Success (Part 1): The myth of talent

This two part blog entry will look into the fundamentals of success and the economic policy implications that result.

Too often we look at a high achiever and say “isn’t he talented” or “isn’t she clever”. But is this just an excuse we give ourselves for not fulfilling our potential? Is talent real?

The Myth of Talent

Two psychologists grouped a range of violinist’s into three groups based on their assessed ability level. The top group were soloists; many of them having had success with their own albums. The middle group were individuals who played in orchestras and were either professional or semi-professional and the last group were amateurs who played in local music groups and free concerts.

The psychologists were interested to find out what differences in their backgrounds may have affected their success. Was it their schooling, their social economic background or something else? To their surprise there was only one thing separating them, they all came from fairly well off backgrounds and they all had decent schooling. The only difference was the amount of time they had practised. The lower group had practiced just a few thousand hours over their lifetime, the middle group had practiced over 5,000 hours but the top group had spent over 10,000 hours practicing.

To an outsider, watching the violists perform, it would seem as if they had some natural ability. As they effortlessly play Vivaldi’s four seasons it appears as if they just have a gift. However they don’t, because talent is just a myth.

People are not born with innate abilities; they do not process knowledge or have a hereditary setup that gives them an advantage. It is hour and hours of practice that we don’t see, that makes someone appear talented.

Matthew Syed, a British champion at table tennis, wondered why it was, that three other people on his street were also champions of table tennis in some form or another. If talent really exists, shouldn’t its geographical location follow some form of random distribution? Matthew explored what it was that made him a champion and found that there were several things that contributed to his success. Crucially, at his local school the P.E. teacher was a keen table tennis coach and ran classes after school every day. Also, there was a 24hr table tennis club nearby. These factors ultimately gave him and the other champions on his street a massive advantage over other players his age.  At a young age he had already accumulated thousands of hours more practice than other players. He believed that this early start gave him the advantage and lead to a sequence of events that eventually saw him crowned champion.

Fortunate Training

So if you have two individuals that have trained the exact same length of time how could there be a winner and why would the other person win? Isn’t their some fundamental talent that makes someone that bit better?

The type of training you do is not going to be homogenous, even in tennis if you play against the same person all the time, there will be random development of strengths and weaknesses. For example you might have a slightly stronger forehand than your opponent, but he might have a slightly stronger backhand. At the crucial moment when a shot will determine the outcome of the game, a stronger forehand might just make the difference between winning and losing. This would not be talent, you just happen to play more forehands in training than your opponent.

Matthew Syed experienced this training fortune firsthand when a group of table tennis players had their reflexes tested. Amongst the group was Desmond Douglas, the greatest ever UK table tennis player. He was renowned worldwide for his speed and reflexes, so when he stepped up to have them tested there was a quiet a bit of excitement in the room. Surely his reflexes must be off the scale! They were not; in fact they were the slowest in the room.

Confused by this result the other players probed his training history. One particular training method stood out; instead of playing against other people Desmond would often lift up the other side of the table and just play against the upside. By doing this he had began to learn how to return the ball at an incredibly quick speed. Even though his reflexes were naturally slow, his brain had learnt to cope and pre-empt the way the ball would travel. He practiced so much that it soon became second nature to him; he didn’t even have to think about it.  Desmond was not talented; he just practiced for tens-of-thousands of hours in a way that gave him an advantage over his competitors.

If this is true, and talent really doesn’t exist then it has profound implications on what we think we are capable of. No mater what card we are dealt in life, if we work hard and practice hard, we can become seemingly brilliant at whatever we apply ourselves to. We really are the champions of our own destinies.

Or are we?….Part 2 to follow next week.

Adam Smith: The man behind your £20 note

Look on the back of a twenty pound note; you will see a 2 dimensional rendering of a man and a line of text which says, “The Division of labour in pin manufacturing (and the great increase in quantity of work that results).”  It doesn’t sound particularly inspiring; you might be questioning whether such a discovery has a worthy place on the back of our currency. After all, pin manufacturing is not the most important of industries. But what he found has had a profound affect on the way we work, live and the role of government.

 

Why don’t we make our own things?

Why don’t we build our own houses, grow our own crops, farm our cattle, educate our own kids, design and make our own clothes? Well if we did, most of us would be living in wooden shacks, practically starving and have a fashion sense of a prehistoric man.  The reason we don’t is because it is more efficient for someone else to do it, who is specialised in a particular skill.

Adam Smith noticed in a pin factory, a group of workers who produce their own pins from start to finish were significantly less productive than a group specialising in one aspect of pin manufacturing. He estimated that by dividing labour up in a factory there would be between a 240 and 4,800 fold increase in productivity. By focusing the skill of the workers on one task, the worker was able to learn some efficiency tricks, what to do and what not to do in his specific role.

This same principle can be applied to the economy as a whole. Why do we have electricians, doctors, hairdressers etc? – it’s because specialisation increases the total amount of goods and services that we can have.

Consider this quote from Milton Friedman.

“Not one person in the world knows how to make this pencil.”

What he means is the lead (graphite) in the pencil comes from a mine in China. In that mine hundreds of miners are specialised in its extraction. The miners use tracks and tools, tools which are produced by other specialised people. The wood comes from Northern Europe, where lumberjacks work with saws made by blacksmiths. The rubber is grown from trees in Malaysia. Literally thousands of people, all specialised in their own tasks, have been required in order to produce the pencil for you in exchange for 20p.  

Such is the power of the division of labour.

The Invisible Hand

Another aspect of Adam Smiths work was the famous ‘invisible hand’.

Adam Smith was amazed by smugglers. During the 1770s, when the Wealth of Nations was written, there were heavy taxes on certain imported goods; smugglers would avoid importing these goods through the major ports to avoid this tax. It was during this observation that Adam Smith realised that although these smugglers were acting in their own interest, they were also acting in the interest of their customers. By avoiding the tax they were able to provide the goods for a lower cost. It was as if they were guided by an invisible hand.

If somebody wants an income, then they need to produce something that somebody else wants to buy. In order to promote ones own interests, they are serving the interests of his customers.

Gorden Gekko’s famous speech in the film Wall Street, said “greed is good”. And in according with Adam Smiths invisible hand, he’s right. So long as there is effective competition and the markets are working efficiently, the greedier someone is, the more they will have to produce to get it. In other words…“In competition, individual ambition, serves the common good.”

Some Clever Marketing Tricks

In traditional economics marketing was simple a means of informing potential customers about your product. An advert would state what the product does, what it can be used for and how much it costs. It might also say why it’s better than it competitors, but nowadays it has taken on a whole new entity. It has become a means of manipulating customers rather than informing them.

If you’re a private company you are going to use every trick in the book to try and boost your profits. Here are a couple of them.   

Conditioning

Ivan Pavlov, the famous Russian physiologist, found that if you feed a dog and ring a bell at the same time, the dog will begin to expect to be feed every time the bell is rang regardless of whether the food is there or not. Not only will the dog expect to be feed but it will also start salivate. Crucially, salivation is not a cognitive thought, but it is an involuntary response that has been hard coded into the dog. The process of gaining an involuntary response through repeated stimulus is known as ‘Conditioning’, and it doesn’t just apply to dogs.

If I’m a trying to sell something wouldn’t it be great to cause an involuntary response of people to buy my product. All I need to do pair the product or brand I’m selling with an involuntary feeling or response. For example if I was thirsty, what brand or product might you associated with the word ‘thirst’?

Why is Sprite saying “Obey your thirst!” in their advert? It is not informing you about how it tastes, what the price is or how it is better than its competitors. They are trying to condition you so that when you are thirsty you will think of Sprite.

If you regularly watch advertising on the telly you will bombarded by these messages. It’s quite possible that many of your purchasing decisions are not based on rational thought but involuntary responses to marketing stimuli.

Anchoring

Human beings have evolved several odd traits that were required to stay alive hundreds of thousands of years ago, but today they can cause suboptimal decision making. One of these traits is Anchoring.

In order to make quick decisions man needed to use reference points. “Is this a good cave to live in?”, “is she a good mate (in the reproductive sense)?” To answer these sorts of questions humans need reference points. They need to compare to previous caves to know if the current one is a good one (and the same is true with girlfriends).

;-p

But when it comes to making purchasing decisions, clever marketing companies can use anchoring to their advantage. Consider this advert for a subscription to the Economist.

1. Internet only subscription $59
2. Print-only subscription $125
3. Print and internet subscription $125

You might think ‘why would anyone want to buy 'Print only subscription' and that ‘the Economist must have either made a mistake or be a bit stupid?’ But actually they are using anchoring to their advantage. By placing the ‘Print only subscriptions’ at the same price as 'Print and Internet' they have forced you to anchor to number 2 and therefore make number 3 appear an excellent deal.

In the above example 84% of sales went to number 3, 0% to number 2 and 16% to number one, but when number 2 was removed sales to number 3 fell to just 32%. Buy using the decoy anchor the economist were able to increase their revenue.

Here’s another example:

1)      When Ghandi died, was he younger or older than 140?

2)      How old do you think Ghandi was when he died?   

With this line of questioning the average response to question 2 was 67 but if I change question one to: ‘When Ghandi died, was he younger or older than 9?’ the average response to question 2 was 50.

Question 1 was another decoy anchor, it was designed so that your brain took that age as the bench mark and the adjusted it.  

However once you are aware of these sales tactics you are less likely to fall for them and more likely to appreciate them. Next time your in Tunisia and a man selling a water pipe says “500 Dinar, no?... Okay for you 100” you can compliment him on his good anchoring.

Why do we tip?

You’re in a restaurant with friends, you’ve just finished your meal, it was ok, nothing spectacular, but when it comes to pay for the bill, for some reason you pay more than it cost. Why did you do this?

For economists, tipping is an odd thing. It is often assumed that people are rational and that they will try to maximise their happiness given their limited budget. But for someone to choose to give away some of that budget unnecessarily is a confusing issue indeed.

Consumer Surplus

Whenever anybody buys something they do so because it adds more value than its price. For example if I buy an apple for 25p, I do so because I was prepared to pay up to 50p. The benefit of the apple to me is 50p. In other words I have converted 25p of currency into 50p worth of appley delight. The 25p worth of additional benefit is known in economics as Consumer Surplus.

But you wouldn’t give away Consumer Surplus to the seller of the apple voluntarily, so why do you do it in a restaurant? To answer this we need to turn to a field of economics called Institutions Economics

Institutions

Institution is a word often floated about the press but its meaning is often misunderstood. An institution is a socially accepted normal behaviour.

The Royal Family is an institution, a hand shake, a tie, queuing, a wedding and saying ‘hello’ when you greet someone are all institutions.  It is the things you do to demonstrate that you are normal person and that your behaviour is predictable.

Without institutions humans would be no different from animals, our behaviour would be erratic and civilised society would not exist.

If you think about it, shaking someone’s hand when you meet them is an odd thing indeed. We do it to demonstrate to the person you are meeting that our behaviour is predictable, that we will obey the socially accepted normal behaviour and in doing so reduce uncertainty or increase trust. If you meet someone who did not shake your hand and just stood there, you might feel uneasy and a bit awkward.

Tipping is no different, by tipping in a restaurant with you friends or girlfriend; you are demonstrating that your behaviour is normal, that you are not ‘tight’.  See the extract from Reservoir Dogs for a convincing argument.

http://www.youtube.com/watch?v=Z-qV9wVGb38

Misallocation

Tipping does cause theoretical problems however. Tipping, particularly in the US where the institution is strongest, can cause a glut in supply or a shortage in demand. If the institution is a 10% tip of the cost of the bill then price is effectively 10% higher, this means reduced demand for and increase in the amount of people who want to become a waiter (since the tip goes exclusively to the waiter). Normally the market would correct for this by reducing the wage of the waiters, but if there is a minimum wage preventing this correction then we are left with people who want to be waiters but are unable to find a job.

The people who want to be waiters are usually young, unskilled and inexperienced. Waiting is often their chance at finding employment and gaining experience for a chance at future higher paid job.

So when you tip you are upholding an unnecessary institution, you are benefiting the waiter by reducing your own consumer surplus. But you are also indirectly hurting potential waiters by reducing their employment chances.

So next time when it comes to paying your bill, perhaps you should take a page out of Mr Pink’s book and not give one just because society tells you to.