The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life
When I discovered this book, I realised it was the perfect book for this blog. A book about behavioural economics, which also examines gender and other discrimination through an economic lens. What could be better?
Uri Gneezy and John List are economists, who focus on experimental economics – creating and investigating real experiments in economic behaviour to tease out what makes people really behave as they do. In this book, they describe their disparate economic researches. All their research is tied back to a single principle; experimentation is a great way to test a theory. As part of the wave of experimental economists (also profiled here in Wired magazine) who tried to move into real life (away from paying bored undergraduates to play weird games), they came up with many different ways to test how people really behave.
Among the experiments they describe in the book are:
- Experiments in different societies trying to determine whether men really are less competitive than men, or whether they are just socialised that way (their answer – women raised in a matriarchal society are just about as competitive as men raised in a patriarchal society). To tease out competitive differences between men and women, they tried a few different ways of allowing men and women to complete tasks; some with a competitive element, and some without. In general, the dominant gender (men in most societies, but they found some matriarchal ones to test against) were more likely to choose to compete, and were more likely to do better with competition than without.
They also tested negotiation within patriarchal and matriarchal societies, discovering that women from matriarchal societies were great negotiators, much better than women from very nearby societies which were not matriarchal.
- An experiment within preschools looking at the effectiveness of two different teaching approaches – a focus on social skills, including deferred gratification, compared with a focus on early academic skills. In addition, a related experiment looked at parental incentives – would short term or long term cash incentives (conditional on school attendance and developmental progress) help the children’s performance? The answer so far is that all three programs worked well, with both teaching approaches leading to children outperforming the national average (having started from a very low base) and the parenting incentives also having an effect (short term incentives being better than long term).
- A great set of field experiments looking at how customers who tend to receive price discrimination can often fix that – by signalling strongly that they are shopping around (whether or not they actually are shopping around). The strongest example of this was disabled shoppers – when they shop without mentioning shopping around, they tend to get much worse price offers. But as soon as they talk about shopping around, the price discrimination reduces or disappears. I didn’t like the conclusion from this one that much – that shoppers who tend to receive discrimination (another example is black people shopping for high priced cars) are only getting discriminated against for rational reasons, so it was OK. It still puts the onus on the discriminated against shopper to change the signals (which is not always possible – my equally difficult haircut is still going to cost me more than a man with the same cut).
- And finally some remarkably interesting experiments teasing out exactly what approaches will maximise people’s contribution to charity. The experiments tested a number of areas of received wisdom in the charity direct mail out business – whether offering to match people’s contributions would improve the overall take (yes, but not as much as the standard rules of thumb), whether giving people the chance to opt out from all future mailings was a sensible strategy (it turns out that this will increase the take from those who choose to give whether or not they opt out).
After describing a wide variety of experimental techniques, the authors get to with-profit companies, pointing out that experiments aren’t just for research. Many very successful companies use small scale experiments in order to work out what their customers really want. They suggest running small scale experiments, with randomly chosen customers, to see what works and doesn’t work to maximise whichever variable the company is most interested in (sales, profits, retention, etc). Companies have always done pilots; it is why Adelaide and Tasmania (in Australia) often get the first launch of a new product or service – a reasonably diverse customer base that is small enough that failure is not going to destroy the company.
But true experiments are far more carefully designed. The authors talk about carefully choosing the target (for whatever action) – randomly if possible, and also with controls, in a carefully controlled experiment to understand the impact of a particular action. To make it work, companies need to be nimble, and able to quickly take the feedback they have gathered into a new set of actions for their entire customer base. But the rewards can be enormous, particularly if the outcomes are counterintuitive to received wisdom.
In many ways, this is quite an actuarial approach; general insurance pricing (particularly for retail insurance) has displayed this kind of learning loop for many years, as new pricing variables are developed to work out as precisely as possible how to price for risk. But the learning loop the authors recommend is company wide – it isn’t just about pricing but the whole design of products and services.
I didn’t buy this book expecting to get any business lessons from it; I bought it because economics for the general reader interests me. But it is worth reading with businesses in mind; reminding the reader that the best organisations are the ones that are constantly learning from their experiences, and design ways that they can learn as much as possible about their customers and their business.