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 

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.

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!

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!

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! 

The Self-Defeating Fight against Vaccination Refusal

In reaction to the persisting decrease of vaccination rates in developed countries, public authorities, the media and non-profits counteract with information campaigns. In my opinion, this approach is self-defeating because it ignores the phenomenon’s behavioral realities.

1. Raising awareness is typical for information campaigns.

Articles with headlines such as Wealthy L.A. Schools' Vaccination Rates Are as Low as South Sudan's are well intended, but ignore the effect of social proof. When unsure what to do, people use others’ behaviors as cues for their own behavior. When faced with information on the increasing number of parents who refuse vaccination, others might interpret the message as: it’s OK not to vaccinate your children since others are doing this.

In many developed countries the overall situation is not as dramatic as some headlines indicate. The ideal vaccination rate is 95%+ which ensures herd immunity. The actual vaccination rates are somewhere in the 80-90% range. Healthcare professionals are worried mainly because of the trend and because of the real danger of losing the herd immunity.  As I understand the societal benefits of vaccination are not linear. Simply put, the societal benefit of improving vaccination rates from 80% to 85% is smaller than getting it from 90% to 95% (where heard immunity is achieved).

While from an epidemiological point of view a vaccination rate of 80% is worrisome news, from a behavioral science perspective things aren’t as dramatic. While most news focus on the increasing number of children who are not vaccinated, the upside is that the very large majority of children (in the USA) are vaccinated.

Saying that 20% of children are not vaccinated can be reframed as 80% are getting vaccines!   

In other similar situations, this type of simple reframing proved extremely effective in achieving behavioral change. Just as an example, many people have no problem buying a ham that is 97% fat free, but they would be very reluctant to purchase ham that is 3% pure fat.

Couple this reframing with social proof and you have a nice tool for reaching the goal of increasing vaccination rates.

Whereas headlines need to be dramatic in order to get clicks (or sell newspapers), public information campaigns need to be effective in achieving behavioral change – in this case get more children vaccinated.

Instead of relying on alarmist messages, why not simply say that the great majority (80%) of parents (in USA) do vaccinate their children.

Social proof and reframing of information can be used in even less favorable circumstances. A few months ago, I heard on the radio a commercial aimed at increasing the flu-vaccination rate. Unfortunately, the commercial said something like: “If you are one of the 65% of Americans who don’t get the shot, you can get the flu”.

Beyond the obvious errors in communication (from a behavioral science perspective), the reality of the numbers seems discouraging. When only (approx.) 35% of people get a vaccine, it is hard to leverage social proof – the great majority of people is not doing what is desired.

There is, however, a silver lining: 35% of the US population (311 million) is roughly 100 million people. Very likely, saying that over 100 million people (fellow Americans) get the flu shot is more convincing than 65% of Americans don’t get the flu shot.

   

2. Doctors are spokespeople in pro-vaccination campaigns.

The use of medical doctors as authority figures (recommenders) in communication has a long history. Doctors (or actors dressed as doctors) have recommended anything from detergent to cigarettes and from pharmaceutic drugs to diets.

While in many commercials using medical doctors as recommenders proved to increase the communication’s effectiveness, in the case of pro-vaccination (or anti anti-vaccination) campaigns is not exactly appropriate.  

Doctors’ presence and messages are reassuring for people who favor vaccination. However, those who are reluctant to vaccination don’t perceive doctors as authority figures, thus the message’s impact is severely diminished.

Simply put, in the eyes of (some) people who refuse vaccination, regular medicine is not trustworthy and so are medical doctors. Maybe herbalists, alternative healers etc. would be more credible.  

3. The rational message favoring vaccination is inadequate for tackling highly-emotional (false) concerns.

Strongly related to using medical doctors as advocates for vaccination is the messaging of pro-vaccination endeavors. Doctors dressed in their uniforms speak about the scientifically proven benefits of vaccination and talk about the serious dangers of not using this simple and effective prevention tool.

Although correct, this rational message is highly ineffective for those who oppose vaccination. Many anti-vaccination arguments have a high emotional load. Nobody (falsely) claims vaccines to cause kidney-failure – a serious condition with a low emotional load / fear-factor. Yet, all anti-vaccination advocates mention that vaccines can cause autism – a condition that has a high emotional component or fear-factor. By the way, vaccines don’t cause autism, but at one point someone made a false claim they did and the research has been proven to rely on faked data and the paper was later retracted. Yet, the legacy of fear left by that paper stands.

4. Vaccination’s benefits are Non-Events & the Availability Heuristic

The benefit of vaccination is very difficult to observe because it is a non-event – something that doesn’t happen. We humans are terrible at understanding non-events and in the case of vaccination things are even worse than in other situations.

Taking a step side-ways, I think we can all agree that a fire-fighter who goes into a burning building and saves a person (or cute puppy) is a hero worthy of public praise.

At the same time, the huge majority ignores other people who (indirectly) save many more lives from fires – the fire-safety inspectors: The bureaucrats who come with checklists and regulations, who generally are grumpy and somehow annoying because they keep insisting on even small features of compliance to fire-safety regulations.

These people save lives not by entering burning buildings, but by ensuring the conditions to prevent fires altogether and / or decrease the damage caused by fires.

The vaccination situation is somehow similar. Preventing a disease is not the same with curing one. A doctor who cured a patient with smallpox will receive many thankyou notes and will be held in high regard, but the nurse who gave thousands of anti-smallpox vaccines, thus preventing the disease, is still anonymous.

Earlier I mentioned that the situation is somehow similar. The high effectiveness of mass vaccination in preventing diseases, in fact, makes it more difficult to see the benefits of vaccination.

Let’s go back to the firefighter – fire-safety inspector illustration. The (paradoxical) reason for complying with fire-safety regulation is that there are enough (?!) fires to make the danger salient in our minds. Either in real life or in movies, fires are frequent enough to remind us that preventive action is needed.

In the case of vaccination things are a bit different. In developed countries recent cases of smallpox, poliomyelitis etc. are extremely rare. Mass vaccination led to having two-three generations free of such diseases and their devastating consequences. While during our (great-) grandparents’ childhood it was common for families to lose one or more children to diseases such as poliomyelitis, nowadays such instances are (almost) inexistent.

This is when the availability heuristic comes into play and distorts decision making on accepting vaccination.

The availability heuristic means that we judge the probability of an event based on the salience and frequency of memories of that event. We know of a lot of killings by firearms and very few suicides by guns, thus we perceive that there are more killings than suicides by firearms. The reality, however, is different: there are more suicides than killings by guns (at least in the US).

Because instances of terrible diseases that are prevented by vaccines are extremely rare and inconspicuous, we erroneously perceive the risk of not vaccinating a lot smaller than it actually is.

Here’s where movie makers can lend a hand. Instead (alongside) of scaring people with terrorist plots, doomsday scenarios etc. they could include more instances of people suffering and dying from poliomyelitis, smallpox etc.

5. Costs are in the present and benefits are in the future

   

Most people prefer 100$ now over 110$ in one year from now. This is an illustration of a psychological phenomenon called discounting future outcomes.

Vaccinations’ (non-event) benefits occur in the future (1-20 years) and, subsequently, are discounted in the present. The discomforts of vaccination– parents have to take their child to the clinic to get the shot, normal minor side-effects (fever, local swelling etc.) – are in the present.

The false dangers of vaccination allegedly occur very soon after getting the shot (in the present, not in the distant future).  

While it is impossible to change the nature of non-events and to eliminate the discounting of future outcomes, there are several things that can be done.

First, to tackle time discounting we can bring the benefits in the present. Naturally, vaccination’s benefits cannot be brought in the present (more so since they are non-events), but decreasing costs (hassle) in the present could be a great approach. In addition, although it might seem unethical, we could offer incentives in the present for getting vaccinated.

Second, to tackle the issue of non-events, we could try to make the immediate benefit more concrete by offering tangible rewards. As mentioned earlier, we could increase the frequency and salience of the dangers of non-vaccination and movies are the best way (at least in my view).

Workshops & Seminars on Using Behavioral Science in Health & Wellness  

 

Do I Really Need a Financial Incentive to Recommend a Service / Product?

Shortly after my wife and I moved to the USA, I noticed an announcement in the apartment building we live in that said: “recommend a friend to move here and you get 250$ when they sign the rental contract” (citing from memory). From an economic point of view this made perfect sense: you bring a client to a business and you get something in return.

Only later I realized that this type of incentive made sense when I saw it simply because, at the time, we barely knew anyone on this side of the Atlantic. A few months later, two former colleagues from Erasmus University moved from The Netherlands to the Washington DC area and they were looking for a place to live. We wanted to help them and showed them around the neighborhood. They were curious about the place we lived in and they came over to our place. To make a long story short, I got a business card from the leasing office of the building and gave them the information. The leasing officer (a very nice lady) mentioned that the offer of 250$ was still valid, so if our “friends” leased an apartment from them, we would get the incentive.

That was the moment when it struck me that this type of incentive scheme was faulty. Although I wouldn’t mind getting 250$, my motivation for recommending the apartment building wasn’t financial. We can pay the rent and I think, considering market conditions, that we get a reasonably good deal. We wanted our former colleagues to enjoy the same price-quality ratio. Moreover, the prospect of getting some cash out of the whole thing made me feel guilty. I truly, deeply hate the multi-level marketing approach. The relationship with our former university colleagues was social, not economical.  In fact, as someone who recently made the move from The Netherlands to the USA, we knew the costs and inconveniences it involved. If anything I would have preferred for our former colleagues to get the 250$.

Our former colleagues picked an apartment in a different neighborhood and the 250$ never left the real-estate company.

A similar case happened with a meal-delivery service we use. At the recommendation of my friend Arjan Haring (from The Netherlands) we tried Hello Fresh – a meal delivery service. In a nutshell, we pay each week 70$ and we receive a box with ingredients for three meals for two. This (type of) service is fantastic for foodies such as myself and my wife. We enjoy cooking and eating new stuff, but aren’t actively looking for new recipes and ingredients.  For our food experience, Hello Fresh is a blessing.

As we were very excited about this service, we talked about it with our few acquaintances in the US. Most of them seemed intrigued and curious about it.

In the first month(s) of using this service, Hello Fresh had an option for existing clients to “give a box” for free. It was an (a)typical approach for bringing in new business based on (existing) customer recommendations.

A bit later, however, they changed this “give a box for free” approach to a split incentive scheme. Basically, if we recommend the service to a “friend” and she subscribes, we get 30$ discount for our next order and the recipient gets 40$ off their first order.

While there is some economic sense in this split benefit approach, I began feeling uncomfortable recommending Hello Fresh. I wouldn’t mind 30$, but the financial incentive doesn’t match my motivation for recommending the service.

I recommend something because I want others to enjoy the service we think is great, not to make money out of it.

While in the case of Hello Fresh there might be some evidence-based reason for changing the approach to generate leads from existing clients from “give a free box” to split-benefit, there’s a big lesson to learn, particularly for marketers.

If you want to leverage your existing clients’ social relationships for your business, you need to understand their nature: SOCIAL.

Most people make a reasonably good distinction between social norms and market norms. The element that makes multi-level marketing utterly disgusting is that it perverts social relationships into (wannabe) market / business relationships.

Social relationships are based on imitation, reciprocity, status and alliances. Once you understand this, you can properly leverage them for your business’ benefit.

Simply put, if you want me to recommend your service to a friend (acquaintance, colleague etc.) help me enhance my social relationship with her/him. If you allow me to make a gift in the form of a discount, voucher or even allow me to offer them a full experience for FREE, that makes me look good, gain reputation etc. with the person with whom I am having a social relationship. This gain in strengthening my social status or relationship with someone I know (well) is, for me, more valuable than (the relatively small amount of) money you are offering as an incentive.

Marketing & Behavioral Science: www.naumof.com 

Is Overconfidence Bias All that Bad?

A while back Daniel Kahneman said in an interview that if he would have a Magic Wand he would eliminate overconfidence.

The article further elaborates on what Kahneman means: “Overconfidence: the kind of optimism that leads governments to believe that wars are quickly winnable and capital projects will come in on budget despite statistics predicting exactly the opposite.”

Source: Daniel Kahneman: ‘What would Ieliminate if I had a magic wand? Overconfidence’ 

Probably the best known example of overconfidence is that of newlywed couples who, very close to the time of getting married, unanimously say that their chances of getting divorced are zero. This, despite the statistical fact that around 50% of marriages end in divorce. If I’m not mistaken, even people who get married for the second time exhibit a similar overconfidence bias.

Without challenging the great Kahneman, I wonder if there isn’t a good (evolutionary) reason for why we’re all affected by overconfidence.

It goes without saying that the prediction: the war will be over by Christmas was wrong for both World War I and World War II. Naturally overestimating one chances of success when starting a war is detrimental – one starts a war.

However, there are lots of benign cases of overconfidence bias that have some positive impact, at least at a higher societal level.

Coming back to marriages: if, at the time of the wedding, we wouldn’t be overconfident about our marriages’ chances of success, we might never do it… and this includes those whose marriages last.

Having children is another case of overconfidence and is strongly correlated to marriage. Whether married or not, future parents underestimate the hassles they will face.

Overconfidence among (wannabe) entrepreneurs is widely known. Every entrepreneur believes she or he will bring to the world the next major business, paradigm-shifting tech product etc.

The statistical reality, however, is a lot more down to Earth. Most new businesses fail and the chance of creating the next big business is in the same order of magnitude of winning the lottery.

However, trying to start a new business brings some benefits at both societal and individual level. In order for a new business to benefit its owners it doesn’t have to be the Next Big Thing. In order for it to benefit society, it can be even a small business that works reasonably well.

With the risk of using myself as an example, when I started my first business (after successfully setting-up a student non-profit), I was wondering: How can I fail? and I got more than one answer. My first business endeavor was an utter failure. But after a while, I tried again in a different area of business and after about a year I managed to find a business model that worked (at least for a couple of years).

Without starting that first, doomed to fail business, I would have never started the one that finally worked.   

There’s a Romanian saying that would translate to English as:

You entered the game, now play.

I believe overconfidence has the role of Getting us into the Game; of getting our behinds off the couch and doing something. Even if that initial something doesn’t work, we’re in the game and we have to play, so we are forced to figure out how to manage.

I believe many people get married due to love and, of course, overconfidence. Naturally things don’t go as in the ideal scenario, but this makes us figure out ways in which we can make things work.

Many people start a business that doesn’t go as they dreamed (overconfidence strikes again), but at least some will try to figure out what and how can work. Maybe some entrepreneurs start as (delusional) dreamers who believe that they will bring The Next Big Thing, but end up having a reasonable small business that provides them with an income and pays a few employees.

I believe overconfidence plays a huge role in getting us to begin doing things. Some will end up in failure, but others will get done and will be useful.