the last few decades, aided and accelerated by the invention of the spreadsheet, businesses and public sector organisations have become disproportionately obsessed with measurement and quantification. There is no activity which is not judged on ‘key metrics’ or which is not subject to regular measurement and comparison.
‘What gets measured gets managed’, as the phrase goes.
Hours are duly spent in defining these measures and in devising ways to ‘improve’ them. In time, this results in more and more perverse behaviour, as people run out of good ideas and learn to game the system instead – since anything that improves a metric is rewarded. Highly intelligent people are strangely susceptible to this failing. Recently it was revealed that Ivy League universities were in the habit of encouraging applications from potential candidates who had no hope of being accepted. The reason? By rejecting these candidates’ applications, the university could improve its ‘selectivity stats’ by allowing it to claim that it accepted a smaller percentage of applicants than its competitors, hence burnishing its elite credentials. It seems almost unbelievable that, in the pursuit of improving a measure, leading universities could engage in the hideous practice of falsely raising the hopes of thousands of young people before dashing them. Tragically this is exactly what they did.
The practitioners of this kind of ‘McKinsey Capitalism’ usually think themselves great believers in free markets. And it never occurs to them that there is a whiff of Stalinism about this obsession with statistics, and with the pursuit of false proxy targets at any cost. (At one point, chandeliers in the Soviet Union posed a significant health hazard, since the factory was rewarded on the weight of its output – and had responded by producing light-fittings of such extraordinary heft that ceilings were often at risk of collapse.)
“the pursuit of rational, objective and quantifiable metrics only makes sense if these are closely aligned with the things that your customers care about”
But this is not confined to communism. In fact, any managerial or bureaucratic culture has an incentive to engage in over-measurement, since the act of quantification allows the manager or bureaucrat to present their decision-making as being rational and objective, and thereby sidestep the risk of blame. The reason this causes problems is that the pursuit of rational, objective and quantifiable metrics only makes sense if these are closely aligned with the things that your customers care about. More and more evidence from behavioural science and behavioural economics suggests that this is a very unsafe assumption. In fact, what consumers care about may have very little to do with the objective qualities of a product or service, and their preferences may differ markedly from those of the representative, single, utility-maximising rational agent who populates all economic models.
Making decisions on this basis alone may be good for the manager’s career prospects – but commercially disastrous. Not only does it fail to deliver what consumers really value, but it makes you more and more similar in your decision-making to your think-alike rational competitors.
What gets mismeasured gets mismanaged.
The licence given to businesses by mainstream economics to make decisions while effectively ignoring psychological or perceptual factors is doubly disastrous for business decision-making: it focuses companies on improving the wrong things, and, by assuming consumers to be rational maximisers, it limits the notion of what improvements and innovations might most motivate different customers, who may be highly different in their preferences. It is hence creatively limiting.
To redress this imbalance, marketers and other imaginative business innovators need to use the methodology and vocabulary of behavioural economics to start to win arguments in the boardroom. They need to develop proper new metrics to complement the objective metrics which have become overused. Instead of measuring the length of queues or the overcrowding on trains, they need to measure the irritation of waiting or the level of inconvenience endured. It will take time to redress the balance – but thanks to books like this it is starting to happen.
rory sutherland
London, 2020
Introduction
If you are in business, you are in the business of behaviour.
Unless a business influences behaviour, it will not succeed. A business needs people to buy and use its products and services to generate revenue. It needs people to make and deliver those products and services.
Or at the very least it needs people to create those products and services, or to build and program the machines that create them. And it needs to do those things better than its competitors to survive and grow.
This much should be self-evident. But there are lots of things businesses do that fly in the face of the latest evidence on how, and why, people behave as they do. Or worse, businesses frequently don’t even try to change behaviour, but merely perceptions or attitudes, and wrongly assume behaviour will follow.
If there is one thing to learn from behavioural science, it is this: what people do is often not the same as what they say they do, or intend to. If a business does not employ this understanding of how people make decisions – that they are frequently driven by subconscious or external factors they are not aware of – they are wasting the business’s money (and that of any shareholders).
The good news is that in the last 50 years we have learnt more about how, and why, people behave as they do than we learnt in the previous 5,000. Like advances in medicine, technology, and computing, the growth of knowledge in behavioural science has been extraordinary. It has been driven by academic disciplines like behavioural economics, social/evolutionary psychology and neuroscience, and the work of a number of dedicated practitioners.2
A number of leading thinkers referenced in this book are now key advisors to governments and businesses around the world. Similarly, two key luminaries – Professors Daniel Kahneman and Richard Thaler – have been awarded Nobel Prizes this century.
There is much for businesses to learn.
But this is not a guide to the science, nor a list of biases or irrationalities in human behaviour, because (whisper), confession time: I am not a behavioural scientist – despite often being introduced as such (or a behavioural economist or psychologist) when I am speaking at conferences.
I am a practitioner.
My career has been based on applying the insights from behavioural science to influence behaviour. My knowledge and passion for the subject is entirely derived from a career which has focused on harnessing insights from this discipline in the private and public sectors.
A deeper understanding of behaviour can help you achieve a far greater impact. When I was working at the UK Department of Health, our head of anti-smoking policy once told the team we could potentially save more lives in a year than many surgeons do in their entire careers. It was then I realised the potential to change behaviour at scale by better understanding the real drivers of behaviour.
It also became clear to me that the ways in which the public sector used behavioural insights to help people lead longer, happier lives could equally be applied to other challenges.
Some of the behavioural challenges I have addressed include getting people to: stop smoking; join the armed forces; drink spirits rather than wine; pay for university tuition; submit their taxes; work more collaboratively; build flatpack furniture;
