Strategy. Innovation. Brand.

Dan Ariely

Cherry Creek Parks Itself

Sure, you can park here.

The owners of Cherry Creek shopping mall recently shifted from social norms to market norms. They may have screwed themselves in the process.

Cherry Creek is a huge shopping mall filled with upscale stores in a trendy neighborhood in Denver. The neighborhood is a traditional shopping district – filled with boutiques, salon, coffee shops, and restaurants — that predated the mall. The neighborhood offers on-street, metered parking. When the mall opened, it offered 5,100 free covered parking spaces.

Being good citizens, we Denverites treated the covered parking spaces as a social good governed by social norms. We knew that the parking spaces were intended for people who were shopping in the mall, not wandering about the neighborhood. I’m sure that some people cheated but, by and large, we honored the social norms.

A few weeks ago, the mall started charging for parking. It now costs about the same to park in the covered lots as it does to park on the street in the neighborhood. There’s one exception: you get the first hour free at the mall.

I used to consider the mall parking a social good. But now that the rules have changed, I consider it a commercial product. We’ve shifted from social norms to market norms. If it’s going to cost about the same to park on the street or in the mall, I think I’ll park in the mall. It’s covered and convenient. And it’s a commercial product, so I won’t have a guilty conscience.

My prediction: the change to market norms will worsen the mall’s parking problems. More non-mall shoppers will feel justified to pay the fee, park in the covered lots, and then wander the neighborhood. They’ve paid for the parking so they can use it any way they want.

In his book, Predictably Irrational, Dan Ariely stresses that people will do more, work harder, and behave better when social norms are in force as compared to market norms. Ariely reports on an experiment performed at St. Thomas University. Researchers asked students to do a rather mind-numbing task on a computer for five minutes. Students were divided into three groups. The first group received a payment of five dollars. The second group got a payment of 50 cents. The students in the third group were asked to perform the task “as a favor” to the researchers.

Who performed best? The students who received five dollars completed 159 transactions. Those who received fifty cents completed 101 transactions. And those who did it for nothing completed 168 transactions. In this example, money decreases performance rather than increasing it. As Ariely notes, “Money, as it turns out, is very often the most expensive way to motivate people. Social norms are not only cheaper, but often more effective as well.”

Ariely also tells the story of a nursery school that wanted to motivate parents to pick up their kids on time. The owners of the school used social norms to enforce the policy. Parents were guided by their conscience; they were ashamed to be late.

Most parents complied, but a few didn’t. The nursery school then shifted to market norms – charging a fine for late pick-ups. What happened? The number of late pick-ups increased sharply. With fines in place, your conscience no longer guides you. Your wallet does. You can literally buy time.

Tellingly, when the nursery school then removed the fine, the parents’ behavior didn’t change much. Ariely draws a larger point from this – once you change form social norms to market norms, you can’t go back. Ariely writes, “Once the bloom is off the rose – once a social norm is trumped by a market norm – it will rarely return.”

What does all this mean for Cherry Creek shopping mall? I suspect that non-compliant parking will increase. People will no longer be guided by their conscience. More prosaic concerns will prevail. People can now buy time, convenience, and space. I suspect the mall managers will reverse their decision at some point. Unfortunately, it won’t matter much.

It’s too bad the mall managers didn’t read Dan Ariely’s book. They could have saved themselves a huge headache. However, if some of my other predictions come true, we won’t need parking lots much longer.

Will Corruption Skyrocket In Sweden?

No cash here!

No cash here!

Here’s a pair of questions raised by Dan Ariely in his book, Predictably Irrational:

Your school age daughter calls you at work and asks you to bring home a red pencil she needs for her homework.

Q1: You find a red pencil in your company’s supply closet. Would you take it home or would you consider that cheating?

Q2: You can’t find any red pencils in the office but you know you can buy one for a quarter at the office supply store around the corner. You don’t have a quarter but you can find one in the petty cash drawer by the coffee machine. Would you take a quarter and buy your daughter a red pencil or would you consider that cheating?

If you’re like Dan Ariely or me or most people, you think it’s OK to take a pencil from the supply closet but you would never take a quarter from the petty cash drawer.

The value involved is the same in both cases, so why do we think one scenario is OK and the other is not? According to Ariely, it’s about cash. We tend not to cheat when cash is involved. We know it’s wrong to take money. We can’t rationalize the action to ourselves.

The farther we get from cash, however, the easier it is to rationalize cheating. Most of us wouldn’t steal money from a stranger. But we might shade things a bit on our tax returns and we don’t feel too badly about inflating our losses on insurance claims. Ariely concludes that, “When we look at the world around us, much of the dishonesty we see involves cheating that is one step removed from cash.”

So does this mean that corruption is about to skyrocket in Sweden?

For the past several decades, Sweden has been moving toward a cashless society. Banks began charging for checks about 30 years ago. Rather than writing checks, people found it easier and less expensive to transfer money from one account to another, initially by fax, then online, and now by mobile devices like smartphones. ATMs are being phased out. By one estimate, only 900 of the 1,600 branch banks in the country even bother to keep cash on hand.

So how do Swedes pay for things? With blips and chips. You can pay the parking meter with your smart phone. You can transfer money from one account to another with an app called Swish. You can give money to a beggar by swiping a card or tapping a phone. Even Swedish churches use apps instead of collection plates.

The Swedish transition to a cashless society accelerated in September 2009, after the Västberga heist. Thieves in a stolen helicopter smashed through the skylight of a bank-processing center and made off with about $6.5 million in cash. The heist has been romanticized endlessly in Sweden. But its biggest impact was to erode trust in cash. If cash could be stolen so easily – and it was never recovered – why bother with cash? (I happened to walk by the Västberga center, on my way to work, about half an hour before the attack. Yikes!)

In addition to theft, cash is involved with a whole host of nefarious activities – ranging from drugs to weapons to prostitution to payments to illegal aliens. So why not do away with it? Dan Ariely’s data may give us pause – the farther we get from cash, the more likely we are to cheat.

So is Sweden growing more corrupt? At least one estimate suggests, “…cases of electronic fraud have more than doubled in the past decade….” Before giving up cash altogether, the Swedish government should take some baseline measures of corruption and cheating and then monitor them over time. It may turn out that going cashless is much more expensive than the occasional bank heist.

Heard of Self-Herding?

Should've gotten Grover's Grind.

Should’ve gotten Grover’s Grind.

How many times do you need to make the same decision?

Let’s say that, on your drive to work, there are two drive-through coffee shops: Grover’s Grind and The Freckled Beauty. You try each and decide that you prefer the mocha delight from The Freckled Beauty. Why would you ever make that same decision again? It’s more efficient to make the decision once and repeat the behavior as often as needed.

Let’s change the context. You’re walking down a busy street in a big city when you see a cluster of, say, six people. They’re all looking upward and pointing to a tall building. Chances are that you’ll slow down and look up as well. The cluster of people has “herded” you into behaving the same way they behave.

Herding affects us in many ways. Teenagers wear essentially the same clothing because they want to be part of the same herd. College professors dress like college professors. Similarly, if we’re surrounded by liberals, we tend to lean liberal. If surrounded by conservatives, we tend to lean conservative. We sort ourselves into different herds based on appearances, clothing, lifestyles, political position, religion and so on.

Herding is essentially a cognitive bias. Instead of thinking through a decision and using logic to reach an advantageous conclusion, we use a shortcut (also known as a heuristic). We let the herd think for us. If it’s good enough for them, it’s probably good enough for me.

Like most cognitive biases, herding leads us to good conclusions much of the time … but not always. When it goes wrong, it does so in predictable ways. As Dan Ariely says in the title of his book, we’re Predictably Irrational.

If we think about it, it’s easy to recognize herding. With a little forethought we can defend ourselves against groupthink. But what about self-herding – a notion that Ariely developed. Can you easily recognize it? Can you defend yourself against it?

Self-herding has to do with difficult questions. Daniel Kahneman pointed out that, when we’re asked a hard question, we often substitute an easy question and answer that instead. Here’s a hard question, “How likely is it that you’ll be shot in your neighborhood?” We don’t know the answer, so we substitute an easier question: “How many neighborhood shooting incidents can I recall from memory?” If we can remember many such incidents, then we assume that a recurrence is highly probable. This is known as the availability bias – we assume that things that are easily available to memory are likely to happen again.

Self-herding is a variant of the availability bias. As Ariely points out, it’s not easy to answer a question like, “What’s the best place to eat in your neighborhood?” So we substitute an easier question, “Where have I eaten before that I really liked?” Ariely notes that, “We can consult our preferences or we can consult our memory. It turns out it’s often easier to consult our memory.”

When you continue to choose The Freckled Beauty over Grover’s Grind, you’re herding yourself. It was the right decision at one time and you assume that it continues to be the right decision. It’s an efficient way to think. It’s also easy – you use your memory rather than your thinking muscles.

But, as we all know, things change. In fact, the speed of change seems to be accelerating. If the conditions that led to our initial decision change, then the decision is no longer valid. We can miss important opportunities and make serious mistakes. Every now and then, we need to un-herd ourselves.

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