Influence: Chapter 8

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

In this the final chapter, Cialdini reminds us of how important it is to recognize the shortcuts we employ in the making of decisions, as described in the previous seven chapters. He argues that as the amount of information which is at our fingertips continues to grow (thanks in large part to the internet), humans will increasingly need to use the cognitive tools we have developed to make decisions.

These shortcuts are useful. Without them, we would need to analyze every detail of every situation, often duplicating the work of others or even ourselves. But their use also makes us vulnerable to error. Compliance practitioners who understand these shortcuts can use them against us.

Cialdini urges readers to be aggressive against such practitioners. We should shun products that use such tactics in their advertisements, and send letters to the ad agencies demanding honesty in their marketing. He also advises that we refuse to watch tv programs that use canned laughter, refuse to tip bartenders that we see filling up their own tip jar, and shun night clubs with line ups that offer false evidence of the club's popularity. Boycott, threaten, confront, and censure, in order to retaliate. It's the only way to ensure that these shortcuts remain useful.

Influence: Chapter 7

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

The scarcity principle makes us desire items that are short in supply. Humans show tendencies towards this principle from as early as the age of two, as experiments have shown that young boys will go after toys that are fewer in number or that are blocked off over toys that are available.

Marketers will often feign scarcity in order to get customers to purchase a product. By pretending that an item is the last one in stock, or by intimating that another buyer is interested (e.g. a common tactic of real estate agents), a human emotion is triggered that often overrides sound analysis. This principle may even be a contributor to asset price bubbles (for tulips, real estate, and even stocks), as individuals fear that they must buy or they will not get any, even if reasoned thinking would suggest they don't need any!

Cialdini believes scarcity plays such a large role because humans tend to fight against restrictions, even if they wouldn't consume the object in question were it available. This fight against restriction is not limited to tangible objects, but ideas and speech as well. When censorship is employed to prevent the consumption of certain political or sexually explicit materials, psychologists show that the fact that these are forbidden actually increases interest in them, ironically leading to the opposite effect of what those who make the rules were intending.

Psychologists find that two additional factors can make our tendency to desire scarce items even more intense. First, if the availability of a scarce item is reduced to a level (rather than having been at that level the whole time), desire goes up. Secondly, if individuals are in competition for the scarce items, desire goes up as well.

This is a difficult tendency from which to defend ourselves. Cialdini advises readers to be on alert for the feeling of emotion that accompanies the thought that an item is scarce. When that feeling is recognized, individuals should be cognizant of what is taking place and try to calm themselves so that they may analyze the situation soundly.

Influence: Chapter 6

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

People are likely to obey the commands of those in authority. Usually, this serves a useful purpose, as the one in power is often an expert in the relevant subject. The alternative to a society in which a chain of authority exists is one of anarchy, which is not nearly as productive. However, when those in authority make mistakes, this tendency to listen to them without thinking can lead to disastrous consequences.

In the famous Milgram experiments, subjects were willing to put other subjects through intense (fake) pain, simply because an authority figure was telling them it was okay. Many of the atrocities committed during World War II are attributed to this phenomenon.

This tendency to stop thinking because the authority figure must be right can also be taken advantage of by those in the know. Con artists will often pretend to be authority figures (e.g. policemen, bank officers) in defrauding their victims. "Experts" in the stock market will tell you to buy their services. Marketers will use paid actors dressed as doctors to tell you to use a product.

Even if viewers know its an actor playing a doctor, they are still more likely to buy the product being offered than if the actor is playing a layman, which is baffling! A person's title, clothes and trappings (e.g. the type of car they drive) have all shown to be significant determinants of whether people are likely to follow their instruction, often subconsciously!

Investors must be sure to think for themselves, and not purchase stocks or services simply because a perceived authority figure is claiming it's the right thing to do.

Influence: Chapter 5

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

We are more likely to buy a product when we like the seller. While this may be obvious, what is not so obvious is what makes us like a seller, as some of the factors that cause us to like are subconscious.

For example, people are more likely to like someone who is similar to them, across many dimensions: not only physically, but mentally as well (e.g. political affiliations, dress/fashion preferences etc.). This is why stock brokers are trained to look for clues about a person in order to engage in conversation that expresses a similarity with the potential buyer (e.g. "Where are you from? ...Oh my wife was born there!")

Attractive people also tend to be liked, and often this is on a subconscious level. Experiments have shown that attractive people can make a product (e.g a sports car, a stock) appear faster and more appealing to a group of subjects, even when the subjects swear afterwards that the appearance of an attractive person had no effect on their responses. Data shows that this subconscious liking leads to advantages for more attractive people that range from higher pay to shorter prison sentences.

Positive association also leads to liking something more. This is why marketers will associate their products to events people have positive feelings towards. After the moon-landing, many products were associated with rockets and outer-space even if there was no relevant link between space travel and the product. Today, advertisers are willing to pay big bucks for the right to associate with the Olympics or other sporting and concert events. In an interesting experiment, restaurant frequenters were found to tip more when the bill came in a tray with a "MasterCard" logo on it, even if the frequenters paid with cash! (However, only those with positive past associations with credit card companies were found to tip more, of course.)

Finally, the sharing of common goals and/or cooperation also leads to liking someone more. This is why salesmen will often pretend to be on your side while working against management to get you a good deal.

Influence: Chapter 4

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

Investors like to know someone else has purchased a stock before they will consider doing so. They want to see that others think the stock is undervalued, before they will take the plunge. If many other people are doing something, we tend to assume they know something that we don't. As a result, we are likely to mimic their actions. This concept is known as social proof.

Often, following the actions of others can save us the time of figuring out the pros and cons of whether we should do something. Often, this is useful; on the other hand, in the few times when the actions of others are incorrect, it can lead to disastrous consequences.

Cialdini describes a number of historical events and experiments that show how potent is social proof, and how it can be exploited by anyone from marketers to tv executives to cult leaders. In one striking example, a bus strike caused residents of Singapore to gather at a bus stop that happened to be outside a new bank. As the residents considered alternative means of transportation, some of them began withdrawing money from the bank. As others saw large crowds withdrawing money from this bank, they too began to do so, in the assumption that this crowd must know something they didn't. The withdrawals continued until the bank was forced to close to avoid a major crash.

Commercials will often talk about how a product is the "fastest selling", and nightclubs will often create line-ups outside even if empty inside. In this way, these marketers realize that they don't have to convince you the product is good, they instead try to convince you that other people think the product is good! As another example, laugh tracks actually make people believe tv shows are funnier; the striking thing about this example is that this occurs even though the subjects know the laugh tracks are computer-generated and false.

There are two specific conditions which make people more susceptible to using social proof to govern their actions: uncertainty and similarity. When in the company of strangers, or in a new environment, individuals are much more likely to behave as do others. Furthermore, when the others are just like them (i.e. similar race, sex, age etc.), this also increases their chances of mimicking behaviour.

Cialdini advises that readers use their judgement when they see that they are behaving in a manner that is the result of social proof. Judgement might just eliminate many of the stock price crashes and bubbles that occur with the help of social proof.

Influence: Chapter 3

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

People have a need to act in a manner consistent with their beliefs, values, and prior commitments. This automatic behaviour serves a useful purpose: consistent conduct reduces the need to repeat the processing of information when an individual is faced with similar situations. Consistency provides a beneficial approach to daily life and is a trait that is valued by society.

However, this behaviour can also be exploited by others. Exploiters first seek to get individuals to take stands on issues. They will then use those "commitments" to elicit the behaviour that they seek. For example, home owners are much more likely to agree to having large "DRIVE CAREFULLY" signs on their lawns if a few weeks earlier they agreed that safe driving is desirable. The initial commitments lead to consistent behaviour most when they are active, public (e.g. a petition), require effort (e.g. a fraternity hazing ritual), and are viewed as internally motivated.

This need to be consistent can even "grow legs", as when people take a stand on a position, they tend to incorporate new information only if it strengthens their original position. This results in salesman tactics that offer more than they intend to give. In this manner, such tactics are based on the idea that once the buyer has decided that he wants the product/service, he will create more reasons to like the product, such that the initial offer can be reduced and the buyer will still be interested.

Recognizing that such exploitation is taking place is the best means by which to avoid falling prey to this automatic behavioural response. However, because people will often come up with justifications to proceed with certain courses of action, their line of thinking must be proactive to avoid being exploited. As such, Cialdini suggests that readers ask themselves this question when faced with a situation where one feels compelled to do something against one's wishes: "Knowing what I now know, if I could go back in time, would I make the same commitment?"

Influence: Chapter 2

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

This chapter contains a discussion of the reciprocity and perceptual contrast theories, and how they are successfully used against unsuspecting individuals in order to derive abnormal profits. The human concept of reciprocation makes us more likely to do something for someone when they have done something for us. "Perceptual contrast" makes us more willing to agree to something when presented in comparison with something that appears worse.

We've already seen both of these human tendencies (here and here) when we looked at Charlie Munger's discussion of human tendencies, but in Influence, Cialdini demonstrates them a bit more clearly with examples and shows more thoroughly how they are used as weapons against us by those who exploit these tendencies.

The concept of reciprocity is deeply ingrained in all human cultures. Cialdini argues that this trait has been a major contributor to human evolution, as it has allowed humans to give favours and resources to others with the knowledge that they will be returned. This has created a "network of obligation" that has allowed humans to share goods and services in a manner that has allowed the group to prosper.

Cialdini delves into a large number of odd historical occurrences and purposeful psychological experiments that demonstrate how powerful these tendencies are. Under ordinary circumstances, there is a strong correlation between how much we like a person, and what favours we are willing to do for them. But once a favour has been done for us, the correlation between how much we like a person and what we'll do for them goes out the window: Cialdini shows that whether we like a person or not, we will do a favour for them if we have accepted one from them.

Furthermore, the favours do not have to be of the same magnitude, and the receiver of the initial favour need not even want the favour in order to feel the sense of obligation. This is a powerful tool that is exploited by salespeople, charities, and religions, all of whom offer gifts in order to instill a sense of obligation in the receiver. In this way, the initiator is choosing the gift, and then asking for a larger return, also of the choosing of the initiator, resulting in a very profitable outcome!

Exploiters achieve the highest profits, however, when reciprocity is combined with perceptual contrast. For example, if one is asked to volunteer one hour per week for a year, one may see a high rejection rate. But following this question, if one is asked to volunteer just once for one hour, one is likely to see much higher acceptance rates than if the first question was never asked. This is because the second request is seen as much more reasonable than the first request (perceptual contrast), and because the initiator has accepted the initial rejection, thereby instilling a sense of obligation in the subject.

Everyone from politicians (accepting campaign financing and then returning favours to the donors, voting for bills because they are sponsored by members to whom favours are owed) to consumers (receiving small gifts which lead to purchases, trying out samples which instill an obligation to purchase) to scientists (receiving funding from special interests that tend to influence experiment conclusions) are susceptible to being influenced by these factors. Understanding how these tendencies are being used is the best defense to feeling a sense of obligation to the exploiter.

Influence: Chapter 1

Value investors believe that Mr. Market's mood swings offer them excellent opportunities to buy low and sell high. But how does an investor avoid becoming Mr. Market rather than taking advantage of him? Influence, by Robert Cialdini, helps us understand the factors that influence us, which are exploited by, among others, the news media, our brokers, and research analysts, and thereby puts us in a position to protect ourselves from our own, hard-coded biases that we wouldn't otherwise know have been triggered.

Researchers who study animal behaviour have documented the fact that many species react in pre-defined ways to various stimuli. For example, a bird will protect even a predator if it emits a taped recording of a chirping sound normally made by a baby bird.

This trigger and automatic response that disregards all other factors can be valuable, as it allows animals to make decisions quickly, without having to analyze a plethora of information, some of which is undoubtedly irrelevant. On the other hand, it can also result in costly mistakes, since only one piece of information is used in driving behaviour.

An example where humans apply this type of behaviour has to do with how people determine the value of various items (stocks, objects etc.): by basing its perceived value on its price. This method of value determination does have its advantages: if every time a new object was considered for purchase, humans researched it and studied it extensively, there would be little time for anything else. On the other hand, this can lead to foolish decisions in the cases where price and value are not matched properly.

Marketers and salespeople who understand these shortcuts humans have developed to expedite decision-making can profit by triggering the human responses they desire by arranging the appropriate stimuli to their advantage.