over time with little or no thought about how the value was determined other than market forces:

Long distance charges – I remember when 25 cents a minute was a bargain. When charges were dropped to 10 cents we couldn’t believe it! Now it’s practically free on a per minute basis.

Newspapers – Some people still pay to get the weekly and/or weekend edition of their favorite newspaper. Others go online and see the same stories…for free! You could argue the online version is more valuable because it’s portable, updated multiple times and day and doesn’t create any waste.

Movies – We used to drive to Blockbuster and pay $8-$10 to rent two or three movies for the weekend. Now many of us watch nearly unlimited movies and shows on Netflix for just $8 a month.

In each instance what we paid and what we felt was a good deal, or bad deal, was impacted by the anchor because it served as a comparison point.

There are some things we can’t change and have little room to barter on. That’s why most Internet plans are in the ballpark of one another. But when it comes to things like buying homes and cars you should recognize your purchase price will be heavily impacted by a list price for a home or the MSRP (manufacturer’s suggested retail price) for a new car. You would do well to do some research beforehand and go into those situations with your own anchor to start bidding from. And remember this tidbit for negotiations; the person who puts out the first number sets the anchor and most of the time the negotiated price will be close to that number. Don’t let a good deal get aweigh from you.

 

How Do I Love Thee? Let Me Count Just a Few Ways

“How do I love thee? Let me count the ways,” is a famous line from an Elizabeth Barrett Browning poem. Counting the reasons you love someone (or like a friend, enjoy your car, prefer a certain store, etc.) is only good advice if you don’t have to count too high. In fact, I’ll go so far as to say don’t have people count past one hand. Allow me to explain.

I’ve been rereading Daniel Kahneman’s Thinking, Fast and Slow. If you want a great overview of how your subconscious and conscious minds work then you’ll want to pick up his book. He touches on our irrationality, similar to Dan Ariely’s work in Predictably Irrational, heuristics (click-whir responses) as mentioned by Robert Cialdini in his classic Influence Science and Practice, as well as many other concepts about how our minds work.

As I’ve been reading I’m struck by the reality that our minds work in ways that are quite often opposite of what we might expect. For example, who would be more persuaded to buy a BMW? The person who is asked to list a dozen reasons BMWs are great cars or the person who is asked to list just three reasons? Most people would intuitively guess the person who lists a dozen reasons. After all, if you can come up with 12 reasons it must be a good car, especially when considered against just three reasons. Unfortunately you’d be wrong.

In several different studies cited in Thinking, Fast and Slow, Kahneman clearly show people who are asked to generate fewer reasons are more persuaded than those who have to come up with many more. Why is this the case? If you can easily come up with three reasons you are probably pretty confident a BMW is an excellent car. However, if asked to come up with lots more, and you do so but struggle in the process, you start to wonder if the BMW is really as good as you think. The struggle allows doubt to creep in.

This feature of thinking is common to all people. When we can quickly come up with a few reasons we are for gay marriage or against it, for a political candidate or against the candidate, for tax increases on the wealthy or against them, or for or against anything else, we will be even more confident that our position (for or against) is the correct decision. However, if asked to list many more reasons we might just wonder how strong our case really is.

Pause to consider this if you happen to be in marketing or sales. Inundating people with reasons your product or service is the best might not work as well as hammering home three to five reasons because your prospective customer will probably easily recall two or three of those reasons. However, a laundry list of why your offer is so great will only work against you!

There’s a saying, “Sometimes less is more,” and it’s certainly the case when you want someone to believe your product or service is the right one for him or her. By the same token, when it comes to love, “How do I love the? Let me count the ways,” will work much better if you save your loved one some time and energy and just ask them to tell you two or three things they love about you!

No Pain, No Gain – A Sports and Persuasion Motivator

It’s almost August and football season is right around the corner. All across the country football coaches from Pee Wee leagues up through the NFL are exhorting players to push themselves to be the best they can be. Many will go through grueling workouts; some enduring “two-a-days” and a familiar cry from coaches will be “No pain, no gain!”

I remember my high school football coach repeating that phrase many times during my three years of varsity football. The meaning was simple – sacrifice now and reap the rewards later. Lifting weights, running wind sprints, repeating drills, and long practices in the hot summer sun would all be worth it when we achieved victory on Friday nights under the lights in front of our parents, friends and community.

In persuasion, “no pain, no gain” has a different meaning but can lead to success just as is did on the gridiron. When trying to influence others it’s good to know this simple concept – people are more motivated by what they stand to lose (pain) versus what they might gain. This is a form of scarcity.

The late Amos Tversky, a cognitive and mathematical psychologist, and Daniel Kahneman, a psychologist, studied this phenomenon of human behavior. In fact, Kahneman won the noble prize for his work in this area in 2002.

Here’s what Tversky and Kahneman learned – people experience the pain of loss anywhere from 2.0-2.5 times more than the joy of gaining the same thing. So imagine you find $100 bill on the way to your car after work. You’re elated! You drive home with a broad smile, feeling great about your good fortune. You pull into the driveway and walk into your home with extra spring in your step. As soon as you see someone you begin to tell him or her about your good fortune. You reach into your pocket to pull out the big bill…and it’s gone! How do you feel at that moment? Odds are you feel much worse than however good you felt when you found it. And here’s your litmus test; you left the house in a good mood without a $100 bill, got home without the $100 bill, but now you feel bad…really bad!

Why is this important to know? Sometimes you have a choice about how you’ll frame a request – highlight the gain or highlight the loss – and that small decision could be the difference between a “Yes!” or “No!” quite often.

In one study of homeowners by the University of California, people were given energy saving ideas. One group was told if they implemented the recommendations they would save an average of $180 on their electric bill over the next 12 months. Another group was told they would lose $180 during the next 12 months if they didn’t adopt the recommendations because they would overpay on their electric bill.

It’s the same $180 but when the group that was told they would lose heard this, 150% more decided to implement the energy saving recommendations. That’s a pretty significant difference just by changing the way information was presented. It costs no more to say it either way but the end result was huge.

What does this mean for you? Next time you present to someone think about how you might highlight potential loss instead of what someone might gain. For example, if you’re in financial services encouraging someone to save a bit more could make a huge difference in their retirement.

Gain Approach – Bob, if you can find a way to set aside 1% more of your income that could mean an additional $250,000 by the time you retire.

Loss Approach – Bob, if you can’t find a way to set aside 1% more of your income that could mean losing $250,000 by the time you retire!

The financial rep employing the loss approach will be more successful over the long run and clients will appreciate the advice when they hit retirement because they’ll have much more in their bank accounts.

I’m not encouraging you to be a negative Nellie but I am encouraging you to use language that scientific research has proven will be more effective in helping you hear “Yes!” That’s what this blog is all about – making small changes in your persuasion approach with people in order to generate big differences.

Influencers from Around the World – Thinking Hurts!

This month’s guest blogger in the Influencers from Around the World series is Cathrine Moestue. Cathrine emailed me her article all the way from Norway! She one of the 27 Cialdini Method Certified Trainers (CMCT) in the world today! If you’d like to connect with Cathrine you can do so on FacebookLinkedIn and Twitter. I know you’ll enjoy “Thinking Hurts!”

Brian, CMCT
influencepeople 
Helping You Learn to Hear “Yes”.
Thinking Hurts!
Remember the love song from the Scottish rock band Nazareth called ”Love Hurts” from 1975?  Well it turns out more good things in life hurt too, like thinking. Daniel Kahneman, a Nobel  Prize winner in economics, in his latest book Thinking Fast and Slow, explains why thinking hurts – we have two systems in our brains. He calls them rather simplisticly ”system one” and ”system two.” System one is fast, intuitive, and emotional whereas System 2 is slower, more deliberate, and more logical.
Kahneman exposes the extraordinary capabilities – and also the faults and biases – of fast thinking, and reveals the pervasive influence of intuitive impressions on our thoughts and behavior. We are not rational decision makers but highly influenced not only by external stimuli but by our very own way of thinking.
Our biases become evident when we are overconfident about our corporate strategies. We are greatly affected by loss aversion, and our cognitive biases have a profound effect when we invest in the stock market. However, even more importantly they explain why we are faced with challenges of properly framing risks we encounter at work and even when it comes to our national security!
Recently  Norwegians were presented with evidence of how painful our cognitive biases can be. Last week an offical report stated the Norwegian police could have prevented the bombing of central Oslo and caught mass killer Anders Breivik faster than they did. Presenting the almost 500-page report, the inquiry team questioned why the street outside the prime minister’s office, Grubbegata, was not closed to traffic as had been recommended seven years before.
Even our prime minister knew it was a security risk but somehow he couldn’t make a descion to do anything about it. Something else must have been seen as more important, or maybe he thought someone else took responsibility for it. Either way it seems like a classic example of system one thinking, where self-defense prevails, and in reality not much thinking is actually being done at all. Our prime minister is only human and this issue concerns us all. We are blind to our own blindness about our how we think.
The report also notes that a two-man local police team reached the lake shore at Utvika first, but chose to wait for better-trained colleagues rather than find a boat and cross to Utoeya themselves. This waiting cost many lives, and the “Clint Eastwood” mentality was nowhere to be seen, unfortunatley.
When the consequences are not just loss of money, but the loss of lives, young lives at that, the knowledge of influence and decision making becomes rather more urgent, rather more pressing.
The good news is that raising our awareness of the  principles of influence (the shortcuts we use while making desicions) combined with understanding the process of thinking  (system one and two) we have a powerful new tool. A tool that we can use to become more effective in any organization.
Even though the report mentioned here can be seen as a national humiliation there is one Norwegian company that really glows in the dark; the architectural firm Snøhetta (named after one of Norway’s tallest mountains). Fast Company ranked them on its list of the worlds most innovative companies in 2011 and the company has won culturally significant, emotionally powerful commissions such as the Bibliotheca Alexandrina, in Egypt, the new 9/11 museum pavilion at New York’s Ground Zero; and the redesign of Times Square. This Oslo and New York based company has really taken seriously that thinking hurts.

 

If you are the most innovative architectural company in the world you do not have a choice, you have to get out of your mentally lazy state, out of the comfort zone, out of the box thinking and into system two where creativity lies.

Snøhetta has created a method of putting itself in other people’s shoes; it fools its system one by approaching any new project with a change in roles.

The architect must think like the artist, the artist must think like the architect, the economist must think like the sociologist and vice versa. When you hire Snøhetta, in other words, you don’t purchase a signature building (though you’ll probably get one in the end). You buy into a line of thinking, and a process that aims to place equal emphasis on architecture, landscape and social engagement. It is this flexibility of thought and of cooperation between departments we all have something to learn from.

 

Thinking, Fast and Slow is not only a unique book but also part of an intellectual revolution in which social psychological ideas have a profound influence on politics and economists, at least in some countries. Robert Cialdini’s seminal book Influence Science and Practice has been credited for being the key mover of this thought revolution. Indeed, Cialdini, along with a team of behavioral economists including Dan Ariely, Cal Sunstein and Daniel Kahneman, was called on by Barack Obama to help him win the presidency in 2008. I only wish our government had been as foresighted. Thinking hurts but if we want to improve we better get into the habit. The “No Pain – No Gain” slogan seems to be true for sport, business and politics.

Cathrine Moestue, CMCT