Wednesday, February 12, 2020

Rational Walk Reviews Rory Sutherland

Readers who have been with us for a while know I get a kick out of Ogilvy's Rory Sutherland. He's a first rate marketer and enough of a behavioural scientist to be able to hold his own in conversation with Kahneman.
Additionally, he holds, along with Berkshire Hathaway's Charlie Munger, that most nebulous* of corporate titles: Vice-Chairman.
Here's his latest book reviewed at Rational Walk:
In Praise of Irrationality 
The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.”— David Ogilvy

Beautiful equations are seductive. Mathematics brings logic and structure to a complicated world and allows us to make sense of things that once seemed inexplicable. In hard sciences such as physics, mathematics represents verifiable truths in the physical world such as the rules of planetary motion. But we need to know the limits of mathematics to avoid being seduced into false precision and delusional conclusions in areas where equations fail to model reality.

Given the success of mathematics as a tool to model many aspects of the physical world, it is not surprising that academics in other fields would attempt to bring mathematical rigor and credibility to their areas of expertise. However, when it comes to social sciences such as economics, we enter into the realm of human behavior which has yet to be reduced to a set of beautiful equations. Human decision making is amazingly complicated, messy, unpredictable, and often seems highly irrational. It is simply not possible to represent human decision making as precisely as we can represent planetary motion or nuclear reactions, but that has not stopped economists from trying.

Rory Sutherland’s book, Alchemy, is a highly entertaining look at the pitfalls that await those who seek to reduce human behavior to a set of equations. Sutherland’s background as Vice Chairman of Ogilvy has put him in a great position to observe the seemingly irrational aspects of consumer behavior. However, his observations extend well beyond tips for marketers and touches on important aspects of human psychology and decision making. As Nassim Nicholas Taleb has pointed out, any book worth reading cannot be “summarized”, and that holds true in the case of Alchemy. The book reads like a series of short essays arranged into various themes, but all center on Sutherland’s opening quip that “the human mind does not run on logic any more than a horse runs on petrol.” However, it would be a mistake to think that this means there is no rhyme or reason behind human behavior. We need to focus on what people are really trying to accomplish which often is very different from what they appear to be trying to accomplish.

Before discussing a few of Sutherland’s ideas in more detail, it is worth taking a brief look at his “rules of alchemy” presented at the start of the book:
Rory’s Rules of Alchemy
  1. The opposite of a good idea can also be a good idea.
  2. Don’t design for average.
  3. It doesn’t pay to be logical if everyone else is being logical.
  4. The nature of our attention affects the nature of our experience.
  5. A flower is simply a weed with an advertising budget.
  6. The problem with logic is that it kills off magic.
  7. A good guess which stands up to observation is still science. So is a lucky accident.
  8. Test counterintuitive things only because no one else will.
  9. Solving problems using rationality is like playing golf with only one club.
  10. Dare to be trivial.
  11. If there were a logical answer, we would have found it.
Reading through these rules provides a flavor of Sutherland’s overall philosophy of human decision making which he refers to as psycho-logic. Far from appearing “rational” or “logical”, Sutherland’s notion of psycho-logical decision making has evolved over time to be useful rather than optimal. Psycho-logical decision making is roughly equivalent to the concept of using heuristics, or coming up with problem-solving approaches that are “good enough” for our purposes, even if they do not always yield the best results....
*I must say though that the Russian metals guy with Chief Head as his title is in the running.