Behaviouronomics

Influence by Robert Cialdini is a book that I always keep face out on my bookshelf. Not a month goes by when I don’t pick it up and thumb through random chapters. Cialdini first published his book in early 1980s and it’s still revered as the bible of human psychology by many including Charlie Munger.

You couldn’t start with a better book than Cialdini’s ‘Influence’, writes Munger, “Academic psychology has some very important merits alongside its defects. I learnt this eventually, in the course of general reading, from this book, ‘Influence’, aimed at a popular audience. I immediately sent copies of Cialdini’s book to all my children. I also gave a share of Berkshire stock [A share] to thank him for what he had done for me and the public.”

Today, a single class-A share of Berkshire stock is valued at over $300,000. On another occasion, Munger wrote –

Fairly late in life I stumbled into this book, Influence, by a psychologist named Bob Cialdini.. Well, it’s an academic book aimed at a popular audience that filled in a lot of holes in my crude system. In those holes it filled in, I thought I had a system that was a good-working tool.

Cialdini opens the first chapter with a story of his friend who had a jewelry store. The story involved a certain turquoise jewelry that she was finding hard to sell. In spite of a busy tourist season and an overcrowded store her customers were ignoring the turquoise pieces. She experimented with few standard sales tricks like displaying them prominently and even asking the sales staff to push the turquoise jewelry items hard. But no luck. She was unable to move them.
[Read more…] about Behaviouronomics: The Veblen Effect

Imagine you are walking down the street. As you wait for the traffic light to turn red so that you can cross the busy intersection, you feel a gentle tug on your shirt from behind. You turn around to find a ten-year-old boy smiling at you.

“Hey buddy!” you greet him while trying to match his elated body language.

“My name is Krish,” he replies while maintaining his ear-to-ear smile.

“How can I help you, Krish?”

“Do you see the tall apartment over there?” he points towards a multistoried building across the street, “I stay there. Our apartment society is organizing a play for social awareness. The show is on Saturday night. And I am selling tickets for the same. It’s ₹250. Would you like to contribute?”
[Read more…] about Behaviouronomics: Reciprocal Concessions

What does the future look like for an eighteen-year-old student who finds himself on a hospital bed wrapped up in bandages? My guess is that life careening off course would have been the least of concerns when he was fighting for his life.

In his senior year of high school, Dan was an active member of an Israeli youth movement. On a Friday afternoon, while preparing fireworks for a traditional nighttime ceremony, a large magnesium flare accidentally exploded near him causing third-degree burns over 70 percent of his body.

The next three years found me wrapped in bandages in a hospital, recalls Dan, “and then emerging into public only occasionally, dressed in a tight synthetic suit and mask that made me look like a crooked version of Spiderman.”
[Read more…] about Behaviouronomics: The Peak End Rule

How many times have you stepped into a public bathroom and felt disgusted by puddles of spilled over liquid around the porcelain urinal?

We all know that it’s the result of men relieving themselves carelessly. When people know they aren’t required to clean their own mess, they’re least bothered about aiming properly to minimize the spillage.

Maybe putting up notices like – Please piss responsibly – would help. But we know most people don’t heed to such requests. So the architects of Schiphol Airport in Amsterdam came up with a brilliant strategy. They put a fly in each urinal.
[Read more…] about The Illusion of Free Will

Note: This post was originally published in the July 2015 issue of Value Investing Almanack. To read more such posts and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

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“Where is it?” I asked my wife, while my eyes scanned the kitchen cupboard again. I was looking for the sugar jar. The plan was to impress her with my exceptional tea making skills which I acquired after watching few YouTube videos.

“It should be there. Right in front!” informed my wife from the other room.

“It’s not here. I can’t see it.” I again scanned all the shelves in the cupboard.

“Look again. I kept it there in the morning.” My wife sounded very sure about it.

“No! It’s not here. I am sure.” I confirmed while closing the cupboard. What happened next shouldn’t be surprising for you because most of you have experienced it before.

She came, opened the cupboard, grabbed the sugar jar which was obviously sitting right in front and handed over to me. I stood there flabbergasted. How could I miss it? What’s wrong with my eyes? Have I gone blind? It felt as if the jar manifested itself out of thin air. It was like…magic.

[Read more…] about Inattentional Blindness Bias