Alchemy

by Rory Sutherland

  In maths it is a rule that 2 + 2 = 4. In psychology, 2 + 2 can equal more or less than 4. It’s up to you.

  We don’t value things; we value their meaning. What they are is determined by the laws of physics, but what they mean is determined by the laws of psychology.

  Companies which look for opportunities to make magic, like Apple or Disney, routinely feature in lists of the most valuable and profitable brands in the world; you might think economists would have noticed this by now.

  Wine tastes better when poured from a heavier bottle. Painkillers are more effective when people believe they are expensive. Almost everything becomes more desirable when people believe it is in scarce supply, and possessions become more enjoyable when they have a famous brand name attached.

  Sadly, no one in public life believes in magic, or trusts those who purvey it. If you propose any solution where the gain in perceived value outweighs the attendant expenditure in money, time, effort or resources, people either don’t believe you, or worse, they think you are somehow cheating them. This is why marketing doesn’t get any credit in business – when it generates magic, it is more socially acceptable to attribute the resulting success to logistics or cost-control.

  Ethically principled as it may sometimes seem, this aversion to magic brings huge problems; the ingrained reluctance even to entertain magical solutions results in a limitation in the number of ideas that people are allowed to consider. It is because of this that governments are usually confined to pulling on the twin levers of legal compulsion and economic incentive, while ignoring solutions which may be more cost-effective or less coercive. For instance, the UK Government’s recent decision to spend £60 billion on a new high-speed railway to link London, Birmingham and Manchester is a case in point. The case for this expenditure is twofold: partly it’s about saving time by means of new, faster trains, and partly it’s about creating additional capacity.*

  However, the problem is cost. £60 billion is obviously a lot of money, and then there’s the time it will take to build the new line. It’s true that the new trains will knock around an hour off every journey, with a typical trip to Manchester reduced to something like 70 minutes from the current time of 2 hours and 10, but we’ll have to wait till the end of the 2020s to enjoy this gain.* Waiting ten years to save 60 minutes is hardly a compelling proposition. So I suggested a magical alternative that would reduce the journey time to Manchester by around 40 minutes and increase the capacity of the existing trains, all in the space of six months and at a trivial cost of around £250,000.

  The trick I used was simple. Don’t look at the logistics of the problem, look at it from the perspective of a passenger. To reduce journey times by 40 minutes, you don’t have to reduce the amount of time people spend on the train – which is in any case the most enjoyable part of their journey – you could simply reduce the amount of time they waste waiting for the train. Provided their end-to-end journey is 40 minutes quicker, they’ve saved 40 minutes.

  This would be easy to do. At the moment, most people buy an advance ticket to travel from London to Manchester or Birmingham, which gives a considerable saving on the cost of the journey, but requires you to travel on a specified train – and if you miss this train, the ticket is worthless. As a result, people typically allow a wide margin of error in fear of missing their train, and turn up at Euston station about 45 minutes before their designated train is due to depart. In those 45 minutes, two earlier trains will typically leave the station, and these generally have empty seats on them.

  All you need to do to cut 40 minutes off the journey time, I explained, is to create a mobile app that would allow you to board one of the two earlier trains whenever spare seats are available, in return for a small voluntary payment. Obviously this wouldn’t always work, as sometimes the earlier trains will be full, but most of the time it would be an easy way to allow people to cut 20–40 minutes off their time at the station. It would also have the additional benefit of increasing the capacity of the network, because otherwise empty seats would now be occupied, and the ones on the later train could be re-sold.

  As far as I know, no one has taken this suggestion seriously – it does not fit into transport analysts’ narrow, metric-driven conception of what improvement might look like. Their only conception of time-saving applies to time spent in motion – the means by which they aim to improve things are too narrowly defined.*

  2.2: Turning Lead into Gold: Value Is in the Mind and Heart of the Valuer

  The reason the alchemists gave up in the Middle Ages was because they were looking at the problem the wrong way – they had set themselves the impossible task of trying to turn lead into gold, but had got it into their heads that the value of something lies solely in what it is. This was a false assumption, because you don’t need to tinker with atomic structure to make lead as valuable as gold – all you need to do is to tinker with human psychology so that it feels as valuable as gold. At which point, who cares that it isn’t actually gold?

  If you think that’s impossible, look at the paper money in your wallet or purse; the value is exclusively psychological. Value resides not in the thing itself, but in the minds of those who value it. You can therefore create (or destroy) value it in two ways – either by changing the thing or by changing minds about what it is.

  One contention in this book is that nearly all really successful businesses, as much as they pretend to be popular for rational reasons, owe most of their success to having stumbled on a psychological magic trick, sometimes unwittingly. Google, Dyson, Uber, Red Bull, Diet Coke, McDonald’s, Just Eat, Apple, Starbucks and Amazon have all deliberately or accidentally happened on a form of mental alchemy. Alongside these great successes, we should also remember a group of companies you have never heard of: those that failed. Often their business ideas were perfectly logical, but they failed because they didn’t contain any alchemy.

  Preoccupied as they were with the hopeless idea of ‘transmutation’ – the transformation of one element into another – the alchemists failed to experiment with the rebranding of lead. Perhaps they could have added a mystery ingredient or polishing technique to make it slightly shinier and named the result ‘Black Gold’. Or, better still, they might have used the French trick of creating artificial scarcity through topography and provenance* and called their special lead something like ‘Or de Sable de Lyon’. This regional monopoly would have maintained rarity and made their product more expensive than boring old gold. All that would have been needed then was a major PR event: perhaps a king somewhere could have been induced to commission a crown made of it, by which point the job would have been half done. Some craftsmen at the time had indeed managed to do exactly this through a mixture of skill, scarcity and branding; for instance Limoges enamelware, which contained mostly copper, was at the time, pound for pound, considerably more valuable than gold.*

  2.3: Turning Iron and Potatoes into Gold: Lessons from Prussia

  In nineteenth-century Prussia, a glorious feat of alchemy saved the public exchequer, when the kingdom’s royal family managed to make iron jewellery more desirable than gold jewellery. To fund the war effort against France, Princess Marianne appealed in 1813 to all wealthy and aristocratic women there to swap their gold ornaments for base metal, to fund the war effort. In return they were given iron replicas of the gold items of jewellery they had donated, stamped with the words ‘Gold gab ich für Eisen’, ‘I gave gold for iron’. At social events thereafter, wearing and displaying the iron replica jewellery and ornaments became a far better indication of status than wearing gold itself. Gold jewellery merely proved that your family was rich, while iron jewellery proved that your family was not only rich but also generous and patriotic. As one contemporary observed, ‘Iron jewellery became the fashion of all patriot women, thus showing their contribution in support of the wars of liberation.’

  Yes, precious metals have a value, but so does meaning, the addition of which is generally less expensive and less environ
mentally damaging. After all, thinking what is gold jewellery is actually for reveals it to be an extremely wasteful way of signalling status. But it was perfectly possible, with the right psychological ingredients, to allow iron to do this job just as well. Psychology 1, Chemistry 0.

  Permission granted by 1stDibs in New York

  ‘Gold gab ich für Eisen’. How alchemy made iron jewellery a higher-status ornament than gold.

  One eighteenth-century monarch, Frederick the Great, used the same magic in the promotion of the potato as a domestic crop, transforming something worthless and unwanted into something valuable through the elixir of psychology. The reason he wanted eighteenth-century Prussian peasants to cultivate and eat the potato was because he hoped that they would be less at risk of famine when bread was in short supply if they had an alternative source of carbohydrate; it would also make food prices less volatile. The problem was that the peasants weren’t keen on potatoes; even when Frederick tried coercion and the threat of fines, they simply showed no interest in eating them. Some people objected because the potato was not mentioned in the Bible, while others argued that, since dogs wouldn’t eat potatoes, why should humans?

  So, having given up on compulsion, Frederick tried subtle persuasion. He established a royal potato patch in the grounds of his palace, and declared that it was to be a royal vegetable, that could only be consumed by members of the royal household or with royal permission.* If you declare something highly exclusive and out of reach, it makes us all want it much more – call it ‘the elixir of scarcity’. Frederick knew this and so posted guards around his potato patch to protect his crop, but gave them secret instructions not to guard the patch too closely. Curious Prussians found they could sneak into the royal potato patch and could steal, eat and even cultivate this fabulously exclusive vegetable for themselves. Today, the potato – which is unsurpassed as a source of nutrients and energy – is as popular in Germany as it is everywhere else.*

  Permission granted by Andrew Heaton

  Potatoes on the grave of Frederick the Great.

  2.4: The Modern-Day Alchemy of Semantics

  But surely this kind of alchemy no longer works today? Well, have you ever eaten Chilean sea bass?* It is the product of a particular sort of alchemy, ‘The Alchemy of Semantics’. The $20 slice of fish that graces plates in high-end restaurants under the name ‘Chilean sea bass’ actually comes from a fish that for many years was known as the Patagonian toothfish. No one is going to pay $20 for a plate of Patagonian toothfish – call it Chilean sea bass, however, and the rules change. An American fish wholesaler called Lee Lentz had the idea, even though, strictly speaking, most of the catch doesn’t come from Chile and the toothfish isn’t even related to the bass.*

  Dishonest as it may seem, Lentz’s action in fact sits within a long tradition of rebranding seafood. Monkfish was originally called goosefish, orange roughy was once called slimehead, and sea urchins were once whore’s eggs. More recently, a similar thing happened to pilchards. Caught off the Cornish coast before being salted and shipped all over Europe, they had been a delicacy for centuries, until the advent of domestic refrigeration and freezing caused the appetite for salted fish – at least outside of Portugal – fall away. ‘The market was dying fast as the little shops that sold them closed down,’ says Nick Howell of the Pilchard Works fish suppliers in Newlyn. ‘I realised I needed to do something about it.’ Fortunately, Nick thought creatively. He discovered that what the Cornish often called the pilchard was related to the fish that was served, with lemon and olive oil, to British tourists in the Mediterranean as a fashionable sardine.* So he changed the name from the pilchard, a name redolent of ration food,* to the ‘Cornish sardine’. Next, a supermarket buyer who called to ask for French sardines was deftly switched to buying ‘pilchards from Cornwall’. A few years ago Nick successfully petitioned the EU to award Cornish sardines Protected Designation of Origin (PDO) status, and the result was extraordinary: the Daily Telegraph reported in 2012 that sales of fresh sardines at Tesco had rocketed by 180 per cent in the past year, an increase that was partly explained by a huge increase in the sales of ‘Cornish sardines’. This rebranding exercise had reinvigorated the entire Cornish fishing industry.

  Cornish sardines are another example of geographical alchemy at work.* Merely adding a geographical or topographical adjective to food – whether on a menu in a restaurant or on packaging in a supermarket – allows you to charge more for it and means you will sell more. According to research from the University of Illinois at Urbana-Champaign, descriptive menu labels raised sales by 27 per cent in restaurants, compared to food items without descriptors.

  On menus, there seems to be more money in adjectives than in nouns. Even adjectives that have no precise definition such as ‘succulent’ can raise the popularity of items. The Oxford experimental psychologist Charles Spence has published a paper on the effect the name of a dish has on diners. ‘Give it an ethnic label such as an Italian name,’ he says, ‘and people will rate the food as more authentic.’* We make far more positive comments about a dish’s appeal and taste when it is garlanded with an evocative description: ‘A label directs a person’s attention towards a feature in a dish, and hence helps bring out certain flavours and textures.’

  Never forget this: the nature of our attention affects the nature of our experience.

  Advertising* often also works in this way. A great deal of the effectiveness of advertising derives from its power to direct attention to favourable aspects of an experience, in order to change the experience for the better. Strangely, there is one form of enhancement to a menu that seems to be the kiss of death: adding photographs of dishes to a menu seems to heavily limit what you can charge for them. Opinion is divided on why. Some people think that the practice is strongly associated with downmarket restaurants, while others believe that attractive photographs may raise expectations too high, leading to inevitable disappointment when the real food arrives. It is certainly interesting to me that many cult burger restaurants, including Five Guys and In-N-Out, have simple textual menus and no photographs, while McDonald’s uses photographs on its LCD screens extensively. Does this limit their power to charge a premium?*

  2.5: Benign Bullshit – and Hacking the Unconscious

  It is easy to disparage alchemy as bullshit. And to be frank, some of what I say will probably later be shown to be bullshit. But much of it – the renaming of fish, the lavish addition of geographical provenance to menu items, the rebranding of iron – can be placed under the category of ‘benign bullshit’, because the same technique that works for fish can also solve much more significant problems. For instance, how can we encourage more women to pursue tech careers? Or, to change the question, how can we prevent tech careers from seeming unappealing to women? One college has found the answer. In 2006, Maria Klawe, a computer scientist and mathematician, was appointed president of Harvey Mudd College in California. At the time, only 10 per cent of the college’s computer science majors were women. The department devised a plan, aimed at luring in female students and making sure they actually enjoyed their computer science initiation, in the hopes of converting them to majors.

  A course previously entitled ‘Introduction to programming in Java’ was renamed ‘Creative approaches to problem solving in science and engineering using Python’.* The professors further divided the class into groups – Gold for those with no coding experience and Black, for those with some coding experience.* They also implemented Operation Eliminate the Macho Effect, in which males who showed off in class were taken aside and told to desist. Almost overnight, Harvey Mudd’s introductory computer science course went from being the most despised required course to the absolute favourite.

  That was just the beginning. Improving the introductory course obviously helped, but it was also important to ensure that women signed up for another class. The female professors took the students to the annual Grace Hopper Conference, an annual ‘celebration of women in technology�
�. It was an important step in demonstrating that there was nothing weird or anti-social about women working in tech. Finally, the college offered a summer of research for female students to apply their new-found talents to something useful and socially beneficial. ‘We had students working on things like educational games and a version of Dance Dance Revolution for the elderly. They could use computer technology to actually work on something that mattered,’ says Klawe.

  As is often the case with nudges, they had a multiplicative effect and the movement snowballed. After the first four-year experiment, the college had quadrupled its female computer science majors in a short space of time, from ten per cent to 40 per cent. Notice that there were no quotas involved – everything was voluntary, and no one found their freedom to choose impaired. It is simply good marketing applied to a problem.

  The invention of the ‘designated driver’ was an even cleverer use of semantics and naming to create a social good. The phrase, meaning the person who is nominated to stay sober in order to drive his friends home safely, was a deliberate coinage that spread with the active support of Hollywood who agreed to use it in selected episodes of popular sitcoms and dramas. The phrase first originated in Scandinavia, was adopted by the Hiram Walker distillery in Canada to promote the responsible use of its alcohol products and was then deliberately brought into the US, at the bidding of the Harvard Alcohol Project.

  Once you can casually ask, ‘Who’s going to be the DD on Friday?’ it’s easy to see how this behaviour becomes much easier to adopt, and it’s also much easier for the sober person to defend their sobriety when anyone offers them a drink. In Belgium and the Netherlands, he (or she) simply explains I can’t drink tonight, I’m Bob’ – a Dutch acronym* for Bewust Onbeschonken Bestuurder or ‘deliberately sober driver’. In both cases, creating a name for a behaviour implicitly creates a norm for it.