Library / Personal Development | Human Psychology

Date of review: June 2022
Book author: Robert Cialdini
Вook published: 1984

Influence. The Psychology of Persuasion by Robert Cialdini (originally published 1984)

Cialdini's work in the field of human psychology has received multiple acknowledgements from around the world. Many value investors heard about him from the praises that Charlie Munger and Warren Buffett have given him over many years.

Munger was right

There are two fundamental books that Dr Robert Cialdini has written: Influence and (Per-)suasion. So far I have read only the first book, originally published in 1984. The second book is on my reading list.

While my opinion hardly counts after all the compliments expressed by Munger (he sent copies of the book to all his children and gave Cialdini Berkshire stock as a gift), I still want to say that the book was an eye-opener for me, even though I read quite a few books on psychology already. While many of the points look too obvious to take them seriously, my future experience with social media (Twitter in particular) has proven the value of Cialdini's work. I also encourage readers not to be disturbed by seemingly outdated references to past marketing practices. The book was written before smartphones or Instagram were created.

However, I think all the social media platforms have been built on the principles discussed in the book.

In fact, I was left with a sad feeling after reading it as it became quite obvious that humans can be so easily persuaded into doing stuff they do not rationally want to do and from that perspective our mind is actually not that complex as we sometimes think.

The book is a must-read for anyone involved in marketing, especially on social media. That may be relevant even for early-stage portfolio managers willing to raise more capital and convince future investors to put money into their funds. It also helps investors to improve their decision-making process by highlighting all the weaknesses in our process. I plan to introduce the six principles of influence discussed by Cialdini into my Checklist to be sure my thinking is not influenced by forces outside of my control and is based as much on facts and logic as possible.

The hidden triggers in humans

Cialdini starts his book by describing how easily animal behaviour can be manipulated due to many preprogrammed 'tapes' which once triggers make animals perform crazy things (e.g. mother turkey killing her own chicks under certain conditions - lack of a specific sound). Cialdini states that there are many parallels with the human's automatic actions that can be triggered.

One example is having a reason. If a person joins a queue saying: "Excuse me, may I use the Xerox machine, I have five pages" only about half of the people in the queue would let the person skip it. But if he just adds any reason to his phrase, 94% of people would allow him to use the machine (e.g. Excuse me, may I use the Xerox machine, I have five pages and I am in a rush").

While it may appear that the difference is in the 'because I'm in a rush' point, it turns out that it is not. In reality, the keyword is 'because'. The third type of request was formulated like this: Excuse me, I have five pages. May I use the Xerox machine because I have to make some copies? Incredibly, but nearly all (93%) agreed, even though no real reason was added to justify their compliance.

Another important experiment that Cialdini describes at the beginning of the book is the following one:

A man has three bowls of water in front of him. One has hot water, the other - cold and the third bowl has room temperature. After the person puts one of his hands in a bowl with cold water and the other - in a hot-water bowl, he would be shocked that when both of his hands are in the third bowl, one of his hands would feel like it is in hot water, while the other hand (exactly in the same bowl) would feel that it is in cold. As Cialdini notes, "the point is that the same thing…can be made to seem very different, depending on the nature of the event that precedes it".

To show how this principle can be exploited in real-life situations, Cialdini provides the following example:

"Suppose a man enters a fashionable men's store and says that he wants to buy a three-piece suit and a sweater. If you were the salesperson, which would you show him first to make him likely to spend the most money? Clothing stores instruct their sales personnel to sell the costly item first. Common sense might suggest the reverse: If a man has just spent a lot of money to purchase a suit, he may be reluctant to spend very much more on the purchase of a sweater. But the clothiers know better. They behave in accordance with what the contrast principle would suggest: Sell the suit first, because when it comes time to look at sweaters, even expensive ones, their prices will not seem as high in comparison. A man might baulk at the idea of spending $95 for a sweater, but if he has just bought a $495 suit, a $95 sweater does not seem expensive". I should note that the book was originally published in 1984.

The Six Fundamental Principles

According to Cialdini, the following principles have the biggest impact on our behaviour and can be easily exploited:

  1. Reciprocation
  2. Commitment and Consistency
  3. Social Proof
  4. Liking
  5. Authority
  6. Scarcity

1. Reciprocation

The rule of reciprocation says that we should try to repay, in kind, what another person has provided us (e.g. if a man sends as a birthday present, we should remember his birthday with a gift of our own; if a couple invites us to a party, we should be sure to invite them to one of ours). Sociologists report that there is no human society that does not subscribe to that rule.

The source of power for this rule is that it increases how much we like a person who did a favour for us. Many professional salespeople know that by offering simple things like free coffee at the start of negotiations. 'Free samples' are also widely used as one of such techniques.

More sophisticated sales techniques turn rejection of the initial proposal into their strength. For example, if you are offered a service that you do not really need at this state and you reject to continue the discussion, the salesperson could then ask you to name your friends who could be interested in that service. In normal conditions, you are unlikely to provide such details, but after facing the pressure during the presentation you may agree to name a few of your friends as a concession.

This technique is also successful due to the contrast principle used in selling $95 sweaters after selling $495 suits. Sharing a few contacts looks like a minor concession compared to buying a service you do not really need.

Cialdini also provides the example when a sales manager offers first an expensive item (like $3,000 table) and after a customer rejects it, he shoes him a more reasonably priced $300 piece. Such order of sales (showing an expensive item first, followed by a cheaper one), generated more sales than the opposite one. Traditionally, retailers used to trade up by showing a customer a low-priced item first and then pushing him to buy a more sophisticated one.

2. Commitment and Consistency

Cialdini shares the results of a study that showed that people right after placing a bet on a particular horse at a racetrack, people were more confident in their horse's chances of winning than they were immediately before the bet. As Cialdini writes, "of course, nothing about the horse's chances actually shifts; it's the same horse, on the same track, in the same field; but in the minds of those bettors, its prospects improve significantly once the ticket is purchased".

The reason for such behaviour is our "nearly obsessive desire to be (and to appear) consistent with what we have already done. Once we have made a choice or taken a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment".

To me, this is similar to the 'expert problem' when a person makes a forecast and sticks to it even despite growing evidence of a different scenario just to remain consistent. Some experts on decision-making advise against making your stock calls public as you run the risk of becoming biased by picking only facts that support your original thesis and ignoring counter-arguments.

Another study discussed in the book showed that if a caller starts with the question "How are you feeling today?" he is more likely to get what he wanted. The reason is that the respondent would naturally answer something like "Doing well", which automatically limits his future options as he made a commitment. For example, it would be harder to reject making a small donation to a charity that supports homeless people.

Perhaps, well known, but still important to remind is the point that written commitments are much stronger than verbal ones. If you right your goals the chances that you accomplish them are higher. You may not want to send something in writing and just speak over the phone if you do not want to be trapped in a strong commitment bias later.

Cialdini also discussed the tactics used by car dealers when they show to a customer a vehicle that is deliberately cheaper than any alternative. Once the customer commits to the purchase and fills in the required papers, the 'error' is discovered in calculations (a salesperson forgot to add the cost of an air conditioner which is exactly as the amount of the original discount). Having made a commitment to buy, the customer would end up paying a market price for a car.

3. Social Proof

This is probably the most important principle in persuading humans to act or think in a way we want them to do. The idea is that we follow other humans and if we see a large group of people doing a certain thing (e.g. laughing in a cinema) we are more likely to act the same. The inclination is even stronger if the people are our friends or someone we respect highly.

Hence, all those Like buttons in social media, review pages, endorsements and so on.

According to Cialdini, the principle applies especially to the way we decide what constitutes correct behaviour. Situations, when we are most vulnerable to influence, are "when we are unsure of ourselves, when the situation is unclear and ambguous when uncertainty reigns."

We view a behaviour as more correct in a given situation to the degree that we see others performing it. Whether the question is what to do with an empty popcorn box in a movie theatre, how fast to drive on a certain stretch of highway, or how to eat the chicken at a dinner party, the actions of those around us will be important in defining the answer.
Interestingly, large cities have more conditions for people being influenced by social proof. They include:

a. distracting and rapidly changing environment where it is difficult to be certain of the nature of the events one encounter

b. more populous places increase the chances of people being together with other people (larger groups)

c. city residents usually know a small percentage of other fellow residents and often find themselves surrounded by strangers which increases confusion and willingness to seek social proof.

Some of the real-life examples of Social Proof principles at work:

  • Bartenders putting a few dollar bills in their tip bars
  • Comments that a certain product is best-selling in its category
  • Number of customers who have already tried the service in sales pitches
  • Ad video showing a series of people endorsing a product one after another
  • Approach a specific person in a large group if you need help rather than appeal to a group in general (bystanders are often unsure if they should act and many others remaining passive around them convince them in staying put as the best course of action)
  • The influence of others is most powerful when they are like us, appeal to a person's friends or peers to convince him to do a certain thing (use your service)

4. Liking

This is another well-recognised principle which says that we are more likely to say Yes to a person we like. It is important then to be aware that someone may be nice to us only for us to like them and say Yes later (e.g. when you hear compliments from a real estate agents about your car).

One smart technique used by salesmen is to ask your friend for a recomendation. If you are then approached by a salesman who refers to your friend's recommendation, rejecting such a salesman becomes harder as it almost means turning down your friend.

Other ways of using this principle include:
  • Physical attractiveness (well-dressed and good-looking real estate agents)
  • Similarity (a wide range of common features include having a friend in the same town where you were born, supprting the same football club, driving the same car, having children in the same school, having the same favourite book etc)
  • All kinds of compliments
  • Contact and Cooperation - this is the idea that we are more likely to enjoy things we are familiar with (which we have had previous contact with). Cooperation within a group, combining efforts to achieve a common goal reduces hostily between its members. Schools often encourage children to work in groups to increase cooperation and improve the class spirit.
  • Bad Cop / Good Cop. A suspect would more likely to cooperate if he is first questioned by a 'Bad Cop'. The second officer acting as a 'Good Cop' would almost look to him like a buddy making him more willing to agree (e.g. admitting his guilt).
  • Conditioning and Associations. The idea here is that we are often judged by our friends, who we are associated with. People also try to make visible their connections with winners and disassociate with losers in order to make themselves look good to anyone who could see the connections. Often, this goes further when people try to inflate success of other people who they are connected with rather than their own success.

One technique offered by Cialdini to defend against the Liking principle is to buy time and not respond immediately. I think this is a good technique that can be applied in almost all situations when we need to decide unless there is a very small downside to making decisions immediately.

Also worth asking a question if you like the actual product you are sold or the person who is selling it to you (or the way he sells).

5. Authority

This principle stipulates that we are much more likely to say Yes to a representative of some authority than to a normal person. Several experiments have demonstrated that a person wearing a yellow jacket will be much more successful in asking people to walk on the other side of the road, than a person wearing casual clothes.

The advice from this principle is that we should seek to use as many signs of authority as possible (e.g. doctors wearing white robe, a badge, displaying a certificate). A suit and business shoes also help, according to Cialdini, although these days it probably works less efficient. Having a title like Doctor or Professor, for example, also helps.

Even physical appearance matters. Tall people appear to us to have more authority. The reverse is also true, based on various experiments. The same person appeared 'taller' to a group of students if he was introduced as a distinguished professor and the biggest authority in his field than if no introduction was made.

Apart from titles and clothes, Cialdini highlights 'trappings' such as jewellery and cars that convince people of someone's authority. According to the findings of a study done in the San Francisco Bay area, motorists would wait significantly longer before honking their horns at a new, luxury car stopped in front of a green traffic light than at an older, economy model.

The major takeaway from this principle for investors is to be very careful with experts' opinions, even if it is Warren Buffett. We may overemphasize the importance of the information we receive from experts and miss important facts that we may already know because of this Authority principle.

6. Scarcity

We can easily recollect when we such principle was used on us in advertising: 'the last copy of a book left', the sale ends tomorrow', 'only three seats left', 'we have a long line of potential buyers looking at this property, we can only offer you a 10-min slot today'.

Avoiding the appearance that something is widely available (like your time schedule) and creating a sense of exclusivity (available to members only) creates stronger demand. Studies have found that we want items that have been banned more.

A simple study described in the book makes an amazing point that we value stuff more if we think it is in short supply. Participants in a consumer-preference study were given a chocolate-chip cookie from a jar and asked to taste and rate its quality. For half of the raters, the jar contained ten cookies; for the other half, it contained just two. It turned out that participants rated cookie higher if it came from the second jar with just two cookies.

One interesting nuance that is that people value not just any thing that is associated with scarcity, but rather a thing that has recently become scarce. For example, parents will strugle to impose rules on eating too many sweets for children if they were previously allowed to eat any amount. Cialdini also discusses the experience of the late Soviet Union and Gorbachev's perestroika. When KGB officials staged a coup in August 1991, many Western experts were convined that reforms were over and the country would go back to the totalitarian regime. However, what they have actually missed was that for 5-6 years people in the USSR got used to more freedom and saw the coup as an attempt to revoke those new rights and this led thousands of protesters into the streets to stop the coup.

Cialdini rights on this subject of political changes:
Freedoms once granted will not be relinquished without a fight.
Not surprisingly, competition for a particular item increases our desire to own it in addition to its scarcity. Many ads, thus, add comments like 'Hurry up, the product is so popular it may not be available next month.' Realtors often mention a mysterious buyer willing to pay in cash for a property to a hesitant bidder, just as a woman may mention the attention of a new admirer to her romantic partner.

Understanding the nature of scarcity in the stock analysis should be an important element too. Often, rising stock prices on its own may falsely create a sense of scarcity among investors and push them to buy more of the same stock without doing enough analysis or disregarding already high valuation. Bidding wars are also very dangerous for corporate executives and something that Buffett, for example, avoids altogether. On the other hand, it may be an interesting opportunity to look at a smaller rival in a sector that is going through consolidation as emerging scarcity and rivalry between the bigger players may easily drive up the share price of such a small player.

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