How our biases lead us to make mistakes

It's refreshing to read in a new book called "The Physics of Brand" that the authors refuse to use terms like consumer or target market.

They call these terms relics of industrial-age thinking. Instead what they write about are "people."

In the framework of their book, these people are on the move, too, bumping into brands. They bring physics into their thinking by wondering how people and brands move through space and time to find each other, bump into each other and sometimes stick.

The book will come out in July, but don't plan on getting through it on a short flight to Chicago. It's a fun read but not exactly light. Among the things readers will be asked to understand is that people react with brands completely — but maybe predictably — irrationally.

Co-author Aaron Keller, a founder of the Minneapolis design and branding firm Capsule, good-naturedly acknowledged that people behave irrationally all the time.

Our irrational behavior comes from glitches in thinking generally grouped under the heading of cognitive bias, which Keller and his co-authors write about freely in their new book. These are the mental processes hard wired into our brains that mostly run unnoticed in the background.

In a way these biases are mental shortcuts, enabling us to quickly reach conclusions about what we see, smell and feel without having to think too much. In that way these biases actually can come in handy.

One of these biases, and one that's critical for managers of a business to grasp, is called loss aversion. This means that humans just hate losing something, be it a pile of misplaced acorns, a profitable client that fires our firm or the money in a mismanaged mutual fund.

Humans work hard to avoid these setbacks because the losses hurt so much, way more than the good feelings we had back when we collected the acorns in the first place.

As Keller and co-authors Renée Marino and Dan Wallace point out in their book, if you think about it a second, developing a strong bias to avoid the risk of loss makes some sense if you are trying to survive on the savanna.

One member of a prehistoric group trudging along might have noticed a rustling in the grass. Maybe it was dinner. Or maybe it's a hungry lion. The default setting in their brains to avoid risk led them to approach very cautiously until they could find out.

That same unthinking tendency to avoid taking a risk is why consumers — sorry, people — buy trusted brands like Cheerios rather than some store-label cereal that maybe costs $2 less per box.

In addition to weaving cognitive biases into the new book, Keller often talks to clients and others in his profession about them. He and a Capsule colleague just put a short post about one on a blog for innovators, this one all about a bias known as the curse of knowledge.

Business people really need to understand this one, too. It's the process of how smart people become increasingly unable to get across what they know even as they learn more and more.

One groundbreaking study about this bias, from Stanford University, easily made the point in a paper that still gets cited. All the researcher did was ask participants to play a simple guessing game about well-known songs.

One volunteer was asked to tap out the rhythm of an all-time hit like "Happy Birthday," with a listener across the table hoping to guess the song. After listening carefully to the rhythm being tapped out, the listener got the song right about one time out of 40.

The tapper, on the other hand, expected the listener to get it right half the time. It was so obvious! It's "Happy Birthday!"

The problem was that the tapper was cursed with knowledge of the song, hearing it play in his head, never quite getting that all the listener could hear was random-sounding taps on the table.

In explaining the curse of knowledge, Keller said, "I haven't noticed that people get it right away. They don't realize how constraining it is as human beings, how it doesn't allow you to put yourself in anybody's world and see anything through their lens."

A Harvard Business Review contributor once pointed out it's the curse of knowledge that leads a newly promoted chief executive to spout gibberish in front of the employees, tossing out phrases like "delight the customer." To the CEO, with 25 years in business strategy and operations, it means a specific measure of excellent customer service.

It means nothing to employees in a call center, and after hearing more terms just like it they start thinking about what's for dinner until the noise coming from the new boss stops. And the CEO will later be baffled when employee surveys reveal a chasm between the new strategy and what the employees understand about it.

If there's one group that needs to understand the curse of knowledge, Keller said, it's people trying to develop or sell something new. The entrepreneur or inventor will have learned all there is worth knowing about a great new product yet struggle to communicate enough of its value to get funding from a skeptical investor or a purchase order from a customer.

He drove home his point in a story about shopper interviews Capsule once did about a client's new electronics product. Capsule's client asked to tag along just to observe. Halfway through one of the interviews he jumped in to lecture the shopper on all the cool features that the shopper didn't seem to fully understand.

Capsule asked the client, described by Keller as a "great guy" and "passionate" about the product, to please skip the rest of the interviews.

He did not get the concept, Keller said, "but his boss did."