I have started reading “Alchemy - The Surprising Power of Ideas That Don’t Make Sense” by Rory Sutherland

RORY’S RULES OF ALCHEMY:

What you THINK YOU SHOULD do... and what YOU SHOULD do:

“There is a simple premise to this book: that while the modern world often turns its back on this kind of illogic, it is at times uniquely powerful.”

“The economy is not a machine - it is a highly complex system. Machines don’t allow for magic, but complex systems do.”

“All these disproportionate successes were, to an economist, entirely illogical. All of them worked.”

“The modern world, oversupplied as it is with economists, technocrats, managers, analysts, spreadsheet-tweakers and algorithm designers, is becoming a more and more difficult place to practise magic”

“The human mind does not run on logic any more than a horse runs on petrol.”

“If you want to look like a scientist, it pays to cultivate an air of certainty, but the problem with attachment to certainty is that it causes people to misrepresent the nature of the problem being examined, as if it were a physics problem, rather than a psychological one.”

“The trick to being an alchemist lies not in understanding universal laws, but in spotting the many instances where those laws do not apply. It lies not in narrow logic, but in the equally important skill of knowing when and how to abandon it.”

Trump and Brexit: “The need to rely on data can also blind you to important facts that lie outside your model. ... It’s important to remember that big data all comes from the same place - the past.”

“When I told one economist that you can often increase the sales of a product by increasing its price, the reaction was one not of curiosity but of anger.”

“If this book provides you with nothing else, I hope it gives you permission to suggest slightly silly things from time to time. To fail a little more often.”

“But, for all the man’s faults, I think Donald Trump can solve many problems that the more rational Hillary Clinton simply wouldn’t have been able to address.”

“Irrational people are much more powerful than rational people, because their threats are so much more convincing. ... No tariffs are actually needed: the threat of them alone is enough.”

“It is not appropriate to bring the same habits of thought that we use to deal with things that have been consciously designed to understanding complex and evolved systems, with second-order considerations.”

Technocrats: “Unfortunately, it is difficult for such people to avoid the trap of assuming that the same skills that can explain the past can be used to predict the future.”

“But, strange though it may seem, the study of economics has long been detached from how people behave in the real world, preferring to concern itself with a parallel universe in which people behave as economists think they should.”

The benefits of religion: “Just because we don’t know why it works, we should not be blind to the fact that it does.”

“Once you accept that there may be a value or purpose to things that are hard to justify, you will naturally come to another conclusion: that it is perfectly possible to be both rational and wrong.”

“We derive pleasure from ‘expensive treats’ and also enjoy finding ‘bargains‘. By contrast, the mid-range retailer offers far less of an emotional hit; you don’t get a dopamine rush from mid-market purchases.”

“Our very perception of the world is affected by context, which is why the rational attempt to contrive universal, context-free laws for human behaviour may be largely doomed.” And one reliable way to lose money.

“Economic exchanges are heavily affected by context and attempts to shoehorn behaviour into a single, one-size-fits-all straitjacket are flowed from the outset - they are driven by our dangerous love of certainty”

“However, this natural human love of certainty may also prevent businesses from making more valuable discoveries. After all, no big business idea makes sense at first.”

“The trouble with market research is that people don’t think what they feel, they don’t say what they think, and they don’t do what they say.” —David Ogilvy

“For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.”

“The reason we do not ask basic questions is because, once our brain provides a logical answer, we stop looking for better ones; with a little alchemy, better answers can be found.”

“If you would like an easy life, never come up with a solution to a problem that is drawn from a field of expertise other than that which it is assumed the solution will arise. ... problem-solving is a strangely status-conscious job”

E-cigarettes: “The question being asked seemed to be, ‘Yes I know it works in practice, but does it work in theory?’ ... in smoking cessation the dominant model was one of shame rather than of accommodation.”

Same thing is happening with sugar: instead of looking for innovative ways to provide delicious food without using carbs/sugar, so-called health pundits suggest diets with foods that are tasteless and unsatisfying. The solution to the “sugar epidemic” will probably be different.

“It seems likely that the biggest progress in the next 50 years may come not from improvements in technology but in psychology and design thinking. Put simply, it’s easy to achieve massive improvements in perception at a fraction of the cost of equivalent improvements in reality”

I would disagree: Max Tegmark in his book “Life 3.0” ( https://twitter.com/giovfranchi/status/1103713670826205186) explains how at the rate of 2x every 24 months it would take another 200 years for our technology to reach the limits imposed by the laws of physics.

Why the Uber map is a psychological moonshot:

“Just because there is a rational answer to something, it doesn’t mean that there isn’t a more interesting, irrational answer to be found in the unconscious.”

“Perhaps, what people are mostly seeking is not treatment, but reassurance. ... If you want to solve the problem of unnecessary doctor’s visits or simply to set up a system to prioritize who gets seen by the doctor first, it is vital that you factor in unconscious motivations”

“Attempting to change behaviour through rational argument may be ineffective, and even counterproductive. ... Whether we use logic or psycho-logic depends on whether we want to solve the problem or to simply to be seen to be trying to solve the problem.”

“If you confine yourself to using rational arguments to encourage rational behaviour, you will be using only a tiny proportion of the tools in your armoury.”

“‘A CHANGE IN PERSPECTIVE IS WORTH 80 IQ POINTS’ ... It is, perhaps, the best defence of creativity in ten words or fewer. I suspect, too, that the opposite is also true: that an inability to change perspective is equivalent to a loss of intelligence.”

“Far from reducing our problems, technology may have equipped us with a rational straitjacket that limits our freedom to solve them. ... Bad math is the palmistry of the twenty-first century.”

“If you take this bet repeatedly, by far the most likely outcome is that you will end up skint. A million people taking the bet repeatedly will collectively end up richer, but only because the richest 0.1% will be multi-billionaires: the great majority of the players will lose.”

“Online shopping is a very good way for 10 people to buy 1 thing, but is not a good way for 1 person to buy 10 things. ... Amazon can be a very big business selling one thing to 47 people, but if it cannot sell 47 things to one person, there’s a ceiling to how large it can be.”

“‘Find one or two things your boss is rubbish at and be quite good at them.’ Complementary talent is far more valuable than conformist talent.”

“Metrics, and especially averages, encourage you to focus on the middle of a market, but innovation happens at the extremes. You are more likely to come up with a good idea focusing on one outlier than on ten average users.”

“I have never seen any evidence that academic success accurately predicts workplace success.”

“An unconventional rule for spotting talent that nobody else uses may be far better than a ‘better’ rule which is in common use, because it will allow you to find talent that is undervalued by everyone else.” And a rule to choosing a doctor.

“The advertising industry seems completely blind to another bias, which is that is is extraordinarily prejudiced in favour of hiring physically attractive people.”

“You might accept that asymmetric dominance might affect your choice of magazine or holiday. But surely it wouldn’t apply to something as momentous as buying a house or hiring staff? Sorry, but it does - the peculiarities of human decision-making seem to apply at all levels.”

“I knew that if I bought a house using wildly different criteria from everyone else, I should find a place that was relatively undervalued. In competitive markets, it pays to have (and to cultivate) eccentric tastes.”

Two lessons: “Firstly, it doesn’t always pay to be logical if everyone else is also being logical. ... The second interesting thing is that we have no real unitary measure of what is important and what is not”

“First, we guess it... then we compute the consequences of the guess... and then we compare the computation results to... experience, compare it directly with observations to see if it works... In that simple statement is the key to science.”

“However, most valuable discoveries don’t make sense at first; if they did, somebody would have discovered them already.”

“We constantly rewrite the past to form a narrative which cuts out the non-critical points - and which replaces luck and random experimentation with conscious intent. ... In reality, almost everything is more evolutionary than we care to admit.”

“There are two key steps that a mathematician uses. He uses intuition to guess the right problem and the right solution and then logic to prove it.”

“We may use reason to detect lying in others, to resolve disputes, to attempt to influence other people or to explain our actions in retrospect, but it seems not to play the decisive role in individual decision-making.”

“In this model, reason is not as Descartes thought, the brain’s science and research and development function - it is the brain’s legal and PR department. Understanding this theory seems important, because it might help us see what human reason can and can’t do well.”

“The more data you have, the easier it is to find support for some spurious, self-serving narrative. The profusion of data in the future will not settle arguments: it will make them worse.”

“Management attention is largely directed towards the invention of plausible-sounding efficiency narratives to satisfy financial analysts, many of whom know nothing about the businesses they claim to analyze, beyond what they can read on a spreadsheet.”

“It is a never-mentioned, slightly embarrassing but nevertheless essential facet of free market capitalism that it does not care about reasons - in fact it will often reward lucky idiots. ... it is happy to reward and fund the necessary, regardless of the quality of reasoning.”

“Truly free markets trade efficiency for market-rested innovation that is heavily reliant on luck. The reason this inefficient process is necessary is because most of the achievements of consumer capitalism were never planned and are explicable only in retrospect.”

This is the main reason why I prefer a diversified portfolio of stocks (an index) to a concentrated portfolio. It exposes your returns to lucky events that rarely can be planned nor foreseen.

“Companies which look for opportunities to make magic, like Apple or Disney, routinely feature in lists of the most valuable and profitable brands in the world; you might think economists would have noticed this by now.”

“One contention in this book is that nearly all really successful businesses, as much as they pretend to be popular for rational reasons, owe most of their success to having stumbled on a psychological magic trick, sometimes unwittingly.”

“Never forget this: the nature of our attention affects the nature of our experience.”

“It is surprisingly common for significant innovations to emerge from the removal of features rather than the addition.”

“Reciprocation, reputation and pre-commitment signalling are the three big mechanisms that underpin trust.”

“The Ultimatum Game is stupid, and so is the Prisoner’s Dilemma ... Upfront investment is proof of long-term commitment, which is a guarantor of honest behavior. Reputation is a form of skin in the game: it takes far longer to acquire a reputation than to lose one.”

Signalling long-term thinking and investing:

“‘Continuation probability’ ... two contrasting approaches of business. ... the ‘tourist restaurant’ approach ... and the ‘local pub’ approach. ... The second type of business is much more likely to generate trust than the first.”

“One of the reasons why customer service is such a strong indicator of how we judge a company is because we are aware that it costs money and time to provide.”

“‘costly signalling theory’, the fact that the meaning and significance attached to a something is in direct proportion to the expense with which it is communicated. ... Bits deliver information, but costliness carries meaning.”

“We notice and attach significance and meaning to those things that deviate from narrow, economic common sense, precisely because they deviate from it. The result of this is that the pursuit of narrow economic rationalism will produce a world rich in goods, but poor in meaning.”

“Meaning is conveyed by the things we do that are not in our own short-term self-interest - by the costs that we incur and the risks we take. One of the most important ideas is that only by deviating from a narrow, short-term self-interest we can generate more than cheap talk.”

“This mechanism isn’t perfect: it only works well where there is the prospect of a regular repetition of exchange or mechanism of reputation sharing. In categories where we only buy infrequently and where we don’t talk to each other about our satisfaction it will break down.”

“To quote a Caribbean proverb, ‘Trust grows at the speed of a coconut tree and falls at the speed of a coconut.’”

“My contention is that, once you understand unconscious motivation, the widespread conviction that humans could be content to live without competing for status in an egalitarian state is nice in theory, but psychological implausible.”

“In the early stages of any significant innovation, there may be an awkward stage where the new product is no better than what it is seeking to replace. ... Many innovations would not have got off the ground without the human instinct for status signalling”

“What happens to innovation in the absence of brands. ... First of all in the absence of recognizable brands, it was impossible to make sense of the category ... we don’t so much choose brands as use them to aid choice. And when a choice baffles us, we do nothing at all.”

“Without a brand feedback mechanism, there was no incentive for any manufacturer to make a safer, better version of the board, since they were not positioned to reap the gains. The market became a commoditised race to the bottom, in which both innovation and quality control fail”

“In addition, there is an ever-present incentive to let product quality slip, because you will reap the immediate gains, while the reputational consequences will hurt everyone else equally.”

“Branding isn’t just something to add to great products - it’s essential to their existence. ... economists tend to hate advertising, while biologists understand it perfectly.”