Is it Wrong to Take the Elevator to the Gym?

When I go to the gym, unconsciously (habitually) I take the elevator. My usual work-out is around 35 minutes (+/- 5) and the main purpose is to burn some calories (I’m not into body building).

Quite recently I realized that my habitual / mindless behaviour is, in a way, awkward. I live on the 10^th floor and the gym is in the opposite building (just across an alley) on the 12^th floor.

If I would be a perfectly (economically) rational  creature, I would go down the stairs from the 10^th floor to the ground floor, go out of the building and then go up the stairs 12 floors.

Since I am going to burn calories by means of making physical effort, subsequently sweating, several potential reasons for taking the elevator are automatically excluded. I’m taking the elevator not because I want to preserve energy – avoid effort. For sure I’m not trying to preserve my good looks (i.e. avoid sweating) since I am going to sweat at the gym.

Saving time could be a plausible explanation for my irrational behaviour, but I seriously doubt it. I could simply take the stairs (both down and up) and cut my gym work-out time by 10 minutes. I assume the overall calorie burn-out would be similar. Moreover, I don’t count (monitor) burned calories, so, for sure, this is not the reason.

The more realistic reason for me taking the elevator to the gym is that I formed a habit: go out of the apartment to the elevators. This is because of convenience – going with the elevator is easy and rather fast.

Moreover, the elevators in the building are very salient: there are four of them positioned in the very centre of the building, in a spacious hall. On the other hand, the stairwells are almost hidden and the doors are grey – taking the stairs is clearly not the natural thing to do.

Beyond the habit explanation, there is, I believe, a more profound explanation.

In psychology of money there is the phenomenon of mental accounting – discovered by Richard Thaler. In a nutshell, mental accounting means that we associate different amounts of money with various expenses and we label “this” money for “this expense”… we have “holiday money”, “retirement fund”, “beer money” etc.

Moreover, it is very hard for us humans to shift money from one account to another, or to integrate accounts. If you want to learn more on mental account check out this post: 

I believe that we think using mental accounting when it comes to any type of fungible resource. In my case of taking the elevator to the gym, I do not find it natural to use my energy (effort) to get to the gym, but I have no problem in spending lots of effort in pointless weight-lifting and pedalling on a fixed bike.

In other words, I find it difficult to spend the gym effort on climbing stairs.

This type of automatic thinking goes beyond awkward getting to the gym behaviour.

I remember that a few years ago, I asked someone for a favour that would have taken about 20-30 minutes of work. As a reply I received a long email telling me how he was too busy to make the effort. The answer (probably) took at least 15 minutes to write…

Psychology of Money at Action Design Meetup

On the evening of July 15 I gave a talk on psychology of money. It was a brief summary of the Thinking Money (2 days) training I give.

We talked about relativity, loss aversion and mental accounting and why they make sense from an evolutionary psychology point of view. We also talked about how these effects manifest themselves in real-life and how they could be used to design better services.

Here are some pics I got via twitter from some participants:

Here's a tweet from Tina Safaie:

Loved "The Psychology of Money" with @NicholasNaumof @ActionDesignDC! I'll never think the same way about my money...

For me it was a pleasure and Thank you to everyone who showed up. 

Special thanks to Kate and Zarak who organized this very nice event!

Looking forwards to the next Action Design Meetups.

Why our Judgment Shortcomings about Money Aren’t Irrational

The field of Behavioral Economics / science pointed out how much of human judgment and decision making does not conform to models of economic rationality.

Oversimplifying, we could say that behavioral science gathered mountains of evidence on our own irrational thinking and behavior.

Many introductory materials such as lectures or presentations use a very popular illustration:

We like to think that we are like Mr. Spok, but in reality we are more like Homer Simpson.

This is a very catchy illustration, but it is utterly wrong because in order to understand human judgment and decision making we shouldn’t use fictional characters as references.

In order to deeply understand how Homo Sapiens thinks, we need to look back to our very distant evolutionary ancestors (early Homo Sapiens and pre-Homo Sapiens species).

Simply put, in order to understand how modern humans think, we need to look back at cave-people.

Loss aversion is probably the best known psychological effect (some would call it a judgment bias) when it comes to thinking and decision-making about money.

From a normative economics point of view, the fact that we hate losses roughly twice as much as we enjoy equivalent gains makes no sense – is irrational. We should be willing to put in the same amount of effort for both avoiding a loss of 100 dollars (euros) and gaining 100 dollars (euros). Yet, we know that things do not happen like this… people put in more effort to avoid a loss than they do to achieve an equivalent gain (i.e. 100 dollars).

However, this phenomenon – this way of thinking – made perfect sense for our evolutionary ancestors. In other words, it was (is) evolutionary rational to hate losing what you have more than you enjoy gaining some more.

By evolutionary rational I mean anything that enhances an individual’s chances of survival till reproductive maturity, achieving reproductive success (having offspring) and investing in heirs till they reach reproductive age.

To oversimplify, anything that allows an organism (person) to become a grand-parent can be seen as evolutionary rational.

Just as a note: evolution favors “metabolically cheap” solutions. Anything that brings a cost without providing an advantage in sending one’s genes into future generation(s) will be eliminated in the evolutionary process.

Let’s return to why loss aversion was, in fact, very (evolutionary) rational for our very distant ancestors.

These individuals lived in resource scarce environments. This is not to say that they were starving on a permanent basis, rather it is to say that the available (and accessible) resources were matching the minimal needs of our very distant ancestors.

In such an environment, it is more important to not lose the resources one has than to acquire additional resources. This is from an evolutionary point of view.

Putting things differently, holding on to the few resources one had offered evolutionary benefits (sending one’s genes into future generations) that were higher than the evolutionary benefits of acquiring additional (new) resources.

I am aware that I have simplified things quite a bit, but I guess you get the main idea.

What some call judgment biases such as loss aversion, mental accounting, relativity (contrast effect) etc. might very well be part of what made our generations’ existence possible.

Next week I will present (live) the three major psychological effects on thinking about money and their evolutionary explanations. Most importantly we will explore how Loss aversion, Mental accounting and Relativity influence our decision making about money in real-life situations.

Moreover, I will present some illustrations on how these so called judgment biases can be harnessed for designing better services that improve people’s lives.

The talk we be on July 15^th in Washington DC and it is part of the Action Design Meetup events. 

If you are in the area, join themeetup. 

Fairness and the Greek Government Decisions

In the past weeks the Situation of Greece and its debts have been on the forefront of the main news channels in the world.

Of course, there is a lot of room for discussion and debate… mainly on macro-economic terms, but this is a blog dedicated to behavioural science, so I will restrict my comment on the topic of “Fairness”- which is a highly important behavioural element.

At least on the main European news channels, there is this oversimplification that developed, rather rich and more stable countries lend money to Greece (a lesser developed and competitive country). Oversimplifying even further, it is said that Germany (EU’s flagship) / German tax payers is / are lending money at very low interest rates to  Greece (kind of the problem child of the EU).

Things aren’t all that straight forwards as they are presented on TV. Greece received (and hopefully will continue to receive, though not unconditionally) money from three sources – (1) The EU commission mainly the Countries who use the Euro as a currency (aka. Euro-Group), (2) The European Central Bank and the (3) International Monetary Fund (IMF).

What is less known, is that among the countries contributing to the funds received by Greece there are countries such as Slovakia, Lithuania and Estonia. All of these countries are using the Euro as their currency. However, these countries are below Greece when it comes to GDP per Capita (per person) and the overall standard of living is worse in Slovakia, Lithuania and Estonia. Moreover, other countries have contributed indirectly to the funds received by Greece. For example, my country of birth – Romania – which does not use the Euro as currency, has increased its participation in the IMF so that the IMF would have additional funds to lend to Greece.

Unfortunately, Romania is way behind Greece in terms of standard of living and GDP per capita. Moreover, in 2010 Romania took some drastic and painful measures (e.g. 25% cut in all public servants pay, a VAT increase from 19% to 24%) in order to tackle the effects of the global recession.

Since we are talking about fairness, I have to be fair and say that the bulk of the funds allocated to Greece came from Europe’s most developed economies (e.g. France, Germany, The Netherlands, Belgium, Austria), but also from other large countries facing difficulties (e.g. Spain and Italy).

I am fully aware that the Greek Government and the Greek people have their arguments. Nonetheless, I wonder: how fair is it for Greece to reject the reforms for loans program and to take money from countries which are, overall, worse off?

How fair is it for the poor to support the middle class? Or is that happening already at other levels of society?

What is a Bargain?

A while back, I heard the following definition for a bargain:

It is something that you don’t need at a price that you can’t resist.

Although this definition might seem too anecdotic and a bit “unserious”, it is a wonderful illustration of the psychology behind bargains and it explains why sometimes we buy not-so-useful things.

The definition above illustrates that there are two types of utilities involved.

For those of you who don’t know what utility is, it is a fancy word used by economists to describe benefit or pleasure or happiness. For example consuming a bottle of water will bring some benefit / pleasure / happiness to the drinker.

Normative economics takes into account the utility derived from consumption of the good or service. Behavioural economics, however, acknowledges that alongside the benefit of consumption, there is some pleasure (utility) that comes from the purchase itself. This was named by Richard Thaler (1985) as Transaction utility.

In other words, Transaction utility is the pleasure one gets from the deal itself.

Quite interestingly, in the case of a bargain, the consumption utility is close to zero or even negative (i.e. you have to do something with that useless thing and most likely it will bring some head-aches.) while, at the same time, the transaction utility is very high – a price that you can’t resist.

What I believe happens in the moment of purchase is that (at least some) people recognize the low consumption utility, yet can’t resist the great deal. Subsequently, because of confirmation bias, they try to find arguments that support the purchase. More specifically these arguments are directed towards tackling the low consumption utility. In other words, although they realize that the item itself is not particularly useful, they conjure possible uses for the item.  

On July 15 I will Speak About Psychology of Money at the Action Design Meetup in Washington DC.

Join here

It’s a great deal :)

Thaler, R.H., (1985), "Mental Accounting and Consumer Choice," Marketing Science, 4 (3), 199-214.  

Why Are You Asking Me Your Question?

A couple of days ago I noticed that some of my connections on Linked In were answering a question posted publicly. I do not want to name names, but since the question concerned two packages for dog food, it is inevitable to show the two packages.

The message on Linked In was:

Hi, Would love some feedback! Our current packaging is the design in the brown Kraft bag on the left and a draft of our new packaging idea is in the creme bag on the right. Which design do you prefer??

Beyond aesthetics and preferences for dog-food bags, there are some very serious issues with this kind of pseudo-research.

First, there is the obvious sampling error. The linked-in connections of the person who asked are not necessarily dog food buyers. I guess the budget for market research was very restrictive.

Second, it is utterly wrong to ask people which one of these two packages is preferred. Which one to pick, is the question that the marketer has to answer. However, the buyer (because the consumer is the dog – hopefully) will never ever have to make this choice.

Choices and preferences are to a large extent dependent on the context of the available options. We also know that choices imply (sometimes unconscious) comparisons. If package B is aimed to replace package A, then the buyers will never have to make the choice between A and B.

Third, the choices buyers make are not made in a void. In other words, the choices dog-food buyers will make are between competing products and one of the products (packages) presented above.

So, a correct way to do things would be to have a between subjects design with two conditions:

Condition A: N competing brands + package A

Condition B: N competing brands + package B

Here N is the number of main competitors on the market. The same competing brands should be used in both conditions.

What should be measured is the choice share for each package in the two conditions.

Fourth, asking people about their preferences is sub-optimal. Preferences are not as stable as we’d like to think. They depend on the other options the choice set has and on many other factors. In this case, it is obvious that asking people online about their future choices in supermarkets is a bit of a stretch.

Fifth, related to asking about preferences and purchase intentions, there is quite a difference between intentions / preferences and actual behavior. So the best way to do this is to measure behavior and not intentions. Though, my friend John Kearon, thinks there’s a better way to do this kind of research.  

The interesting thing is that someone had to make a choice / answer a question. This person then asked other people the question she had to answer. However, the respondents have to answer different questions to make their choices.

Now, the question I have to answer is:

Why I wrote this post on dog-food packaging when I am definitely a cat person.

P.S. The person who asked this question owes me a beer for (free) consulting… A Hoppy Cat beer :)

(source of picture )

Later edit (15 Jan 2016): Here's another similar example (also via Linked In), different area, but the same problem:

Good morning all! I would greatly appreciate if you could comment on which logo you prefer most. I can't say much more than it'll be for a design business.   Any comments, likes, shares and feedback will be appreciated.  Thank you!

The Problems with the Sample of One

The first few days after moving to the USA, my wife and I stayed at a hotel near our new apartment. One morning, at breakfast, there were two gentlemen at the table next to us. One of them spoke really loud and with profound stamina. Apparently there was some kind of religious convention because Finding Jesus was the main and hottest topic of their conversation.

Just as a note: although I am not religious, I have nothing against religion and practicing it. It simply bothers me when religion is used to promote self-interested bull…….. to way too naïve and vulnerable people.

Coming back to the chat the gentlemen next to us had, the one who was talking (much too) loud was explaining to the other guy how he is prepared to speak / preach to his congregation about (wait for it…) Finding Jesus. He strongly emphasized that he has three or four stories about people who were pretty messed-up and came to his church and in the end Found Jesus and got their lives in order.

The loudly speaking man briefly shared one of his well-crafted stories. As far as I can recall, it is your prototypical alcohol + gambling + debt + lost job + brake up story. However, the character of the story (Jeff if I remember correctly) came to his church and after a while Found Jesus and got his life back on track after a while.

Finding Jesus is not singular. Some people believe that they will be cured of cancer or other terrible illnesses by kissing bones of people long gone – saints. Others believe that they could recover from illness after drinking (herbal) magic potions or other scams from wannabe (unconventional) healers. Others believe that it was because a beautiful lady blew over the dices that they won big in a casino.

For each of these miracles there are stories to back them up. Usually these stories contain one character who was hopeless and resorted to such, let’s say, tricks and by a miracle he or she got what was desired.

All of these are problems of the sample of one.

Whereas the term Sample of one seems to be related mostly to statistics, the issues behind the problems of the sample of one are more related to psychology of judgment than anything else.

First, there is the Availability Heuristic. These so called success stories are overly exposed, most often taken entirely out of context. All the poster-child cases are paraded while the huge majority of not so successful cases are hidden somewhere in a back-closet. Everyone will show off the one person who kissed the knee-cap bone of Saint I don’t know who and who was cured of cancer. However, the other millions of people who also kissed the same piece of dead bone and ultimately died because they were not cured by the holly relic are entirely ignored or even labelled as not true believers.

Second, there is The Narrative Fallacy. We humans are very good at conjuring stories so that what we see (want to see) makes (im)perfect sense. Although all these so called success stories are most likely due to pure chance, we very easily make up a story around them so that they fit with what we (want to) believe.

Third, there is The Coherence Issue. Usually the stories of Finding Jesus or the magical effect of a beautiful lady blowing over dices are exceptionally well crafted. The loud gentleman at the hotel whom I mentioned earlier was very proud that his stories are very good. One thing that makes a story good is its level of coherence. A good story is very coherent. Unfortunately we too often mistake coherence with truth.

Fourth, there is Wishful Thinking. The (sad) truth is many of us want to believe these stories mainly because they fit with what some believe and because they self-serve us. In case we have a difficult illness, we would like to have the extra hope of kissing dead bones and being healed. We would love to be able to do something to improve our chances of success in a casino and overall in our lives.

I know that it is very hard to understand random chance.

I also believe it is even harder to accept that random chance plays such a big role in our lives.