Ask The Experts - Dan Ariely ANSWERS! Part 3 (4)

A couple of months ago, we asked you what questions you'd ask world expert in irrationality Dan Ariely. Dan Ariely is the New York Times best-selling author of "Predictably Irrational", professor of behavioural economics at Duke University, and a repeat speaker at TED where his talks have been watched more than 7.8 million times.

We collected your questions for Dan, and we sent our crack interviewer Alex Tsatkin, aka the Angry Russian, to ask those questions of Dan in person in San Francisco.

And now... you have your answers!

Because the interview was massive, we've split it into parts.

Here's Part 1 of the interview, in which we learned about Dan's recommendations for entrepreneurs, social norms vs marketing norms, what mistakes most businesspeople make, and what makes you love a product.

And here's Part 2, in which Dan explains the key difference in how we interact with mobiles compared to desktop, and talks about the company he thinks exploits irrationality really effectively.

This post is the third and final part of the interview, in which we showed Dan a Rules Lander and asked him to comment on it from a psychological point of view - plus, we ask him about dishonesty in marketing...

Let's go!




Alex: Very interesting. What was great about your answers, I think you covered a lot of the questions I had so that's great. We touched on it briefly but the only thing I want to talk a little bit more because I know that the viewers are going to love this is that landing page that you saw (Editor's note - we showed Dan a standard, non-adult Rules Lander). The way they want to approach it is, first, why do you think it works? What would you do to improve it? Just talk about the mindset, how it's working on a deep level for visitors of that site.

Dan: You can think about landing pages in two ways. You can think about them as a funnel, where you basically say, "I get people and I want to sort the serious versus the non-serious." Sorting the serious from the non-serious you could say, "What is a good way to sort those people out?" Think about the difference between eHarmony and Tinder. eHarmony you have to go in, you have to answer, I don't know, 800 questions. At Tinder you have to do this. Who do you think gets more serious people who are interested in relationship? Tinder you basically, the friction is so low that you get everybody out there. That's fine. It's a different business model. If you want to find a long-term relationship you might want to go to serious people. If you want to find people who are interested in hook-ups that's a different story.

Most funnels are about people who are really interested and not just people who are checking out. One approach is to say, "Let's think about what's the eHarmony version. How do we get people to tell us that they're serious and therefore we get qualified people?" I think that's one of the things that happened. If you have a multiple-stage process where you have to answer things. The other approach ... The other part of it. It's not a different approach. It's just complimentary. It's about giving people fuel for their motivation. You could say, "People already know what they want and I just want to sort them into interested people and not interested people." The other approach is to say, "People don't know what they want. I want to give them extra incentives to want that." From that perspective, I think, getting people to recognize their preferences and think about themselves is actually very helpful.

I'll tell you about the study we did with the insurance company. People called this insurance company and they wanted a quote. Now, what did they think about? Money. That's it. This insurance company told us that they sell expensive, but good, insurance. I can't verify, but that's what they said. What we asked the salespeople to do is to ask the clients who called, to say, "On a scale from one to seven, how important is it for you to get the kind of insurance that will let you sleep well at night?" What did people answer? Seven. We were not really interested in their answer. We wanted them to remind themselves that that's what they were interested in. What does that mean? It means that sometimes the funnel process is not just to sort people. It's to truly get people to focus on the things you care about.

Think of it as a reminder of what you really care about. There's a whole universe of things you can think about, relevant, not relevant. Mostly we think about the subset of things. Our brains are full with all kinds of stuff. "Yes, I'm kind of interested in this, in general." What if you could basically remind people about how interested you are in this approach? You use the funnel to reinforce that. That's the second component. The third component is to use the funnel to convey quality. In that particular funnel it basically says, "We just want you to realize that you could be doctors and lawyers and all these people who are on this site, and you have to respect them." It's not just a funnel. It also tells you something about the service.

Imagine that if you did not have the doctors and lawyers and all these professionals. Who do you think are the people who are signed up for this on the other side? All of a sudden you're using that as a way to convey the information. Say, "Look. This is a really special site. This is where all the doctors and the lawyers are. If you want to participate there's a respect that we need. This is the reason you're doing this." Think about all of those. Think about the eHarmony approach. Think about getting people to focus on what they really care about and why they're there, and also conveying information about how nice this is.

Now, in addition to that, I want to tell you about one more piece of research. This is a piece of research by Mike Norton, one of my favorite researchers. He looked at Kayak. Imagine three versions of Kayak. One version you search online, you press enter, boom, you get the answer immediately. Another one you search, you type return, you get a blank screen with a little wheel, turns for 10 seconds, and then you get the answer. How much people, you think, like the second one? They hate it. It's terrible. Condition number three: you search, you press enter, but then you get 10 seconds of the screen filled with what Kayak is doing for you. We're searching United. We're searching American. We're re-sorting all the things. You can see all the things happening in front of you. Immediately is good, waiting 10 seconds is terrible. What about waiting 10 seconds when the whole 10 seconds are filled with what they're doing for you? It's better than not waiting at all. Why? Because all of a sudden you have a deep sense of appreciation for what they're doing for you.

Many times we don't think about appreciation of what they're doing for me. Here's the thing. You go to a site like Kayak and you ask yourself, "How good is the result?" What if you don't trust them fully? Now they spend 10 seconds showing you how amazing they are. Is your trust in the product actually higher? There's other things you could do to basically convey to people the quality of the product. In that example you gave me we said, "Who are the people who are there?" as an indication of the quality of the product. There are other things you could do to basically give people a sense that this is the right thing for you, that's there's actually no chance that you could regret it, because we have done so many things for you that this is the right approach. If you think about confidence, that this is the right recommendation, there is a question of how do we build confidence? I think if you thought about all of those elements, funnels would become more effective.




Alex: I want to touch on what your research has moved towards. In the last few books, and now you worked on the documentary about cheating, I want to understand a little bit better how you view it in the context of online marketing, for example. There's always stories of people cheating the systems. There's obviously companies out there that incentivize ... Touch upon it. Do you think it's happening because the market allows for it? Why are people pushing the boundaries when it comes to the marketing tactics and what's allowed?

Dan: A couple of things. Here's a general way we test dishonesty. We give you a die and we say, "Toss the die and we'll pay you whatever it comes up on. Six, you get $6, five, $5, and so on. You can get paid based on the top side, or the bottom side, but don't tell me which one you want." I would say, "Alex, please pick a side, top or bottom. Don't tell me, you picked." Now you roll it. Let's say it came with five on the bottom and two on the top. I would say, "What did you pick? Top or bottom?" Now, if you picked bottom you say, "Bottom," and you get $5. If you picked top you have a dilemma. Do you say, "Top," and get $2 or do you change your mind and get the bottom. We do it 20 times. Every time you think top or bottom. You roll. You tell me what happens.

The result is that people cheat a little bit. People are extra lucky. They get the high side more than 50% of the time. We see that almost everybody cheats. People cheat as their ability to rationalize. "Everybody is doing it. I'm just getting my share. People know," lots of stories. "I deserve it. This is the way I need to maximize the shareholder value of my business, just for this quarter." People make lots of stories about why this is okay. We get this system where lots of people cheat. Here's the thing, trust is a public good. When we have a society with high trust everybody benefits, and when we have a society with low trust everybody suffers. Do you know the story about the tragedy of the commons?

Alex: Yeah.

Dan: Do you remember? The original story was that there was a piece of grass and each farmer had one cow and as long as each farmer had one cow everything was fine. One farmer brings two cows, now the rate at which the grass goes down is a little too high. It doesn't grow and all the cows are malnourished. This is what happened with over-fishing. You have fish in the ocean. If everybody fishes just at the rate of replenishing everything is fine. We keep the amount, but if one fisherman said, "I really want to make a killing," they fish so much that then there's not enough fish. I think the world is like that in many ways.

Think about, how much trust is really needed on the internet? Really quite a lot. You're putting your credit card, and sometimes you put your debit card, which is even more dangerous. On eBay you trust that people would send you something. You trust that this will not be fake merchandise. There's lots of things about trust. What happens as we have instances of trust violation that become incredibly salient? The trust in the whole system goes down. I think that this marketplace on trust is incredibly important for marketers. I actually think they need to do something to prop it up. Think about physicians. Two hundred years ago physicians were people that were untouchables. They would go with the bag from patient to patient. People thought of them as dirty and dealing with death. Maybe more than 200 years ago.

Physicians have done tremendous things to create their profession. White coat, a stethoscope. You come to them rather than them coming to you. They created the American Medical Association. There's all kinds of things. They created certification. You have to go a really long time to medical school. I'm not saying that they planned it. Technology has improved and so on, but what happened is that the profession needed a tremendous amount of trust in medicine and they did lots of things to allow us to trust them to a tremendously high degree, to the extent that you let somebody cut you open, you take somebody's advice over what life-threatening treatment to take.

I think marketing organizations, particularly online, need to think about something in that direction. I'm not saying that extreme, but without it there's a chance that a few rotten apples will spoil things for everybody. Think about something like car dealers. All kinds of small things could really destroy for society, so how do we make sure that doesn't happen? That's incredibly important.



Alex: Do you want to talk about anything else specifically on your end that you're working on?

Dan: Let me say one more thing that I'm very interested in.

Alex: Okay.

Dan: Another thing that I think is worthwhile thinking about is what we call "implementation intentions". Here's a study we did. We gave people a coupon that says, "Spend eight dollars, get a dollar off." We did it in a little supermarket that the average sale is $5. People basically buy a drink and a sandwich. This is a conditional coupon. You're at five, spend eight, get a dollar off. Sometimes we gave people the coupon before they entered the store. We were basically nine feet before they entered the store. Sometimes we gave it to them maybe 30 seconds after they entered the store. What happened? The coupon worked very well before they entered the store. It didn't really make a difference after they entered the store. Why is that?

It's because when we go into the store and we ask people what you want to buy, they have very vague notions of what they want to buy. Because they have a very vague notion you could influence what they're going to get. The moment you have a concrete idea of what you're going to get and you say, "I'm going to get this sandwich and this Coke," now it's really hard to get people to do anything different. I think we need to understand, basically, the timeline of people's mindset in terms of what they're interested in. If you think about a vacation, if you're really far in advance, you think in terms of very broad goal perspective. "I want to go on vacation," and so on. As you get close to it you think about, "I need to get a passport. I need to get somebody to water my plants. I need to figure out how to get the mail."

We really need to understand where people are on their journey of thoughtfulness. For small things like, I don't know, buying a key chain, maybe not a big difference but for purchases about cars, where are you in the process, and how abstract and how concrete you are. How do you help people on this journey, I think, is very important. What if we thought about people's mindsets and we tried to think about different types of ads and different types of messages that would appeal to people at different stages of thought processes? Just think about buying a car. Buying a car process takes a long time. What is a good ad for the early stages? Do you basically want to talk about a specific car or do you want to talk about cars in general and types of cars? Then you want to help people. Say, "Okay, this is the type of car. We'll come back later on to figure out things that are more specific." I think that if we did something like that we could hold people's hand in a much better way throughout this process.

Alex: What is this called?

Dan: The general principle is called "implementation intentions". The idea is that you have some general idea and then the question is, when did the idea become concrete? When the idea is general you're open to suggestions. When it becomes concrete you're in the execution mode. In an extreme way think about which of those do you approach? Are you in the execution mode? It's a very different story if somebody wants to buy a car and now you're just helping them figure out where it is, or they're in this general process in which they are not sure you want.

If you came to me for advice and you were in the general process we would talk about very different things: what kind of family you have, what's the hope for the car, what makes you happy, and so on. If we talk about implementation, if you were in the intention, the execution, part we would talk about, "When do you need it delivered? What color do you want? Do you need a coffee holder?"


Alex: Awesome. Awesome. Dan, thank you so much.

Dan: My pleasure.

Thanks very much to Professor Dan Ariely for the interview, and a big round of applause to Alex "Angry Russian" Tsatkin for his amazing turn as interviewer!

Excellent interview. Angry Russian did a terrific job.

Wow! Thanks for asking the lander question, the answer is VERY interesting!

Dan is just amazing.

Dan Ariely's book, Predictably Irrational, is amazing.

I wrote a review here:

We assume we know what is best for us, and we assume we make the right decisions for ourselves.

Unfortunately, we fall victim to our own internal processes that cannot be readily controlled, we act irrationally (as the entire book suggests).

I'll briefly cover my relative interpretation from each chapter.

1. Truth About Relativity: Everything is relative to your knowledge, experience, wants, needs, right down to the environment and moment. Being objective is difficult, no matter who you are.

2. Fallacy of Supply and Demand: If there is less of something, then the price changes, right? Well, retailers would want you to believe this, when they decrease/increase the price on something. We buy more when we think there is a discount, yet, in reality, we are being 'guided' to buy things when the retailer wants to sell. Prices are all made up.

3. The Cost of Zero Cost: FREE! is a huge motivator, and will get us to give up quality, and time. FREE is due to 'loss aversion'. We feel like we are losing if we pay money, so FREE sounds better. Even if that something free is garbage.

4. The Cost of Social Norms: We are happy to do things for others, but when we are paid to do them, it becomes a 'market transaction'. Doing a favour for someone is more meaningful, but if they pay you, they are putting a price on your time, and this can be offensive.

5. The Power of a Free Cookie: If you give something away for free, then it's value is relatively low. But what if you made people PAY for that same item instead. They end up valuing it more.

6. The Influence Of Arousal: Under normal conditions, men will reject many sexual scenarios, including sex with older, overweight, unattractive women. But when sexually aroused, men become different people, and that same scenario now makes more sense. Same goes with sex when the woman says no, or slipping something into her drink. Sexual arousal will make men do stupid things.

7. The problem of procrastination: Willing yourself to do something you don't want is very difficult. When a task is ordered by a superior, that person completes the task on time. But chronic procrastinators will wait until the last minute, AND perform worse. Motivating yourself is difficult.

8. The High Price of Ownership: We overvalue what we have. 90 Day warranties will trick you into wanting to keep an item. Having a feeling of ownership will get you emotionally attached to the item/event/whatever. Hoarding can result.

9. Keeping Doors Open: We habitually have a hard time closing doors (opportunities, whether good or bad). This is an 'aversion to loss' again. Even when this is not economical, based on time, money, or energy. Close doors that no longer benefit you.

10. The Effect of Expectations: Stereo-typing, and 'self-fulfilling prophesy'. Have a professional violinist play in a subway, and he is ignored. Take an average violinist and put him in a concert hall, and his music sounds better, and you appreciate it more. We bias ourselves into loving or hating something.

11. The Power of Price: a 1 cent aspirin vs a 50 cent aspirin. Both are chemically the same, yet, the 50 cent 'feels' like it works better. Higher prices give us a placebo effect of working better, or being better overall. We value higher prices more, even if they are the same (Brand names).

12. The Cycle of Distrust: Give away free money, and people instinctively believe there are conditions. This is because marketers/sales people are prone to lying, and scamming (cable companies, bank companies, whomever else).

13. The Context Of Our Character, Part 1: Humans are a dishonest bunch. When given the opportunity and safety to cheat, they will. Cheating is rampant in professional firms, governments, agencies, etc. Cheating can be circumvented by signing a 'declaration of honesty', or even recalling religious scriptures and laws (ie. 10 commandments) before engaging in an activity.

14. The Context Of Our Character, Part 2: Why Dealing with cash makes us more honest. When we directly think about cash, most people will not steal. But office employees in the US commit about $600 billion in crime every year. This includes theft, under the table deals, and other white-collar crimes, filing false claims and so on.

15. Beer and Free Lunches: This last one is about social conditioning. Let 4 people publically choose free beer, and they will choose different brands each. But let them choose privately, and they will choose their actual choice. Social conditioning in the US makes us individualistic. But in Hong Kong, people wish to conform. Cultural differences in conformity.

These are just a few of the ways we are irrational. Go figure. Think before you act

One of the best behavioural economics, sociological, psychology books of all time. A+++