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.
Chapter 6
Chapter 6
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.
Chapter 7
Chapter 7
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 actuallyincreases 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.
Saj Karsan
http://www.barelkarsan.com
Saj Karsan
http://www.barelkarsan.com
