The Myth of Perfect Information

I want to tell you about some research that will change the way you think about thinking.

Imagine you’re about to interview someone for an important job. Your colleague informs you the candidate is intelligent, industrious, impulsive, critical, stubborn, and envious. You might picture someone who knows what he wants. He might be occasionally impatient and forceful, but he is hard working and ambitious. He puts his intelligence to good use.

Now imagine you’re about to interview someone else for the same job. This time, your colleague tells you the candidate is envious, stubborn, critical, impulsive, industrious, and intelligent. You might picture someone with a “problem.” Although he is intelligent, the candidate is prone to moments of rage and jealousy. His bad qualities will surely overshadow his lighter side.

In 1946, the American psychologist Solomon Asch gathered 58 participants and split them into two groups. The first group read about a person who was intelligent, industrious, impulsive, critical, stubborn, and envious. The second group read about the same person but with a twist. When Asch reversed the order of the qualities, participants imagined an entirely different person. Some qualities that people in the first group perceived as positive (impulsive and critical) were perceived as negative.

Asch was not the first person to notice that we make unreliable snap judgments based on limited information. Just about every philosopher and writer has commented on our malleable social intuitions.

Asch was one of the first scientists to empirically show that there is no such thing as neutral information. Even though his experiment revealed a quirk in how we evaluate other people—the study was published in a journal dedicated to social psychology—his findings apply to nearly every aspect of life. How information is ordered and how it is framed will invariably influence our judgment one way or another.

For instance, we tend to judge the length of a bike ride from Maine to Florida as shorter than the length of a bike ride from Florida to Maine, as if gravity helps us on the way down. We’re more likely to order expensive beer when it is placed next to lite beer, yet we’re more partial to lite beer when it is placed next to a “premium” cheap beer. A $60,000 salary feels different in a company where everyone makes $80,000 versus $40,000. If I tell you a painkiller costs $2.50, it will reduce pain more than if I told you it cost $0.10; how effective medicine will be critically depends on how effective you think the medicine is.

Even when we process a single piece of information—imagine someone only telling you a candidate is “intelligent” or having only one beer to select from—the information will not be neutral. Without other reference points, we’ll evaluate the same trait or price differently.

It’s worth pausing to appreciate this insight. In Thinking, Fast and SlowDaniel Kahneman discusses cognitive biases as they relate to the economic standard of rationality. In this view, a bias is a deviation. It’s what happens in the checkout lane, on a trading floor, or during fourth down.

The implication of Asch’s study is that the idea of a neutral choice environment, in which the layout of a menu or the font of an email does not sway the reader one way or another, is a myth. In this view, no matter how hard you flex your cognitive muscles, you will never process information without distorting it, not just because the mind is biased, but because the information is biased as well.

The lesson for anybody who depends on customers should be obvious. Be mindful how you present the facts; they will nudge customers in some way. Williams-Sonoma once boosted the sales of a $279 breadmaker simply by placing it next to a somewhat bigger model priced at $429. We’re more likely to buy a $200 printer with a $25 rebate than the same printer priced at $175. Despite what you heard in economics class, consumers really don’t know what most goods should cost.

The second lesson is for everyone else. If you’re still wondering if there is such a thing as neutral information, good. The moral of Thinking, Fast and Slow and every other book in that aisle is not that we occasionally mess up. It’s that a dose of epistemic humility can go a long way.

The surreptitious part of the human brain is that we think we see the world as it is. It’s almost as if the brain and the mind have a contractual relationship, in which the mind has agreed to believe the worldview the brain creates, but in return the brain has agreed to create a worldview the mind wants. La Rochefoucauld was right: “Nothing can comfort us when we are deceived by our enemies and betrayed by our friends; yet we are often happy to be deceived and betrayed by ourselves.”

The Tastes of Montaigne

Rene Descartes and Michel de Montaigne had a lot in common. Both enjoyed learning but hated school. In Discourse on Method Descartes famously called everything he had accepted as true in school into doubt. In his essay “On Educating Children” Montaigne berated teachers for pouring knowledge “down through a funnel.”

Both were born in 16th century France during the Renaissance. Both studied the Greeks and the Romans. Both attended schools that emphasized grammar, rhetoric, and moral philosophy. And though they had no way of knowing it, both played crucial roles in bridging the Renaissance with the Enlightenment.

And yet I have a hard time thinking of two philosophers who differed as much as these two did. Descartes dedicated his life to developing a singular and unified philosophy. He was a top-down thinker, relying on a few axiomatic truths to describe the world.

Montaigne also discussed big philosophical questions but he rarely answered them. Instead he focused on the ordinary aspects of life, such as the nature of friendship or the etiquette of burping and farting. He was a bottom-up thinker, relying on personal experience to describe his world.

Descartes is considered the father of modern philosophy. His books are logical and organized, and though he is occasionally autobiographical, his writing is mostly academic and a bit musty. It is from Descartes that we understand ourselves as autonomous individuals who carefully doubt their way to the truth.

Montaigne never wrote a magnum opus, he is not known for a famous maxim, and it’s tough to pinpoint a single intellectual contribution he made to western thought. He is credited with inventing the essay, which he wrote over one hundred. Although most are just a few pages long, each one is lively and erudite. It is from Montaigne, perhaps our first social psychologist, that we understand the benefits of travel, the meaning of friendship, and how to handle loss.

Descartes and Montaigne were deeply interested in the ancients—Plato, Epicurus, Seneca, Ovid, Horace, Plutarch—but whereas Descartes used them to figure out what it means to know, Montaigne relied on them to figure out what it means to live.

I was first alerted to the Montaigne-Descartes distinction years ago when I read Nassim Taleb’s Fooled by RandomnessTaleb emphasizes, correctly, that, “We surely closed our minds by following Descartes’ model of formal thinking rather than Montaigne’s brand of vague and informed (but critical) judgment.” He cites Stephen Toulmin’s 1990 book Cosmopolis: The Hidden Agenda of ModernityToulmin, a British philosopher who passed away in 2009, likewise wondered if the “opening gambit in the chess game of Modern Philosophy had been, not Descartes’ method of systematic doubt, but the skeptical arguments of Montaigne.”

I’ve just discovered another excellent account of Montaigne, Saul Frampton’s When I am Playing With My Cat, How Do I Know That She Is Not Playing With Me? Frampton makes a point about the etymology of “essay” that I had never considered, and it nicely captures what makes Montaigne a better role model for the modern thinker.

The original French word Montaigne used to describe his writing was ‘essais,’ which most people translate to ‘trials,’ ‘tests’ or ‘attempts.” But to Montaigne’s contemporaries, ‘essais’ could have also meant ‘tastes’ or ‘tasting.” If you squint closely, you’ll notice that the history of the word ‘essay’ is clearly linked to food and wine, as in “take a sip of wine and essay it.”

Montaigne lived most of his live on a vineyard in Bordeaux, so the connection between tasting wine and examining the intricacies and vicissitudes of human experience is not that surprising. As is true of wine and life, objective standards of measurement are usually blurry. We must make the best judgments we can, knowing our intuitions often mislead and obfuscate.

“The idea of taste thus allows Montaigne to explain how we have knowledge of the world,” Frampton writes, “but, like our tastes in wine, it also explains how each of us differ. We think we have comprehensive knowledge of something, but we only have a taste.”

Does knowing the wine is expensive influence how it tastes? Does the experience of drinking wine change when we’re with friends? And what can the aging process of wine teach us about life? These are the sorts of questions Montaigne asked.

Descartes, to be sure, also appreciated the fact that we do not see the world as it is. But whereas he diligently pursued truth and certainty, Montaigne was content to study how our subjectivity swayed us. “Unless some one thing is found of which we are completely certain, we can be certain about nothing,” Montaigne wrote. Years later, Descartes read this passage and reasoned that Montaigne was wrong. The truth is allusive, but to doubt is to confirm one’s existence. That we know for sure.

The irony is today the word essay describes a formal and logical piece of prose, even though Montaigne’s collection, better translated as “the Tastes of Michel de Montaigne,” took the opposite approach. Instead of making a case for one big idea, he sampled different parts of life, hopscotching from one idea to another without worrying about how each paragraph supported a thesis statement.

Descartes-style thinking is indispensable, but how much mental space should it occupy? The answer depends on what we want to value. Descartes famously influenced Isaac Newton, who showed us how the world works. Fewer people know that Montaigne influenced William Shakespeare, our most celebrated playwright, who showed us how we work.

As you contemplate this difference, remember that like wine, introspection never concludes.

It matures.

Perceived Value, Hidden in Plain Sight (The Five Guys Effect)

In his legendary 2005 commencement address at Kenyon College, David Foster Wallace riffed on the melodramatic moments of adulthood, emphasizing that life after graduation is not uplifting and vibrant but filled with “boredom, routine, and petty frustration.” He describes the checkout line in a crowded grocery store during the end-of-the-day rush. “You finally get to the front, and you pay for your food, and you get told to ‘Have a nice day’ in a voice that is the absolute voice of death.”

Wallace’s speech is a hallmark of postmodern thinking. Instead of pivoting off rousing anecdotes and graduation clichés, he describes the sad loneliness of adult life, stressing that we must use what we learn in school to construct meaning for ourselves. We can spend our time complaining about the dreadful bits of life, like how we always seem to pick the slow checkout line, or we can use what we know about the world to fundamentally change how we experience it.

Wallace probably exaggerates the tedious nature of grocery store checkout lines—sadly, he suffered from depression his entire life—but his existentially loaded parable reveals something fascinating about what happens in the mind when we buy stuff.

In the early 1980s, the behavioral economist Richard Thaler conducted a clever experiment that began to change how people understood economic transactions. Economists traditionally believed that consumers make decisions based on price and quality. In this view, it’s obvious why businesses like Wal-Mart and Amazon are so successful—they’re selling the best stuff at the best price.

It’s a seductively simple formula, and it’s gravely incomplete. Thaler had participants imagine that they were laying on a beach during a hot summer day, parched and craving something refreshing. A friend, offering to bring back cold beer from a run-down grocery store, asks how much they’d be willing to pay for the beer. “If the price is less than your stated maximum, I’ll buy it. If it’s higher, I won’t.”

There’s nothing surprising about the average answer, $1.50. The ingenious part of the experiment is that when Thaler replaced the word “run-down grocery store” with “fancy resort hotel” for half the participants, the average price jumped to $2.65.

According to decades of economic theory, this shift makes no sense. Both groups are getting the same item and deriving the same amount of pleasure from it. And yet, their price limit was dramatically altered by a subtle change in wording. Why would they be willing to pay more for the same item?

Thaler explains that during any given purchase, there are actually two types of utility: “Acquisition utility” and “Transaction utility.” Acquisition utility is the pleasure or pain we receive when we consume a good. Transaction utility is the pleasure or pain we feel when we buy it.

Once you grasp the distinction, it’s much easier to understand what Wallace was hinting at. We don’t walk around logically calculating market norms. The psychological experience is just as important, which is why, paradoxically, we can appreciate a great deal at the grocery store but dread the experience of being in the store. The implication isn’t just the obvious point that a good shopping experience matters. It’s the more intriguing hypothesis that we can boost the pleasure we receive from consuming something by improving the experience of buying it.

To see how, consider Five Guys Burgers & Fries, a fast food chain based in the United States. Five Guys is one of the fastest growing chains in the country because it serves delicious burgers. It’s also taking advantage of some shrewd consumer psychology. When a customer orders fries, the server places a cup of fries into a bag and then dumps some extra fries into the same bag, right in front of the customer.

No one is receiving bonus fries. The servers aren’t especially generous. Five Guys calculated how many fries it serves per person and then split the delivery system into two stages. The second stage, which supplies those yummy bottom-of-the-bag-fries, is perceived as extra because the anchor for the expected amount is the size of the cup. Start low, end high—it’s a brilliant use of Prospect Theory.

What makes this maneuver especially smart, though, is that it ignores the standard assumption that customers rationally compare the fries at Five Guys to the fries at McDonald’s or Burger King. In reality, how we perceive the quality of a good, especially something as subjective as food, is deeply intertwined with the physical experience of acquiring the good. I’m willing to bet that fries at Five Guys actually taste better when they are perceived as a bonus.

In fact, that’s precisely what empirical research would predict. Psychologists have shown that children think apples and carrots taste better if they come from a McDonald’s bag, Coke tastes better when drunk from a cup with a brand logo, and protein bars taste worse when they are described as “soy protein.” In one study, a team of neuroscientists found that people reported liking wine more when it was listed at $90 versus $10, even though the wine was the same in each condition.

Obviously, food has objective physical properties. I’m not suggesting that taste is purely a function of perception. It certainly is not. However, the experience of buying food does modify how good (or bad) the food will taste.

There are, I think, two implications of this fascinating line of research. The first is that while most businesses intuitively understand the link between buying something and enjoying something, they often believe that the key to improving customer perception is expensive top-down interventions. The logic is, “In order to achieve big change, we must spend big money.”

Five Guys shows that small inexpensive changes can have equally big effects. Instead of trying to perfect the customer experience, Five Guys does most things well enough but one thing unexpectedly great. That’s the logic of the halo effect: one moment of delight can make an entire, mostly average experience, seem great.

The online retailer is another great example. Zappos is renowned for its customer service. They offer free shipping both ways, erasing the worst aspect of online shopping—the fear of wasting money on an item you’ll never use. At the same time, Zappos occasionally performs surprise overnight shipping to loyal customers. Customers who order as late as midnight EST sometimes receive their shoes the next morning. I imagine that’s a delightful surprise, just like those greasy fries.

The second implication brings me back to David Foster Wallace. If you’ve heard his commencement address, you’re probably familiar with his introductory remarks.

There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes “What the hell is water?”

It’s a witty existential reminder that we often gloss over the most important components of life, a cautionary parable about the difference between learning and learning how to think.

Even though Wallace wasn’t contemplating the principles of behavioral science, I think the two young fish perfectly illustrate the problem with standard economic theory. Economists have traditionally assumed that a good has an intrinsic and immutable value. In this view, how much you enjoy a shoe shouldn’t depend on whether you bought it on or at the Nike Store. A shoe is a shoe.

And yet, years of smart psychological research reveal that value, though not entirely arbitrary, is mostly perceived. In fact, there is no sensible distinction between the value Five Guys creates by cooking the French fries and the value Five Guys creates by presenting the French fries in two stages. The only difference is that the later—what Thaler called transaction utility—is usually hidden in plain sight.

Wallace emphasized that education has almost nothing to do with acquiring knowledge and everything to do with simple awareness. We have to keep reminding ourselves over and over:

“This is water.”

“This is water.”

The Future of Policy

In the last decade, psychology has become immensely popular thanks to a series of bestsellers by erudite writers and researchers. Thinking, Fast and SlowYou’re Not So SmartNudgeThese books show that we don’t occasionally deviate from rationality. We make the same mistakes over and over. Aristotle wrote that humans are the rational animal–but he was wrong. We’re predictably irrational.

Ironically, we tend to absorb these books uncritically, treating biases like a broken limb—something to fix and forget. In reality, a bias is more like chronic back pain: it won’t go away but we can make adjustments. Better yet, a bias is like severe short-term memory loss. It won’t go away and we don’t even notice it. Some research extols the benefits of alerting people to their mistakes, but the effects are usually temporary. We invariably return to feeling error-free.

How can we avoid irrationalities if learning about them doesn’t seem to help that much? The wisdom of management initiatives like Six Sigma is that they improve individual behavior by redesigning the environment. Reducing errors (or creating a new habit) requires a similar approach. Instead of telling people to avoid errors, we should focus on context.

This new approach, which takes advantage of our irrationalities to enact change, is beginning to influence public policy. Last month The World Bank issued a report, “Mind, Society and Behavior,” that outlines how psychology is helping alleviate global development and health problems.

In India, for example, sugar cane farmers typically receive their income in one lump sum, at harvest time. Before harvest, when farmers worry about debt, they score significantly lower on cognitive tests compared to the weeks after. They are more likely to take loans (99 versus 13 percent) and pawn belongings (78 versus 4 percent) before harvest. The report urges that programs designed to assist poor farmers should “pay more attention to the timing of decisions and prevent them from coinciding with times when beneficiaries’ cognitive resources may be heavily taxed.”

Also in India, researchers used stereotype threat—which occurs when people perform worse after being reminded of negative stereotypes about themselves—to boost student performance. When the researchers downplayed the salience of caste in one experiment, low-caste boys solved as many mazes as high-caste boys. When the researchers emphasized caste in mixed classrooms, low-caste boys solved fewer mazes.

Britain’s Behavioral Insight Team (also known as the “Nudge Unit”) is using the power of social norms to encourage on time tax payments. They sent letters to taxpayers that contained messages such as “9 out of 10 people in Britain pay their tax on time.” The strategy led to a 15 percent increase of taxpayers who responded with on time payments.

When Denmark banned indoor smoking, smokers began to smoke just outside of buildings. This shift caused secondhand smoke to seep back into the terminal at Copenhagen Airport. Clearly marked non-smoking zones placed near entrances weren’t working, so officials moved benches and trashcans (where smokers congregated) further away from the airport entrances. The small change cut smoking near entrances by 50 percent.

After a tunnel supplying fresh water to Bogota burst in 1997, the city government declared a public emergency and asked residents to reduce usage. Residents subsequently increased consumption—some even began stockpiling water—so the government publicized information about which residents were cooperating and which residents were not. The CEO of the water company personally awarded households that saved; local celebrities used the media to create a social norm of water conservation. “By the eighth week of the campaign, citywide water savings had significantly exceeded even the most optimistic technical predictions.”

In Kenya, health officials increased the rate at which patients took HIV drugs by sending weekly reminders via text message. In another study, researchers gave one group of Kenyans a lockable metal box, a padlock, and a passbook to encourage investment in preventative health care products, such as insecticide-treated mosquito nets. Investments subsequently rose by 66–75 percent.

South Africans improved financial literacy by partnering with a television soap opera. “Households that watched the soap opera for two months were less likely to gamble and less likely to purchase goods through an expensive installment plan.”

The brilliance of these initiatives is they assume, correctly, that human beings don’t always respond to information rationally. Instead, they begin with the premise that we’re social creatures swayed by norms, sensitive to stereotypes, and influenced by the cognitive pressures of poverty and small changes in the environment.

Psychology provides cheap and powerful solutions to complex problems. Instead of contemplating policy from the armchair, we must observe how humans actually behave. That, at least, is my hope for the future.