Wednesday, 9 May 2012

The power of reframing


Why are pensioners happier than unemployed young people although they often share one characteristic: they have much time, but not much money? Why is it embarrassing to have an unemployed son in Manchester, but viewed as an accomplishment to have an unemployed son in Thailand? Why is google so much more successful than other portals? And what do all these questions have in common?

Reality is not a particularly good guide to human happiness. With this statement, Rory Sutherland opens his TED Talk on how we appraise things. He points out that things are not what they are. They are what we think they are and what we compare them to. Their value is not so much economic value, but rather psychological value.

Reframing is the answer to the above asked questions, i.e. looking at the facts against different backdrops or in different contexts. A pensioner decided not to work and feels in control of his situation. The unemployed son in Thailand takes a year off. Finally, google is so successful because it is exclusively a search engine, and we believe that that something that does only one thing is better at this one thing than something that does this one thing plus several others.



These ideas have quite some implications. It makes no sense to calculate the value of a product simply by using the monetary value. We need to find out about its psychological value in order to fix a price. Furthermore, it makes no sense to improve a product or service unless the perception of its quality is also improved.

Once more: Humans are not as rational as we often think. Prospect Theory, for example, states something similar: We make our (financial) decisions on the basis of the utility the outcomes of these decisions have for us. Utility is a function of the probability of an outcome and its value. We are not good at estimating probabilities, and we use heuristics when we do. Also, value is not something objective. For example, losses hurt more than gains feel good. We assign more value to goods that already belong to us than to goods that belong to others. And so on.

Thus, Rory Sutherland comes to the conclusion that when solving problems, we should use the perspectives of technology and economics, but also the one of psychology. We absolutely agree!

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