Category

Psychology

The Hutch Report

The Fear of Choosing

By | Economics, Marketing, Psychology

I moved to Europe years ago from Canada and although I made the move to embrace the change and experience another way of life, the first thing I noticed was the stores closed at 6pm. There was no 24 hour convenience that would provide me some peace of mind should I run out of milk at 8pm. I also noticed that restaurants closed at 2h30 pm, once the lunch crowd was served. If I happened to get hungry at that time I was out of luck, the kitchen staff had all left.

The supermarkets, at the time, were far from the super that I knew.  Although they had all the necessities, they didn’t have all the necessities in different sizes, colours, shapes and flavors. Something that I was accustomed to.

Regardless, over time I found myself adapting to the rhythm of this world and stopped trying to fight it. I couldn’t find my beloved peanut butter so I did without and eventually found other products that were just as good and fun to experience. I discovered the joy of having fresh bread everyday, as was the custom, rather than having that loaf of Wonder Bread that would last two weeks before mold started to set in.

On a visit back to Canada I had the chance to show my new Swiss in-laws the city that I grew up in, along with many of the aspects of North American living that they only knew from movies.

In order to accommodate them I wanted to make sure that they had everything they needed to make their stay comfortable. This included their much desired morning coffee. We had instant coffee at the time and they preferred fresh brewed so no problem, I said, “Let’s go over to the supermarket and I will show you an incredible assortment of coffee to choose from.”

We arrived at the supermarket and made our way over to the coffee isle. In front of us were rows of shelves of every kind of coffee you could imagine. I said to my mother-in-law proudly “look, we are here, you can find any kind of coffee you want.” There was deep roasted, light roasted, medium roasted, french roast, instant, ground, finely ground, whole bean, and decaf. There was Mexican coffee, Ethiopian, Colombian, and Ecuadorian. Then there were the different brands. There was Folgers, Maxwell House, Juan Valdez, Nabob, Nescafé, Tully’s, Tim Horton, Van Houtte and others.

I turned to my mother-in-law and asked, “So, what kind of coffee do you want?” In a state of anguish, she replied, “I just want coffee, just regular coffee, Espresso, Espresso.” So we found the regular espresso in the regular packaging and the regular size and left the store. I then found myself actually disappointed by her reaction. I thought it would be one of amazement, such as, “wow, I can find every kind of coffee I can imagine here.” Instead, what I found was that this myriad of choice that she was presented with, in fact, complicated things for her.

I spent years in University studying all aspects of Marketing and it never occurred to me that more choice could be a problem for somebody, until I saw my mother-in-law’s reaction. In addition, it forced me to reflect on my years in Europe doing without all that choice and I actually found daily life to be easier. I gained an appreciation for basic things that we often take for granted. So, I looked a bit deeper into this choice dilemma to see why it would cause such psychological reactions in us.

We can, in fact, go back to the 14th century, where we find an analysis of the condition with the illustration of Buridan’s ass. There’s an ass (donkey) and it’s very hungry and thirsty. But because someone is very cruel, the ass has been placed at equal distances between a pail of water and a stack of hay. The donkey would try to relieve its desire for food or drink, with the choice between those depending on which is closer. But since they’re equally spaced, the donkey is paralyzed. So it stands there, and sits, and ultimately dies.

In her book “The Art of Choosing,” Professor Sheena Iyengar, S.T. Lee Professor of Business in the Management Division at Columbia Business School researched this phenomenon. A grocery store presented customers with two different sampling stations: one with 24 flavours of jam and the other with only six options. The results of the study revealed that the availability of six options resulted in 30% of consumers purchasing at least one jar of jam, while the sampling station with 24 flavors had a conversion rate of only 3%. While the larger selection attracted more onlookers, the smaller selection actually generated more sales.

When we are presented with many options, we usually fear making the wrong decision. This can be translated mathematically. When there are only two options, we have a 50% chance of choosing the right one. But when there are five options, our chances suddenly decrease to 20%. Matters become even more complicated when there are twenty options or more. Human cognitive ability cannot efficiently compare more than five options, so most of us will start looking at the first few options and then stop.

According to classical studies the consumer goes through 5 stages in the decision making process:

Image result for 5 steps decision making process

The problems begin in the Search for information and Evaluation of alternatives stage. Most consumers do not feel particularly confident, which has the potential to trigger strong emotions like frustration, confusion or annoyance. Frustrated shoppers who are unable to choose will most likely postpone their purchase, whereas confused shoppers may rush themselves only to get over with it quickly, and choose something they will regret later. Annoyed shoppers are quick to leave the store and head straight to a competitor, swearing to never ever return.

In his book, “The Paradox of Choice” (HarperCollins, 2003), author and psychology professor at Swarthmore College, Barry Schwartz said, “Consumers have always had choices, but today options have exploded beyond all reason.” “It’s the ethos of American society; the idea that freedom is good, more is better, and you enhance those ideas by offering choice. Logically, you can’t hurt anyone by adding options. It makes no one worse off, and some better. That’s the theory, but in practicality it’s not true.”

Schwartz argues that even if we do make a choice, “We end up less satisfied with the result of the choice than we would be if we had fewer options to choose from”. Increased choice, can make us miserable because of regret, self-blame and opportunity costs. Worse, increased choice has created a new problem: the escalation in expectations. Greater expectations will drive companies to increase the number of choices they offer, which will in turn make it harder for the consumer to make a choice. A vicious cycle.

What consumers have been confronted with is “Choice Overload”, a term that was first introduced by Alvin Toffler in his 1970 book, Future Shock. Toffler noted that as the choice turns to over-choice, “freedom of more choices” ironically becomes the opposite—the “unfreedom.” This choice overload has become even more evident in the new economy with the likes of super online stores such as Amazon and Alibaba.

In the end, according to Professor Sheena Iyengar, when faced with a complex multitude of options, consumers tend to disregard sound reasoning and pick a product based on what’s easiest to evaluate, not what’s most important. She says that, “We stick to the familiar or go by price because we don’t want to deal with so many choices and scrutinize label claims or nutrition information.”

Between 1975 and 2008, the number of products in the average supermarket swelled from an average of 8,948 to almost 47,000, according to the trade group, Food Marketing Institute. The business point of view, most new items are generated because manufacturers are under pressure to increase growth, even if those items are an extension of an existing product as opposed to something innovative. Yet, in spite of this point of view companies usually see just 20 percent of products accounting for 80 percent of total sales.

Tesco chief executive Dave Lewis, in 2015, decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. This has enabled Aldi and Lidl to be more competitive on price which has in turn helped them to gain market share.

Although we have highlighted supermarkets, choice overload is apparent across many industries and if more companies don’t take the same actions as Tesco then the onus is ultimately upon the consumer to deal with the myriad of choices before them. But how?

There is an overwhelming amount of studies on what makes consumers decide, how to force consumers into decisions, how to manipulate a consumers buying process and on and on. What is less available is information related to helping consumers fend off this barrage of marketing and choice overload, which would make sense since companies are making money from consumers and not vice versa, but there are solutions.

In a 2003 JPSP paper (Vol. 85, No. 1), it was reported that the bigger the assortment, the harder it is for people to choose, “except” under one condition: when they enter with an articulated preference. Nobel Laureate Herb Simon, PhD, first referred to this as a “satisficing” option: the first decent choice that fits their preference as opposed to exhaustively scanning all options until finding the perfect, or “maximising” one.

Essentially, the best thing that a consumer can do is to know as close as possible what he wants to purchase before he goes searching for it, no matter what the product is. Simplify it as much as you can. In addition, it may be wise to lower one’s standards when making a buying decision.

“Any customer can have a car painted any colour that he wants so long as it is black.” — Henry Ford

The next time you purchase coffee, define as close as possible what you want before you even think about choices or enter a store. Next, lower your standards and accept the fact that it may not rank as the best coffee in the world, then you reduce the chance of regretting your choice.

Do this and you will feel better about your decision and at which time you will have made the ultimate choice you can make!

The Hutch Report

The Better Life Fallacy

By | Psychology, Technology

The world has been innovating at a rapid pace over the past 20 years like no other time in history. Technological advances have created the likes of companies such as Uber, Task Rabbit and Airbnb. In this new connected society we now have new powerful social networking platforms such as Facebook, Instagram, and Linkedin. We have everything that we ever wanted to know at our fingertips with tools such as Google. We have new communication tools such as email, text messaging, Twitter, Snapchat, What’s App, or Skype. We are seeing the reduction of brick and mortar stores, slowly being replaced by online Mega Stores suchs as Amazon, Alibaba, and Priceline, driving down prices. Traditional television is being replaced by the likes of Netflix and YouTube.

These changes have removed the gatekeepers from a number of industries. You don’t require a publisher to sell a book, you don’t need a record label to sell music, you don’t need to be a journalist to publish news. Soon we may not need banks to transfer money with the introduction of cryptocurrencies such as Bitcoin and Ethereum.

With all of these changes in our society, you would think that the results have all been for the betterment of us all. After all, our lives are more efficient now, are they not? We have more time on our hands, don’t we? More jobs have been created, have they not? The information and news flow in the world is more transparent isn’t it? The internet, ipads and iphones have produced better educated children haven’t they? People are generally happier now that they can have what they want when they want it, aren’t they? We think the jury is probably still out on all these points because the truth is, the reality has not lived up to all the promises.

While we can translate smartphones and the Internet as tools of efficiency, these efficiencies have in fact made people’s lives more sedentary, which in turn has a negative impact on health. The message always seems to be that you don’t have to move from your seat, just press a button and the world comes to you. Search the net for the best buy, get it delivered right to your door. Buy your groceries online and have them delivered to your door. Find the best restaurant nearest you.

Why go outside to play sports when you can play them online? Playing sports outside now seems so strange. Intead of actually playing sports, people are sitting down and playing them on their screens. Multiplayer used to be real interaction between people. Now you sit alone in a cyber world and pretend that you are really interacting with people. This is causing psychological problems of isolation. In addition, the amount of violence steaming across our screens has reached never before seen levels. This is is causing us to become desensitized to it, which we wrote more about here.

Now that we spend so much of our time looking down into these smartphones, people are starting to experience new kinds of aches and pains. Just recently a study showed that smartphone related neck pain has been on the increase.  According to a study at Harvard Medical School, researchers found that reading e-books had an adverse impact on “overall health, alertness and the circadian clock, which synchronizes the daily rhythm of sleep to external environmental time cues”

We have highlighted here how google search is modifying our brain’s ability to think and how our attention spans are being slowly eroded. Having all the answers at your fingertips seems to be removing the need to think about problems. As the old saying goes, “use it or lose it,” as it applies to our brains in this case. We wrote about the social media casino here, explaining how big social media companies are manipulating our brains so that we stay longer on their platforms.  This increases their revenues while at the same time they are creating problems of smartphone addiction among the masses.

The new world of text messaging and Snapchat has done nothing for english spelling skills. Texting has become any every day task that many teenagers engage in on a day to day basis. Many of those text messages that are sent often contain textisms. The use of textisms is starting to become more accepted among the younger generation. There are now worries from both media sources and educators that texting may have a negative effect on the literacy skills of students. In addition, the constant scrolling and texting is causing increasing cases of repetitive strain injuries.

In a always connected world there doesn’t seem to be anywhere to hide. If you want to use the technology you have to give something up. That something is your privacy. Long gone are the days of having an unlisted telephone number and staying offline to keep your information safe from prying eyes. It doesn’t take much effort to find anyone’s address and contact information. We can go on google and basically stand infront of a 3D picture of their house. People don’t seem to worry about letting this technology track every move they make, freely giving out their location on Google Map and putting their entire life story on Facebook.

We keep making things smaller and thinner giving the impression that it is saving room but at the same time we are producing more and more gadgets that don’t provide much more than the ones you already posses. Think about all the families with multiple gadgets doing the same things.  Televisions, that now come with access to the internet, computers, iPads, big smartphones, smaller smartphones, iPods etc..

The companies producing these products, want you to have all of them and repurchase them as often as possible. For this reason we have multiple upgrades with very little value added with each one. If your smartphone, ipad or television breaks, getting it repaired is no longer even an option. We used to have an industry built on reparations. Now it would cost you more than the price of the product to get it repaired, so we dispose of the old one and purchase a new one.  This is creating huge amounts of waste in our environment. It is dding to the current levels of toxicity in our air and land. These products are rarely disposed of properly, causing deadly chemicals to leak into the ground. Companies in Asia that manufacture the electronics are not properly regulated and therefore have been responsible for emitting toxic fumes into the air.

This new economy has changed the face of the middle class and consumerism in general. Americans now owe more than ever before, with household debt hitting a record of nearly $13 trillion. And auto loans, home loans and credit card debt are all still on the rise, according to the Federal Reserve Bank of New York. While at the same time, the richest 1% now own more than half of all the world’s household wealth, according to analysts at Credit Suisse (These millionaires – who account for 0.7% of the world’s adult population – control 46% of total global wealth that now stands at $280 trillion. At the other end of the spectrum, the world’s 3.5 billion poorest adults each have assets of less than $10,000. Collectively these people, who account for 70% of the world’s working age population, account for just 2.7% of global wealth).

So are we living a better life? You be the judge.

The Hutch Report

The Tribal Echo Chamber – 7 Ways to Escape It

By | Psychology

The advent of social media and social networking has brought about some fundamental changes in the way we connect with people and with whom we connect. In addition to the speed with which we are able to connect,  we are now making connections with people in remote villages in far away places such as India and China. We now have numerous channels by which to make these connections and at lightening speed. By way of the internet and applications such as What’s App, Snap Chat or Instagram we are able to find like minded people in all different realms of life to connect with. Before our eyes we are seeing the development of tens of thousands of tribes.

Seth Godin has written and spoken about “Tribes” and how there are many tribes out there just waiting for someone to lead them.

“It’s simple: there are tribes everywhere now, inside and outside of organizations, in public and in private, in nonprofits, in classrooms, across the planet. Every one of these tribes is yearning for leadership and connection. This is an opportunity for you—an opportunity to find or assemble a tribe and lead it.”

What is a tribe? “A tribe is viewed, developmentally or historically, as a social group existing outside of or before the development of states,” as one definition puts it, however, it can simply be described as a group of people joined together by a common goal or interest.

Tribes have always existed in history. Some tribes remain small and remote while others have flourished and grown to millions of members. Some tribes define themselves as wine connoissieurs, Rolling Stone fans, Harley Davidson riders, or stamp collectors. Tribes have been a great way of exchanging information or experiences with other people who share similar passions and interests.

But in today’s world something has changed. As stated above, tribes are typically created with a common interest and therefore typically a common mindset is fostered within the tribe. This is still true today. However, there is a difference today that amplifies the dangers of a singular mindset. Individuals seek out those in the world whose mindset represents theirs and look no further effectively creating a closed loop. Different viewpoints are not exposed. The singular mindset and set of beliefs of a tribe can be reinforced to the point they think theirs is the “right” and “only” world view. The tools of social media and social networking allow them to create this closed loop much more efficiently than they ever have. They congregate on similar platforms. They all follow each other. They create defense systems for their beliefs and attack others that don’t agree which is unfortunate as our society now seems to have forgotten that it is ok to disagree respectively. To concentrate only on those sites whose editorial point of view coincides with one’s own view leads to living in an echo chamber. So, in spite of all the advantages our new connected world provides us, it has brought along with it many disadvantages. Tribal echo chambers are one.

If you are locked in a tribal echo chamber you are not being exposed to the opposite side of the argument. You are part of a tribe of like minded people who choose to live within a comfort zone. You are only interested in protecting or supporting your side. You only have an interest in following people that agree with you. Ideas that are opposed to your own are like a virus that need protection from. You are a victim of confirmation bias!

Those who step out of this chamber do so with a mission to discredit others with differing beliefs. They set out to harass and insult without any interest in understanding the opposing viewpoints. This became very apparent during the last Presidential election. The opposing sides were split, not wishing to engage in any kind of intelligent discussion. It became a contest of who could shout the loudest and longest. Who could come up with the most clever insult.

The smartest people in our society are able to engage in healthy debate. They can disagree with each other without having to resort to character defamation. They are active listeners and respect the right of the other side to present their views. Studies of the most successful lawyers show that they are those that know the arguments of the other side better than the other side. It is not necessarily the lawyer who has studied the most and knows the most about law. However, in today’s society it has become dangerous to openly criticize popular vision.

These tribal echo chambers are not limited to the actions of the participants of the tribe. The tools of social media are also responsible. Companies like Soundcloud, Pandora, Spotify or YouTube use algorithms to analyze what we are listening to and propose something similar. This locks you into an echo chamber of a cycle of similarities that is difficult to get out of.

You may think you are discovering something new when you search in Google but Google’s search algorithm appears to have been systematically promoting information that is either false or slanted on various subjects based on what you search for. Facebook has also been accused and found guilty of similar actions. So are you discovering something new or are you discovering what someone else wants you to discover?

The internet and social media is a very addictive place, and as we pointed out in our article “The Social Media Casino,” the biggest and richest technology companies are investing a lot of money to learn how you think and act in order to keep you locked in. Therefore, there are no easy answers on how to break out of these tribal echo chambers. The onus is on the individual and as we are largely responsible for the applications we use or tribes we join, we do have the power to make a change. Here are a few things to consider;

  1. Become an active listener – Respect the others right to speak and give them time to state their viewpoint.
  2. Read books – You will learn and discover much more by reading a book than reading a hundred articles that are being produced in your tribal echo chamber.
  3. Use a human algorithm for music discovery – It may sound old fashioned but you would be amazed at how much new music you can discover just by speaking with friends.
  4. Learn the art of clarification – Seek to understand the point that the opposing view is trying to make. Just hearing what they have said is not enough.
  5. Embrace the other side – Become active in groups that have a different viewpoint from your own and be an observer, not a troll. It may help broaden your horizons.
  6. Re-evaluate your values – Is it more important for you to be right, or is it more important for you to grow and learn?
  7. Take a break from the internet – Get out and experience nature once in while. You may surprised at how rewarding the experience can be.

The “Follow Back” Button on Twitter – Who Benefits?

By | Marketing, Psychology

John Harper lives in Pine Village, Indiana.  It is a beautiful little town with lots of friendly folk who are always willing to help their neighbors or visitors in need. The population is only 217 so John knows just about everybody in town and everybody knows John.

John works at a local factory and although he enjoys his job and being with his fellow workers John has always had dreams of having a bit more. He has always had the desire to be an entrepreneur and reap the financial rewards of being his own boss. After years of being at the factory, one day the opportunity presented itself. John jumped at the chance, left his job and set his plan to put his dreams in action.

John took his savings and started a small business selling jean jackets. John stated, “I mean, everybody wears them around here, what better business to start!” He opened his shop on the main street of town. Soon everybody knew about John’s shop and was stopping by to say hello. They, of course, wanted to help out the best they could so they purchased something from John. Right off the bat, the shop was doing great sales. Jean jackets were popular in Indiana since there were a lot of farmers and that is what they like to wear. Most people in the town could be seen wearing John’s jean jackets.

After a few weeks, sales suddenly slowed to a drip. After a quick analysis of the situation John suddenly realized the problem. The main reason was that jean jackets are quite durable. Once you purchase one you can wear if for quite a while before it wears out and needs replacing. Remember the population of Pine Village was only 217 so John quickly realised he needed to go outside of Pine Village and even Indiana if he wanted to seize the chance of selling more jean jackets and grow his business.

John came to the brilliant idea of sending out a flyer with a bold message saying, “I will come to see your shop, if you come and see mine.” John thought that if these shop owners came to visit they would see the quality of John’s Jean Jackets and want to buy them. John sent this out to jewellery stores, grocery stores, hobby stores, banks, lawyers offices etc. He sent the flyers out to every business he could think of.

After a few days some replys came trickling in. “Sure John, come and check out our shop and we will come and check out yours.” You see, these stores were thinking, “If John comes to visit our shop he is going to see our quality products and services and buy from us.” Soon John was spending most of his time visiting fish stores, furniture stores, gift shops etc. In return, these people came to visit John’s shop.  There was one big problem. John didn’t need any furniture or gifts so he never purchased anything from the shops that he visited.

John’s shop in return got lots of visitors from the fish guy, the bank clerk, the grocery clerk etc. However, there was another problem. None of the visitors bought anything from John’s shop. They liked it, and sometimes complimented him on it but there were no purchases. John began to get worried because in spite of the shop being so popular and having people come and go all day long, there were no sales. Eventually John did get a couple of sales from a few farmers that lived a few hours away in another county but nothing that could help sustain the business.

After a year, John’s store had thousands and thousands of followers but no sales. John didn’t purchase from anybody else because he had no money left seeing that his business was not doing well.

After wasting all his time and effort visiting other stores outside of town and entertaining those that came to visit him John eventually went into bankruptcy. The store was hugely popular but couldn’t make a dime. John ended back at the factory.

A few months later, all the guys at the factory started opening up Twitter accounts, as Twitter started to become hugely popular, so John did the same so he could stay in contact with all his pals. As he read his Twitter feed from day to day he decided to follow a few other accounts of people that he admired in addition to some news feeds that he found interesting.

Then one day a strange thing happened. John began to have a bunch of people follow him with the request that John follow them back. John shut down his computer and began to laugh. He realised his time might be better spent hanging with the local town folk.

The Hutch Report

Performance: What does it take?

By | Psychology

Perform. This is something we all must do. This article examines, at a high level, what it takes to perform well and what differentiates those that perform exceptionally well. Performance is most typically associated with actors or musicians, athletes, or other top talents. But, it is something we all must do. Every day. Actors play a role. We all play multiple roles on any given day. Actors are given accolades when they succeed or deliver a powerful performance in a role. Likewise, when any one of us can perform any of our roles well it also usually leads to rewards. These rewards can be material or even more importantly the non-material, inner rewards.

While of course it is great to earn more money, win prizes, win accolades from our friends, those are fleeting rewards. The more fundamental and powerful rewards are the changes that happen within us. These changes can be subtle. Some examples are increased confidence in ourselves, the satisfaction of having confronted personal challenges, of pushing ourselves to grow. Even if we do not get the material or external rewards, or people laugh in our face, insult us or mock or make fun of us, if we are rooted on what really matters to us in our performance this will allow us to motor on through, to pick ourselves up, dust ourselves off and get back on the proverbial horse.

Actors, athletes, musicians and other public performers often have relatively clearly defined roles. And they often have the luxury, once they get to a certain level, to be able to focus specific time training to improve and deliver their performance. It becomes a virtuous cycle of success. In his book, Outliers, which was first published in 2008, Malcom Gladwell contends that practice is a key indicator of performance. A widely quoted and restated premise in the book is that ten thousand hours of practice in a particular field will enable the practitioner to become a world-class expert in that field. Gladwell holds out examples of the Beatles, who before becoming huge had spent over ten thousand hours touring in Germany, or Bill Gates who had early access to computers as an adolescent and teenager. While clearly it is a great advantage if one has tons of time to practice for a certain role it is not the whole story.  Certainly, the folks cited in Gladwell’s book are successful  outliers that benefited through tons of “practice” time. So, can anyone of us become an outlier through ten thousand hours of deliberate practice? It turns out, not really. This theory has now been largely debunked in a 2014 research study conducted by Princeton University, Michigan State University, and Rice University.

The abstract from that university study reads:

“More than 20 years ago, researchers proposed that individual differences in performance in such domains as music, sports, and games largely reflect individual differences in amount of deliberate practice, which was defined as engagement in structured activities created specifically to improve performance in a domain. This view is a frequent topic of popular-science writing—but is it supported by empirical evidence? To answer this question, we conducted a meta-analysis covering all major domains in which deliberate practice has been investigated. We found that deliberate practice explained 26% of the variance in performance for games, 21% for music, 18% for sports, 4% for education, and less than 1% for professions. We conclude that deliberate practice is important, but not as important as has been argued.”

While there are clearly statistical benefits for practice, particularly in games, sports and music, practice is not the only pillar for success and even less so in education and professions. So if we want to continue improving our games, sports, music or other specific skills, for example public speaking, writing … by all means we should continue to put in the work and practice. You don’t get results without putting in the work, except when playing the lottery. While “hope” is great and good to have, “hope” itself is not a great strategy for success.

So, if it is more than just practice to succeed, particularly in education and other professions, what do those that perform well do better or differently than the others?

About education, I have an intelligent teenager who is struggling in highschool. Like any good parent, I did a bit of googling to see what the Internet had to say about how to help your kid and what do successful students do that is different. Are they just more intelligent? While of course being intelligent does not hurt, thankfully even those of us with average intelligence can be successful students. I stumbled across this Ted Talk which discusses research that was done among UK students to determine what methods the successful students in this group exhibit that helps them be successful, more successful than their peers.  The two main takeaways that I took out of this are that two important items are a) good comprehensive scheduling habits and b) practicing on test questions. These were two of the most important elements of behavior exhibited by successful students. Comprehensive scheduling means scheduling everything ahead, not just classes and revising for tests, but also scheduling in breaks and fun activities. Memorization is also important, however, more important was how to use and deploy the memorized information, hence using practice exam questions to study proves to be a key for success on developing a good understanding of the material being studied. Implementing this so far with my teenager has not been easy. For example, when asked to start planning, the initial plan and schedule was not very detailed. It would just say study at 7pm, relax at 8pm. So we hit upon the idea of planning in reverse. In order to get to a better level of detail and view on how time was being spent on which specific activities, we found it was easier to start by simply writing down the time for activities retrospectively. This approach seems to have served as a good stepping stone to learning how to develop a good forward-looking plan and schedule. Thinking in advance about what you want to do, planning when you are going to do it are two very powerful techniques for any endeavor whether it is in school or anything else.

A book that greatly resonated with me when I was beginning my career in the business world was The Corporate Athlete by Jack Groppel. Maybe this sounds a bit corny or smacks of new-ageism, but it really brought home the fact that in order to really perform any role well – parenting, investing, writing, working, bitcoin speculation  etc – the basic foundation needs to be in place for mind, body, and spirit. It comes down to basics, eating right, exercise, sleep, and mental and spiritual preparation. By spiritual I do not necessarily mean religious, but more strengthening one’s inner spirit through, for example, mindful mediation and increasing will power as discussed in our earlier article The Will Power Battery.

Thirty some odd years later, I am still striving towards that goal as a north star of getting everything in balance, and still going through ups and downs, not always doing what is good for me even though I know better. Here is a handy list that can be used as a great set of reminders that came across my Twitter feed from Vala Afshar (@ValaAfshar), currently as of this writing, the Chief Digital Evangelist at Salesforce.

healthylist.png

We’d love to hear from you and any of our readers on what their path has been, what struggles they have faced or are facing and how they are working on overcoming them.

The Hutch Report

Bitcoin and the Bandwagon

By | Cryptocurrency, Psychology

Bitcoin and the blockchain have been around since 2008 when the elusive Satoshi Nakamoto presented his/her white-paper to the world outlining its structure. Since its core is based on cryptography and mathematics, in the beginning it only attracted the attention of those in that area of research. However, because it was proposing a new medium of exchange that could not be altered and promised anonymity, the dark side of commerce quickly joined in. From here, the value of Bitcoin has begun to increase, as has the attention. After 9 years in existence, the mainstream media has begun to chime in and before you know it, Bitcoin charts and quotes have been all over the news.

The other day, my father-in-law asked me if I heard about the action in Bitcoin. He used the term as loosely as he would “Google search,” however I knew that his understanding of what Bitcoin actually was, was severely limited. My neighbor stopped to chat and told me her son (15 years old) was having a friend over. I said, “To watch a movie?” and she told me, “No, to trade Bitcoin.” She had provided her son with a few hundred dollars to trade! Last night I was in a restaurant in town that I know very well. It is a small place with the tiniest kitchen. I popped my head in to say hello to the chef. The first thing he said to me was, “Hey, did you buy any Bitcoin lately?” At that moment I realized the wagon was getting very full.

The chance that people begin to adopt certain ideas or choices tends to increase when they realize that other people have adopted similar ideas and choices. This is a human cognitive bias known as the “Bandwagon Effect.”

In 1848, Dan Rice, at the time a famous and popular circus clown, decided to use his bandwagon (a wagon that carried a band during parades) and its music to gain attention for his political campaign appearances. His campaign became more and more successful and this obviously attracted the attention of other politicians who fought for a seat on the bandwagon, hoping to be associated with his success. Bandwagons eventually became a standard centrepiece in political campaigns and the phrase “jump on the bandwagon” was born.

It is a powerful principle that is used constantly in marketing. The concept describes how the increasing popularity of a product or phenomenon will encourage more people to “jump on the bandwagon.” We see it everywhere. #America’s No 1 choice, #the fastest selling product, #most wished for, #most gifted or the myriad of top 10 lists that we see everyday.

The tendency to follow the actions or beliefs of others occurs because individuals directly prefer to conform, or because individuals derive information from others. Normally, when an individual makes a “rational choice” (see our article on the Rational Price here), it is based on the information they compile from various sources with which to come to a decision. However, as information cascades, or when people start passing on information they assume to be true, but cannot know to be true, based on information on what other users are doing, they will ignore their personal information signals and follow the behaviour of others.

The phenonmenon of Bitcoin and cryptocurrencies does not stop with the bandwagon effect. The speed at which it is moving, where fortunes are being made and lost in the most unlikely areas of society has stirred a variety of other cognitive biases into action.

Closely related to the bandwagon effect, and becoming clearly evident in the cryptocurrency mania, is the “fear of missing out” or FOMO. The fear of missing out is a type of motivation that is described as a drive not to miss current or future opportunities. It’s associated with a fear of missing chances for competitive advantage, rewarding experiences or financial opportunity gains. It is considered a common and strong form of motivation that can explain a wide range of human behaviors. However, as with other similar biases,  the fear of missing out can result in excessive or compulsive behaviour and poor decisions.

Robert Cialdini, author of the widely popular Influence: The Psychology Of Persuasion, popularized the term “Social Proof.” The Social Proof Theory, affirms that a person who does not know what the proper behavior for a certain situation is, will look to other people to imitate what they are doing and to provide guidance for his actions. Uncertainty is the fuel that activates and feeds the mechanisms of social proof. This is especially fitting in the case of cryptocurrencies, as the technology and mathematics behind them is not so simple for the average person to immediately grasp. Therefore, social proof becomes more influential when the surrounding people are perceived as particularly knowledgeable about a situation or are even just slightly more familiar with the situation than the observer is.

As the price of Bitcoin and a thousand other cryptocurrencies have risen to lofty levels, so has the debate around what cryptocurrencies respresent.  Are they a medium of exchange? Do they have true value? Do you have to pay taxes on gains? Are they something else other than a tool for speculation? This debate has come to just about every financial media news outlet; CNBC, FOX, Bloomberg or CNN Money where they present daily their panels of financial experts. So where better to gain an understanding about cryptocurrencies.

The trap that many viewers are falling into is known as the “Authority Bias.” The Authority Bias is a where you defer to any position of authority to either dismiss or confirm evidence. The thought process follows the following reasoning pattern: Person X is an authority in a particular field. Person X says something about a  topic in their respective field. Person X is probably correct because they’re an expert. Because of this reasoning, the Authority Bias maintains that if you don’t know something better yourself you will likely trust the advice or information from someone who is considered an expert in that field.

The Hutch Report has been following Bitcoin and other cryptocurrencies for a while now. We recently completed our current feature report related to Gold Backed Cryptocurrencies, which can be downloaded here. We don’t profess to be experts regarding this technology but we do follow it with interest. We believe that, although a large number of opinions exist about where all these cryptocurrencies will be in the future, nobody really knows. Nobody is even certain about true identity of the originator, Satoshi Nakamoto.

We are currently living in unchartered territory so it is up to each individual to protect themselves, keep their bias in check. Don’t blindly follow and do your best to inform yourselves.

The Hutch Report

The Omnipotent Leader

By | Politics, Psychology

What is it that prevents people from admitting mistakes, feeling superior to all those around them, feeling as if their actions are above the law, the inability to feel that their actions are responsible for someone else’s misery? We have all worked with people who have varying degrees of the unshakeable belief that they can do no wrong. In our incredibly complex world, there are leaders and professionals that are absolutely convinced that they understand how the world works and how to solve problems in spite of the fact that time after time they are proven wrong. (You can read more about this in our piece “The Illusion of Understanding.”)

In 2009, at the height of the financial crisis, many wall street CEOs were put under the spot light as the leaders of the largest financial firms were brought before congress for questioning. However, in spite of the damning evidence put before them concerning the damage inflicted on the economy and individuals by these firms, the leaders seemed to feel removed from any or all responsibility. An example of this was made during an interview with the Times of London, where Lloyd Blankfein, CEO of Goldman Sachs was quoted as saying that Goldman Sachs was merely “doing God’s work.” Obviously admitting to understanding the agenda of a higher power greater than ours and professing to be part of it immediately places you in an obviously very privileged position.

Though not officially labeled a personality disorder, the God Complex is very similar to the Narcissistic Personality Disorder. The God Complex is a psychological illusion. The first person to use the term God Complex was Ernest Jones (1913–51). His description, at least in the contents page of Essays in Applied Psycho-Analysis, described the God Complex as belief that one is a god. It suggests a personality flaw in human beings, especially those with great power, who see themselves to be omniscient and omnipotent, and treat others as mere mortals. However, one does not have to be in a position of power to exhibit these traits. There are numerous examples of people displaying these personalities in the workplace which you have most likely encountered.

The God Complex tends to show up amongst a variety of professions, although, some professions are more likely to cause a God Complex than others, as they involve one person exerting a lot of influence on a large number of people. These professions include among others: Doctors, Politicians, Bureaucrats and Celebrities.

Research suggests that in the case of several people, the God Complex affected them AFTER being exposed to a lot of power over a period of time. Hence, it is likely that people get this complex after having spent a considerable amount of time in that particular profession. Once you know what this complex is, it is easier to understand why certain people behave the way they do although that doesn’t make them any easier to be around.

With his extreme narcissistic displays, Donald Trump has become the poster child for the God Complex. However, in this particular example, he demonstrated many of the traits associated with the complex well before becoming President. Rather than developing the complex, after having been in a position of power, it was his inflated view of himself that drove him to become President.

As President, Trump now finds himself in good company because in the world of politics the God Complex plays itself out each and every day. In fact, our current political and media culture can be seen as reinforcing the God Complex.

The question is how can problems be solved and solutions found when dealing with opponents that both display the God Complex? Neither side will think about backing down because they both feel superior to the other. The result is pretty much what we have seen play out in the arena of US politics. Rather than concentrating on what is good for the country, both sides are fighting to dismantle the other. It is a dangerous trait to have, as we have seen many nations brought down by leaders with an omnipresent display of the God Complex.

Here are a few extreme examples: Omar al-Bashir—Sudan, Kim Jong-il—North Korea, Robert Mugabe—Zimbabwe (recently dethroned), King Abdullah—Saudi Arabia, Seyed Ali Khamenei—Iran, Bashar al-Assad—Syria, and Nicolás Maduro – Venezuela.

The Hutch Report

The Willpower Battery

By | Psychology

At a recent dinner with family and friends I asked the question, “What is willpower to you?”.  The answers were varied

“A combination of the desire to change something and the motivation to make it happen”

“Being able to overcome an obstacle”

“Facing a hardship and a challenge but having the stamina to work through it”.

“I think there is willpower and there is a won’t-power.”

“Resisting temptation.”

I was surprised to see the passion that had arisen around the table as we carried on the discussion. In retrospect, this is of course a passionate topic. Willpower is fundamental to each and every one of us. Every single one of us struggles with goals and things we want to achieve and also challenges such as addiction, temptation, distraction, procrastination – these are universal human experiences.

A teacher at Stanford and author of “The Willpower Instinct,” Kelly McGonigal states, “I define willpower as the ability to do what matters most, even when it’s difficult or when some part of you doesn’t want to. That begins to capture why it’s so difficult — because everything we think of as requiring willpower is usually a competition between two conflicting selves.”  So, my family and friends were accurate in their definitions.

If we dig even deeper, willpower and self-control have evolved genetically and are linked to our evolution and survival. They must be, otherwise why would we put ourselves in a situation where we are doing what part of us does not want to do? Because the other part knows that it is good for us. And if they are so important to our survival and better well-being why are we sometimes lacking willpower?

People are often confronted with this question every time they sit down to set goals or make resolutions at the end of a year. In his book, The Art of Thinking Clearly, Rolf Dobelli postulates that New Year’s Resolutions do not work due in large part to constant procrastination. I can attest to that personally as I have wanted to sit down and write this article about willpower for sometime now, however, I kept putting it off until I felt that I was in the right “mood”. Finally I owned up to the fact that the right “mood” was not coming. This piece was not going to write itself so the only recourse was to simply sit down and start writing it. In his book, “Do the Work,” author Steven Pressfield calls this the “resistance,” and the only way to break through the resistance is to simply start and “do the work.”

Human routines are stubborn things, which helps explain why 88% of all resolutions end in failure, according to a 2007 survey of over 3,000 people conducted by the British psychologist Richard Wiseman. Bad habits are hard to break–and they’re impossible to break if we try to break them all at once.

Dobelli explains that willpower is like a battery that needs to be charged, a concept widely accepted and recognised by many researchers, teachers, coaches and practitioners of willpower. There are many techniques for mastering and improving willpower based on ensuring that the “willpower battery” is sufficiently charged.

Things that can affect this battery are lack of sleep, being distracted and being under the influence of drugs or alcohol. In a previous article, Infoxication – The Information Pandemic, we highlighted how easy it is for each of us to be distracted, and means of dealing with it in this age of information overload.

Willpower can be trained and strengthened over time however like a muscle it can only exert itself so long before it gives out; it’s an extremely limited mental resource. Scientific and medical research have discovered this muscle to be located in the pre-frontal cortex of the brain (otherwise said, your forehead).

A very famous case from over a century ago demonstrates the link between the pre-frontal cortex and willpower. In 1848, a gentleman named Phineas Gage, 25, was working as a foreman of a crew cutting a railroad bed in Cavendish, Vermont. On September 13, as he was using a tamping iron to pack explosive powder into a hole, the powder detonated. The tamping iron—43 inches long, 1.25 inches in diameter and weighing 13.25 pounds—shot skyward, penetrated Gage’s left cheek, ripped into his brain and exited through his skull, landing several dozen feet away. Essentially destroying a major part of his pre-frontal cortex. Remarkably, Gage survived this horrific ordeal, and by all accounts was conscious and walking within minutes. With the loss of his pre-frontal cortex, he also lost all willpower, all inhibitions and had undergone profound personality changes.

There is an enormous wealth of information available on willpower and guides to success in achieving your goals. We have selected what we thought are some of the best tips and advice and present them in this shortlist below:

(1)    Why?

Focus more on why you want to change rather than what you want to change. Identifying what you want to change is important, but with a large caveat! Simply stating what you want to change is not a recipe for success. Otherwise all of our new year’s resolutions would work. For example, when I start out by stating “I will not eat donuts” usually ends up with my eating some delicious donuts. However, when I focus on the fact that I want to be slimmer, diabetes runs in my family and I do not want to get it … these are much more powerful motivators than just “I will not eat donuts”. A famous mantra that I have heard amongst some friends from Hollywood related to this concept is: “Skinny feels better than that tastes” – which is a powerful reminder of what I want to avoid, i.e the donut. So in summary for this point – focus on what it is you really want and not just specific modes of behavior. If you focus on what you want, your behavior will follow.

(2)    Be aware.

“Know thyself”. Focus on your self-awareness. What are the triggers for why you may engage in behavior you want to minimize or avoid. Are you getting enough sleep? Are you distracted?  Once you identify those triggers, then you can put in place a strategy to avoid ending up in a trigger situation.

(3)    Support.

Surround yourself with likeminded individuals. This is not to say do not listen to folks who don’t think like you or become close minded, but what it does mean is when pursuing a specific goal, your chance of success is greatly increased if you surround yourself with people who have the same or similar goal. Of all the 100’s of tips on succeeding and success this is probably one of the best, if not the best. An interesting article on this topic can be found in the magazine Psychological Science.

(4)    Strengthen

Incorporate mindfulness meditation into your life. Studies have shown that this practice can strengthen the  pre-frontal cortex.  MRI scans show that after an eight-week course of mindfulness practice, the brain’s “fight or flight” center, the amygdala, appears to shrink. The primal region of the brain associated with fear and emotion. As the amygdala shrinks, the pre-frontal cortex – associated with higher order brain functions such as awareness, willpower, concentration and decision-making – becomes thicker.

The Hutch Report

Infoxication – The Information Pandemic

By | Psychology

As a species, our inclination to advance our learning and understanding of the world is natural. Throughout history we have seen some spectacular innovations that have allowed us to document our discoveries for future generations to build upon. In 105 AD, under the Han Dynasty emperor Ho-Ti, a government official in China named Ts’ai Lun was the first to start a paper-making industry. This along with the invention of the printing press saw the exponential growth of information in millions of bound books filling libraries the world over. In the beginning these books were filled with pain stakingly crafted illustrations until the first partially successful photograph of a camera image was made in approximately 1816 by Nicéphore Niépce, using a very small camera of his own making and a piece of paper coated with silver chloride, which darkened where it was exposed to light. The advancements in photography saw the growth of the stock of images documenting everything you could imagine from around the world in all forms as we witnessed life move from black and white to colour.

From the industrial revolution we have moved to the technological revolution that we see today where new digital innovative tools are allowing anybody to create and document life as they see it.   Every day hundreds of millions of people take photos, make videos and send texts. Across the globe businesses collect data on consumer preferences, purchases and trends. Governments regularly collect all sorts of data from census data to incident reports in police departments. Ninety percent of the data in the world today has been created in the last two years alone. Our current output of data is roughly 2.5 quintillion bytes a day.

The number of live websites presenting content (not those that are just parked domain names which account for 75% of all websites) is well over 250 million. Tumblr boasts 101.7 million blogs producing over 44.6 billion blog posts. WordPress.com has over 63 Million blogs, Livejournal reports to have 62.6 million blogs, Weebly states it has over 12 million blogs and Blogster has over 582,754 blogs. Twitter has over 1 Billion registered users, which spend an average of 170 minutes a month using the service.  Add these numbers to those of daily email, Facebook, Linkedin, Instagram, Youtube, Pinterest, Snapchat, Gify, Spotify etc, and you can begin to see how this information explosion is dominating our lives.

The industrial and tecnological revolutions have greatly increased our ability to gather and deliver information, however our brains continue to absorb and process information in pretty much the same way it always done. Torkel Klingberg, author of The Overflowing Brain: Information Overload and the Limits of Working Memory, states “the brains in which we are born today are almost identical to those with which Cro-Magnons were born forty-thousand years ago.

Los Angeles based social psychologist, Susan K. Perry, Ph.D., stated that in spite of our best efforts to process this contant flow of daily information, our brains are limited and can only focus on one thing at a time in depth. The best known limitation is the “magical number” that governs short-term memory: the psychologist Miller (1957) has shown that people can only keep some seven items at once in their working memory. Richard Watson, author of Future Minds, explains that increased exposure to technology which helps us consume information online more quickly means that we engage our brains in deeper thinking less often. Not only can technology and information overload damage our brain, it can make us stupider.

Information overload (also known as infobesity or infoxication) is a term used to describe the difficulty of understanding an issue and effectively making decisions when one has too much information about that issue. Information overload occurs when the amount of input to a system exceeds its processing capacity. One of the first social scientists to notice the negative effects of information overload was the sociologist Georg Simmel (1858–1918), who hypothesized that the overload of sensations in the modern urban world caused city dwellers to become jaded and interfered with their ability to react to new situations. Alvin Toffler sent out a similar warning more than 30 years ago. In his book, Future Shock (Random House, 1971), Toffler presented his theory, named “Future Shock Syndrome,” that the human brain has finite limits on how much information it can absorb and process. If we exceed those limits our brains become overloaded. This means that part of that information will be ignored, forgotten, distorted or otherwise lost.

“Too much information running through my brain,
Too much information driving me insane”

— The Police

The longer people are subjected to information overload, the more negative its effects on physical and mental well-being. Sensationalized stories and information saturizing our daily lives is making it harder to tell what’s actually important. This is having an effect on our ability to make sound decisions. Our reliance on devices and internet connections are causing declines in memory and information retention, increased radiation and eye strain, stress and burn out from speed and volume of information received. Our handwriting skills are beginning to diminish over time. There are signs of increased depression and anxiety levels from constant sheltered living and less exposure to sunlight and our attention spans are becoming shorter.

Francis Paul Heylighen, a Belgian cyberneticist investigating the emergence and evolution of intelligent organization highlights in his paper, Complexity and Information Overload in Society: why increasing efficiency leads to decreasing control, that “the problem of information overload can also be formulated as attention scarcity: it is not so much that there is too much information, but too little time and mental energy to process it. The amount of cognitive effort or attention (Kahneman, 1973) that an individual can give to any issue is limited, and there are in general more issues that demand attention than attention that can be given. Therefore, attention is the true bottleneck, the one scarce resource on which all others depend, and thus the one that is intrinsically most valuable. While ephemeralisation can amplify the availability of any other resource, it cannot augment the total amount of human attention.”

So in order to combat this problem we need to slow down the flow of information to amounts that we are able to pay attention to properly or increase our attention capacity. The obvious answer is to switch off and decrease the amounts of information coming towards us. However, companies such as Facebook, Instagram and Twitter, that produce the platforms that rely on this increasing flow of information, are dependent on their users staying connected. So they are constantly innovating ways of keeping us engaged, making it that much more difficult for us to break free. We highlighted this in the “Social Media Casino.”

Switching off is obviously not an easy task these days but with a bit of will power and a few small changes your life can change for the better.

  • Go on a Break Without Your Phone

Although it is not reasonable to completely live without a smartphone these days, it can nevertheless be very refreshing to take a single weekend away from it once in a while.

  • Scheduled Checks

Consant emails, messages and other interruptions can actually prevent you from being productive and getting work done. Instead of checking your email every five minutes or each time a message comes through, instead turn off all notifications (sounds, vibrations etc.) and check it at set points throughout the day (every two hours perhaps).

  • Take up non-digital activities

Today, many of our activities involve a screen of some sort; watching movies, playing computer games, texting friends or simply surfing the web. Take a break and  simply try taking up some activities that don’t involve a screen. This could include going to the gym, taking long walks, reading a book, sewing, knitting, drawing or playing an instrument.

  • No screen time before bedtime

Probably one of the most effective changes you can make is to simply switch off your smartphone, computer or ipad an hour before bed. These screens are known to increase cortisol in your brain and thereby decrease melatonin and make it much harder to sleep.

  • Mindfulness Meditation

Mindfulness meditation is all about taking control of your attention and focus. A wealth of new research has shown it to be effective at reducing stress and boosting working memory. It enhances our ability to focus and suppress distracting information. Research also supports the notion that mindfulness meditation decreases emotional reactivity. This is the antithesis to information overload and therefore an excellent option.

There is also another school of thought. Psychologist and behavioural neuroscientist Daniel Levitin, author of the book The Organised Mind: Thinking Straight in the Age of Information Overload, says we can regain control over our brains by organising information in a way that optimises our brain’s capacity.

  • Externalise data

Getting information out of your head and into the external world helps you to see it objectively so you can make better decisions. To do this, write down your list of to-dos manually. This will help to encode the information into your brain through the use of muscle memory.

  • Important decisions should be made in the morning.

“Each time you make a decision, it uses some neuro-resources,” says Levitin. The problem is these neuro-resources are used up whether you’re making an insignificant decision or something considerably more important. To avoid neuro depletion, schedule your important decision-making tasks at the beginning of the day in order to maximise your brain’s resources, towards better decision making.

  • Get organised

Living in a physical environment that is well organized can lessen the burden on your brain. It can be a simple as having a designated place for commonly misplaced items such as keys, glasses, and cellphones. This reduces some of the pressure on your brain to recall things.

  • The myth of multitasking

There has been a lot of debate on the benefits of multitasking and the productivity improvements that come along with it. However, Levitin says multitasking is actually a misnomer because “what we’re actually doing is rapidly shifting our attention from one thing to another. Constantly switching tasks uses up our glucose supply which means the brain will reach a level of fatigue much sooner in the day than if we concentrate on one item at a time with sustained attention.

The amounts of information we produce daily are only going to go up exponentially as we find better and faster ways to produce, transfer and store data. The onus is therefore on each of us to start incorporating some of these practices into our daily lifestyles and at the same time, just try to be a little more conscious and aware of how much time we spend on our smartphones and computers.

By doing so, you may just find you have a little more energy and attention to spend on the non-digital world around you where you can experience it directly rather than through a screen.

The Hutch Report

The Rational Price

By | Marketing, Psychology

Price is all around us and our contemporary society has managed to come up with a myriad of ways to refer to price over the years.  You pay rent for your apartment, a tuition for your education or a fee for your dentist. Airlines, railways, taxis and bus companies all charge you a fare. Local utilitiy companies talk about the rate they charge you and your bank will charge you interest for the money you borrow. The price for taking your car on to the ferry or the price you have to pay to use a highway or a bridge is called a toll. The company that insures your car will charge you a premium. Clubs or societies to which you belong may make a special assessment to pay unusual expenses. Your lawyer will ask you for a retainer to cover his/her services. The price of an management executive is considered a salary, unless you are a salesman, then it may be a commission. A worker will recieve a wage. Finally, income taxes are what we pay for the right to earn money, hence the name tax on income, (although an economist would probably disagree).

Everything that we pay a price for has some kind of utility, or something that will be useful to us. The importance, worth, or usefulness of that something is also considered value (the terms utility and value and used differently among economist so to simplify things I will just refer to value). The price of something is a mechanism that allows us as consumers to make a decision.

Price is probably the most influencing factor for buying because consumers are rational. What makes them rational is the fact that they have limited income as well as a limited budget. An irrational consumer that spends beyond his or her means are quickly pushed into insolvency. Although there are an increasing amount, it can be agreed that the majority still act in a rational manner.

Making a decision on price, however, is not always the easiest thing to do for consumers. Price is not only the amount that customers pay for utilizing a product or having a service. There are a number of psychological factors that impact how they feel.

Companies can sustain themselves in the market if and only if they can make a profit, which totally depends on price. When a company is going to determine the price of a product or service they need to first understand their cost of the product/service offered. No company that prices a product for $5 but cost $10 to produce can survive for long. They need also to think about the rationality of pricing; that might include the product’s quality, availability of the alternatives in the market, types of products and the category of entry into the market. A company’s pricing determination can be incredibly complex and not in the scope of this article.

We want to look at what a consumer is confronted with when making a purchasing decision and how they can improve their ability to make the best decisions with the information available to them. Dan Ariely described how what may seem a simple purchasing decision, is not always so simple for the consumer to make.

“Consider the following situation as an example: You are thirsty, tired, and annoyed and just want a cup of coffee. You see two coffee shops across the street from each another. One is a specialty coffee shop that sells handcrafted, designer coffee and the other is Dunkin’ Donuts which sells standard, decent coffee. The price difference between the two options is $1.75 for your cup-a-joe. Now, how do you decide if the benefit of the handcrafted coffee drink is worth the additional $1.75? What you should do (if you wanted to be rational about it) is consider all of the things that you could buy with that $1.75, now as well as in the future, and decide to buy the expensive coffee only if the difference between the two coffees is more valuable than all of those other possibilities. But of course this computation would take hours, it is incredibly complex, and who even knows all the possible options to consider?”

So what does one do to make the decision? Dan Ariely states that in place of making decisions “correctly” we adopt simple rules or what academics call “heuristics” (heuristics are simple, efficient rules, learned or hard-coded by evolutionary processes, that have been proposed to explain how people make decisions, come to judgments, and solve problems typically when facing complex problems or incomplete information.) Simply put, we will decide what we have always decided. If you have purchased designer coffee in the past and have been content to pay the additional price then you may well do it again, whereby it becomes a habit. However, if your financial situation changes then your purchasing habits will most likely change. It may become a better option to go for the Dunkin` Donut’s coffee and pay a bit less.

By examining these habits, and quitting them when it makes sense to do so, we might actually discover ways in which we could reduce our spending on a long-term basis. Or more to the point, we may discover where we are paying more for less value received or paying less for more value received.

In addition to analysing your current purchasing habits in this way you may want to do some deeper research and discover your true motives for purchasing a service or product in order to establish some better buying habits from this point on.

We make our purchase decisions from a rational point of view or an emotional point of view. However, Professor Baba Shiv of the Graduate School of Stanford Business points out that 90 to 95% of our decisions are made by our emotional brain, even if we think we are being rational the emotional side will always win out. (Clotaire Rapaille goes deeper into this analysis in his brilliant book, “The Culture Code.”)

Below are a few examples of rational purchasing decsions vs. emotional purchasing decisions. You also have to keep in mind that your decisions may be based on a combination of both. However, when you are analyzing the emotional side, it is much more difficult to quantify the value. Companies understand this so they often market to your emotional side. This is why they pay athletes and celebrities millions of dollars to represent their brands. If I purchase a Nike product then it means emotionally I may be in the same class as Roger Federer, but how can I possibly value that emotion? I may have paid $40 too much!!

The price you pay for any product/service all comes down to the individual’s choice. Take a bit of extra time during your next purchase, regardless of the price, and try and discover your true motivation for making the purchase, and if emotional, what value does that mean to you. You may discover something new!