Financial crises and the far right

Simon Oxenham writing for the New Scientist:

To many, the rise of Donald Trump in the US and the UK’s vote to leave the European Union have come as a shock. It is feared that right-wing movements may now rise across Europe, including Marine Le Pen’s Front National in France. Why is the face of global politics changing so quickly, and could we have predicted this rightwards shift?

Some studies suggest so. Over a period of nearly 150 years, we have seen that every financial crisis was followed by a 10-year surge in support for far right populist parties, as shown by a recent analysis of more than 800 elections by German economists. Interestingly, they did not see the same right-shift reaction in response to recessions or macroeconomic shocks that formed part of the normal cycle of economic rises and falls and weren’t explicitly sparked by a financial crash. The UK is now eight years on since its last financial crisis – although it should be returning to pre-2008 levels of far-right support around about now.

Fascinating.

The full study can be found here.

The economics of direct-to-consumer brands

Tom Foster writing for Inc.:

The key to making the economics of DTC companies work is balancing acquisition costs with a customer’s life­time value–how much the average cus­tomer spends on the company’s products over the long term. There are generally two ways DTC companies try to do this. Those that offer expensive products that customers aren’t likely to purchase frequently (a $295 suitcase, a $1,000 mattress) must be profitable on the first sale, and try to keep customers coming back by rolling out accessories or new product lines. Those that sell inexpensive items (razors, toothbrushes, socks) must try to lock in customers for repeat pur­chases, which many try to do through subscriptions.

Media buying priorities

Faris Yakob writing for WARC:

“Recently, I spoke at a How Brands Grow event and chatted with Professor Byron Sharp. He got a few questions about media allocation and (paraphrasing) gave a simple answer: buy the largest amount of the highest-quality exposures against all category buyers for the lowest price (in that order). Quality involves viewability (a non-viewable impression is an oxymoron) but also attention level and context, which have been dismantled by audience buying.”

Lysenkoism

Adam Perkins writing for Quillette:

“When one side of a scientific debate is allowed to silence the other side, this is an impediment to scientific progress because it prevents bad theories being replaced by better theories. Or, even worse, it causes civilization to go backward, such as when a good theory is replaced by a bad theory that it previously displaced. The latter situation is what happened in the most famous illustration of the dire consequences that can occur when one side of a scientific debate is silenced. This occurred in connection with the theory that acquired characteristics are inherited. This idea had been out of fashion for decades, in part due to research in the 1880s by August Weismann. He conducted an experiment that entailed amputating the tails of 68 white mice, over 5 generations. He found that no mice were born without a tail or even with a shorter tail. He stated: “901 young were produced by five generations of artificially mutilated parents, and yet there was not a single example of a rudimentary tail or of any other abnormality in this organ.”

These findings and others like them led to the widespread acceptance of Mendelian genetics. Unfortunately for the people of the USSR, Mendelian genetics are incompatible with socialist ideology and so in the 1930s USSR were replaced with Trofim Lysenko’s socialism-friendly idea that acquired characteristics are inherited. Scientists who disagreed were imprisoned or executed. Soviet agriculture collapsed and millions starved.

Henceforth the tendency to silence scientists with inconvenient opinions has been labeled Lysenkoism since it provides the most famous example of the harm that can be done when competing scientific opinions cannot be expressed equally freely.”

The pratfall effect

Richard Shotton writing on Mumbrella:

The power of flaws was first discovered in 1966 by Harvard University psychologist Elliot Aronson. In his experiment Aronson recorded an actor answering a series of quiz questions. In one strand of the experiment, the actor – armed with the right responses – answers 92% of the questions correctly. After the quiz, the actor then pretends to spill a cup of coffee over himself (a small blunder, or pratfall).

The recording was played to a large sample of students, who were then asked how likeable the contestant was. However, Aronson split the students into cells and played them different versions: one with the spillage included and one without. The students found the clumsy contestant more likeable.

Aronson called this insight the pratfall effect.

The two types of reputation: capability and character

Ian Leslie writing in the New Statesmen:

The Reputation Game is written by two people from the PR business, David Waller and Rupert Younger. They introduce a useful distinction between two types of reputation: capability and character. The first refers to competence in a specific task, such as cooking a meal, providing mortgages, or making aircraft engines. The second refers to moral or social qualities. Someone can have a great reputation for competence, while at the same time being regarded as slippery or unpleasant. Uber is good at what it does, but you wouldn’t invite it home to meet your mother.

Capability reputations are sticky: they take a long time to wash away. An author who writes great novels early in his career can produce many mediocre ones before people start to question if he is any good (naming no names, Salman Rushdie). Character reputations are more flammable, especially in a world where social media can instantly detonate bad news. A strong reputation for competence defends you against character problems, but only for so long, as Uber is finding out. When your character reputation is destroyed, competence becomes immaterial.

Black Swans

The Black Swan, is a book by the author and essayist Nassim Nicholas Taleb.

It’s a far-reaching piece that calls into question the strength of existing information and the validity of its use in forecasting changes.

The book’s subject matter is so broad, and its implications so varied, that no summary could ever really do it justice.

As such, I shall only attempt to distill its most central theme. The opening few pages offer a good place to start:

“Before the discovery of Australia, people in the whole world were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence. The sighting of the first black swan might have been an interesting surprise for a few ornithologists (and others extremely concerned with the colouring of birds), but that is not where the significance of the story lies. It illustrates a severe limitation to our learning from observations or experience and the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia of confirmatory sightings of millions of white swans. All you need is one single (and, I am told, quite ugly) black bird.”

Many white swan sightings led to a general theory that all swans were white. Every subsequent sighting confirmed and enforced this belief. This continued for thousands of years, with each new sighting adding a new data point in support of the theory. The theory grew stronger and belief in it trended towards the absolute.

And then a black swan was spotted.

That one sighting disproved a theory built on a millenia of confirmatory evidence.

The value of one disconfirmatory sighting was greater than the value of a million confirmatory sightings.

The implication is significant:

“Black Swan logic makes what you don’t know far more relevant than what you do know.”

Clearly we we should embrace the fact that we don’t know everything. We should try to uncover the unknown unknowns. We should hunt for information which falsifies our beliefs and be wary of that which confirms them.

In other words, we should try to find the ‘black swans’.

Taleb defines these ‘black swans’ with the following three criteria:

“First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

Clearly, despite our best efforts to seek them out, knowledge-changing, ‘black swans’ are inherently extremely difficult to uncover or predict.

This is known as the problem of induction. Confirmatory evidence lulls us into a false sense of security. It builds an unjustified sense of surety. We believe that what has happened before will continue to happen in the future. The more something happens in the past, the more we believe it will continue to happen. The turkey who gets fed every morning becomes increasingly confident that this will continue to occur. All evidence points in the same direction. And it does, right up until it doesn’t.

This is why even experts fail to forecast with any real degree of accuracy. They construct their predictions based on a history of stable, consistent and well aligned data, completely oblivious of a huge disruptive event lurking just around the corner.

For example how many experts correctly foresaw the 1987 stock market crash? How many predictions had been made that had failed to account for such a seismic event?

And when one comes, the experts post-rationalise it. They claim it was predictable and expected. They fall for the narrative fallacy. They reduce a chaotic, tightly coupled and complex set of events down into a simple and digestible, but woefully inadequate, explanation.

To avoid black swan traps we need to rethink how we assess information, construct opinions, and make predictions. No small task. But we can start with a basic principle of critical thinking: know that you don’t know.

The Borgusky technique

Fairs Yakob, writing for WARC:

“When Alex Bogusky was creative director of the agency that bears his name, he insisted on being read the press release before seeing the creative work. If the press release was uninspiring, he would refuse to look at the work. Bogusky understood that the role of advertising is to make things famous.

In the ad-saturated environment of the noughties, the decade of which he was crowned creative director, the best way to ensure that was to make advertising generate its own PR.”

This reminds me of a similar technique employed by Amazon.

“Before Amazon developers write a single line of code, they have to write the hypothetical product’s press release and FAQ announcement.

Amazon uses this “working backwards” approach because it forces the team to get the most difficult discussions out of the way early (…). They need to fully understand what the product’s value proposition will be and how it will be pitched to customers. If the team can’t come up with a compelling press release, the product probably isn’t worth making.

It also helps with more rapid iteration and keeps the team on track, Jassy explained.

Jassy’s AWS team isn’t the only one that uses this atypical product approach: It’s institutionalized throughout all of Amazon, according to Brad Stone’s book The Everything Store”.

Sometimes bad ideas can be dressed up to produce passable work. But the underlying idea is still broken.

Starting with the PR or press release separates the idea from the execution. It forces you to asses the former without the distraction of the latter.

If you can’t excite your audience by communicating your idea in simple language, go back to the drawing board.

The three types of awareness

Brian Brydon writing on BBDO’s Comms Planning Medium channel:

Recall (a.k.a., unaided awareness, spontaneous awareness):

The percentage of your audience that lists your brand first when prompted with the brand category.

The percentage of your audience that can name your brand when prompted with the brand category and there is no limit to the number of brands they can name (i.e., Toyota Prius and the eco-friendly cars category).

Recognition (a.k.a., aided awareness):

The percentage of your audience that says they know your brand after being prompted with an explicit brand cue (i.e., brand name or logo).

Top of Mind Awareness:

The percentage of your audience that lists your brand first when prompted with the brand category.”

I think that, as usual, our industry has over complicated awareness. As you can see, each of the three metrics have multiple names. I prefer to keep it simple. I only ever use one name for each: unaided awareness, aided awareness and top of mind awareness. I propose that you do the same.

Anchoring and adjustment

William Poundstone writing in his book Priceless:

Daniel Kahneman and Amos Tversky “used one piece of apparatus, a carnival-style wheel of fortune marked with numbers up to 100. A group of university students watched as the wheel was spun to select a random number. You can play along – imagine that the wheel is spinning right now and the number is… 65. Now answer this two-part question:

(a) Is the percentage of African nations in the United Nations higher or lower than 65 (the number that just came up on the wheel)?

(b) What is the percentage of African nations in the United Nations?

Like many experiments, and some wheels of fortune, this one was rigged. The wheel was designed to produce one of only two numbers, 10 and 65. This rigging was done only to simplify analysis of the results. In any event, Tversky and Kahneman found that the allegedly random number affected the answers to the second question. The effect was huge.

When the wheel stopped on 10, the average estimates of the proportion of African nations in the UN was 25 percent. But when the wheel of fortune number was 65, the average guess was 45 percent. The latter estimate was almost twice the first. The only difference was that the estimates had been exposed to a different ‘random’ number that they knew to be meaningless.

Tversky and Kahneman used the term ‘anchoring and adjustment’ for this. In there now classic 1974 Science article, ‘Judgement Under Uncertainty: Heuristics and Biases,’ they theorised that an initial value (the ‘anchor’) serves as a mental benchmark or starting point for estimating an unknown quantity. Here, the wheel of fortune number was the anchor. The first part of the question that the subjects compare the anchor to the quantity to be estimated. Tversky believed that the subject then mentally adjusted the anchor upward or downward to arrive at their answers to the second part of the question. This adjustment was usually inadequate. The answer ended up being closer to the anchor than it should be. To someone inspecting only the final outcomes, it’s as if the anchor exerts a magnetic attraction, pulling estimates closer to itself.

By the way, how did your answer compare to the 65-group’s average of 45 percent? In case you’re wondering, the correct fraction of African UN member nations is currently 23 percent.”

Nassim Nicholas Taleb summarises this experiment and provides some further examples in his book The Black Swan:

“Kahneman and Tversky had their subjects spin a wheel of fortune. The subjects first looked at the number on the wheel, which they knew was random, then they were asked to estimate the number of African countries in the United Nations. Those who had a low number on the wheel estimated a low number of African nations; those with a high number produced a high estimate.

Similarly, ask someone to provide you with the last four digits of his Social Security number. Then ask him to estimate the number of dentists in Manhattan. You will find that by making him aware of the four digit number, you will ellicit an estimate that is correlated with it.

We use reference points in our heads … and start building beliefs around them because less mental effort is needed to compare them with to a reference point than to evaluate it in the absolute.”