Playing games on yourself

AT a meeting last Tuesday, I told my colleagues that I would finish this column — which is about deadlines — by noon on Thursday. I spent part of Tuesday afternoon searching the word “deadlines” on Google, but didn’t make much progress. By late afternoon, I felt a tiny knot of fear in my stomach. What if I let my co-workers down? So I wrote something silly just to get started. This paragraph.

On the motivating power of deadlines, however artificial they might be.

People respond well to deadlines because meeting them provides a distinct feeling of having achieved something within a time frame.

Amazing how you can fool yourself, even though you know you're doing so.​ This might seem irrational, but many self-help books seem to posit a notion of multiple selves, often adhering to that popular dichotomy that places an angel on one shoulder, a devil on the other. Succeeding in life, then, becomes a game in which you outwit the devil, the bad self.

The psychological poverty trap

Shafir and Mullainathan tested the intelligence of sugarcane growers in India during two different periods: after selling the harvest, when they enjoy relative prosperity, and before the harvest, when times are tightest. The farmers had better IQ results during the season of plenty. Before the harvest they had problems making fateful decisions, because of stress. The study concluded that poverty generates a psychology of its own.

Most of us judge poor people, viewing them at worst as lazy, at best as suffering from deficient financial behavior. We've gotten used to thinking that being poor is their fault: If they were smarter or more industrious they surely would have overcome their poverty.

Shafir, however, claims that the real culprit isn't lack of ability but problems created by poverty. "These problems are distracting and cause mistakes," he told Markerweek in an interview.

"When you're poor you're surrounded by bad decisions of people around you," he says. "You're so concerned about the present that you can't begin thinking about the future, and that's the big irony: People with the greatest need to think about the future don't have the leisure or emotional capacity to do so. The very essence of poverty complicates decisions and makes immediate needs so urgent that you start making wrong choices. These mistakes aren't any different from anyone else's, but they occur more frequently due to the element of stress, and their implications are much greater."

More of this insight into the psychological impact of poverty, all interesting, from poverty expert Eldar Shafir.

Clearly, fundamental attribution error when it comes to the poor is dangerous, especially as it comes to crafting policy to combat it. I hope a better understanding of the psychological and decision-making impact of poverty will lead to greater empathy on the part of those more fortunate.

Studies like this also point to some of the potential advantages of behavioral economics over classical economics, built around the concept of rational actors. Put someone in a situation of comfort and wealth, and they'll tend to behave more rationally than someone in poverty who has a staggering array of challenges weighing on them.​

​Previously posted here, also related: the persistence of poverty.

The price game

When Ron Johnson took over as CEO of J. C. Penney, one of his most sweeping changes was to move away from the constant sales and coupons to a more straightforward pricing model. Not surprising considering he came from Apple where they hold one sale a year, on Black Friday, and not even a great one at that.​

But J. C. Penney is not Apple, and the price game each is playing is different.

Mr. Johnson explained a similar logic when he moved the chain toward simplified pricing. In January 2012, while introducing his new plan to investors, the press and vendors, Mr. Johnson said that in the previous year, the company held 590 sales events; almost three-quarters of the stuff it sold was marked down 50 percent or more.

But here’s the thing: customers weren’t actually paying less. The chain just kept raising the prices that customers saw on the racks, and then discounted those prices during promotions. Why keep playing a game that is expensive and troublesome for the seller and a mirage for the consumer?

J. C. Penney was not the first retailer to be astonished by the brilliance of this realization. In 2006, Macy’s had a similar idea after acquiring the coupon-happy May department stores. It decided to “retrain” those customers, as its chief financial officer put it at the time, by drastically cutting coupons. By 2007, it had abandoned that strategy. Its chief executive acknowledged that pulling back on coupons was Macy’s biggest mistake in its acquisition.

Even Walmart, which actually does pull off the trick of “everyday low prices” in its domestic stores, is finding it hard to convert consumers to a single-price model in countries like Brazil and China, where retailers give deep discounts on a few main products, then mark up the rest, said Mark Wiltamuth, an analyst at Morgan Stanley.

The problem, economists and marketing experts say, is that consumers are conditioned to wait for deals and sales, partly because they do not have a good sense of how much an item should be worth to them and need cues to figure that out.

Just having a generically fair or low price, as Penney did, said Alexander Chernev, a marketing professor at the Kellogg School of Management at Northwestern University, assumes that consumers have some context for how much items should cost. But they don’t.

Price strategy has to be supported throughout the organization. For Apple to have one price for its items means they must enforce that price through all of its distribution partners, and it must also create advertising that reinforces the premium quality of the goods. And of course, the products must be good enough to justify a no discount policy.​

​One thing is for certain: once you go sale, it's tough to go back (once you go red, it's hard to go black?). Companies that consider a sale or discount strategy should do so carefully. Once customers expect a regular cadence of sales or discounts (e.g. Restoration Hardware's bi-annual bath sales, or Bed Bath and Beyond's ubiquitous 20% off coupons) they orient their entire behavior around that pattern and won't easily be persuaded to buy at full price ever again.

Ethical nudging

The survey data captures what people think — but not how they act. From research that I've done, the same tendency exists in other facets of our lives. When confronted with the opportunity to cheat, most people engage in behavior that violates their own ethical goals.

Fortunately, simple interventions can help. For instance, consider a study that my colleagues and I conducted a few years ago [PDF] in collaboration with a major U.S. car insurance company. As part of the study, we sent 13,488 of the company's customers a form that asked them to report the number of miles they had driven the prior year, as indicated on their cars' odometers. Cheating by under-reporting mileage would come with the financial benefit of lower insurance premiums.

On about half of the forms sent out, customers were supposed to sign to indicate their truthfulness at the bottom of the form. The other half of the forms asked the customers to sign at the top of the form. The average mileage reported by customers who signed the form at the top was more than 2,400 miles higher than that reported by customers who signed at the bottom of the form.

​From Francesca Gino. Mental context is very powerful, and messages transmit more easily when people are in the right mode to receive  them.

Ken Brennan, PI

Mark Bowden wrote of real life private investigator Ken Brennan in Vanity Fair in December of 2010. The story was titled "The Case of the Vanishing Blonde":

After a woman living in a hotel in Florida was raped, viciously beaten, and left for dead near the Everglades in 2005, the police investigation quickly went cold. But when the victim sued the Airport Regency, the hotel’s private detective, Ken Brennan, became obsessed with the case: how had the 21-year-old blonde disappeared from her room, unseen by security cameras? The author follows Brennan’s trail as the P.I. worked a chilling hunch that would lead him to other states, other crimes, and a man nobody else suspected.

Now Bowden has written about Brennan again in "The Body in Room 348"​:

The hotel was just off the cloverleaf outside Beaumont. His company rented him a room in the “cabana,” a three-story wing that wrapped around a small swimming pool framed by potted palms.

That Wednesday night, watching his movie, Greg got an e-mail from his wife, Susie, shortly after seven. Susie was using a computer program to file for a tax extension. After she reported her progress he wrote back, “You’re doin’ good, babe.”

At some point during the loud, computer-generated showdown at the end of the film, amid all the fake violence, Greg was struck from nowhere with a very real and shattering blow. A blow so violent it would blind a man with pain. He managed to get off the bed and move toward the door before he fell, legs splayed and face-first.

He was probably dead by the time his face hit the green rug.

This is some amazing detective work, and it happened in real life. How long before we have a new TV show based on the exploits of Brennan? These are far more compelling stories than the "mysteries of the week" scripts of so many forensic TV shows.