Predicting Human Behavior: The Missing Third

Charles Chu
Nov 12, 2017 · 5 min read

If I ever make a list of the most important things to learn, I’d put “human behavior” very, very close to the top.

Others have made such lists. Take Charlie Munger, Warren Buffett’s business partner:

“The elementary part of psychology — the psychology of misjudgment, as I call it — is a terribly important thing to learn. There are about 20 little principles. And they interact, so it gets slightly complicated. But the guts of it is unbelievably important. Terribly smart people make totally bonkers mistakes by failing to pay heed to it. In fact, I’ve done it several times during the last two or three years in a very important way. You never get totally over making silly mistakes.”

Or Scott Adams, serial entrepreneur and author of the Dilbert comic strip. In How to Fail at Almost Everything and Still Win Big he writes:

“It’s hard to imagine any business or social activity that doesn’t require a basic understanding of how the human brain perceives the world. Almost any decision you make is in the context of managing what other people will think of you. We’re all in the business of selling some version of ourselves. Psychology is embedded in everything we do.”

Whatever it is you choose to do, knowledge of psychology is essential.

Yet, despite leaps in our scientific understanding of human behavior, the tools many of us “ordinary” folk use in business, politics, and everyday life remain shockingly primitive.

Take advertising.

In his excellent book The Wiki Man, Rory Sutherland, Executive Creative Creator at the marketing firm Ogilvy One, suggests that advertisers have largely ignored what he calls the “missing third” of human behavior.

Traditionally, advertising uses two methods to understand human action. The first is logic:

“If you want to understand human behavior, logic can tell you a certain amount. For example, if you put the price down people would probably buy more of what you are selling. If you’re running a pub and it smells of piss, people probably won’t go there. That’s something you don’t need to research, you know what by and large logic will say that it’s not a good idea, okay?”

Advertisers also use market research:

“Then there’s the information market research can tell you, you know, asking people whether they’d prefer your pub to smell of urine or not? Those are questions which people will answer fairly honestly, you know, they’d rather buy this than that because they think it looks nicer. Research is not all total rubbish, I mean, you know, people do have some access to their thoughts and feelings and they can occasionally describe their behavior with a degree of accuracy.”

There is a limit to surveys because people, far, far, far more than they are ready to admit, do not know what they want. We believe in rationality, but what we do instead is rationalize — and the “smart” people are the ones that do it the most.

So what is this “missing third”?

What is Red Bull, anyway?

To introduce the “missing third,” Rory gives an example:

“Take Red Bull. My theory asks how can they charge £1.50 for a can of Red Bull, when Coke only costs 50p? In a way they succeeded because they made the can smaller … people recognize that it’s not a Coke can, it’s a small can, therefore this must be a different kind of drink from Coke so maybe there’s a reason why it charges £1.50 rather than 50p. Now the interesting thing is logic’s not going to tell you that. … No consumer research group is going to say: ‘I’m not paying £1.50 for that mate, but I would if you gave me less of it.’ Not one’s ever going to say that. But the truth of the matter is that that’s how the brain works sometimes.”

Since long before Freud, we’ve known humans are anything but rational creatures.

This is a great flaw of traditional economic theory, which watches humans do the stupidest things, and then — like Procrustes who, in Greek mythology, decapitates his victims to make them “fit” onto his bed — it tries to “fit” reality to its own story of humans as rational, value-maximizing creatures.

Once you discard this archaic view, you can start searching for better explanations for why we humans behave the way we do.

For Sutherland, the “the missing third” is behavioral economics. Instead of assuming human nature to be rational, behavioral economics uses insights from psychology to better understand why we do what we do.

And those who figure it out, says Rory, gain a tremendous advantage:

“My concern is that if we have incomplete knowledge of human decision making, then our decision making lacks predictive value. That is incredibly dangerous because it means that one, a lot of advertising money is misspent, and two, an awful lot of R&D which relies on logic and research and not on behavioral economics will actually be wrong.”

Now, for my favorite part.

Ripe for the picking

Readers of books like Kahneman’s Thinking, Fast and Slow may recognize that this knowledge is not new. Kahneman’s Nobel-winning work has been around for four decades now, and the father of modern economics, Adam Smith, took a psychological approach to his work.

Yet, despite the immense potential of these psychological insights, many practical fields have yet to make use of them.

Take evolutionary psychology. The field uses an evolutionary lens to make sense of some of the seemingly “irrational” patterns in human behavior.

The field holds great promise for marketers. Yet, it gets little attention. In Spent: Sex, Evolution and Consumer Behavior evolutionary biologist Geoffrey Miller writes:

“Typically, marketers get some formal education in outdated consumer psychology research, then they get real jobs at real companies and realize that their formal training is mostly useless in selling real products. In response, they strive to develop an intuitive understanding of consumer behavior and marketing strategies through years of trial-and-error learning, plus the occasional book by Seth Godin or Malcolm Gladwell. They lack the huge practical benefits of having a coherent evidence-based theory about consumer behavior, and this limits their success rate.

Miller suggests that Darwinian insights into human nature can be a source of such a “coherent evidence-based theory”:

“…most marketers still use simplistic models of human nature that remain uninformed by the past twenty years of research on human nature — research by evolutionary anthropologists, evolutionary biologists, and evolutionary psychologists. Marketers still believe that premium products are bought to display wealth, status, and taste, and they miss the deeper mental traits that people are actually wired to display — traits such as kindness, intelligence, and creativity. They don’t put consumption in its evolutionary context, or trace its prehistoric roots, or understand its adaptive functions. As a result, they don’t have access to a good map of the human mind, or of this brave new semiotic world in which it dwells. What marketers need is Darwin.”

Scientists do the research, but it’s one thing to discover and another to do the psychological alchemy needed to convert abstract knowledge into action.

That’s something open to all of us.

The Polymath Project

Figuring out how to live in a world we don't understand

Charles Chu

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Rethinking the obvious @ http://thepolymathproject.com

The Polymath Project

Figuring out how to live in a world we don't understand