17 August 2016

Loss Aversion in a Package

We bought a set of two HP ink cartridges (black and color) and they came in this packaging.

Even if we know that we were supposed to get two cartridges and paid for two, seeing the packaging with three slots (two with the cartridges and one empty) creates the feeling that “something is missing”. It’s like there were supposed to be three and you only got two.

This packaging is a waste of materials and induces a negative affect (feeling) in clients. Why HP? Why?

I am conducting a pilot study on employee experience and I would appreciate your contribution. If you work as an employee, please join.

18 May 2016

Unlearning in Behavioral Science

Recently I came across various materials* which state that many of the things I learned in grad-school at Erasmus University aren’t as I’ve learned them. Among them are the bodies of knowledge on choice overload, priming, ego-depletion etc. (Just as a note, Erasmus Research Institute of Management is in top 3 European research institutes in its field, so I got top level education from highly qualified professors.)

* This piece by Jason Collins I found particularly interesting. 

Nowadays, there is serious doubt casted upon ego-depletion, studies on priming have been challenged on a wide scale, apparently, choice overload doesn’t manifest each and every time and, it seems that, the endowment effect doesn’t manifest in isolated groups of hunter-gatherers, which means that it is not an innate (evolved) human feature.

It looks like I have to unlearn many of the things I have learned.

That’s interesting.

Yet, I can’t simply delete from memory knowledge (information) on ego-depletion (just as an example). Even if I could delete information from my memory, in the case of priming there is no clear list or criterion on which results hold and which don’t.

The situation isn’t as grim as it seems at first glance, particularly for the applied part of behavioral science.

The fact that not every result found in a scientific study (lab or field) doesn’t hold in different contexts is not exactly news. Moreover, people who profoundly understand behavioral science know that there are some strong and some weak phenomena. For example, we know that loss aversion and mental accounting are strong phenomena and we also know / knew that priming is a weak one.

When doing applied behavioral science work, you want to rely on the strong phenomena. Sure, you can use weaker ones such as priming, but you can’t rely on them.

For example, when designing an intervention intended to keep a space clean, it is essential to rely on convenience of trash-cans and social proof (social imitation – more broadly). Yes, you can dispense a citrus scent (olfactory priming) to promote cleanness, but that is more of an add-on and not the core of the intervention.

We knew that priming studies aren’t exactly at the top of reliability and replicability, but most behavioral science specialists have learned about ego-depletion and many (most?) took it as a given.

Apparently it is not.

However, this doesn’t bring huge changes to applied behavioral science work. The most important practical learning from the entire body of knowledge on self-control and ego-depletion is:

Design is more powerful than self-control

And it holds true.

Maybe the self-control issues that we face are not due to ego-depletion; they could be due to fatigue, forgetfulness, lack of (availability of) attention etc. Yet, how we solve them remains unchanged.

The fact that choice overload doesn’t manifest every time and failures of choice architecture aren’t exactly news, either.

Choice architecture works ONLY when there is no clear pre-existing preference (i.e. the chooser faces ambiguity).

I have been saying this in my training on choice architecture since 2013 (when I joined the field).

If in shop A (men) shoes come in sizes 40-45 and in shop B they come in sizes 41-49, I will buy 43 in either shop, simply because that is my shoe size.
For more on this topic read To Be Clear on Ambiguity 
Fewer options to choose from is simply easier for the consumer (chooser), but choice is about a lot more than being simple to choose.

Take the example of Total Wine shop(s). This is what they say on their “about” page:

Our typical store carries more than 8,000 different wines from every wine-producing region in the world, including more than 2,000 wines not available in any other store. (source)

Through the lenses of choice overload 8000 different wines sounds crazy. According to the choice overload principle they should have went out of business a long time ago. Here are a few explanations why they’re still doing well.

First, when wanting to be “the place to go to for wines”, you need to have lots of wines.

Second, many wine enthusiasts seek variety and want to explore. (Others simply want to get drunk and probably have an existing preference for the wine with the best alcohol/ price ratio).

Third, a wine bottle is a low-impact purchase. If you buy something you don’t like it’s just a few (more) dollars spent for an interesting* experience.

*interesting is a word used when you don’t like something and either you don’t admit it or you don’t want to say it out-loud.

For full fairness, Total wine uses choice architecture and offers a lot of structured choice.

Just as a rhetorical question:

Why do we put choices about houses, retirement plans in the same category with ones about jams, wine and coffee?

This, however, is another story.

Coming back to the applied part of behavioral science: We have to test if our interventions work or not, thus we can assess in each particular case how the number of choices offered influences the outcome.

When doing applied behavioral science we have to take into account the bigger picture.

For example, if in a coffee shop reframes the “bring your own cup” discount into a surcharge for paper-cups behavior shifts towards the desired direction: fewer paper cups used. However, it may also lead to a decrease in clients who simply don’t like the idea of paying explicitly for paper cups, even if the total price is the same as at the coffee shop across the street where the paper cup is included.

Moreover, clients who intended, but forgot to bring their own cup will feel bad (due to loss aversion) for having to pay for a paper cup. Moreover, they will experience regret, which is one of those emotions you don’t want to have associated with your business.   

One of the beauties of science is that it evolves and if we are to be professionals in a field of (applied) science we need to keep up with it and, occasionally, unlearn things. 

6 April 2016

5 Things Successful People Do (Nick’s style)

Lists of N things about successful people are magnet for clicks. Yet, most (if not all) of these lists have close to zero practical value.
Successful people do lots of things, the main being being successful. The appeal for posts about what successful people do comes from an erroneous belief that doing what they do will make someone like them – successful. Apart from a difficulty in understanding the complex causality of success, there is an even worse flaw: not looking for disconfirming evidence.

Let’s say that successful people drink water, but so does everyone including people who are not successful (rich / famous), broke, homeless etc. The drinking water example is self-evident and the same flaw in logic applies to other things 
successful people do. Here’s a debunking (short) list:

1. They Never Make Excuses

So does a single mother of 3 who has a minimum-wage crappy job in an area with high unemployment. She doesn’t make excuses. She takes all the shit she’s given because the little money she makes puts food on the table for her three children. Moreover, there are at least 10 other people who are waiting to take her job.
So, NO! She doesn’t make excuses because she has no choice.

2. They Are Willing to Fail

So are / were all those who failed several times and still haven’t made it big. Taking risks is, indeed, a part of achieving success. At the same time, taking risks is what made lots of people bankrupt or even homeless. The very word riskinvolves (at least some) good luck if the outcome is positive.

3. They Wake up Early

So do bus drivers, taxi drivers, train drivers, people who work in coffee shops and dinners that serve breakfast, those who sell newspapers etc. Basically everyone who you see working during your morning trip to work has woken up at least two hours earlier than you did. Most of these jobs aren’t exactly known for their high income and career development opportunities.

4. They Believe in Themselves and their Vision

Again, so did those who failed big time! So do narcissistic idiots – believe in themselves and in their vision of themselves being awesome regardless of reality. So do delusional people and ones who suffer from paranoia (they believe in their vision).
So did all the horrible dictators around the world and throughout history. For example, Hitler strongly believed in himself and in his vision of exterminating all the Jews in Europe.
I am aware that some might argue that Hitler (and other horrific dictators) wassuccessful, but regardless of any arguments, I hope that the second most horrific dictator in the history of humanity (after Stalin, just in case you were wondering) isn’t a role model for anyone (in their right mind).  

5. They Work Hard

So do millions of people who work on minimum wage. If you don’t believe me, try waking up at 3 AM during a blizzard, go out and start shoveling. Working hard is related to success, but it is not the only thing. You can work hard and end up nowhere because you never had the opportunity. For example, if you’re an African American born and raised in the poor neighborhoods of Baltimore, your chances of getting out of poverty and ending-up in the top income bracket (i.e. reasonably rich) are slim at best, regardless of how hard you work. Lots of people work hard and barely make a living.   
NOTE: the 5 things about successful people I selected from the top 3 articles in the google search for “things successful people do”. For accuracy Art1, Art2, Art3
The key factor in success is luck. This, however doesn’t mean that working hard, being ambitious and not making excuses don’t play a role. Without making this post any longer than it should be:

Success = (Hard Work + Ability + Skill + Drive + Vision)*LUCK

For more info on judgement and decision making contact me via www.naumof.com 

4 April 2016

Seeking Mediocrity: Humans are Hardwired to Avoid the Worst, not to Seek the Best Outcome

You probably know about or at least heard of loss aversion: people dislike loses more than they enjoy equivalent gains:

Incurring a loss of 100$ hurts roughly twice as much as gaining 100$ brings pleasure.

We know that all humans are loss averse, to a greater or lesser extent. Why this is the case?

Living on the edge

One very elegant explanation comes from evolutionary psychology. Our evolutionary ancestors lived in environments with relatively scarce resources. Simply put, the resources available in a certain area allowed for survival and successful reproduction, but not for much more.
In this living on the edge setting, it is only natural to develop an adaptation that says: not losing what resources you have is far more important than acquiring new additional resources.

When one has barely enough resources to survive and successfully reproduce, not losing current resources is much more important than acquiring new resources.

Loss aversion is, probably, the most prominent element of an adaptation with much wider effects in judgement and decision-making which I will call a preference for mediocrity.

Economic theory sees people as maximizers – trying to make the best possible decision, trying to get as much benefit (utility) out of their actions and transactions. This is not exactly senseless. After all, who would want to get less when she can get more?

Yet, research in experimental economics and behavioral science found that people are not exactly maximizers; rather they are satisfiers. In plain language:

People don’t necessarily go for The Best, rather, most settle for Good Enough.    

This preference for mediocrity (something that is good enough) makes a lot of sense from an evolutionary perspective.

Imagine our evolutionary ancestors in the African Savanah looking for berries. There are three types of berries: (1) OK taste and OK nutritional value, (2) Delicious with very high nutritional value and (3) Poisonous berries.

When picking berries, from an evolutionary perspective, the most relevant goal is to not pick (and eat) the poisonous ones. Sure, getting more of the delicious ones is very nice, but the difference in benefit between getting OK berries and Delicious ones is smaller than the benefit difference between getting poisonous berries and getting OK berries.

The same broad pattern applies to mating, as well. While both men and women would love to find the best possible partner (in terms of gene quality and parenting quality) to have children with, the reality is that the most important decision goal is to avoid having children with the worst (bottom 10%) potential partner.

Let your imagination take you back to the African Savanah when our evolutionary ancestors lived. Every female would have loved to attract and mate with the healthiest, most handsome, most effective hunter and bravest warrior.  At the same time, settling for the OK-ish guy to have children with would be considerably better than having children with the least reliable male in the tribe.

For our ancestral grandmothers it was more important to avoid getting knocked-up by a deceiving male who would take the fruits and nuts she foraged and leave her alone to take care of their children, who, very likely, inherited some of his defects.

This preference for mediocrity was, most likely, shaped by evolutionary forces throughout millions of years. Not surprisingly, our judgments and decisions are influenced – guided by it even in the XXIst century.

Buying a used car

Nowadays, dealerships use the term of pre-owned car, probably, because it sounds slightly better. Regardless of how they’re called, used cars are a pretty tricky product to buy. They cost a handsome amount of cash and for most consumers cars are difficult to evaluate complex products. Simply put, the car can look great and work just fine for the next two thousand miles (km) and then collapse, leaving the new owner of a used car with huge repair and towing bills.

Our judgment in buying a used car is shaped by the same preference for mediocrity. Most sensible people want to buy a used car that is good enough and, most importantly, want to avoid buying a lemon.

Referring to the used-car-purchase example, in a recent interview, Rory Sutherland mentioned reputation-based heuristics as being effective tools in avoiding disasters. He mentioned that his first used car was bought from someone his parents knew because it was less likely to be cheated by someone who drinks in the same pub as his father.

When my wife and I bought our first used car, one of the sellers asked us to meet him in a supermarket parking lot in a rather dubious area. Comparing that with people inviting us into their home after we took a test drive, I believe we did the sensible thing when we decided to not buy the car we saw in the supermarket parking lot.

I believe that reputation and trust related heuristics are manifestations (second order adaptations?) of our preference for mediocrity.

Another adaptation related to the preference for mediocrity is the compromise effect: our tendency to choose the middle option from a well-balanced choice set. Probably the most used example of the compromise effect is the disproportionate choice share of medium coffee (drinks).

One of the reasons for which people choose the middle option (compromise) is that we want to avoid extremes, since they come with risks associated. The middle option is a safe one since the risk of getting too little quality / quantity is mostly related to the smallest and cheapest option, while the more expensive and higher quantity / quality option comes with the risk of overpaying or waste.

While the preference for mediocrity has a huge explanatory value of human behavior, it also has broad implications.


For applied behavioral science and behavioral design, the preference for avoiding the worst outcome (over getting the best possible option) suggests that removing barriers (anti-nudges) that prevent the desired behavior to occur might (will?) have a greater effect than trying to (actively) encourage the occurrence of the desired behavior.

For improving services and even for our own self-improvement, instead of becoming (even) better at what we already are good at, it might be a good idea to stop sucking at what we’re not doing so well (what we’re worst at).

Take the example of medical practices (offices). Many of the (negative) comments on Yelp regarding doctors concern over-booking, unwelcoming waiting rooms and not-so-pleasant clerical staff (e.g. receptionist). Another big chunk of both positive and negative reviews concern doctors’ bed side manners, or simply put how well they interact with their patients.

Medical competence and the quality of a medical act (e.g. diagnostics accuracy, choosing the right treatment) are very difficult to evaluate, particularly for people without medical training. The upside is that someone who managed to graduate from medical school and completed her / his residency, most likely, isn’t a bad (terrible) doctor.

When it comes to bed side manners and more practical issues such as scheduling, waiting room quality and clerical staff politeness anyone can assess them.

If you would run (own) a medical practice with negative reviews, the first focus should not be to hire even better doctors (from a technical point of view); rather your first priority should be to make sure that scheduling issues do not lead to (very) long waiting times, that the waiting room looks like it is from this century and work a bit on employees’ people skills.  

Such an approach would most likely not make the practice win any prizes or glorifying reviews, but at least it will stop annoying people and reduce the number of bad reviews. Moreover, it should stop the bleeding of clients who just take their business somewhere else.

The same approach works similarly for self-improvement. If someone is a very good specialist in given field, say statistics, but (like someone I know) isn’t all that great at social interactions (i.e. people skills), it might be a good idea to work on the later and not try to become even better statistician.

Let’s give some random, yet illustrative numbers. Mark – the statistician – is very competent from a technical perspective scoring 85 out of 100 on statistics skills. However, on social skills Mark scores only 15 (out of 100) and 25 is the threshold for not sucking.

If Mark is looking for a job, his situation isn’t great. Indeed he is a very good statistician, since most of the jobs on the market require a technical skill level of 70 (remember, Mark scores 85). Despite him being over-qualified for most of the jobs, it might very well be that he can’t find a job even if he is invited for some interviews.

Even in a job such as data analysis (statistician), one has to interact with other people, be able to write reports for non-statisticians and co-exist in an office environment. Mark may very well be rejected for jobs that he’s perfectly qualified because of his poor social skills. From a recruiter’s (hiring manager’s) point of view, very poor social skills are deal-breakers because someone who sucks at interacting with others will probably deteriorate the current team-environment, will most likely require more attention – which translates in putting more on the manager’s plate – and might lead to more serious disturbances in the work environment such as sexual harassment complaints from other employees. Most likely, Mark is neither a horrible person nor a sex-maniac. He just sucks at interacting with others.
Mark can either improve his statistical skills or he can improve his social skills. If he goes for the former, he could try to enter the narrow job market for hyper-specialists (95+ on stat skills) where being a jerk is tolerated (sometimes is part of the job description).

If Mark, however, decides to improve his social skills, then it is possible for him to reach the mediocrity threshold (25) where he’ll be seen as yeah, whatever, he’s not great, but won’t cause any trouble.  Only when Mark will reach this mediocrity level, will his very good statistical skills actually be considered.

I am aware that this is an over-simplification, but I believe I managed to explain the core idea.

Stop Sucking!

P.S. I've redone my website www.naumof.com so that now it doesn't suck (as much). Take a look!

2 February 2016

Look Beyond What You See! Loosing on One Hand, sometimes, Comes with Larger Gains on the Other

Not very long ago, I wrote a post regarding the not so fortunate habit of small entrepreneurs of focusing on loses on small mental accounts and ignoring the wider picture: Shooting yourself in the foot with loss aversion and mental accounting.

Recently I came across a very interesting article about the psychology of returning products (open in a new tab and read later).

Getting returns can be the worst thing possible for a small-shop keeper because she loses the profit on a previous transaction and, often, has to incur a larger loss due to the impossibility of re-selling the returned product. Moreover, receiving returned products involves some additional costs such as a dedicated employee, shipping etc.

In my country of birth – Romania – for several years after the fall of communist dictatorship, many shop keepers held a no return policy even if the product was faulty. In many cases this happened even after it was illegal to do so. Merchants didn’t want to take any loss on previous transactions.

Yet, according to the article mentioned above, things aren’t as bad as a (psychology naïve) shop keeper might think. Actually, making easier for customers to return a product (even if it has no “technical” fault), is good for business. Longer time spans in which a buyer can return a product and no questions asked policy are, in fact, good for business.

The psychological mechanisms at play are numerous and rather complex:
Endowment effect: the longer I have a product the more I value it because it’s mine,

Managing anticipated regret: because it is easy to change my decision – return the product – I feel less potential future regret with the purchase, thus I go along with it,

The affect heuristic: I don’t feel bad when I return a product, thus I like the merchant more etc.

In a nutshell, adopting more customer friendly return policies will increase the number of occasional transactions that are unprofitable (bring loses), but overall, more people will buy and profits will increase.

On a different line of thought, in Romania (my country of birth) smoking was banned in all public indoor spaces (except for jails). I know that in most civilized countries such bans existed for many years, but we’re a bit behind.

When the bill was still under debate, many restaurant and bar owners complained that if such a ban would be enforced they will lose a lot of business.

While it is very plausible that some smokers will go less frequently to bars and restaurants, there is another side to the story. Many of the 75% of Romanians who don’t smoke avoided going into smoky bars and restaurants. Some of them might go out more often and restaurants and bars can get business from them.  

We don’t know yet how restaurant and bar businesses will be affected by this complete ban on smoking (the law will be enacted starting March), but judging by the base rates – 25% of the population smokes while 75% doesn’t – I think that there is a good chance that the ban will be good for business.

The two situations described in this post: returning products and a complete ban on smoking in restaurants and bars can be seen as unrelated. Yet, there is an underlying commonality: We humans have a (bad) tendency to think that what we see is all there is. When a change takes place, we focus on the immediate imaginable things that will happen.

Both shopkeepers and restaurant owners focus(ed) on the immediate losses their businesses (would) suffer. Only after scientific research and deliberate thinking the opportunities (gains) became visible.

Look beyond what you see!

14 January 2016

4 Behavioral Science Reasons Why Recently Dead Artists’ Album Sales Sky-Rocket

A couple days ago, David Bowie passed and (apparently) his albums sell like warm bread during a famine. Nothing New! A few years ago, after Michael Jackson’s death the same thing happened (though, then with Michael Jackson albums; Bowie’s albums didn’t sell any better than before MJ’s death).

While from a Normative Economics point of view, this sky-rocketing sales phenomenon might seem irrational or, at least, puzzling, in fact, there are very good reasons (explanations) that come from behavioral science.

1: SALIENCE – Huge Media Exposure. While many music fans knew about David Bowie (read any recently dead musician), his name and music wasn’t in the media all that much in recent times. However, because he was (used to be) famous, the media from the USA to Romania and from the UK to Singapore mentioned his death accompanied by some kind of eulogy on his remarkable career.

When something is (very) salient, people tend to give it attention and even buy it.

2: SCARCITY. We are all suckers for things that are scarce. ONLY 1(2) ticket(s) left! When someone dies, they’re gone forever (famous quote by Captain Obvious), hence people want to not miss out on the last few albums by Bowie (or whoever).

This is particularly interesting. The fact that scarcity (not miss out on the occasion) motivates people to buy is well known for decades. The interesting twist is that music by a certain artist or any kind of information-product cannot run out. David Bowie’s music is already in digital format, which means that it can be multiplied endlessly. It goes the same with music from any other singer, with books, movies etc.

While the death of a singer means that (s)he will not produce more music, it does not mean that existing music will run in short supply. In fact, the music pieces that made someone famous (usually) are quite old by the time of the artist’s death. Thus, what is bought by many people is, in fact, old products.

Just as a note: New music by dead singers was released after their deaths… that is: previously unreleased old recordings (mixes).

3: SOCIAL CONTAGION. When the news gets out that lots of people are doing (buying) something, other people will follow (imitate) and do (buy) the same thing. This is more the case when the others have something in common with the decision maker (buyer). In this case, they are all Bowie fans.

4: STATUS ENHANCING THROUGH (COSTLY) SIGNALING. While owning a Bowie album was rather banal for most music fans, owning one of the (last) albums sold after his death is something worthy of talking about with friends, acquaintances, prospective mates (girlfriends / boyfriends) etc. In a nutshell, buying a Bowie album these days will give the buyer a reason (pretext) to brag (self-advertise) to relevant others.

RIP David Bowie and all other singers & artists who passed away! 

11 January 2016

The More You Buy, The More You Pay

Advertising for retailers often includes phrases such as The More You Buy, The More You Save. Yet the truth isn’t always so. While it is obvious that the more you buy, the more you spend, there is (should be) some truth / sense in the claim made by retailers.

Economic logic says that the more you buy, the less you (should) pay per unit. That is, if you buy 100 units of product X, the price per unit should be smaller than if you would have bought only 2 units of product X. This logic has its foundation in the concept of economies of scale.

Economic jargon aside, for most buyers it makes sense to buy a larger pack of X in order to pay less per ounce (gram) or other type of unit.

Retailers and manufacturers, however, know that most people are willing to buy in bulk (larger package) in order to get a better deal. Moreover, they know that buyers believe that if they buy larger packages, they get a better price per unit (save money!?).

Below are two examples in which buying a larger package, actually leads to paying more per unit of product.

The same trash bags cost more per unit if they are bought in a pack of 35, than in a pack of 20. A pack of 35 trash bags costs $5.49 (15.7¢ / bag), while a pack of 20 trash bags costs $1.69 (8.4¢ / bag).

It is the same product, same brand. You can take my word for it.

Going into a more appealing product category: beer, we find that Corona beer is cheaper in price per fluid ounce (ml) if bought in a pack of 18 cans (10.5¢ / Fl. Oz.) than in a pack of 24 bottles (10.7¢ / Fl. Oz.)