Tag: William Poundstone

💎 Anchoring – even when taken to ridiculous extremes – has an affect on people’s judgements

Psychologists Gretchen Chapman and Brian Bornstein tested this idea in a 1996 experiment, when Liebeck v. McDonald’s was much in the news. They presented eighty students from the University of Illinois, U.S.A., students with the hypothetical case of a young woman who said she contracted ovarian cancer from birth control pills and was suing her health care organization. Four groups each heard a different demand for damages: $100; $20,000; $5 million; and $1 billion. The mock jurors were asked to give compensatory damages only. Anyone who wants to believe in the jury system must find the results astonishing.

The jurors were amazingly persuadable, up through the $5 million demand. The lowball $100 demand got a piddling $990 average award. This was for a cancer said to have the plaintiff ‘almost constantly in pain… Doctors do not expect her to survive beyond a few more months.’

Excerpt from: Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone

💎 On going that little bit further than the competition to tip the pitch odds in your favour (personalisation can win the deal)

In 2005 a flagging Japanese economy convinced Takashi Hashiyama, president of the electronics firm Maspro Denkoh, to sell the corporate collection of French impressionist paintings This included a major Cezanne landscape and lesser works by Sisley, van Gogh, and Picasso. Both Christies and Sotheby’s gave presentations to Hashiyama touting their expertise and ability to achieve the highest auction prices. In Hashiyama’s judgment, the presentations were equally convincing. To settle the matter, he proposed a game of rock, paper, scissors.

“The client was very serious about this,” Christie’s deputy chairman Jonathan Rendell said, “so we were very serious about it, too.” The money was serious, too. The Maspro Denkoh collection was valued at $20 million. Both Christie’s and Sotheby’s quickly agreed to the game.

In contrast, Kanae Ishibashi, the president of Christie’s Japan, began researching RPS strategies on the Internet. You may or may not be surprised to learn that an awful lot has been written on the game. Ishibashi had a break when Nicholas Maclean, Christie’s director of impressionist and modern art, mentioned that his eleven-year-old twin daughters, Alice and Flora, played the game at school almost daily.

Alice’s advice was “Everybody knows you always start with scissors.” Flora seconded this, saying “Rock is way too obvious… Since they were beginners, scissors was definitely the safest.”

Both girls also agreed that, in the event of a scissors-scissors tie, the next choice should be scissors again — precisely because “everybody expects you to choose rock.”

Ishibashi went into the meeting with this strategy, while the Sotheby’s rep went in with no strategy at all. The auction house people sat facing each other at a conference table, flanked by Maspro accountants. To avoid ambiguity, the players wrote their choices on a slip of paper. A Maspro executive opened the slips. Ishibashi had chosen scissors, and the Sotheby’s representative had chosen paper. Scissors cuts paper, and Christie’s won. In early May 2005, Christie’s auctioned the four paintings for $17.8m, earning the auction house a 1.9m commission.

Excerpt from: How to Predict the Unpredictable: The Art of Outsmarting Almost Everyone by William Poundstone

💎 On how creativity comes from connections (e.g. Liquid Paper)

Bosses, who were men, didn’t care. Womens labour was cheap, so much so that Graham supplemented her meagre income by painting Christmas decorations for the banks windows. The exercise reminded her of something she’d once learned: artists painted over their mistakes rather than erasing them.

And that’s what led Graham to her eureka moment. She realized she could paint over typing errors rather than erase them. She mixed white tempera paint in her kitchen blender and put it in a little bottle. Whenever she made a typo, she blotted it out with a brush, waited a few seconds for it to dry, and typed over it. Marketed as Liquid Paper, the invention became one of the bestselling office supplies of the late analogue age. In 1979 Graham sold her company to Gillette for $47.5 million.

Excerpt from: Head in the Cloud by William Poundstone

💎 On taste freeze in music (somewhere around age thirty-three)

When Spotify looked at its music-streaming data, it found that teens listen to contemporary and popular music almost exclusively. As listeners age, their tastes expand. They spend more time listening to obscure bands and album tracks that were not hits. As the years go by, some take up jazz or world music or classical. But somewhere around age thirty-three, most stop listening to contemporary hits at all. The phenomenon even has a name—taste freeze. Men are more susceptible to it than women. Another fun fact: become a parent, and your “music relevance” takes a hit equivalent to ageing four years.

Excerpt from: Head in the Cloud by William Poundstone

💎 On how big numbers fail to move us (for charity fundraising)

In a 1992 survey by W. H. Desvousges and colleagues, people were told that birds were dying because they became mired in uncovered pools of oil at refineries. This (fictitious) problem could be solved by putting nets over the pools. The experiment asked participants to indicate how much they would be willing to pay for nets to save the birds The researchers tried telling different groups that 2,000 birds were being killed a year — or 20,000 birds, or 200,000 birds. The answers didn’t depend on the number of birds! In all cases, the average dollar amount was $80. Evidently, all that registered was A lot of birds are being killed. We should do something about it.

Excerpt from: Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone

💎 On how the money illusion affects our concept of fairness (a lesson on Wall Street bonuses)

A company is making a small profit. It is located in a community experiencing a recession with substantial unemployment but no inflation. There are many workers anxious to work at the company.

The company decides to decrease wages and salaries 7% this year.

Sixty-two per cent judged the pay cut unfair.

In an another version of the question, the community was said to have ‘substantial unemployment and inflation of 12% . . . The company decided to increase salaries only 5% this year.’ Now 78 per cent said this was acceptable. But of course the workers’ lot is almost identical in both versions. Getting a 5 per cent ‘pay rise’ when prices rise 12 per cent translates into nearly a 7 per cent cut in buying power.

One conclusion is that inflation is the Scroogish employer’s best friend. A similar principle applies to bonuses. It was judged acceptable for a troubled company to skip an annual 10 per cent bonus it had been in the habit of paying, but not to cut pay by 10 per cent for a year. (Wall Street employers, at the mercy of a volatile market, have long made use of this.)

Excerpt from: Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone

💎 On how priming lowers our threshold of attention (Baader-Meinhof phenomenon)

Have you ever learned a new word (or heard of an obscure sea mammal or an ethnic dance) and then encountered it several times in the space of a few days? You come across it in the news, you overhear it mentioned on the bus and on the radio, and the old issue of National Geographic you’re thumbing through falls open to an article on it. . .

This is priming (fortified with a few low-grade coincidences). When yon skim the newspaper, half-listen to TV, or drive on the motorway, you ignore most of what’s going on around you. Only a few things command attention. Paradoxically, it is unconscious processes that choose which stimuli to pass on to full consciousness. Prior exposure to something (priming) lowers the threshold of attention, so that that something is more likely to be noticed. The upshot is that you have probably encountered your ‘new’ word or car many times before. It’s just that now you’re noticing.

Excerpt from: Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone

💎 On how modern tech can weaken our memory (smartphone cameras)

But a 2013 study conducted by Linda Henkel of Fairfield University pointed in that direction. Henkel noticed that visitors to art museums are obsessed with taking cell-phone shots of artworks and often are less interested in looking at the art itself. So she performed an experiment at Fairfield University’s Bellarmine Museum of Art. Undergraduates took a guided tour in which they were directed to view specific artworks. Some were instructed to photograph the art, and others were simply told to take note of it. The next day both groups were quizzed on their knowledge of the artworks. The visitors who snapped pictures were less able to identify works and to recall visual details.

Excerpt from: Head in the Cloud by William Poundstone

💎 On the problem with opinion polls (many opinions are invented on the spot)

One alternative would be an opinion poll. The drawback is that many “opinions” are invented on the spot to satisfy a pollster. Political scientist George Bishop once demonstrated this by asking people whether they favoured repeal of the “Public Affairs Act of 1975.” There was no such act. But thirty percent took the bait and offered an opinion. Bishop found that the less educated were more likely to claim an opinion.

Excerpt from: Head in the Cloud by William Poundstone