By Kay-Yut Chen and Marina Krakovsky
The premise behind Secrets Of The Money Lab is that by conducting experiments and analysing the results companies can boost their income and avoid making mistakes.
Apparently the author, Marina Krakovsky, decided to write the book after being invited to take part in an experiment at Hewlett-Packard which was being run by the book’s co-author Kay-Yut Chen.
It was testing whether the idea of offering cash incentives to the top three retailers of Hewlett-Packard computers would boost sales. It turned out that financial incentives had no impact.
But Krakovsky’s interest wasn’t in the result of the test but the process of companies using experiments to investigate how human psychology can impact on their business. So she enlisted Chen to help her write a book about it.
Each chapter breaks down different human behaviours, ranging from risk and fairness to the ability to be rational.
There are also case studies and puzzles to prove Krakovsky and Chen’s point. In the chapter on risk, for example, readers are given the choice of two lotteries and, by assessing the odds for each, have to decide where they would place their money.
As more odds and prizes are given the reader discovers whether they are risk-averse or risk-loving.
With the opportunity to switch lotteries at any given point there is also the possibility the reader is risk-neutral.
While it is no doubt interesting to discover what your attitude to risk is, the chapter makes for heavy reading.
Long and laborious examples telling you what you already know are frustrating. The chapter on fairness is a perfect example. It is based around the concept that fairness is so important we’re willing to pay a heavy price to achieve it.
It introduces readers to the Ultimatum Game, invented by German economist Werner Guth. The purpose being to develop our ability to balance the desire for self-gain with fairness.
At the start of the experiment player one is given £10 and the role of the proposer. They then have to give some of the money to player two, the responder.
Player one can give the whole £10 to player two, nothing at all or a share of it. But if player two rejects the offer neither player will receive anything.
Guth’s study found that the average sum offered by the proposers was around 30%. But a fifth of all offers were rejected by the responders, the conclusion being that most people reject what they deem unfair splits. You half expect this to be followed up with the finding that we don’t like being called names and few people enjoy being poor.
But some of the case studies are interesting, such as one in the chapter on fairness in which ballet dancers feel their ballet company is messing around.
The Washington Ballet cancels a tour of Italy, blaming its decision on the dancers’ daily allowance being offered by Italy. But the dancers believed it was their own management company sabotaging the tour as a result of mounting expenses. Unfortunately, the authors then fail to explain this further.
The book is too text heavy and provides little content. Krakovsky found the idea of experimenting with behavioural psychology fascinating but if she expected to make her readers feel the same way, she may have failed.