SD#42: Forecasts, menu pricing and ideas
October 30, 2022
Hi friends,
Welcome to another edition of Seven Dawns, your weekly newsletter on marketing, productivity, psychology and more.
Our seven ideas this week:
1. (Marketing) The opposite of a good idea can also be a good idea In his book, Alchemy, Rory Sutherland talks about seemingly non-sensical ideas. They’re the type of ideas that don’t make sense but for some reason, they just work. Some of these brands have embraced a “chink”. They’re the features that would be listed as a weakness on the S.W.O.T analysis and would rarely feature as the single-minded proposition on a creative brief. They’re honest, confident and unashamedly proud of their flaws. When we share a weakness with the world, we’re signalling that we can be trusted, we’ve got nothing to hide and at the same time, we are managing people’s expectations. In fact, you’re more than likely to forgive us for small inconveniences because we’ve earned your trust, and thus we become more likeable. This phenomenon is called “the beautiful mess effect.” A study conducted by behavioural psychologists found that “self-disclosure can build trust, seeking help can boost learning, admitting mistakes can foster forgiveness, and confessing one’s romantic feelings can lead to new relationships.” In essence, it creates feelings of human connection between people and brands. Invent Better |
2. (Investing) Nobody can predict the future “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know” – John Kenneth Galbraith. To produce something useful, you must have a reliable process capable of converting the required inputs into the desired output. The problem is that I don’t think there can be a process capable of consistently turning the large number of variables associated with economies and financial markets (the inputs) into a useful macro forecast (the outputs). Take the relationship between unemployment and inflation. For roughly the last 60 years, economists relied on the Phillips curve, which holds that wage inflation will rise as the unemployment rate declines because when there are fewer idle workers on the sidelines, employees gain bargaining power and can successfully negotiate for higher wages. It was also believed for decades that an unemployment rate of around 5.5% indicated “full employment.” But unemployment fell below 5.5% in March 2015 (and reached a 50-year low of 3.5% in September 2019), yet there was no significant increase in inflation (in wages or otherwise) until 2021. So the Phillips curve described an important relationship that was built into economic models for decades but, seemingly, didn’t apply over much of the last decade. Noted physicist Richard Feynman once said, “Imagine how much harder physics would be if electrons had feelings.” The rules of physics are reliable precisely because electrons always do what they’re supposed to do. They never forget to perform. They never rebel. They never go on strike. They never innovate. They never behave in a contrary manner. But none of these things is true of the participants in an economy, and for that reason their behaviour is unpredictable. And if the participants’ behaviour is unpredictable, how can the workings of an economy be modelled? Howard Marks |
3. (Marketing) The order prices are written on menus influences how much you’ll spend The insight around the order effect comes from Donald Lichtenstein at Colorado University. In 2012, his team ran an eight-week experiment in a craft beer bar in the US. When drinkers arrived at the bar, they were given a menu of 13 beers. Sometimes the researchers handed out a menu with a $4 beer at the top and progressively more expensive beers below. On other occasions, the drinks were listed in descending price order. The psychologists found that, when the menu had a low-priced item at the top, the average price paid was $5.78. But, when the menu order was flipped, the average price rose by 24c to $6.02 – a statistically significant increase. But why? Well, the authors argued that the first beer you spot has disproportionate importance in determining what’s a reasonable amount to pay. If you spy an expensive $10 drink first, it reframes a $6 beer as a $4 saving on that reference point. Whereas, if the first beer you spotted was a $5 beer – well, then, the $6 beer feels like an extravagance. Marketing Week |
4. (Psychology) Use idea sex to programme your creativity Blank page syndrome, writer’s block—call it whatever you want, most creators have once faced this overwhelming lack of inspiration. If you do experience writer’s block from time to time, the best reaction is to go do something else: going for a walk, journaling, talking it out with a friend. Better yet, though, is to avoid writer’s block together by not relying on flimsy, unpredictable inspiration. Instead, use idea sex to programme your creativity. Idea sex is different from waiting for inspiration as it is something active, you combine ideas and see what interesting things may come out of the experiment. It’s also programmable, if you create a system, you will be able to create ideas on demand. How do you do that? (1) Take smart notes and be selective when saving ideas, ask yourself if the idea connects to any other that’s already in the system. (2) Proactively connect ideas by blocking time for mind gardening. (3) Let your ideas evolve. Ness Labs |
5. (Productivity) Be hard on yourself In one of his letters, Seneca describes himself as a “cold-water enthusiast.” He would celebrate the new year by taking a plunge into the canal, who used to inaugurate the first of the year with a plunge into the Virgo aqueduct. His reason: “The body should be treated more rigorously that it may not be disobedient to the mind.” Think about that every morning just before you crank the knob for a cold shower. Who is in charge? The courageous side of you or the cowardly side? The side that doesn’t flinch at discomfort or the side that desires to always be comfortable? The side that does the hard thing or the side that takes the easy way? There’s that cliché: do one thing each day that scares you. We treat the body rigorously to remind it who is in charge. We push ourselves in little ways so the big ways stop seeming quite so big, quite so out of character. We minimize fear by making the act of overcoming it routine. We test ourselves to prepare for the tests of life. Ryan Holiday |
6. (Psychology) The paradox of politeness We often equate goodness with altruism—giving and expecting nothing in return. We think that being a good host means doing everything ourselves and refusing any help from the guests. This is where generosity and courtesy take on a self-centred edge, or at least self-concerned. It wouldn’t be wrong for people to help us wash the dishes. We’re just afraid of what it might say about us if we accept more help than the rules of engagement dictate we ought to. A polite society often functions along these lines. Saying we’re good when we’re not, saying something is “perfect” when it’s regular, insisting no one else lifts a finger. This version of civility, obligatory and rehearsed, includes a lot of bullshitting. It’s the gravity on the left side of the nice/kind and sorry/thank you spectrums. In the western world, we’re focused on self-care, self-actualization, personal life coaching, personal tips and tricks for feeling better. We may be learning to ask for help, but we’re learning how to say no when others ask us for it even more. Rarely in the dialogue around “learning to ask for help” do you hear talk about the other side of that equation. Obviously, those tools can be useful in isolation but taken together as an approach to communal wellness, they feel pretty hollow. Haley Nahman |
7. (Cryptocurrencies) Crypto bubbles, saturation, and micro-communities A few excerpts from Noah Smith’s interview with Vitalik Buterin (co-founder of Ethereum): On recent crypto crash: When the prices are rising, lots of people say that it’s the new paradigm and the future, and when prices are falling people say that it’s doomed and fundamentally flawed. Could cryptos reach gold-level saturation: The math nerd way of putting it would be: the price of crypto is stuck in a bounded range (between zero and all the world’s wealth), and crypto can only stay highly volatile within that range for so long until repeatedly buying high and selling low becomes a mathematically almost-surely-guaranteed winning arbitrage strategy. On crypto start-up community: I do think that there is room for some kind of startup society right now; there’s a lot of demand for a physical community oriented around particular values, providing an outlet to express those values constructively and not just through zero-sum twitter warfare, and that combines with a pragmatic need to escape the high living costs of the US and the increasingly in-your-face and not just theoretical authoritarianism of many other large countries. But the projects I have seen so far are not doing this well. Noah Opinion |
Fun things to click on:
Splasho’s Up-Goer text editor challenges you to explain an idea using only the dictionary’s 1,000 most-used English words. What happens when it rains after a drought? Who can and should be telling visual stories of working-class communities?
Thanks for reading! If you have any learnings you’d like to share with me, or disagree with any of the ones above then do drop me a message.
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Speak soon,
Tom