MIchaelAaron Flicker is the co-author of Hacking The Human Mind: The Behavioral Science Secrets Behind 17 of the World’s Best Brands. Motley Fool contributor Rich Lumelleau and Motley Fool Head of Strategic Operations Shannon Jones recently talked with Flicker about his new book, including loss aversion, sunk costs, and the power of pratfalls. Host: Rich Lumulleau, Shannon Jones Guest: MichaelAaron Flicker Producer: Bart Shannon, Mac Greer Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the emotional drivers behind human decision-making?
One thing that all the listeners can think about is humans are much more emotionally driven than rationally driven. Nobel Prize winner Daniel Kahneman said, thinking is to humans like swimming is to cats.
That was Michael Aaron Flicker, co-author of Hacking the Human Mind, the behavioral science secrets behind 17 of the world's best brands. I'm Motley Fool producer Matt Greer. Now, we recently talked with Flicker about his new book. We talked loss aversion, the power of pratfalls, the rational and the not so rational.
Welcome to Motley Fool Conversations. I'm your host, Motley Fool contributor, Rich Lamello, along with Motley Fool Head of Strategic Operations, Shannon Jones. Today's guest is someone who sits at the crossroads of business consulting, advertising, and technology, and has spent his career helping some of the world's most influential brands understand how people really think and make decisions.
Michael Aaron Flicker is the author of the compelling new book, Hacking the Human Mind. He's worked with companies ranging from Nike and Chubb to Evan Williams, JP Morgan, and AstraZeneca. His work zeroes in on the psychological forces that shape markets, shape brands, and ultimately shape investor behavior. Michael, it's a pleasure to have you here. Welcome to The Motley Fool. Hi, Rich.
Thanks for having me. Excited to be with you all today. Excellent. Well, Michael, for listeners who may not kind of know you or be familiar with your work yet, what's kind of the short version of your professional journey? A little bit of background.
I started my company when I was 14 years old in my parents' basement. And it was a time in 1997 when the world believed that... the internet was a great equalizing force. And maybe high school kids knew more about the internet than anybody else. And in that moment of opportunity, the kid I grew up with across the street and I formed our company. And we said, we're gonna do internet programming.
We're gonna do computer programming on the internet. And that was really innovative at the time, almost silly, real computer programming rich, belonged in the domain of mainframes and big corporations. And the idea that anybody could do meaningful computer programming online was just unusual at the time and just crazy enough that they let a bunch of high school kids work for these big companies.
And the story of the last 28 years for me has always been at the intersection of thinking about how can we come up with smart ideas to solve problems. How can we solve things that others haven't been able to solve before? It's led me now to I own nine companies.
We have a number of them in our professional services, a number of them of our own brands, but what connects them all and what's been so interesting is that behavioral science has been a key to understanding why people do what they do, and to really understand how they act in the real world.
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Chapter 2: How does Michael Aaron Flicker's background influence his work?
It was really... fear of running out. And at The Motley Fool, obviously, we see loss aversion every time members will panic sell or freeze during those downturns. So my question is, why is loss aversion so dominant? And how can companies like ours really help people make better long-term decisions without really exploiting that fear at the same time?
Absolutely. So first of all, the definition by the social scientists would say loss aversion is the tendency to feel the pain of losses more intensely than the pleasure of equivalent gains. And that can lead, as you're saying, to holding losing investments for too long or being too risk averse on new opportunities because that fear of loss.
So the academic study that backs this up is actually fascinating. So let's start there and then we can talk a little bit about the impacts. Israeli psychologist Amos Tversky and Daniel Kahneman. It's 1979. And they think of this experiment. What if we offer people a bet on a coin flip? Tails, they lose and they have to give us $10. Heads, they win and they win $10.
The researchers wanted to know the amount people would need to be offered before that win was worth the loss bet. How much would they have to get paid? in order to be worth a $10 loss. And the key finding was that most people wouldn't gamble unless they were set to win at least $20, meaning they'd rather not risk losing 10 unless the potential reward was double that, $20.
And other studies have shown similar real world situations and outcomes. So what we learned from that is it's human nature to want to hold on to things more than they want to gain new things. And that psychological barrier of being afraid of losing something really has an outsized impact on our actions. So, Shannon, you mentioned the got milk example.
The book goes through great brands and how they've taken advantage of psychological insights into how we act and how that's led to good business outcomes for them. So Got Milk could have very easily said, think about how amazing Oreos would be and Chips Ahoy's would be with milk. But they don't say that. What they say is how...
bad would those Chips Ahoy's and Oreos be without a delicious glass of milk with it? And that fear of not having it is a much stronger sensation. And that's what drives people to act because of loss aversion.
If I can follow up. So from kind of a psychological standpoint, do you think that that is the bias that investors underestimate the most, that fear of loss?
I think there's probably two major psychological impacts that are driving investor decisions as a marketer. One, I would say is loss aversion, without doubt, Rich. The second is this concept called the sunk cost fallacy. And it's really an interesting insight So let's pair it with loss aversion. So loss aversion says the pain of losing is more intense than the pleasure of an equivalent gain.
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