Rory Sutherland: Instinct vs process

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A while ago, creative director Dave Trott was on a creative awards jury. Somebody noticed something a bit strange when totting up the votes. It emerged that while the rest of the jury were voting on each entry by painstakingly awarding marks out of 10, Dave had adopted a binary approach. Anything he thought deserved an award he gave a 10; anything he did not think deserved an award he gave zero. The other jury members argued that it gave him more influence over the winners than anyone else. Dave argued that something either deserved an award or it didn’t. End of.

I don’t know how the row was resolved, but this story reminded me of the glorious absurdity in procurement-led pitches where the selection panel is required to score pitching agencies using a ‘balanced scorecard’, based on adding up scores for pre-agreed, weighted criteria. These might include ‘chemistry’, ‘strategic vision’ and ‘creative execution’, and – inevitably, as procurement is behind this process – a fairly hefty weighting for price.

There are a couple of problems with this approach. It would be possible for one person to enjoy disproportionate influence by awarding any agency they did not like zero on all measures. The other problem is that the additive approach does not reflect the instinctive way in which humans make decisions.

That raises a simple question: is human instinct wrong and the process right, or is it the other way around? When I’m asked to explain the difference between Kahneman’s ‘system one’ and ‘system two’ decision-making, I often mention this process as an example of the distinction. Ultimately, the decision to appoint an agency is a system one decision. System one clearly does not follow the neat mathematical logic of the people who constructed the balanced scorecard. Indeed, if you ask anybody involved in one of these scoring processes (ideally after a couple of drinks) whether they actually follow the process to arrive at their recommendation, they generally laugh. “No, of course I didn’t. I decided which agency I wanted to win, then I backfilled the numbers to get the result I wanted.”

On reflection, I think their instinctive brains are right to reject this rigidly additive approach. After all, different agency attributes are not additive: they are interdependent, even multiplicative. An agency that is strategically brilliant but creatively useless isn’t half-good – it’s arguably worthless. 100+0 =100. But 100x0 is a big fat zero.

This explains why it’s important, abstruse as it may seem, to spend a bit of time understanding the debate around ‘ergodicity’: human fortune, happiness, pleasure, utility, reputation and general growth cannot universally be considered as additive functions, the net sum of different wins and losses. Under multiplicative dynamics, what is optimal behaviour is very different from what is optimal under additive dynamics. Risk aversion suddenly makes much more sense, for one thing – and you do not maximise your fortunes over time by maximising each transaction so much as by minimising downside variance.

If you have 1+3 or 2+2, or 3+1 or, indeed, 4+0, you can add one to either number and it makes no difference to the total. It will still be five. But that isn’t true under multiplication. There is a difference between 2x3, 3x2, 1x4 and 5x0, so where you add the 1 actually matters. You would always add it to the lower number. Improving the worst pays off more than improving the best.

Human life, to a large extent, is lived under multiplicative dynamics. It is not a series of independent, context-free decisions that simply add or detract from the score. Take reputation. This is much more multiplicative than additive. Shakespeare called it the ‘bubble reputation’, meaning it can very rapidly hit zero and become unrecoverable; it’s not something that rises and falls in independent steps. Hit a reputational zero and you never recover.

Recently, experiments were performed to investigate whether humans changed their risk preferences according to the multiplicative or additive dynamics of the situation. The paper (see reference) bears deep reading, because understanding what people instinctively are trying to do in different contexts is vital to understanding human motivation. That multiplicative component is what the procurement department has missed, and what the real decision-makers intuitively understand. This paper is perhaps the most important work in understanding human motivation in 50 years. Read it before you read anything else.

Here’s wishing a healthily non-ergodic 2021 to all my readers.

This article was first published in the January 2021 issue of Impact.