The (Honest) Truth About Dishonesty: By Dan Ariely

The (Honest) Truth About Dishonesty: How We Lie to Everyone – Especially Ourselves

By Dan Ariely

 

A book review by Duncan Brett

  The nub of it: We are all capable of cheating and being dishonest. Whether and how much we do so depends on two conflicting influences, the benefit we can extract from cheating vs. the need to see ourselves in a positive light as good, honest people. We fudge things by telling ourselves stories so we can cheat a bit and still feel good about ourselves.

In his 3rd book, the academic behavioural economist Dan Ariely takes us on a tour of how dishonesty and cheating comes about and how it works. His book is filled with details of social experiments to illustrate effects and highly personal anecdotes. His writing style is light and easy to read, although you will need to be prepared to wade through a seemingly infinite number of permutations of the matrix experiment.

His previous books had a broader focus on how our thinking is bounded by irrationality, while this book focuses on the much narrower construct of how and why we are dishonest. This text extends on the book predictably irrational, if you are looking to start, I would read that first.

Even though the book does not talk to marketing or research directly it raises important points on human nature. One of these is that we are so easily able to convincingly fool ourselves with our own stories. Another tip from the book would be that you should get interviewers and respondents to sign off that they have answered honestly before they start the questionnaire, and not at the end.

Dishonesty is a big problem in society, (and in the market research industry too). Understanding why people cheat is important in any profession that purports to understand human nature (not to mention society at large). It is also useful to remember the propensity for many to be dishonest in little ways is much bigger and more insidious than the impact of a few outright criminals.

This book refutes the simple model of rational crime devised by rational economist Gary Becker. (Becker got the idea when he was late for a meeting and looking for parking. He considered parking illegally and weighed the costs getting a ticket vs. the benefit of getting to the meeting on time.)

Ariely tested the model with a matrix test, where people were asked to add up numbers in a matrix and got rewarded for the answers they got right. Different permutations of being able to get caught were used to test the level of cheating. This test and variants is referred to extensively throughout the book. Different permutations showed that people tended to cheat by 2 (claimed 6 correct answers vs. the control group of 4). This amount of money and probability of being caught did not seem to affect the results, which does not tie in with the rational model.

This led to the theory that we have an inbuilt conflict. We need to perceive ourselves as honest but also want to benefit from the cheating financially. This leads to us having an inbuilt fudge factor. The amount we are willing to cheat without feeling we are being dishonest. We are cognitively flexible beings. He termed the flexibility the fudge factor.

Ariely takes us through a range of different experiments that show many people are prone to cheat to the extent that they can rationalize. The typical fudge factor seems to be 10-15 percent. Removing the action a step from cash increases the propensity to cheat considerably. Thus we will take a pencil but not money. Ariely ran experiments with golfers and found similar results. Cheating decreased when we became psychologically removed from the act. Moving the ball with a club is easier than using your hand.

As we move to a cashless society, this has worrying implications.

In addition we have the ability to lie to ourselves (without even realising it) about our own dishonesty. We can rationalize it and fudge it. Being reminded of moral issues temporarily stops us from cheating, but does not seem to have a lasting effect.

An experiment showed signing an honor code immediately reduced cheating, but having an honor code signed weeks previously made no difference. Likewise signing a form saying you have filled it out honestly makes an impact if you sign before filling it out, but not at the end. Ariely suggests we would reduce cheating on taxes and insurance if we moved the signature to the front of the form.

Our own motivations can blind us, without us even realizing it. Take the example of a doctor who recommends crowns because he has bought expensive crowning equipment. An MRI experiment showed our brains are positively biased to companies giving us gifts or sponsoring us, even if the outcome is independent of the gift.

Conflicts of interest are ubiquitous and we underestimate the influence they have. They are often very difficult to recognize and not easy to remove in practice. Regulation and disclosure clauses are often thought to be the answer but experiments with financial advisors have shown that that they do not work as well as we hope. If we know the advisor has a conflict, we will discount the advice, but in reality, the advisors inflate more and consumers don’t discount enough.

When our deliberative reasoning is occupied our impulsive system gains more control over our behaviour. Temptation can wear us down, it is better to avoid than resist temptation. Ego depletion is based on the idea that resisting temptation requires effort and energy. So after a long day of resisting temptation we surrender to impulse. In effect we blow it when we get tired.

Our actions influence our propensity to cheat. Wearing fakes makes us cheat more. Ariely looked at whether there is a relationship between what we wear and how we behave. What we wear sends a signal to others (external signaling). We self signal as well though, and in self signaling we don’t know ourselves as well as we think and observe and infer on ourselves as we would with others. Ariely theorized wearing fakes could make us feel less legitimate and the tainted self-image makes us more likely to be dishonest. His experiments showed wearing a genuine product does not make us more honest, but knowingly wearing a fake loosens morals and is the 1st step down the dishonesty path. Not only does wearing fakes make us less honest, but it also makes us more suspicious of others.

He cites the “what the hell” effect that suggests we may try to be honest, but once we cheat we then say what the hell and abandon all restraint. We often see it in diets. Religious practices such as confessions allow us to reset this effect, and do work.

The combined effect of self-signaling and the what-the-hell effect means a single act of dishonesty can be quite long lasting. If we are wearing a built in reminder then the effects can be very long lasting and influential. To enable dishonesty, we cheat ourselves.

Ariely used experiments to show show we cheat a little and deceive ourselves that we are not really cheating. Self-deception is a useful strategy for believing the stories we tell and make us less likely to signal to others that we are anything other than what we say. Self deception helps us maintain a positive self image, but can make us overly optimistic. We easily believe our stories and they can become true to us, but if we are made blatantly aware of our cheating then we are less likely to believe the self-deception.

There is a link between creativity and dishonesty. “Facts are for those who lack the creativity to create their own truth” We don’t know why we choose the things we do, but this does not stop us from creating perfectly logical stories to explain our actions, we need an explanation for why things work, even if it has little bearing on reality. As humans we have a fundamental conflict. We are torn between our propensity to lie to ourselves and our desire to perceive ourselves as honest and good. So we create stories to justify to ourselves. We pull the wool over own eyes. We often make decisions based on gut feel, but then create stories to justify our decision.

Experiments with pathological liars show our brain is made of gray (thinking, processing matter) and white (wiring, connectivity) matter. Liars have less grey and more white matter. The experiment showed the difference between creative and less creative comes into play when there is ambiguity, giving room to create stories. The link between creativity and dishonesty relates to our ability to tell ourselves stories to justify our dishonesty and tell us we are doing the right thing. Annoyance and the case for revenge also play a role in justifying our dishonesty. So too, putting people into a creative mindset using priming techniques also showed to increase cheating. However intelligence does not appear to play a role.

The news seems to get worse, because not only do we have the innate capability to cheat, it can be infectious. Immorality can spread from person to person like a bug. By observing the bad behaviour of others around us, (especially when they are part of our social group) it makes dishonesty seem more acceptable. If the person is not part of our group then the cheating is harder to justify and we become more ethical. As long as we see members of our group act outside social norms we recalibrate our internal compass to fit that. The impact is amplifies if we observe an authority figure. The infection ability of dishonesty means that we need to take a different approach, since society often faces not a few bad eggs in a sea of good but many eggs that are a little bad and can infect the egg next door.

Small things can accumulate to a socially corrosive effect. Single acts can have a multiplier effect and can mutate. He reminds us of why the broken windows theory has a place (this based on a theory that stamped out vandalism that fixed things as they broke. This stopped the rot from setting in, and may be food for thought if like me, you are a reluctant handyman around the house.)

Ariely then looked at the effects of collaborative cheating. His experiments showed altruistic tendencies cause us to cheat more when our team members benefit (and even more when we don’t, bring to mind shades of Robin Hood and the fact that it is easier to rationalize) and to cheat less when we are being monitored. However when you get to know and socialize with your supervisor, altruistic cheating trumps the supervisory effect. And the people who care about their coworkers the most may cheat the most.

An interesting side note to the experiments confirmed other work to show there is no evidence to show working in groups increases performance.

The book ends on a semi optimistic note. Ariely notes the inherent conflict between wanting feel good and perceive ourselves as honest, and wanting to benefit from the cheating is rationalized by telling ourselves stories and cheating within an acceptable fudge factor.

This innate tendency is universal, although cultural context can influence the acceptability and size of the fudge factor.

One Immoral act, creativity which gives us the ability to rationalize, benefiting others, watching others cheat, a culture that allows cheating, conflicts of interest, and being depleted are all factors that all contribute to dishonesty.

Pledges, signatures, moral reminders, and being supervised were all shown to be factors which decreased dishonesty, while perhaps surprisingly, the potential benefit and probability of being caught seems to make little difference.

Ramblings on brand loyalty: Repertoire thinking in light of Byron Sharp’s text How Brands Grow.

For a number of years we have been of the opinion that it makes more sense to think about brand usage in terms of repertoires rather than single brand loyalty.

To that end we developed a probability of purchase model based on repertoire thinking some years back, using some simple questions related to buying behaviour.

A lot of the thinking flies in the face of current marketing dogma which suggest targeting choice segments and trundling consumers down a brand funnel to the holy grail of a band of committed brand loyalists.

brandshare Fishburn brand loyalists

 

So it was with great interest I read “How Brands Grow” by an Australian academic Byron Sharp who seemed to echo our thinking, and then some. (You can read a review of this excellent text on an earlier blog post I wrote.)

I must warn you that if you are a fan of attitudinal segmentation models, loyalty programs, Kotlerian thinking, and a few others besides, you are in for a rude shock. He equates much current marketing to the medieval medical practice of blood letting.

One aspect he takes issue with is the idea that brands should focus their efforts on building loyalty. Instead of trying to move consumers down a brand purchase funnel from awareness, to consideration, usage, repeat, and arriving at loyal; there is more to be gained by focusing on increasing penetration into as many repertoires as possible.

Sharp paints a world of cognitive misers who are polygamously loyal to a small repertoire of brands (within a given category). Your brand is competing for a tiny slice of attention, against other brands that are to all intents and purposes near lookalikes.

To cope with the large amount of brands they are exposed on something relatively unimportant, consumers are forced to ‘satisfice’. In other words they do not seek to maximize the best choice but opt for what is good enough. In doing this, consumers (often subconsciously) screen out most brands, leaving a small repertoire to which they are behaviourally loyal. The most critical juncture is to get into the repertoire, instead of being (subconsciously) screened out.

Once you are in the consideration set you have a chance of being considered. Within this subset switching is normal, and should not be confused with a change in behaviour, which some mistake for conversion from one brand to another.

 

We can take a number of points out of this.

1. People have personal repertoires in the category, and they vary from person to person, but they are generally quite small.

2. If one accepts that the typical consumer does in fact have a repertoire, then it makes far more sense to think and measure repertoires than single brand loyalty

3. Market penetration into the repertoire is critical to brand growth. Sharp notes that while it is theoretically possible for a smaller brand to have more regular customers than a bigger brand, giving them an equal market share as illustrated in the table below, it never happens in the real world. Loyalty doesn’t vary much, but what little variation there is goes to the bigger brand. His Double Jeopardy law states that brands with less market share have less buyers who are slightly less loyal.

brandsharebrandsharebrandsharebrandshare
4. We tend to buy in a category much less that marketers realize. In fact most of a brands customers are very light buyers. ). Sharp notes that Pareto’s ratio is more like 60/20 rather than 80/20. This means your occasional buyer is more important than you realize. Occasional buyers will tend to default to the leading brand, which Sharp calls the natural monopoly law.

When it comes to surveys the light buyer can cause anomalies, because there may be only one purchase in the survey period. This makes it look like they are a brand loyal, when they just happened to buy once. In addition there is natural variation in purchase patterns which means light buyers may become heavy buyers in the next period, and vice versa. He calls it the law of buyer moderation, and it is essentially a restatement of regression to the mean.

These points all fit in with our repertoire model, which estimates the probability of purchase for all brands within a category. We accept it is not perfect, but feel that it is a step forward in the right direction. The thinking is in line with the work of Professor Byron Sharp, who has produced a lot of convincing evidence to back up his ideas.

The model works by analyzing data in a specified period in a single category on most often or preferred brand, other brands bought, and other brands the respondent would consider. The data is then used to build a matrix of each person’s purchasing repertoire. For each respondent a probability of purchase is assigned to each brand (ranging from 0-100).

 

The analysis yields the following information:

  1. The repertoire size. From the markets we have covered, the average repertoire is surprisingly small, and the number of solely loyal respondents is smaller than most people expect.
  2. The distribution of probability of purchase by brand, which should give a good indication of market share.
  3. The depth and strength of penetration of each brand into the market. One can analyse the market data from the perspective of each brand.
  4. A set of brand weights. This is a slightly technical point. In most research tables, every respondent is treated the same, irrespective of how much affinity they have to your brand. (This means a person who buys your brand and wont even consider anything else, is counted the same as a person who has bought your brand and 2 others). From a survey analysis perspective we can reweight your entire survey according to brand weights.
  5. All this data can be run at any regional or demographic level, for example the repertoire mix and penetration by region may be dependent on physical availability and will clearly show up.

The chances are that you already have this data, as the questions are fairly standard in brand usage and awareness studies.

We’d be interested to know what you think of the model and how it fits with the thinking of Prof. Sharp. We are also happy to run through any old data you may have to show you how it works.

How Brands Grow by Byron Sharp

The nub of it: Much current marketing practice can be likened to medieval medical bloodletting, full of, sometimes, harmful theories with no substantiation. Sharp uses empirical evidence to show that there are in fact some laws of marketing you can rely on. These laws indicate you can grow a brand by building its popularity through increasing physical and mental availability.

Byron Sharp likens much current marketing practice to the medieval equivalent of bloodletting. He clinically destructs theories like Kolterian thinking, Net Promoter Score, loyalty programmes and most forms of attitudinal segmentation.

In its place he suggests that there are some proven law like patterns we can rely on to build a marketing plan. He provides considerable empirical evidence to back up his assertions.

He notes the need for research to back up our marketing thinking, which he says marketers don’t do enough. Don’t simply assume you know. I wish more people would take that to heart.

The book is an excellent and thought provoking outline of the state of marketing as it applies to consumer brands. Although not terribly long, at some 217 pages, it is quite a dense read, covering a broad range of topics. If marketing consumer brands is your métier, I would regard it as essential material.

The tone of the book is generally calm and factual, although extremely controversial in some areas. He is quite cutting with respect to a number of models he disagree with, including Kevin Robert’s Lovemarks and Reichfeld’s loyalty metrics. He backs up his argument with a lot of evidence. If you disagree with his conclusions you may want to consider how much hard evidence is actually available for the counter view.

The essence of his argument is that one grows a brand through broad appeal. Popularity drives the brand and everything flows from that.

An analysis of consumer markets has revealed a number of replicable law like patterns which explain market structures and need to be taken into account. Key amongst this is the fact that brands compete against other brands which are only slightly differentiated. Growth of the brand boils down to managing two market-based assets, namely physical and mental availability.

Consumers think less and care less about brands, and usually buy less often than marketers realize or like to think. They tend to be behaviorally loyal to a small repertoire of brands in the category. Loyalty to single brands in the conventional sense is a myth, as is the idea that different types of people align themselves to different brands. Penetrating the repertoire of as many consumers as possible is key to any successful growth strategy. Marketers would do well to focus on this and eschew segmentation and loyalty based strategies.

The laws of marketing the book identifies are:

  • Double jeopardy – brands with more market share have more buyers, and those buyers are slightly more loyal.
  • Retention double jeopardy – brands lose buyers in proportion to market share (big brands lose more in absolute and less in percentage terms)
  • Pareto law applies with a different ratio – it is more like 60/20. Slightly more than half the sales come from your top 20% customers. This makes the bottom 80% relatively more important.
  • Law of buyer moderation – is a re-expression of the phenomenon of regression to the mean. Heavy buyers become light buyers in subsequent periods and vice versa.
  • Natural monopoly law – means the more share a brand has the more it will attract the light buyer. The occasional purchaser will default to the market leader.
  • Usage drives attitude – not the other way round. We grow to like what we use. Call it the “I love my mum” syndrome, which explains why all brands get good ratings in satisfaction surveys.
  • Attitudes and brand beliefs reflect behavioural loyalty – consumers know and say more about the brands they use, which is why big brands score better in surveys. They have more users (who are slightly more loyal).
  • The law of prototypicality – states that image attributes that describe the product score higher than less prototypical attributes.
  • The duplication of purchase law –states that a brands customer base overlaps rival brands in line with market share. So a brand will share more of its customers with large brands and less with small brands. If a competing brand has 20% market share, then about 20% of your customers will also use that brand.
  • All markets face a negative binomial distribution of heavy to light buyers – which means relatively few heavy and lots of light buyers. These purchase propensities are well described by the NBD-Dirichlet model, which faces the unfortunate headwind of requiring good quality longitudinal data, and statistics beyond the level of many marketing departments.

 

Understanding these laws will help your understand your market and stop you from chasing shadows.

He argues marketers are making a critical error in putting too much attention on retention and should focus instead on acquisition. A form of sophisticated mass marketing is the key to doing this.

Perhaps the most important part of the buying process is whether or not a brand is included in the repertoire or not. This is because most brands are excluded before one even gets to evaluating them.

The multiplicity of brands and the fact one cannot spend effort deciding on which brand to choose every time makes consumers cognitive misers. Once a brand is in the repertoire it has a sporting chance of being purchased. The real battle is to be in the repertoire in the first place. If you can’t get there you can’t even be evaluated or liked.

The rebalancing of the Pareto ratio points us to the fact that light buyers are more important than initially thought, and there are many more of them than heavy buyers. They are also more likely to forget the brand.

This means one should target the light or occasional buyer with advertising. One will probably reach the heavy buyer naturally, not least because they will have more opportunity to see the advertising and are more likely to notice it.

Sharp argues that we need to understand the difference between distinctiveness and differentiation. A brands customer profile is generally the same as the category profile, and thus differentiation is a marketing red herring. He sees psychographic segmentation largely as a marketing fantasy.

The key is to focus on distinctiveness which will help remind buyers that you exist in buying situations more often. Distinctive assets should measured.

The aim of most advertising is to maintain rather than grow market share. He contends advertising works by refreshing memory structures. Advertising is critical but the effects are hard to see because its effects are thinly spread over a long time period (in contrast to a price promotion where the effect is immediate, but with little long term effect).

He notes any successful marketing intervention works by increasing the probability that customers will purchase a product. Successful advertising does this by reaching all category buyers, getting noticed, refreshing and building memory structures, being relatively continuous and having clear brand links.

Emotion is an important factor in driving our decisions (There is a huge body of literature pointing us to the fact that we make decisions in a more emotional and less rational way than we would like to think, despite us wanting to be rational beings). Liking of advertising is important because it helps get us to notice it. The extent to which advertising affects purchase probabilities, occurs through the effect on memories, and the fact that memories have some ability to last.

Loyalty programs just don’t work. One of the reasons for this is because they skew towards existing heavy loyal buyers, causing you to do little more than cannabalise profit margins. They do have benefits in building a database of consumers, monitoring buying and creating a channel to communicate. One needs to be sure the cost is worth it though. Usually it isn’t.

Sharp looks at possible ways to grow a brand and comes to the conclusion that there are only a few ways to do this.

Lowering the price or improving quality can work but the result can kill margins. It is not hard to look for examples and think of the effects of ruinous price wars. A second option is to innovate, but he believes the advantages seldom last long.  Some may feel he under estimates the impact of continuous innovation and the advantages this can bestow.

His preferred approach is to invest in what he terms market-based assets, viz. physical and mental availability. There is no magic to this, the best option is to make the brand easier to buy for more people in more buying situations. Sounds easy, doesn’t it? Until you try doing it.

Physical availability includes logistical issues such distribution and being in stock. This should not be confused with just being available if the consumer chooses to seek it out, but being right there at the time of the buying decision, just an arms length away.

Mental availability is more than awareness. It is the propensity of the brand to be thought of or noticed in buying situations. The brand must be salient.

This may arise through cues that make us think of the brand. Everyone may have different cues. So feeling tired, may cause you to think of Red Bull as a energizer. The more cues, the more chance of salience in the buying situation.

Advertising that gets noticed is necessary. Brands form a very small part of the consumer’s life and you are fighting to get a tiny piece of attention.

Most brands are subconsciously screened out by buyers before they even think of evaluating their choice.  Marketers focus too much on evaluation. It is not that it is unimportant, it is just that a brand can get hurt most at the screening out level.

If you consider that the typical supermarket has 30,000 brands or variants, you will understand why consumers need to screen things out. Consumers have to ‘satisfice’ as a coping mechanism.

From their small consideration sets, buyers become polygamously loyal to their personal repertoire set.

To build the twin availabilities, and grow your brand, Sharp suggests 7 rules for marketing, while noting that there are regularities to buying behaviour and brands almost always compete with other brands.

 

The rules are:

 

Rule 1: Reach – make sure your marketing has as much reach as possible within the category. Focus on light and non-buyers. Understand who buys, when and where. Do this with research.

 Rule 2: Be easy to buy – be mentally and physically available. Understand how consumers buy and how the brand fits into their lives. Research what is important and convenient to consumers. Don’t just assume. This amounts to being thought of in the right place at the right time, all the time.  It’s not easy to do.

 Rule 3: – Get noticed – reach is useless if you aren’t noticed. That is why likeability of advertising works, it nudges our attention. Critically memory affects our behaviour without us even realizing it, the brands we see on the shelf are affected by our memories.

 Rule 4: – Refresh and build memory structures. Even if noticed, an advert doesn’t help if it doesn’t refresh and build on the memory structures for the brand. This is why consistency is so important in marketing. Wonderful heart tugging adverts don’t help if it doesn’t tie to the brand.

Rule 5: Create and use distinctive brand assets. – branding matters.

  • Branding allow consumers to be loyal to a particular brand. Without branding you have to be guided by something else like price or place on shelf.
  • Brands allow the advert to be tied to the correct brand.
  • Distinctive assets facilitate the brand being noticed.

Rule 6: Be consistent yet fresh – brands that dominate for decades do so by being consistent, not repositioning. This is why packaging changes so often fail.

 Rule 7: Stay competitive & don’t give a reason not to buy. It is important to remember your biggest loss of custom comes from being excluded from consideration. That is why it is important that you don’t damage the effect of being in the consideration set by giving people a reason not to buy. (which may be high prices, trans fats in food etc…etc…). To paraphrase Rory Sutherland, be very good at not being awfully bad.

 

While this may sound theoretically quite simple it is likely to prove very hard to do in practice, especially if you are a small brand with limited resources. Nonetheless brands are valuable assets, so it is worth the effort.

 

If you’d like to discuss this note, please feel to contact the author on +271 21 671 8653 or Duncan@researchlamppost.co.za