Monday, July 10, 2017

“Morality, like art, means drawing a line somewhere”

It’s December 31st.  You’ve had an ok year.  You are about 3% short of where you need to be for the year.  The higher ups raised your performance goals 10% compared to last year.  They never lower them. Pressure is on.  Stakes are high.  You have a mortgage to pay and a family to feed.  If you don’t hit your year end numbers, you don’t get that big bonus you’ve already spent.  Worse yet, maybe you get fired.  Money problems are one of the most significant factors that lead to divorce.  What do you do?  Do you change a number around?  Sell something to a client that they may not need?  Not only is there not a consequence there is a reward.  Dishonesty can permeate through a system and show up not because of selfish interest but because of a desire to help.



The prevalent theory of dishonesty is the idea of cost–benefit analysis.  What can I gain? What can I lose?  From there we figure out if this is a worthwhile act of dishonesty. If there’s a big cost, we’re not going to be dishonest.  It is really more complicated than that. There are psychological, environmental, or societal factors that may exist to help keep us honest.  


Locksmith Parable

Locks are on doors to keep honest people honest.  1% of people who are honest will always be honest and never steal.  Another 1% will always be dishonest and always try to pick your lock and steal your television.  The rest will be honest as long as the conditions are right.  One of the frightening conclusions is that what separates honest people from not-honest people is not necessarily character, it's opportunity.  Because of the commonality and danger of the first step, what is the difference between people who commit crimes and those who don’t? Is it just missed opportunity?  It’s all about the ability to rationalize dishonesty.




Where Do You Draw The Line?
If it is okay to nudge the truth a little bit but, where do you draw that line?  There is an excerpt from “Three Men in A Boat(to say nothing of the dog)”  I knew a young man once, he was a most conscientious fellow, and, when he took to fly-fishing, he determined never to exaggerate his hauls by more than twenty-five per cent. “When I have caught forty fish,” said he, “then I will tell people that I have caught fifty, and so on. But I will not lie any more than that, because it is sinful to lie.”

Dan Ariely, author of “The Honest Truth About Dishonesty” ran an experiment and gave people 20 simple math problems: each one was a matrix of numbers where people had to find two numbers that added up to ten.
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It was a simple enough exercise that anyone could do, but he didn’t give them enough time. At the end of five minutes, people had to put their pencils down and write on another piece of paper how many they solved correctly. They then put the original test paper in the shredder, so nobody would know the true number they had solved. They received $1 for each problem they claimed to have solved correctly.

Results
  • On average, people solved four problems but reported solving six.
  • Nearly 70% cheated.
  • Only 20 out of the 40,000 were “big cheaters”, people who claimed to have solved all 20 problems. They cost the experiment $400.
  • They also found more than 28,000 “little cheaters” who cost the experiment $50,000.

So although there are some big cheaters out there, they are very rare and their overall economic impact is relatively low. On the other hand, there are a lot more “little cheaters” out there and their economic impact is incredibly high.


What The Hell Effect

You made it past 12/31.  What did you decide?   On to January 1st.  Those resolutions aren’t going to break themselves.  It’s diet time.  Now you’ve made it a whole week.  You have been eating healthy the last 7 days.  The moment you say: “today i’m not on a diet, I’ll have a burger.” Once you say “I’m not a dieter”, which is how you defined yourself until now, you usually don’t go back to that definition. You form a new definition for yourself: “I’m not a dieter, what’s the point?”  Once you cheat one time you are more likely to keep doing it.

Dan Ariely, ran a study utilizing a vending machine. The machine was set up to say that bags of candy cost 75 cents on the outside, but its mechanism on the inside was set to zero cents. So when people put money in the vending machine, they would get extra bags of candy, and all of their money back. A big sign on the vending machine read, “If there’s something wrong with this machine, please call this number”. Nobody called, but nobody took more than four bags of candy.

We all struggle with honesty and self-protection.  We want to think of ourselves as decent, honest individuals, which is not consistent with being a liar.  On the other hand, we want to justify being dishonest when it is self-beneficial or protects us from painful truths. Consequently, we walk that fine line between being honest and being dishonest, between acting in accordance with reality and tweaking that existence. Honesty is something of a state of mind. When we lie, it's not always a conscious or rational choice.  


The Solve - Do You Swear To Tell The Whole Truth?

If I caught up with you on your way to work on December 31st and made you sign a form stating all of your reporting is accurate, truthful and in the clients’ best interest, would that have an impact on your day?  Ariely and his colleagues had one group of study participants to recall the Ten Commandments, and the other group to recall 10 books they had read in high school. The latter group largely engaged in widespread but moderate cheating when given subsequent reward-based tasks designed to measure honesty. But the group that recalled the Ten Commandments didn’t cheat at all. The result was the same when they reran the experiment on a group of self-declared atheists who were asked to swear on the Bible.




Oscar Wilde said “Morality, like art, means drawing a line somewhere.”  In every industry, age, and walk of life we are presented with choices that stretch our moral fiber.  Knowing how powerful our brains are at dictating our conscious and subconscious thought process is half the battle. The next time you preface a statement with "To tell you the truth" or "I'm going to be honest with you" ask yourself if that really needed to be said and if everything up to that point was a lie.






Tuesday, June 27, 2017

Anal Fishers

Do you have Anal Fishers?  You know, as friends?  


I know some people who spend their time worrying about the weather and the moon phases.  They think (and talk) about wind direction and water levels and water clarity.  They organize their tackle boxes by color, weight, diving depth, brand, or whatever else.  Their rods and reels are matched, maintained and oiled.  And they could tell you the retrieve speed of all their reels and how many ball bearings they all have.  Their coffee tables are covered in editions of BASS Magazine, and they always have a fishing forum open on their computer.  You could eat off the floor of their bass boats, but they don’t allow their guests to bring food in them because of the crumb risk.  

Watch this old SNL video. It's hilarious.




Here’s the thing, though.  They never actually go fishing.  And when they do, they usually come home with some sort of overanalyzed excuse about why the fish weren't biting.  I know that you know people like this.  They are more planners than doers.  


It isn’t just in fishing that you find these type of people of course.  That just happens to be one of my sports of choice and it makes the title funny.


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This reminds me of those in business world who focus on rules, procedures and protocols instead of free thinking and creative problem solving.  These people are usually employees, not business owners.  When they are business owners, they do better as franchisees, since there is a set framework.  


Being Anal Retentive, as Freud characterised it, or having mild Obsessive-Compulsive Personality Disorder (OCPD, not OCD) isn’t always bad for business.  We may even desire these traits in some professionals.  Computer programmers, engineers, and actuaries need to be precise.  


What about consultants, designers, salespeople, and doctors?  Would you prefer these people to be free thinking problem solvers, or rule followers?  Your opinions on this probably vary.  I would say that it could be situational, but flexibility is a nice skill to have when things don’t line up perfectly.  


Right or wrong, I happen to enjoy working and fishing with people who just push through the problems and make it happen.

-Insurance Professor

Friday, June 16, 2017

Anchoring Away: How Much Should You Pay For Something?

How do you know how much you should pay for something? How do you know what’s a deal and what’s a ripoff? You need some sort of reference point...a cue to help you evaluate.
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The anchoring effect is a cognitive bias that influences you to rely too heavily on the first piece of information you receive. Stores use it all the time to convince you to buy.  So if you’re shown a pair of jeans for $100 and then a similar pair for $150, then the pair for $150 seem expensive. But if you’re shown a $300 pair and then a $150 pair, the same $150 jeans seem like a steal by comparison.
Remember when J. C. Penney introduced “everyday low pricing?”  They wanted to eliminate coupons and instead create a best price all the time atmosphere.   Too bad they weren’t aware of the power of the anchoring effect. When sales slid bigtime, they got the message. Customers need that anchor number to inform them that they are getting a bargain.

All buyers, no matter what they are purchasing, want to know these two things:
1) What does it cost?
2) What do I get?
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Potential customers believe if they know what they’re getting in exchange for the money they’re giving up, they can choose whether or not the product is worth it. Here’s the problem: human beings aren’t rational buyers.  Whether or not something is worth it depends on several factors. Most importantly, it’s decided by our expectations. Expectations are set by anchoring.
Dan Ariely did an experiment on pricing for The Economist.  When he surveyed 100 MIT students about those pricing options, Ariely got these results:
Subscription type
Cost for a year
Percentage who chose it
Web only
$59
16%
Print only
$125
0%
Print and Web
$125
84%
Why did the Economist even bother with that $125 print only option? Ariely conducted a second survey that shows why. In the second survey, Ariely removed the $125 print only option and asked a separate set of 100 MIT students what they would choose.
Here’s what happened:
Subscription type
Cost for a year
Percentage that chose it
Web only
$59
68%
Print and Web
$125
32%
The mere presence of the print only option even though no one chose it prompted a much higher percentage of people to choose the more expensive $125 print and web option. The difference would have amounted to 43 percent more hypothetical revenues for the Economist. Print and web for $125 seems like a much better value when it’s anchored by a $125 print only option and a $59 web only option.
So if you are engaged with a client, should we artificially inflate our prices and let the anchoring effect work its sales trickery?  Um, no.  There is an offsetting sales principle called price integrity which is crucial for building trust and continuous business relationships. We shouldn’t present a higher price without demonstrating more value and we shouldn’t show a lower price without a reduction in benefit.  In both directions, clients should expect and see integrity in the price.


I Know the Market: Trust Me
In an experiment conducted some years ago, real estate agents were given an opportunity to appraise the value of a house that was actually on the market.  They studied the house and the comprehensive booklet of information that included an asking price. Half the agents saw an asking price that was significantly higher than the listed price of the house; the other half saw an asking price that was lower than listing.  Each agent was asked about a reasonable buying price and the lowest point at which they would agree to sell if they owned it.  
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What factors affected your judgement?
Remarkedly, the asking price was not one.  They took pride in their ability to ignore it.  Wrong, the anchoring effect was 41%.  That’s a $82,000 difference between a $200,000 house and a $400,000 house assuming it’s the same house just listed differently.  A group of business school students with no real estate experience was 48%.  The only difference was the students admitted to being influenced and the professionals did not.

Does that mean we should disregard the anchoring effect altogether?  If we are providing value, we should be aware of the anchoring effect to help us deliver the highest level of benefit for which our clients are willing to pay. This might mean presenting solutions in a good, better, and best approach for a particular need. Our best option is our anchor and provides the most benefit to our client. Consequently, it has the highest price. If our client is unable or unwilling to purchase this solution, then we have established a point of reference for both benefit and price, allowing us to adjust down our solution until we fit the highest level of benefit with the highest acceptable price.


Peoples’ objections to price rarely have anything to do what is or is not fair. They come from a place of inexperience and emotion.  The client simply doesn’t have the background you have and relaying the message can be difficult.  As someone who is trying to do the best thing for the client you are torn between the elements of price integrity and getting the business.  You have to avoid paralysis by analysis that a prospect can slip into and present your solutions in a manner that gets them to act.  If done properly it is a win for both sides.

www.brevityconsult.com
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