Dan Ariely 3 of 3: Trust and Healthcare Reform

In the first of this three-post series I offered a sound file of Dan talking about the limits of rationality when devising and regulating public services.

In the second, we explored how  Treasury’s un-trustworthiness dealing with TARP and the financial meltdown has led to social anxiety and depression.

While writing that second post it occurred to me if our elected and appointed officials been truthful and upfront in their dealings with $700b bailout, we’d already have a healthcare reform bill.

It also occurred to me that we hold public servants to a higher standard than CEOs of healthcare. When healthcare execs earn blood money by standing between us and our doctors, we shrug it off by saying “Hey, that’s just capitalism,” or “Oh well, cost of doing business,” but when our elected officials stand between us and our doctors we get nuts because that’s rationing.

What Ariely has to say about our beloved invisible hand of the market

In the updated version of Predictably Irrational, Ariely observes about his own profession:

Rational economics has always been the basis for setting up policies and designing our institutions. What’s wrong with that? Neoclassical economics is built on very strong assumptions that, over time, have become ‘established facts.’   Most famous among these are that all economic agents (consumers, companies, etc., are fully rational, and that the so-called invisible hand works to create market efficiency). To rational economists, these assumptions seem so basic, logical, and self-evident that they do not need any empirical scrutiny.

Building on these basic assumptions, rational economists make recommendations regarding the ideal way to design health insurance, retirement funds, and operating principles for financial institutions. This is, of course, the source of the basic belief in the wisdom of deregulation: if people always make the right decisions, and if the “invisible hand” and market forces always lead to efficiency, shouldn’t we just let go of any regulations and allow the financial markets to operate at their full potential?

On the other hand, scientists in fields ranging from chemistry to physics to psychology are trained to be suspicious of ‘established facts.’ In these fields, assumptions and theories are tested empirically and repeatedly. In testing them, scientists have learned over and over that many ideas accepted as true can end up being wrong; this is the natural progression of science. Accordingly, nearly all scientists have a stronger belief in data than in their own theories. If empirical observation is incompatible with a model, the model must be trashed or amended, even if it is conceptually beautiful, logically appealing, or mathematically convenient.

Unfortunately, such healthy scientific skepticism and empiricism have not yet taken hold in rational economics, where initial assumptions about human nature have solidified into dogma. Blind faith in human rationality and the forces of the market would not be so bad if they were limited to a few university professors and the students taking their classes. The real problem, however, is that economists have been very successful in convincing the world, including politicians, business people, and everyday Joes not only that economics has something important to say about how the world around us functions (which it does), but that economics is a sufficient explanation of everything around us (which it is not). In essence, the economic dogma is that once we take rational economics into account, nothing else is needed (emphasis added).

In sum, we trust theories more than facts.  No wonder we’re in such a quandry.

Dan Ariely 2of 3: Trust and the Meltdown

Last week I set the foundation for today’s installment, complete with a sound file of bestselling author Dan Ariely’s talk to our Business School Alliance in Charlotte. This post will make the most sense to those who read that first.

New insights on the meltdown

The 2nd edition of Ariely’s book,  Predictably Irrational, includes a full chapter on the 2008 meltdown.  In it, he emphasized trust (and the breach thereof), saying that no matter the long list of expensive “heroic measures” the central banks take, they’re unlikely to achieve the desired effect without taking measures to restore trust.” After all, trust is the foundation of paper money to start with.

“Imagine how different things would have looked if the banks and the government had understood the importance of trust from the get-go. Had that been the case, they would have worked harder to explain more clearly what went wrong and how the bailout would be used to clean up the mess. They would not have ignored the public’s sentiment; they would have used it for guidance. They would have included some trust-building elements in the bailout legislation itself thoughts about the subprime mortgage crisis for example, they could have guaranteed that every bank bailed out with taxpayers’ money would have to commit to transparency, limit top managers’ salaries, and eliminate conflicts of interest.”

Trust and “learned helplessness”

Ariely says outright that Paulson’s behavior told us clearly that no one really understood what was going on. “One question we might ask is whether the general (psychological) depression that followed might have been mitigated if Paulson had been able to explain what went wrong in the first place, what his proposed measures were going to achieve, why he changed his decision to buy toxic securities, and what his plan was for the rest of the bailout money.

“As it turns out, even some answers could have made a difference. All creatures (including humans) respond negatively in situations where things don’t seem to make sense. When the world gives us unpredictable punishments without rhyme or reason, and when we don’t have any explanation for what is happening, we become prone to something psychologists call ‘learned helplessness.’” In a nutshell, those who’ve learned helplessness simply stop trying to help themselves because they believe such attempts are futile.

He suggested we help ourselves by changing “the way we consume news, from passive receptivity to actively thinking about the information and trying to make sense out of it.”

Amen to that. My prescription?  More NPR and NewsHour; complete abstinence from Fox(so-called) News.

Coming in part 3 of 3: How lack of trust in financial meltdown affected healthcare reform

Writing prompts for bloggers & newsletter writers

• I wrote a post with writing prompts in May based on The Atlantic’s Article “Why I Fired My Broker.”  I quoted Seth Klarman saying “The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them.  And now it’s even worse because even the most sophisticated people have no idea what’s going on.”  What steps is your firm (or are you) taking to communicate to your clients that you are trustworthy?  That your processes are fail safe (or at least properly audited)?
• Do you think more straight talk with your clients on your compensation will engender trust?  If you work for a broker or agency, why not tell your clients why you believe the comp structure you work under is fair to you and to them?
• In a post on compassion fatigue and shared trauma by financial advisors we discovered how and why advisors avoid client contact.  Ariely points out the need for trustbuilding, which can only happen with increased contact.  What steps have you seen advisors take (or have you taken) to step up client communications? Can you point your clients to more trusted information portals?

Do Your Stats Stack?

Great tables in Epsilon’s Email Trends and Benchmarks study released this July. Great for benchmarking.

Open Rate Comparison By Industry Business Products and Services General

Epsilon’s Conclusion: “Consumers are taking a variety of offline actions as a result of permission-based email communications...sophisticated marketers are incorporating triggers, transactions, preferences, segmentation and other advanced analytics to produce more successful campaigns.” (Emphasis mine)

My comments:

• These stats relate to permission-based email communications, which include newsletters. No studies available on newsletters by themselves
• Newsletter publishers need to learn how to incorporate triggers, preferences and segmentation.
  • For example, an accounting practice might begin offering a newsletter focused on the tax-planning needs of smaller segments of its client base.  Retailers, contractors, biotech, import/export businesses have different concerns and will be grateful for focused communications — otherwise, they’re likely to tune out. Publishers of e-newsletters can accomplish this by simply allowing people to opt-in to a different/additional publication in the sidebar of the publication they currently receive
  • Service providers don’t dismiss the idea of using a “trigger” to entice your clients to download a white paper or special report. It’s a competitive world out there and you need to continue providing value between service engagements

Please share best practices here.  I’m especially interested in what service providers are doing well with email initiatives.

Dan Ariely 1 of 3: Trust, Revenge & Financial Reform

Bestselling author Dan Ariely, a professor of behavioral economics at  Duke, made a special appearance in Charlotte for our Business School Alliance last week. Ariely’s book, Predictably Irrational, just went into a second edition and — holy cow– is still in hardcover. I’ll write about his visit in this and two other posts this week. Here’s what’s in the new edition:

1.  A New Intro: Why the recent events in the economy make behavioral economics more important than ever before

2.  Reactions and Anecdotes: Expanding on some of the lessons we learned in the earlier chapters with interesting new stories and some more science

3.  Thoughts about the Subprime Mortgage Crisis and Its Consequences: A more in-depth look at how irrationalities played a role in the recent Subprime Mortgage Crisis, along with some of his thoughts on how we can fix those problems

Part One: we trust and seek revenge irrationally

Cliff’s notes: Ariely demonstrates that people aren’t always “selfish economic maximizers.” We will trust when we are rationally unwise to do so.  He also points out that we are, irrationally, “very happy to spend lots of money to make others suffer,”  joking that if you’ve any experience with divorce you’ll understand what he’s talking about. He explained the social utility of revenge in situations where lawlessness prevails.

Interesting factoid: PET scans of brains plotting revenge are quite similar to those experiencing pleasure.

I particularly like the novel way he approaches financial and healthcare reform.  He reminds us that roads and highways have wider lanes than a vehicle width, they have shoulders where people aren’t supposed to drive, they have protective medians and speed limits — none of which a “rational economist” would allow for.  Conclusion: when we devised our transportation system, we allowed that drivers would need room to make mistakes (or get out of the way of others who do).  We should plan ahead for “mistakes” in financial and healthcare reform efforts as well.

I had the foresight to bring my digital recorder, so enjoy what Dan has to say (click the link to play inside this window or download).

Trust-Revenge-Financial Reform

Writing prompts for bloggers & newsletter writers

• This is a time of great mistrust and financial churn. Perhaps you have either benefited professionally or been mistaken for a miscreant (or both). It’s not all in your control, is it? Do you have any anecdotes on how people irrationally trusted you or another advisor?  What about anecdotes where someone wrongly thought you had treated them badly and sought revenge? Does this make more sense now that you’ve heard Dan’s talk? You might offer some straight talk to your clients and prospects on this topic.
• Dan talked about AIG employees being harassed in public after the bailout. Can you relate any episodes of client anger that you handled particularly well or poorly? What lessons did such an episode teach you about yourself? Your profession? Human nature?
• If you’re an advisor, can you see yourself making use of the mango story when dealing with marriage or business partners who are dissolving their relationship? Or perhaps the Dr. Strangelove metaphor works better?
• What do you make of the parallel between how a “rational economist” would design a highway system and how we should revamp our healthcare system or re-regulate our financial system?

Jon Stewart and the Gerund

English teachers the world over must’ve loved the way Jon Stewart taught us the gerund.

Commemorating the first anniversary of the Lehman Brothers collapse, Stewart riffed on this clip of President Obama’s speech to Wall Street.

Obama: “We’re proposing the most ambitious overhaul of the financial regulatory system since the Great Depression…”

Stewart: “Proposing?  Gerund?  Proposing?  Haven’t done it yet?”

Thanks, Jon. You’re a faux-news guy who jokes like an English Major.

Me, the Twitter Panelist

I find Twitter to be an efficient and effective way to grow professionally and personally.

My friends at Understanding Marketing facilitate a weekly discussion on marketing and PR topics of interest to small business owners on TweetGrid and asked me to be the expert on call Tuesday 9/22/09 8-9om EST.

We’ll be discussing CAN-SPAM and how to write email marketing campaigns and e-newsletters so they won’t be scraped into the “junk” or “bulk” or “spam” filters of recipient mailboxes.

Since it’s a Twitter-based discussion, anyone can chime in with questions and answers — and it’s free.

If you have anything specific to ask and can’t attend next week, leave me a comment below and I’ll get it in.  Have a study or resource on the topic you’d like to share?  Again, leave a note below.

September Book Lust

If you’ve read any of these, please write your thoughts/a review.  Here’s what’s on my radar.

Shop Class as Soulcraft byMatthew B. Crawford

Philosopher and motorcycle mechanic Crawford presents a fascinating, important analysis of the value of hard work and manufacturing. He reminds readers that in the 1990s vocational education (shop class) started to become a thing of the past as U.S. educators prepared students for the “knowledge revolution.” Thus, an entire generation of American “thinkers” cannot, he says, do anything, and this is a threat to manufacturing, the fundamental backbone of economic development. Crawford makes real the experience of working with one’s hands to make and fix things and the importance of skilled labor. His philosophical background is evident as he muses on how to live a pragmatic, concrete life in today’s ever more abstract world and issues a clarion call for reviving trade and skill development classes in American preparatory schools. The result is inspired social criticism and deep personal exploration. Crawford’s work will appeal to fans of Robert Pirsig’s classic Zen and the Art of Motorcycle Maintenance and should be required reading for all educational leaders. Highly recommended; Crawford’s appreciation for various trades may intrigue readers with white collar jobs who wonder at the end of each day what they really accomplished.  – Library Journal

My Stroke of Insight: A Brain Scientist’s Personal Journey by Jill Bolte Taylor

On the morning of December 10, 1996, Jill Bolte Taylor, a thirty-seven-year-old Harvard-trained brain scientist, experienced a massive stroke when a blood vessel exploded in the left side of her brain. A neuroanatomist by profession, she observed her own mind completely deteriorate to the point that she could not walk, talk, read, write, or recall any of her life, all within the space of four brief hours. As the damaged left side of her brain–the rational, grounded, detail- and time-oriented side–swung in and out of function, Taylor alternated between two distinct and opposite realties: the euphoric nirvana of the intuitive and kinesthetic right brain, in which she felt a sense of complete well-being and peace; and the logical, sequential left brain, which recognized Jill was having a stroke, and enabled her to seek help before she was lost completely.

In My Stroke of Insight, Taylor shares her unique perspective on the brain and its capacity for recovery, and the sense of omniscient understanding she gained from this unusual and inspiring voyage out of the abyss of a wounded brain. It would take eight years for Taylor to heal completely. Because of her knowledge of how the brain works, her respect for the cells composing her human form, and most of all an amazing mother, Taylor completely repaired her mind and recalibrated her understanding of the world according to the insights gained from her right brain that morning of December 10th.

Today Taylor is convinced that the stroke was the best thing that could have happened to her. It has taught her that the feeling of nirvana is never more than a mere thought away. By stepping to the right of our left brains, we can all uncover the feelings of well-being and peace that are so often sidelined by our own brain chatter. A fascinating journey into the mechanics of the human mind, My Stroke of Insight is both a valuable recovery guide for anyone touched by a brain injury, and an emotionally stirring testimony that deep internal peace truly is accessible to anyone, at any time. — Amazon Review

The Artist, the Philosopher, and the Warrior: The Intersecting Lives of Da Vinci, Machiavelli, and Borgia and the World They Shaped by Paul Strathern

Despite the convoluted title, this latest from award-winning British novelist and historian Strathern (Napoleon in Italy) is simply a good, straightforward history of Renaissance Italy during the turbulent decade around 1500, with emphasis on several important players. Pope Alexander VI, though not in the title, is the central player. Famously corrupt and ambitious, Alexander aimed to enlarge the Papal States and his family’s influence, and his son, Cesare Borgia, led papal armies in three cruelly successful campaigns. The leading diplomat of wealthy but feeble Florence, Machiavelli worked hard to fend off Borgia, but admired his brutal realism, portraying him as the ideal ruler in his classic, The Prince. Both men knew Leonardo da Vinci, and Borgia employed him as a military engineer. However, da Vinci exerted no political influence, so the author’s digressions into his art and ingenious (but mostly unrealized) inventions stand apart from the narrative. Readers will reel at this meticulous popular account of Renaissance tyranny, corruption, injustice and atrocities. 8 pages of color illus., b&w illus., maps.  — Publishers Weekly

So Sue Me, Jackass!: Avoiding Legal Pitfalls That Can Come Back to Bite You at Work, at Home, and at Play by Amy Epstein Feldman and Robin Epstein

This informative, hilarious guide to the law will steer you through everything from on-line porn on the job to common-law marriage; from pet burials to Ponzi schemes. The Epstein sisters have fully mastered “I Sue,” the ancient, mysterious Jewish art of self-defense, and are, for the first time, sharing these secrets with gentiles. This book cannot replace a real lawyer when you get into trouble, but mastering its contents will save you from needing one.”–Ronald L. Kuby, Host, “Doing Time with Ron Kuby”

“This fun and funny book offers a wealth of practical and jaw-dropping legal insight, administered in a uniquely painless fashion. It also offers one of the most arresting author photos in the history of Anglo-American jurisprudence.” –Roger Parloff, senior editor for legal affairs, Fortune magazine

*Special hat tip to my Twitter friend @Character_B for bringing this book to my attention. He’s an insider on the project.

Planning ahead (October & November publications)

Bright-sided: How the Relentless Promotion of Positive Thinking Has Undermined America by Barbara Ehrenreich (Oct)

“We’re always being told that looking on the bright side is good for us, but now we see that it’s a great way to brush off poverty, disease, and unemployment, to rationalize an order where all the rewards go to those on top. The people who are sick or jobless—why, they just aren’t thinking positively. They have no one to blame but themselves. Barbara Ehrenreich has put the menace of positive thinking under the microscope. Anyone who’s ever been told to brighten up needs to read this book.” —Thomas Frank, author of The Wrecking Crew and What’s the Matter with Kansas?

In this utterly original take on the American frame of mind, Barbara Ehrenreich traces the strange career of our sunny outlook from its origins as a marginal nineteenth-century healing technique to its enshrinement as a dominant, almost mandatory, cultural attitude. Evangelical mega-churches preach the good news that you only have to want something to get it, because God wants to “prosper” you. The medical profession prescribes positive thinking for its presumed health benefits. Academia has made room for new departments of “positive psychology” and the “science of happiness.” Nowhere, though, has bright-siding taken firmer root than within the business community, where, as Ehrenreich shows, the refusal even to consider negative outcomes—like mortgage defaults—contributed directly to the current economic crisis.

The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis Josh Kosman (Nov)

With exhaustive research and a rogues’ gallery of interviews, journalist Kosman puts together a convincing and disquieting argument that private equity firms are about to cause the next great credit crisis. Many people don’t realize that “private equity” is just a new name for a leveraged buyout, and that private equity firms make their money by loading their acquired companies with debt, garnering short-term gain at the cost of the businesses’ financial longevity. Exposing the pernicious practices of various high-profile firms (including Mitt Romney’s company, Bain Capital, notorious for its company-destroying practices), Kosman reveals how they cripple their acquired businesses competitively, limit growth and cut jobs without reinvesting the savings, all without even generating good returns for their investors. But if only half of PE-owned businesses go bankrupt, that would leave almost two million Americans out of jobs. What’s to be done? Kosman is a proponent of legislation that encourages buyers of companies to hold on to them for at least five years. This alarming book will keep anxious credit watchers on their toes—and hopefully inspire some pressure to keep PE firms from going the way of mortgage brokers.  — Publishers Weekly

Dwight’s Death

Dwight was new to my small business, but had worked for a similar company doing the kind of work we did and he was good at it.  He’d been with me about a month when he asked for an aspirin to suck on.  He had a bad tooth and his dental appointment, at a public clinic for the poor and un-insured, was weeks away.  Unlike many of his co-workers, Dwight’s tooth didn’t get in the way of a good day’s work.

I nearly fell down that Sunday afternoon when his young daughter called my cell phone to tell me that Dwight had died. I was buying some tools and supplies for the next week’s work and probably made a scene on the floor of the hardware store when I burst into tears and repeatedly screeched “What?  How?”

Officially, we’ll never know the answer since the family couldn’t afford an autopsy.  We all speculate that the tooth was worse than Dwight had let on and that it had poisoned his bloodstream and led to organ failure — a condition called sepsis.  According to estimates by the University of Rochester Medical Center 750,000 cases of severe sepsis occur each year, more than congestive heart failure, or breast cancer, colon cancer and AIDS combined. It begins with an infection that triggers an inflammation response throughout a person’s entire body. This whole-body response to infection – termed sepsis – produces changes in temperature, blood pressure, heart rate, white blood cell count, and lung function. Half of all people diagnosed with sepsis will die.

At that point in time I could afford to offer my employees medical insurance but Dwight hadn’t passed the 90-day waiting period.  Truth is I don’t know if he could have passed the medical questionnaire required to qualify for coverage.

Since employee life insurance was bundled with medical, his family had to postpone his funeral twice while they raised money to bury him.  Everything I had (and then some) was already in the business or I’d have written the check myself.

Seeing both sides of the fence

Health care reform gets very personal to me as a result of being a small business owner who used to be an insurance company executive.  I have a view from both sides of the fence.

Dwight’s story tells the personal side. From the insurance side, I remind readers that the American courts have decided a corporation’s primary LEGAL responsibility is to its shareholders, therefore insurance companies must put their profit motive first — before quality of care, before anything. Regulations are in place to mitigate this profit motive, but they’re just speed bumps.

Blood money

We set private insurers in the business of earning “money gotten at the expense of others’ lives or suffering,” which is blood money by definition.  We Americans do this because we worship the market.  We don’t have a healthcare system in this country, we have a market for it.

Author Thomas Frank’s book One Market Under God walks us through the development of our cultural ethos that says we must leave everything to the markets. The mantra “Markets are good, government is bad” is why we’re in this healthcare jam.  After all, markets are interested in profits and profits only; service, quality and general affluence are different functions altogether.

According to Frank, here’s what Americans have come to believe: “You must liquidate the past; you must privatize, deregulate, and de-unionize; you must trust the market implicitly and allow the market to dictate every aspect of your existence. Only when you commit yourself fully, when you give it all to the market, will your voice be heard; only then will the little guy be empowered.”

He then reminds us what happens when the markets rule: “The market will give you a voice, empower you to do whatever you want to do – and if you have any doubts about that, then the market will crush you and everything you’ve ever known.”  Didn’t Lehman Brothers a year ago illustrate that?

In last year’s PBS Frontline special Sick Around The World, journalist TR Reid walked through how parts of the US healthcare “market” resemble the “systems” of other countries:

• VeteransAdministration = British NHS
• Medicare = Taiwanese system
• Employed people with workplace insurance = German system
• Any poor country = Americans not covered in one of the above

Limits on the magic of markets

If the crash of 2008 taught us anything it’s that we don’t REALLY trust markets.  If we did we wouldn’t have bailed anyone out and fallen into a Depression that would have made the 1930′s look downright prosperous.

Time to carve out an exception to the wisdom of the markets in this healthcare debate.  The market is just a market, not an omniscient, benevolent diety, and certainly not a responsible government guided by a collective conscience.

Rant on Unsolicited E-newsletters

Little did she know when she sent me her UNSOLICITED NEWSLETTER what she’d be in for!  It came with this little disclaimer:

You are receiving this email because you’ve done business with (name redacted to protect the guilty) or attended a networking event (NAWBO, eWomen,Heart Link) or are involved in the same organizations as (name redacted) and at one point, you sent her an email or gave her your business card. You’re welcome to unsubscribe (see below) but we hope you will stay on our list.

Inquiring minds want to know how I handled this:

“Undelivered” Email

According to MediaPost, even when people opt in to your email list, 3.3% is sent to a “junk” or “bulk” email folder and 17.4% is not delivered at all. Not delivered at all?  Where’d it go?

Making sense of your email reports

If you’re using an email service/listserve, ask how they calculate the “delivered” rate.  Why? Because a rate upwards of 90% may be giving you a false sense of  success.

According to the MediaPost report, in most cases the “delivered” metric is simply assumed.  Assumed?  Yes, they take the number of messages sent through the pipe and subtract for the number that return a hard bounce (which is what happens when the email address no longer works at all).  In other words, it does not reflect how many hit the actual inbox.

This brings up the point to ask your email email service if it cleans out hard bounces immediately (mine does).

Differences when mailing to business and personal addresses

The report found that it’s more difficult to reach business addresses than personal inboxes because corporations have sophisticated security software to scrub mail deemed outside the company’s business interests (always remember that Big Brother is watching).

The good news for commercial emailers, including business professionals sending e-newsletters, is that these corporate systems are more likely to deliver messages to a junk folder as compared to consumer Internet Service Providers (ISPs), which are more likely to simply vaporize your email than send it to the junk file.

Frequent readers of my blog already know this:  whether the ISP sends your email to the inbox, junk file or vaporizes it is based on a unique recipe of your reputation as its sender and other factors like the email service/listserve you use.

For more on this, click the “CAN-SPAM” tag to the right for a complete list of articles I’ve written on the topic or download this narrated presentation: CAN-SPAM Compliance.

Here’s where the various ISPs stand in delivering commercial email all the way to the inbox:

*Source: Return Path, July 2009

It really helps to know which ISP the majority of your list uses, so that you can test your email against the filters that matter to your clientele.  What, your email provider doesn’t give you this information?  Your email provider doesn’t allow for pre-send testing?  We need to talk because mine does.

Avoid the blacklist

• Don’t ever add someone to your list without their permission
• Include a message reminding recipients to add your address to their “white list”
• Don’t bombard your list; if you told them they’d get a monthly newsletter, send no more and no less than that
• QUALITY QUALITY QUALITY content that makes recipients money or saves them time, money or effort
• Be sure the majority of your content is text, not graphics.  You need both; just don’t send email with no text

And if you’re still sending email from your own outbox, here’s information on why you should stop doing so.

Ready to consider my email platform? Please call 704-907-2811.

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