Traditional Winter Payments and their Pain of Paying

When putting together the words “Traditional” and “Winter” the first thought goes to Christmas and New Year since these are the main events of winter and they happen each and every year. Naturally, both Christmas and New Year come with some expenses and subsequent payments. Every payment hurts and I believe that payments made for the usual Christmas and New Year purchases are less painful than are other payments. For Christmas and New Year people have money allocated for things such as gifts, food, booze (after all it’s a reason to party) etc. Moreover, Christmas and New Year most often come with joy and reasons to celebrate or at least party.

There are, however, other payments that are specific to the winter season and are completely unrelated to the holidays. These payments include paying (local) taxes, paying the regularization (balancing) for utilities such as energy, water etc., paying one-year fees for very necessary services such as sanitation (picking up the garbage) and sewerage. All these payments are due in the winter months (at least in some countries).

Naturally all these payments have to be made and everyone is more or less aware of this fact. However, these payments come with an increased level of pain of paying – the psychological discomfort experienced when making payments.

Let’s take the example of paying the regularization (balancing) for utilities bills. In The Netherlands (and in some other countries) for energy people pay a fix amount each month and at the end of the year a computation is made in order to see whether the individual paid more or less than she has actually consumed.  Not surprisingly there are quite some cases in which people consumed more than what was estimated. When the invoice comes it is a painful one. Energy is something we don’t see; it’s the electricity that powers my laptop, the heat in the room (in The Netherlands usually it is quite cold) and the electricity or gas that makes the cooking stove work. Moreover, when being informed at the end of the year that you need to pay more for something that you have consumed during the entire year, there is a feeling of paying for nothing. Those 400 Euros you have to pay extra include the electricity consumed by the light that you forgot to switch off in March. It simply feels awkward…

A very important factor involved in the pain of paying experienced in relation to these “traditional winter payments” is the way in which the payment is made. Let’s stick to the example with balancing energy bills. Usually in The Netherlands such bills are paid using the “Direct Debit” method which means that the amount due to be paid is withdrawn from the bank account of the client by the company that issued the bill. In essence, the payer does not have to do anything, except for making sure that there are enough money in her bank account, which can be quite challenging since a lot of money was spent on Christmas and New Year.

Now, imagine that this method of payment would not be available and the only way in which someone could pay this bill would be to go to one office of the energy company which is half-way across the city in winter weather and the payment can be made only in cash (bills and coins).

It is obvious that the level of discomfort associated with the payment is higher in the second case than it is when using direct debit.  

“Traditional Winter Payments” are annoying by their very nature. However, most people simply accept them as a given status-quo. Everyone realizes that energy bills have to be paid and that annual payments for sanitation and sewerage services are mandatory if one wants to have the benefits of civilization…  Minimizing the pain of paying associated with these payments is a worthy endeavor.

Take a moment and think of how other payments that are less vital for a civilized standard of living (having energy and sewerage) influence purchasing behaviour and customer satisfaction. Purchasing behaviour is influenced by many factors including the price, income etc. What is often ignored is the level of pain of paying associated with a purchase…

Take a look at My Training Programs on Pain of Paying

And

Psychology of Money

The Irrationalities of WHY – How We Fail to Incorporate (True) Causality in Our Decisions and Judgments

Children between the ages of tree and five have an (annoying) habit of asking repeatedly Why. Although these repeated questions of why may get to the nerves of many adults, they are very useful for intellectual development. We humans have a very basic need of understanding why things around us are the way they are and why they happen the way they do.

Despite this intrinsic curiosity and need for understanding the whys of the world, we are very often incapable of understanding (true) causality. It seems to be a paradox, but there’s a reasonable explanation, which is that as long as we find a plausible answer to the question why, we do not look any further.

Let me illustrate this with an example from Mother Nature. Earthquakes are reality of our planet. Most importantly, earthquakes come with damage if they are quite large. Engineering has tackled some of the downsides of earthquakes such as buildings collapsing, but by far there still are buildings that fall and people are killed and injured in earthquakes. In face of a big earthquake there is nothing anyone can do. It is only naturally that people fear earthquakes and it is only natural that only the possibility of a big earthquake generates a bit of hysteria.

Apart from the disasters they generate, earthquakes have another particular characteristic, namely that they can’t be accurately predicted with more than a few tens of seconds before they happen. Even the current technology can’t do very well when it comes to predicting earthquakes. Just as a note, even those 30 seconds are a great achievement and come with huge benefits such as the possibility of switching off nuclear power-plants, natural gas distribution in cities etc.

Although we cannot accurately predict earthquakes, we know what generates them: the collision between tectonic plates. Putting things very simplistically, in essence an earthquake is the release of accumulated tension between two tectonic plates.

Knowing this and keeping things simple, the tension accumulated between two tectonic plates can be released gradually – which results in many small earthquakes, or it can be released at once which results in big earthquakes.

Keeping in mind this simplistic rule, we can say that when a small (and non-dangerous) earthquake happens, it is in fact good news. This is because some of the tension accumulated between two tectonic plates was released, thus the remaining tension is smaller which in turn means that the probability of a big (and dangerous) earthquake occurring in the near future decreased.

Human psychology is, however, quite different. We humans become scared and even panicked when we experience a small earthquake. This is because the notion of earthquake is suddenly very salient in our minds and all the disastrous consequences of a big earthquake are vivid in our imagination.

To sum up, when a small earthquake occurs, the objective probability of a big earthquake to hit in the near future decreases because part of the tension between the tectonic plates was released. However, in our minds, the occurrence of a small earthquake makes the possibility of a big one to hit in the near future more vivid, thus increasing the subjective probability of it occurring.

Another similar illustration on our fallacy to understand true causality comes from Australia where at the end of 2013 there was a huge bush-fire. Naturally there are many causes for a bush-fire such as negligence in using open flame, but one major cause of big bush-fires is that there is a lot of material that can burn. TV reports said that in the past ten years there were no considerable bush-fires in the areas hit. So, the physical, pragmatic cause of the huge bush-fire – flammable material – was there and has accumulated in quite a large time-span.

On the Psychology side, it is only natural for people to be terrified by huge fires (it is in our hard-wiring). However, I am convinced that in the ten years preceding 2013’s huge bush-fire, very few people were concerned or terrified by the lack of small-scale bush-fires. In fact, it is very plausible for people to have thought during those ten years that the danger (risk) of bush-fires to have decreased since no significant bush-fire happened in the recent past (this was before the huge one in the end of 2013).

This way of thinking has a huge influence on the behaviour of purchasing risk managing products and services such as insurance. The sales of insurance policies that cover the risk of earthquake (or bush-fires) increases after the occurrence of an earthquake (big or small, but big ones have a stronger influence). Similarly, sales of such insurance policies decrease when there hasn’t been an earthquake (or fire) for quite some time. Most interestingly, this dynamic of behaviour is completely the opposite of the dynamic of objective risks. After an earthquake (may it be small or big) the objective risk of a big earthquake occurring in the near future is lower, whereas during a period without earthquakes (or fires) the risk of a big one with subsequent big damages is, in fact, higher.

Small bad things such as small earthquakes and small bush-fires are, objectively, good news because they contribute to decreasing the risk of big bad things (big earthquakes and huge bush-fires that go out of control). However, the huge majority of people doesn’t think this way and panics when small bad events occur. Moreover, the lack of small bad things goes mostly unnoticed and when thinking of the risk of big bad things many people perceive it as being low since not even small bad things happened in the recent past.

For more on how Emotions and Vividness of Events Influence Judgment and Decision Making more than Does Cold-Reasoned Thinking join me for
How (Much) We Think – Training on Psychologyof Human Judgment and Decision-Making

From a Rational Point of View, People Often Do Things that Make No Sense…

Adding knowledge from behavioral sciences helps remove the No from It Makes No Sense…

From a rational point of view, people often do things that make little or no sense. But when these actions are viewed through the lens of behavioral sciences, a new interpretation emerges. Through the filter of a four-dimensional model of human behavior developed using top-level research in behavioral sciences, the reasons that people do what they do begin to come into focus. Building on this idea, It Makes (No) Sense: - Between the Joy of Gaining and the Fear of Losing offers a counter-intuitive perspective and macro-rules on human judgment, decision-making, and behavior.

The first section of the book, “How We Think,” explores human judgment and decision-making. This knowledge serves as the basic of understanding of how social factors, transient internal states, and physical environment elements influence human behavior. Sections two through six go on to describe the 4D Model of Human Behavior, a very effective tool for understanding, predicting, and influencing human behavior. This study gives particular attention to the drivers of human behavior beyond personality. Section seven, “An Alternative to Carrots and Sticks,” criticizes the established way of offering incentives and applying penalties in order to influence behavior. Through the careful application of knowledge from the behavioral and decision sciences, behavioral change can occur.

Some insights from early readers of the book: It Makes (No) Sense: - Between the Joy of Gaining and the Fear of Losing:

“In It Makes (No) Sense, Nicolae Naumof doesn’t just add structure to your ideas about how people think and decide, he also adds a lot of background information and plenty of great and very human examples. He’s comfortable relating advances in psychology to our evolutionary origins and goals, but just as good at creating compelling stories about how they affect our day to day lives. In its 75 chapters he will introduce you to a host of different psychological and behavioral effects – and just as importantly, how they fit together into a “4D model” of human decisions.

Oh, you might say, I’ve already read this bestseller or that one on decision making – why do I need another book? But you’d be wrong. For one thing, there’s so much in here you’ll surely learn something new. For another, Nicolae cares too much about this topic to simply repeat the hype. In fact, his final chapters – about how important experimentation is to behavior change, and what you can expect when you try to create it – are probably the most vital in the whole book. His message is simple: this is science, not magic, and it’s only by understanding why effects happen, and testing your interventions, that you can hope to create consistent change.”

The BrainJuicer Behavioral Change Consultancy.

“Great new Behavioural Science book: It Makes (No) Sense -Between the Joy of Gaining and the Fear of Losing” On Tweeter from John Kearon - CEO BrainJuicer

Start Removing the No from It Makes No Sense…

Get a Free Download (Introduction) of
It Makes (No) Sense: - Between the Joy of Gaining and the Fear of Losing

Gender Pay Gap - Sharp Talks Episode 2

Sharp Talks is a Pikant & Naumof project which aims at bringing a behavioral science perspective to sensitive issues such as poverty, corruption, human rights, discrimination, crime etc.

Each episode is hosted by Nicolae NAUMOF and a guest specialized in a different field is invited. We discuss sensitive issues and bring two (scientific) perspectives on the topic in the hope that we will bring some light on it.

The Second Episode of Sharp Talks is focused on the topic of Gender Pay Gap particularly on the causes that underlie the difference in payment between women and men. The guest of the second edition is Lorraine Villageois who is specialized in Law & Human Rights.

Enjoy the show and let us know what you think of it.(Take into account that we are not professional film-makers or TV specialists and the show is done on a very low budget… so focus on the talk :) )

Note: This content is not addressed to people who are under the age of 18. 

Here are links and references to some of the materials we mentioned during the talk.

The Eurostat data: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Gender_pay_gap_statistics

On prototypical thinking: http://naumof.blogspot.nl/2013/02/is-it-bird-is-it-plane-no-its.html

Why We Want What We Want - Webinar Recording

Here's the recording of the Webinar on Constructed Preferences - Why We Want What We Want - I gave on November 12. 

Here is what Bjarke Schlechter, Msc in Psychology, said about the webinar:

Nicolae Naumof managed to give an inspirational and educational webinar, into the world of human choice. The presentation was very precise and Nicolae was able to make key points come alive, with great examples from the real world.

This is an introduction to Designing Decisions - Training in Choice Architecture.

Enjoy the video!

Learn Choice Architecture: How to Design
Choice Environments that Influence Choice

Join me in Designing Decisions - Training on Choice Architecture.

It Makes (No) Sense

I ask of you to make an exercise of imagination and think that you are a medical doctor in the city of Vienna at one of the world’s best hospitals. You are a true gentleman, member of an elite profession with outstanding education and highly respected by the entire society. You have spent many years learning medicine and you exercise your profession in good faith, doing what you know is best for your patients. You strive to fulfill your duties to the best of your capabilities. Your goal is to make people healthy again and, if the case, save their lives. Despite of your best efforts, some of your patients die. You think that this is the way of nature and even God’s will. After all, not everyone can be saved even if you apply the best of your knowledge in medicine.

The year is 1849 and Vienna is the capital of one of the world’s most powerful empires. Naturally, the hospital in Vienna has the best physicians in (central) Europe. Many smart and highly educated people are practicing the noble science of medicine. However, there are some diseases that can’t be cured and one of them is childbed fever which kills many women very soon after they gave birth. Despite the fact that the women who gave birth in this world-class hospital benefited from the care of some of the best doctors of the time, many of them (up to one third) die soon after their children were born. This must be the will of God or just nature’s way, since even the best doctors in the empire can’t help the new mothers. Certainly this condition - childbed fever – is caused by something that is beyond human understanding. It must have some cosmic origins.

If you detect something that is not quite as it should be, do not forget that it is the year 1849.

One of your colleagues, a fellow doctor, who works in one of the maternity units of the hospital, has a wacky idea that childbed fever can be prevented. This is a bit awkward since the condition is known to be the way of nature, the price that nature sometimes asks for bringing a new life into the world. This weird doctor is Ignaz Philipp Semmelweis. He made the students and trainee doctors who are under his supervision to perform an unusual activity in the middle of their daily routine. Usually, doctors, students and trainee doctors would work on the cadavers in the basement of the hospital. (Cadavers were, and still are, used for teaching and research purposes). Afterwards they would perform their work with (living) patients. The wacky doctor Ignaz Philipp Semmelweis asked his students and trainee doctors to do something very unusual and that made absolutely no sense exactly after finishing the work with the cadavers and just before starting their patient duties. He asked them to wash their hands (with chlorinated lime solutions). The students and trainee doctors were surprised by the unusual request. They couldn’t understand why doctor Semmelweis would ask them to do this since it made absolutely no sense. (Remember, the year is 1849). Some of the trainee doctors complained to the hospital’s management and an investigation was launched since the wacky doctor has created a new protocol and established new rules without the express approval of the management.

Doctor Semmelweis told the hospital’s management board that he noticed that when he washed his hands before working with the women in the maternity, the number of women who got childbed fever decreased dramatically from about 30% to about 1%. He also said that he asked his students and trainee doctors to do the same and that this rule of washing hands before working with patients should be introduced to the entire hospital.

The board wasn’t very happy with this outrageous suggestion and asked doctor Semmelweis to give an explanation. The doctor could only say that cadaveric particles on the doctors’ hands would cause blood poisoning to the women in the maternity. This made no sense to the doctors in the hospital management, since doctors by their very nature could not have dirty hands as factory workers and farmers had. They were true gentlemen. How could they be the cause of a disease which is due to cosmic influences? Clearly doctor Semmelweis is not in his right mind anymore.

Let’s leave the mid-nineteenth century Vienna and come back to today.

For you it makes no sense that for the doctors in the board of the hospital it made no sense to wash their hands before working with (live) patients. This is because you know that bacteria exist. You have the notion of bacteria and of micro-biology. The doctors in those days didn’t have these notions. For them such things simply didn’t exist and naturally since they didn’t exist they can’t cause childbed fever or any other disease.   

This was true also for doctor Ignaz Philipp Semmelweis. He had no notion of bacteria or micro-biology; he used the term of cadaveric particles. 1849 was twenty years before the recognition of Louis Pasteur’s work on micro-biology and its applications in medicine.   

The doctors in the board of the Vienna Hospital were acting to the best of their knowledge. Can you blame them for not knowing something that wasn’t known by anyone? For them, it actually made no sense to wash their hands since they did not know that bacteria (on their hands) existed. The (only) reasonable explanation was that Ignaz Philipp Semmelweis has gone crazy.

In fact, Ignaz Philipp Semmelweis was fired from the hospital in Vienna and soon after was committed into a mental asylum where, fourteen days later he was beaten to death by the guards. Ignaz Philipp Semmelweis died being considered mad, with shame instead of glory. Only twenty years after his death his work received the proper merit.

Earlier I said that the doctors on the board of the Vienna Hospital can’t be blamed for not knowing something that was not known by anyone. What they can be blamed for is: not knowing that there are things they don’t know. They can be blamed for holding too firmly to their existing beliefs and giving too much credit to the mystic explanation. They can be blamed for not accepting that they are not omniscient, that they didn’t accept that they can make mistakes or simply hold invalid opinions. They can be blamed for Ignaz Philipp Semmelweis dyeing in disgrace, but most importantly they are to be blamed for all the women who died from childbed fever in between the time that they rejected Semmelweis’s proposition and the time it was finally accepted that washing hands before working with patients makes sense.

The story of Ignaz Philipp Semmelweis is a sad and bitter one. His story tells us that we should know that there are many things we don’t know. His story tells us that it may very well be the case that what we think makes no sense, in fact, makes all the sense in the world once you add a bit of (missing) knowledge. 

Watch a movie on Ignaz Philipp Semmelweis ...

Learn more on my book: It Makes (No) Sense: Between the Joy of Gaining and the Fear of Losing

Self-Enforced Poverty - Sharp Talks Episode 1

Sharp Talks is a Pikant & Naumof project which aims at bringing a behavioral science perspective to sensitive issues such as poverty, corruption, human rights, discrimination, crime etc.

Each episode is hosted by Nicolae NAUMOF and a guest specialized in a different field is invited.

We discuss sensitive issues and bring two (scientific) perspectives on the topic in the hope that we will bring some light on it.

The First Episode of Sharp Talks is focused on the topic of Poverty, particularly on Self-Enforced Poverty. The guest of the first edition is Fred Sepp who is specialized in sociology and political science.

Enjoy the show and let us know what you think of it. (Take into account that we are not professional film-makers or TV specialists and the show is done on a very low budget… so focus on the talk :) )

Note: This content is not addressed to people who are under the age of 18.

Here are links and references to some of the materials we mentioned during the talk.

On Giving money to poor people:

http://www.economist.com/news/international/21588385-giving-money-directly-poor-people-works-surprisingly-well-it-cannot-deal?utm_source=buffer&utm_campaign=Buffer&utm_content=buffer21cdf&utm_medium=twitter

https://decorrespondent.nl/10/waarom-we-iedereen-gratis-geld-moeten-geven/441143560-6a8254e9

On Fast & Slow Life History Theory:

http://naumof.blogspot.nl/2013/02/self-enforced-poverty-evolutionary.html 

On Poverty leading to suboptimal decisions:

http://www.psychologytoday.com/blog/good-thinking/201309/why-having-too-little-leads-bad-decisions?goback=%2Egde_112700_member_277279434#%21

http://www.sciencemag.org/content/341/6149/976

On Poverty Nutrition Trap:

http://en.wikipedia.org/wiki/Poverty_trap

http://pooreconomics.com/sites/default/files/14.73_Food_Lecture5.pdf

http://naumof.blogspot.nl/2013/02/poverty-nutrition-trap-self-enforcing.html