Wednesday, May 14, 2014 conversation with Rory Sutherland

The article is wide-ranging and interesting throughout. Rory Sutherland works in advertising and has several Ted talks. Excerpts below:

"No one ever got fired for buying IBM" is a wonderful example of understanding loss aversion or "defensive decision making". The advertising and marketing industry kind of acted as if it knew this stuff—but where we were disgracefully bad is that no one really attempted to sit down and codify it. When I discovered Nudge by Richard Thaler and Cass Sunstein, and the whole other corpus on Behavioral Economics…. when I started discovering there was a whole field of literature about "this thing for which we have no name" …. these powerful forces which no one properly understood—that was incredibly exciting. And the effect of these changes can be an order of magnitude. This is the important thing. Really small interventions can have huge effects....

...In the commercial world it's not in the interests of consumers to be rational. If you imagine a world of rational consumers where they all bought cars based on some formula, which was fuel economy multiplied by acceleration divided by depreciation or whatever it may be, what they would end up with would be really, really terrible cars. Car manufacturers would immediately game their predictable and easily understanding preferences and produce cars, which met all the metrics laid down for a desirable car, but the cars would be ugly, uncomfortable, and generally ghastly, and no pleasure to own. It is our interest, in a sense, as consumers to have a degree of unpredictability to our behavior and to be difficult to model. But homo economicus is really a contrivance in order to pretend that humans can be treated as though they were atoms or planets or something like that, which is a fundamental category error. It's what Hayek would call ".....a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."

Full article here

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