Espresso - Rory Sutherland on The Brilliance of "Thinking Fast and Slow" by Daniel Khaneman

0:04There are processes like what's 2 plus 2? He always gave this example. You don't have to think about it. You just go four. Whereas 13 times 12, which I think is 156. I'm fine. But OK, you actually have to give that a little bit of thought. Yeah. OK, so an example of something that's very system one would be nearly everything you do while you're driving. Not. Yeah. The vast majority of what you do while you're driving a car is basically instinctively driven. You're not consciously thinking there is a right to turn ahead, therefore I will need to turn the steering wheel shortly. You fundamentally trained your brain to make driving, for the most part, autonomic.

0:48Now, you might argue driving in a city like London. Why people hate all those 20 mile an hour limits, OK, is that a process that was once basically autonomic. And you could basically go, I'm in a city now, I better not go too fast. And 30 miles an hour seemed about right. okay suddenly now you're having to pay attention consciously to a load of things which once you could actually take as take for granted okay so and the most extreme sort of system one form of driving is that weird feeling where you suddenly realize you have no memory of driving for the last 10 minutes you've been lost in a kind of dream world and meanwhile your body and eyes have been driving the car and you assume you haven't actually hit anyone or anything okay because that would have actually snapped you back into attention i hope okay but there are we've all had those moments okay if you're if you're if you're a frequent driver if you're an infrequent driver when you first get into a car when you're first learning to drive when you're first learning to ride a bicycle it's system two and through repetition and a kind of automation it gets effectively you know transferred to metaphorically system one and an awful lot of the activities of system one occur effectively they're opaque to inspection they occur below the level of consciousness the point being that a large part of our activity and people always quote weird figures like 95 % of our decisions are unconscious I'm not sure you can realistically put a percentage on that but I don't think it's unreasonable to assert that a very large proportion of decisions we make are either unconscious or under the influence of unconscious processes the argument that Kahneman made is that of course the system one is faster than system two and we're not even aware of it in operation and as a consequence of which although it's unbelievably valuable and probably essential to our evolutionary survival Kahneman would argue that sometimes system one gets a jump on system two and causes us to make a suboptimal decision before we've had time to think about it okay so now by the way there are lots and lots of cases where making a decision before you've had time to think about it probably saved your life okay you know jumping out of the way of a bus because you're standing on the road you hear a noise and without actually pausing to think about the consequence of your action you simply jump to safety those kind of behaviors are actually very very necessary in evolutionary terms to our survival karnaman might have argued that in a modern environment where more and more decisions maybe require system two thinking in other words we actually need to discipline our thought and decision making processes uh that the um what you might call the the path dependency of decision making where system one gets to make a decision first may lead to things which are biases or even very bad decisions okay simply because effectively our instinctive heuristically driven okay assumptions override what might be the consequence of a more thoughtful interpretation or evaluation of all the evidence so one very system one thing by the way I think is the idea that you get what you pay for okay so the idea when you're in a shop and you're going to Chipotle and if one thing's more expensive than the other you'll probably assume it's better now there's no actual evidence for that okay I always give this example which is that if you went to a shop to buy a bluetooth speaker and one bluetooth speaker was bigger than the other more powerful than the other and it had more features but it was also cheaper now to a standard economist that's the easiest decision in the world higher utility lower price slam dunk nothing to see here no brainer buy the cheaper better speaker inverted commas move on but humans that would conflict with a human instinct which is something that's more expensive is probably better in some way and actually we find that decision deeply confusing in reality we go that's strange because if i'd actually made a better speaker this is sort of social intelligence I'd probably charge more for it so the fact that this speaker is better and cheaper is now confusing me and I'm probably not going to buy either of them so there are a lot of cases where um our brain whether we like it or not is operating under certain mental assumptions which kind of almost in hardware if you like yeah so what so what's happening when i go into chipotle then like because because what in terms of that decision with the bluetooth speaker right yeah if i go into chipotle and i order say the chicken with extra chorizo and and cheese and guacamole up front and they say it's 14 quid right suddenly i'm a bit like i don't want to do that right i'd love to but then if they get me in with the chicken right and they start fucking loading it up loading it up and then as they move the bastard along and they say right i want you extra treats so one quid why am i saying yes to that why am i saying yes it's a sort of sunk cost thing which is what's going on quite often for these inverted commas biases yeah uh there's actually a phrase that sums it up which is kind of in for a penny in for a pound okay yeah and the the point would be you know why you spoil the ship for a hapen earth of tar i'm in here anyway now I might as well go the whole hog and get the absolute sandwich I want yes so in other words I mean if you think about it the whole concept of sides okay uh okay is very similar to that which is um okay you could argue that sides just give people more choice yes that's true but there is the argument that I've got this main thing now having having committed and mentally written off the cost of x i might as well spend a bit extra to make x even better so the classic example would be buying a car okay you can't after market market fit something like a glass roof a glass sunroof or a heated steering wheel or whatever so when you're buying a car you think well i'm spending a five-figure sum already i might as well spend another three or four thousand on extras to make this as good as it possibly can be and because after all i'll never have another chance again for four years and car makers will make inordinately more margin on optional extras than they they will on the base model car yeah so what you're uh and other other examples once you're in that in that sunk once you're sort of that sunk cost thing or in for a pound do you think that's basically your your sort of the system one's activated there you're just sort thinking fuck it like i'm already i may as well get the roof i may as well get the extra treat so or so so i mean a classic example would be if you turn up at a hotel yeah and they say um you can actually for 50 pounds a night you can upgrade to a suite obviously it depends how long you're staying there to a degree but you are more likely to go yeah fuck it okay than you are to buy the suite when at the same time as you're paying for the basic room and the argument for that is that you've already mentally written off the cost of the room because you've paid that in advance okay so I'm in for 200 quid for my three night stay or whatever it might be or two nights day I'm in for that amount of money and now I can make this experience amazing for just a bit more and Undoubtedly, that is a recurring pattern with marketing pretty much everywhere.

8:45OK, I mean, once someone's it's sometimes called in salesmanship, the foot in the door thing. If you can get someone to agree to buy something, then either immediately or subsequently getting them to upgrade to a better version of that thing is often easier than selling the better version of that thing from the off. So, okay, a brand that mastered that fantastically and which has given them a large shareholding by Warren Buffett and an extraordinary level of success is American Express, where there were a lot of people who probably wouldn't get an American Express gold card off the bat. But if you sold them the green card and then three years later said, for only another X pounds a year, okay, their attention is focused on the increment, not on the overall cost.

9:37Okay, so your attention when it's do I want to add the chicken, do I want to add the so-and-so, is focused on the incremental cost, not the headline amount. Thank you so much for listening to That Espresso. I hope you enjoyed your morning coffee and are ready for the day. Let's be having you, boy. And please do subscribe, follow the podcast, share this espresso on WhatsApp if you liked it. And also there's a link to our newsletter in the show description. I spend 15 hours toiling and writing this bad boy. It's full of wonderful wisdom from the biggest names in food and drink. You're not going to get these in a business book.

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