The Maddest Men of All (Ep. 198)
Our previous Freakonomics Radio episode, “Hacking the World Bank,” discussed how Jim Yong Kim, president of the World Bank, is using the insights of behavioral economics to fight poverty. Kim acknowledged that non-profits like the World Bank are playing catch-up:
KIM: If you were to go to Ogilvy or any of the big public-relations companies and give them this [new World Bank report on behavioralism], I think they would laugh at us in the sense that they would have been utilizing these insights very aggressively for a very long time.
This week — voila! — we have a story about how Ogilvy (& Mather), the global marketing and advertising giant, is indeed pushing the limits on how behavioral insights can be applied in the real world. The episode is called “The Maddest Men of All.” (You can subscribe to the podcast at iTunes or elsewhere, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)
The star of the show is Rory Sutherland, the voluble and iconoclastic vice chairman of Ogilvy & Mather in the U.K. (If you’ve never read David Ogilvy’s Confessions of an Advertising Man, do yourself a favor and do so immediately.) I met him last year in London and was nearly overwhelmed by his passion and knowledge of behavioral economics. (For further proof of both, see his Spectator columns or his oral history). When I learned that Sutherland had founded an O&M offshoot called #ogilvychange, which brings the latest behavioral research to mainstream firms (American Express and Nestle, e.g.) as well as non-profits (the European Parliament and Public Health England), I thought he’d be a great podcast subject. I can happily say that my guess was right — and I hope you’ll agree.
In the episode, you’ll hear Sutherland expand on what behavioral economics gets right that classical economics doesn’t; you’ll hear “choice architects” from #ogilvychange teach the employees at a call center to use behavioral tricks to talk newspaper subscribers out of canceling their subscriptions; and you’ll hear how advertisers use behavioral insights like loss aversion and social norming for good and, occasionally, evil:
SUTHERLAND: Let’s take an example where you go to an airline website and it … quotes you a price for your seat to Sacramento, whatever it may be, and it says only four seats left at that price. Now, that works on me. I’ve spent eight years studying this stuff, I know it’s an attempt to exploit my scarcity bias, but it still makes me click. That’s just the way I’m wired. Now implicit in that line is that subsequent seats will be more expensive. But actually the person in their weasel wording hasn’t exactly made that promise, have they? They’ve merely said at this price. At this price is not quite clear. It could be that the subsequent four seats are being sold actually at a lower price.
Along the way, we peel off for a fascinating conversation with Michael Housman, chief analytics officer for Cornerstone OnDemand, which builds software to help employers find the right employees and then track their performance. This is part of the burgeoning field of “workforce science.” Housman tells us what he has learned about employee honesty (and how it correlates with performance), whether salary is as strong an incentive as we think (spoiler alert: probably not), whether the computer browser you use says something about your competence (yep), and how much it matters whether your boss is wonderful or terrible (a lot!).
Housman acknowledges that employers have to decide just how much data to gather on employees, and that it’s unwise to cross the “creepy” line:
HOUSMAN: As an economist and someone who loves data, I want to get every piece of data that I can on everyone to figure out what it is that truly keeps people on the job creates a good employee. Unfortunately, there are things that legally we’re not allowed to touch and then there are also things that we have decided as an organization we shouldn’t touch. The obvious legal ones are race, sex, age, those are off limits and I completely understand why. But beyond that we’ve decided to take a somewhat conservative approach in what we’re going to use. And so we’re not scouring your Facebook profile. We’re not looking at your Twitter feed.
Having learned a few things from Housman and Sutherland, let me leave you with the following message:
I wouldn’t want you to miss out on this or any future Freakonomics Radio episodes. Many people like you subscribe to this podcast — at iTunes or elsewhere. We are so confident that you’ll like it that we’re willing to give it away for free. Happy listening.