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Behavioural Economics - bridging the gap between academia and the real world

Director and co-founder of Salient Behavioural Consulting, Maddie Quinlan brings her extensive experience as an academic and practitioner in behavioural science to help us understand important concepts of how we make decisions. Learn why everything is relative to a reference point, morals and ethics matter in choice architecture and too much trading typically destroys wealth.

Podcast details

1:30 How Thaler framed a happy C grade.

4:31 Problem solving as a behavioural science consultant

6:23 Nudging pregnant women to take dietary supplements

8:06 Encouraging pension contributions reveals a twist

14:24 Dispelling the rational actor

17:47 Libertarian paternalism - ethics matter

20:00 Money and the "Man" - financial literacy is hard

22:17 Just in time information

24:35 Making less decisions makes you rich

31:19 Don't pretend you know me

32:55 Global Association of Applied Behavioural Scientists (GAABS)

40:07 Wrap up

About Maddie

Maddie

Maddie Quinlan is director & co-founder of Salient Behavioural Consultants, and the Head of Membership for the Global Association of Applied Behavioural Scientists. Her greatest passion is bridging the gap between academic insight and the implementation of impactful and sustainable behavioural solutions for business, policy, and design challenges. In a rapidly changing world, Maddie believes in relentless betterment and radical authenticity. She is a qualified behavioural scientist with expertise spanning private, public, and not-for-profit organizations, focussing primarily in the areas of finance, energy, and risk management. 

Maddie’s years of in-depth industry experience center in the fintech and energy sectors via Shareworks by Morgan Stanley, a pioneering fintech entrant in the options management sector and ICE NGX, an innovative clearinghouse for commodities trading. She holds a Master of Behavioural Science from the London School of Economics and Political Science. In addition, she holds her CFA Charter, and degrees in both Finance (B.Comm) and Psychology (B.A.). 
About our hosts

Rod&Art.png

Rod Heard, Co-founder & CEO of SmartBe Wealth. Art Johnson, Co-founder, CIM & Portfolio Manager, SmartBe Wealth. Rod and Art investigate the journey from traditional investing to the evolution of the modern investor, exploring the bumps, bruises and victories with each of our guests.

Transcript

Rod: Hello and welcome to this edition of the Modern Investor Journey. My name is Rod Heard. Co-founder of SmartBe Wealth Inc.. And I'm here with my partner Art Johnson. Today we're delighted to have a fellow Calgarian on the show. Maddie Quinlan. Maddie is a director and co-founder of Salient Behavioural Consultants and the Head of Membership of the Global Association of Applied Behavioural Scientists. Maddie's years of in-depth industry experience centre in the FinTech and energy sectors via Shareworks by Morgan Stanley, a pioneering FinTech entered in the options management sector and ICE NGX an innovative clearing house for commodities trading. Maddie holds a Masters of Behavioural Science from the London School of Economics in Political Science. In addition, she holds her CFA, charter and degrees in both Finance and Psychology. Maddie, it's just so great to have you on the show. Welcome aboard!

[00:00:57] Maddie: Thank you so much for having me. I'm really excited to talk to you today.

[00:01:01] Art: Wow Maddie. I didn't know your CV was that deep. I'm not even close. That's damn good.

[00:01:09] Maddie: That's the whole thing. Top to bottom.

[00:01:13] Art: I'd like to take a stab. Cause in getting ready for this, I went back and read Misbehaving by Thaler. And I guess one thing that just jumped out on the page with me is, and I think this will hopefully explain behavioural economics, but you can obviously I'm being the overconfident male here, Maddie.

[00:01:34] Because my CV doesn't have the degree, but let's hear what the overconfident male comes up with. But one of the things that fascinated me right out of the gates is he was terrified as a young professor and the data was pretty simple as that. What does it say here? Grades. Anything over an 80, basically in his class got an A or an A-. Scores between 60 you'd get a B at around 65, anything lower than a 50 you got to C. And it was very rare for the kids in his class to get a C, but because he wanted to make people happy he made his exams with 137 point schedule instead of a 100. And what he was fascinated by that the average became what he calls a cheery 96. And so all of the students were absolutely happier.

[00:02:23] And what's fascinating about this is this is such behavioural economics is that framing is such a big deal. And for a bunch of good students to get a C frame them horribly, but very rarely he said would they ever get a 96. And then a bunch of them were producing scores that were higher than a 100, which was just amazing yet the data would say they got the exact same distribution of As, Bs, and Cs.

[00:02:49] And so I thought that was a really kind of good lead into what behavioural finance is because a classic economist would say that those kids are misbehaving. And that their behaviour was kind of inconsistent with an idealized model. So I thought that'd be a kind of really cool way to start and we can talk around issues like that.

[00:03:08] But yeah. What do you think? Is that a good description or am I way off the mark?

[00:03:12] Maddie: Yeah, no you're reading Thaler very, very well. The example there is a pretty clear example of the way that we frame. Well, the way that we frame information. And so, as you said, the distribution and the grade itself actually is no different.

[00:03:27]And you'd have the same range, whether you score it out of a 100 or 137 in this case. But the way that people anchor to the number 100, because that's how they're used to being graded, gives them that reference point and sort of one of the central tenants of behavioural economics is this idea that everything becomes relative to a reference point or an anchor.

[00:03:49]This comes up a ton in behavioural finance. Of course we think about pricing and the markets, but in the case that you give it also kind of then links into prospect theory, which is the idea that the difference from a reference point, whether it's above or below has a very, very different impact emotionally for us.

[00:04:07] So a gain gives us a certain degree of joy, but if you were to suffer a loss of the same amount we see almost twice as much pain as we do experience pleasure by the same amount. So, yeah, a really, really interesting examples. So, you know, are they misbehaving? They're just falling victim to their, you know, pretty inherent emotional biases around that reference point.

[00:04:31] Rod: That makes a lot of sense, Maddie, to me. And so how do you as a behavioural scientist and you're now co-founder of Salient Behavioural Consultants. How does the theory around how humans interact with things like anchoring, framing, and all of the other aspects of our internal biases, what's the type of consulting work that you're doing right now?

[00:04:51] What are the types of problems that your clients are trying to solve through the use of scientific method?

[00:04:57] Maddie: When my business partner and I were doing our Masters, it became really clear that in order to work in this field one of the most important things to do is to really understand the fundamentals that come from academia.

[00:05:10] So to really understand what is the theory behind all of this? What have studies kind of shown us is that real human condition about decision-making and behaviour. And then how do we bridge that gap between what we think we know in theory, you know, lab tests and academic research and papers, and how do we translate that out into the real world?

[00:05:31] And that's basically what our ethos has been from the beginning. It's to say, how do we take those insights, but change the context. So we know really clearly that context changes behaviour. Your environment, what's around you, the lens that you have, the information that you have at the time of a decision is so impactful to what your decision or your behaviour will actually be.

[00:05:53] And so we can't rely all the time on what we think we know in theory to actually be the case out in the real world and in the field. So what we endeavour to do is to facilitate the projects that we are on. With that knowledge of where it comes from in that theory. But to understand that we must experiment, we must test it in field in the context that we want to see the result in, in order to actually understand whether we're making a robust impact.

[00:06:23] Rod: Can you give us some examples?

[00:06:24] Maddie: Yeah, sure. So we are working with a nonprofit who is interested in understanding how they can gamify an app in order to enhance a mother's predisposition to eat iron rich foods and take care of herself while pregnant. So these are pregnant mothers that before the COVID pandemic were going to in-person one-to-ones with a facilitator to understand the importance of, you know, are you getting enough iron?

[00:06:57] Are you taking rest? How are you taking care of yourself so that you can have a healthy pregnancy and a healthy baby? And so what we're endeavouring to do, because the COVID pandemic has meant that those one-to-one meetings and interactions are no longer possible. How can we gamify this?

[00:07:12] Put it on an app and have intelligent design and behavioural nudges to enhance those really healthy behaviours. So examples of interventions are things like message framing. The words that we use about taking care of yourself to take care of your child. If we word things slightly differently, we're going to have a really different results potentially, but we want to be able to AB test that in the app. You know, intelligent notification timing.

[00:07:41] So knowing how many times to gently nudge through some kind of notification on an app without overwhelming someone who's using it so that they are not becoming desensitized or numb to that information. So it's really about how do we deliver the right information in the right amount at the right time and measure whether or not we're making an impact on that behaviour.

[00:08:06] Another example from the financial sector is around message framing as well. And it has to do with encouraging the self-employed to save into their pensions. Because we know that in a lot of traditional employment employers automatically deduct from a pay stub essentially, and sweep that money into a pension savings for private pension.

[00:08:32] But the self-employed really fall outside of that regulation. Sorry, I'll back up for a second. So this was done in the UK. And in order to kind of close the gap of pension savings between what the overall population will eventually be needing and how much people were actually saving into their private pensions.

[00:08:50] What they did is they rolled out something called automatic enrolment. And by this mechanism employers were required to enrol their employees in a pension savings program and to automatically sweep some deduction of their income into that pension. Now of course employees could opt out, but they were defaulted in.

[00:09:09] And what we know about defaults is that if something is automatically turned on, quote unquote, you'll be much more likely to go with the flow and not to make the choice to opt out. We see that with tick boxes, we see that with terms and conditions. So you've got all the time. So this was the strategy of the UK government and the way that they addressed this.

[00:09:30] And what they noticed is that there was a huge uptake in this program and a huge increase in private pension savings. What they noticed was that self-employed people who were not part of this program because they are needing to save for themselves, were falling behind in their pension savings. And so what a project that I was was trying to enhance was this invitation to save into your pension.

[00:09:55] And one of the first experiments that we did was to understand how message framing impacts people's financial decision-making in regards to saving for the long-term. So we asked a focus group of participants that are self-employed a series of questions and sort of brainstorm some ideas of what kind of message frames we could give to the self-employed to really encourage them to save for the future.

[00:10:18] And these were things like making it a palatable contribution. So saying, you know, for only $2 and 50 cents or 2 pounds and 50 pence, you could be on your way to a really healthy financial future. That's kind of one message and making something palatable and small. So it doesn't feel insurmountable.

[00:10:36] Rod: Pack it away. You'll get rich.

[00:10:38] Maddie: Exactly. Just keep it small, but keep it going. And then the next one was a tax incentive, right? So there are big tax benefits to, to saving into your pension. Another one was flexibility. So, you know, the self-employed sometimes their income is very chunky when you're doing a startup or you're not really sure when the next one is coming in when the next project is going to pay out.

[00:10:57] So telling them that, you know, you can do what you can when you can over time. And then the last one that we did had to do with loss aversion. So loss aversion is kind of what I mentioned before that really weighty feeling we feel when we lose an amount versus when we gain an amount.

[00:11:15] So the message frame is essentially if you had started saving in 2012, here's what you could have by now. So you're missing out on this money that could have accumulated over time. And the focus group hated it. They hated that message. They were like, I don't want to hear that. That's very negative.

[00:11:31] That wouldn't turn my gears to get me to save more at all. But I thought, I think we should test it because we know so much about prospect theory. We know so much about how emotional we get when we're losing. So I thought we should test this. So we roll it out in an email campaign to several thousand self-employed individuals. And what we find is the ones that we thought would do extremely well, so like the tax incentive one, we got a lot of great feedback because people just didn't know that that was a thing, did not do well in field. The click-through rates and predisposition to then sign up, to get an automatic savings going didn't do well.

[00:12:08] The one that did the best was the loss aversion. So I say all of this to say that the importance of taking a scientific approach to testing these insights in the context in which you are doing them is absolutely critical because otherwise we really don't know if we're making an improvement or not.

[00:12:30] Art: So, Maddie, what was the disconnect between the focus group and the reality?

[00:12:36] Rod: How did people brainwash themselves to thinking that would suck?

[00:12:39] Maddie: Yeah, that's a great, great question. And such an important one in the context of behavioral science and behavioral economics. So what people say and what they do are often completely at odds.

[00:12:53] Art: My children say that to me all the time. I totally disagree. You keep going, but they also say the rules are for me. Or for them, not for me and I totally disagree, but you keep going with this science stuff. (Laughs)

[00:13:13] Maddie: It's a key tenant of behavioural science. And from what I've heard might be a key tenant of parenting as well. I can't give firsthand on that one, but essentially we have a real intense amount of cognitive dissonance, you know, who we imagine ourselves to be and the way that we actually end up showing up in the world. And we try to reconcile those things mentally. So what this ends up meaning is, you know, so it's partially that. It's partially we want to come off a certain way.

[00:13:43] We want to say, yeah, I totally would be willing to save into a pension. I would love to do that, but when it really comes down to it, oh letting go without money, really doesn't feel good. Our behaviour is misaligned. So it's partially that. It's also partially that we really don't know ourselves all that well.

[00:14:00] So we're not really familiar with our own blind spots and our biases. And this is something that we really endeavouredto do as behavioural scientists is to really use examples where we can hold up a mirror to people, including ourselves and say where are my blind spots? Where might I be falling short in the way that my decisions and my behaviours are not for my best interests?

[00:14:24] Art: I think that's a very important insight because behavioral finance, and with the stuff you're doing, is basically taking in a more enriched approach. It's not another part of economics it's actually part of economics, but it's enriching the belief that we're dealing with humans and the choices they make.

[00:14:42] I do want to contrast so people really understand the difference. To most people they would say that that seems absolutely logical. That's what an economist should be studying, but actually it is very different from the original glory that got economics away from traditional social sciences.

[00:15:02] And let me just dive into that a bit. Thaler I think framed a perfectly, he said traditional economics is optimization plus equilibrium. So optimization is exactly what you're talking about. It is the belief that we actually know ourselves quite well. And that if I go into a situation the ones you've described, I will be able to make rational choices because I know myself so well that that will come out.

[00:15:33] And then the other one is equilibrium, which our listeners hopefully get a sense for is that it stems from the idea that markets are efficient. That supply demand and price will all meet at some point in an equilibrium. And they won't be distorted. So, and why, I guess for our listeners, that was a really important thing is that up until economics could show true models, it was discounted as a social science. And it got a ton of credit around these models. And I guess in academic work, the closer you are to physics, the better off you are. So academic economics kind of jumped into the highlight with these models, even though they did not have the nuance of behavioural finance. Can you speak a little bit to that? Have I characterized that properly, Maddie?

[00:16:25] Maddie: Sure. Yeah, I agree. Absolutely. So, you know, those neoclassical economic assumptions that were held to be true, you know, they have to do it, as you say, sort of this perfectly rational actor.

[00:16:39] So who has the ability to make utility maximizing decisions? So what is the absolute maximum that I can get out of this by making a certain decision? And the other part is that there's perfect information. So we have access to all information at all times in order to make the best decisions for ourselves.

[00:16:57] Now, if you look at the Venn diagram between those economic assumptions and what happens in reality, they probably don't even touch and if they do it's a very small amount. So what we endeavour-

[00:17:08] Rod: They touch for Mr. Spock.

[00:17:10] Maddie: Yeah, exactly, exactly. They touch and you know, you never see those become one circle that, that Venn diagram would never perfectly overlap.

[00:17:17] So, you know, then what we do as behavioural scientists and behavioural economists is to understand those deviations from rationality. Endeavour to say what can we expect? And then what can we do to kind of improve those models? How can we describe behaviour instead of trying to predict behaviour? Because we know that those predictive models based on those rational economic assumptions are going to be far off the mark when we look at reality.

[00:17:47] And so then what we can do is if we understand the deviations from reality in a robust way, we can start to help people improve their decision making. We can start to design interventions. You'll hear the term nudging. We can allow people the space to make better decisions for themselves as they would define it.

[00:18:11] So this idea of paternalism comes up quite a bit. When we think about nudging, it's like, well, who gets to decide what information we're giving people to to guide them in a direction? You know, is nudging ethical? And what libertarian paternalism says is if you are looking at nudging from the standpoint of this person would define their better outcome or their greater wellbeing as XYZ, and we can help them get there,

[00:18:39] that's an ethical nudge. That's libertarian paternalism because it's defined by them, but facilitated behind the scenes.

[00:18:47] Art: So a seatbelt would be an example of that, is that fair?

[00:18:50] Maddie: I mean, so people don't want to die in car accidents. It depends if you mean seatbelt or if you mean seatbelt laws.

[00:19:01] Rod: What about in the case of what's going on right now with face mask, no face mask? Who has the authority or the moral right position to build nudges to make people wear face masks or not? Is this a type of moral dilemma that you have to think through in your experimental design to do the right thing?

[00:19:21] Maddie: Yeah, absolutely. Absolutely.

[00:19:24] And it becomes a huge issue when we think about behavioural science in policymaking, because then you get into ... you can open a whole chestnut about, you know, who's making what decisions and how are they carrying them out.

[00:19:37] You know, what we hope is that the people that are in positions of power are using robust and sound data to make those decisions. And then we're choosing some kind of set of, you know, cost benefit analysis. And making a decision based on that so that we can then say, okay, how do we modify behaviour? And then behavioural scientists can come in and say, how do we encourage people to do this?

[00:20:00]Rod: But how does it work in the capitalist realm when money's involved in, you know, its profitability and is"The Man" out to nudge us to open our wallets? Who's to say that is there a policing environment? Is there a code of ethics?

[00:20:15] Maddie: That's a great question. And that's something that I've been thinking a lot about lately, which is how much do we rely on individual autonomy in markets and expect people to take responsibility for that autonomy.

[00:20:28] It's really difficult to increase financial literacy. At the best of times, it's really difficult to explain concepts about the financial markets to the masses.

[00:20:40] Art: Well, wouldn't the evidence be that actually it doesn't work? Like most of the evidence says financial literacy doesn't even make a dent. Is that correct?

[00:20:49] Maddie: Traditional financial education tends not to make a dent in financial literacy. Exactly. That's exactly right. So we have a lot of evidence to say that. Now what we've done as a market-

[00:21:02] Art: So can we just stop there for a sec? I mean, you've obviously spent some time on that. Wouldn't that, I mean, you're in this field. When you read that, did that just humble the hell out of you? Like why? Why can't we teach financial literacy?

[00:21:15] Maddie: Hmm. Well, things like numeracy and the sort of more abstract concepts that come along with financial decision-making are difficult for us. So our ability to deal with numbers basically, right?

[00:21:29] So we have a really hard time imagining what numbers really mean in practice. So what is the actual impact of all of these things that I'm seeing, all of these numbers that I'm seeing in financial market, for example. And in addition to that, we are also heavily influenced by our emotions when we're making decisions.

[00:21:48] Right? Which leads to all of these biases. Because again, coming back to prospect theory, how bad it feels to lose. Not even as, high of a of a game could, could really overcome that loss. It leads to these really irrational erratic decisions with our financial lives. So it's a really important and I don't think insurmountable challenge to increase financial literacy.

[00:22:11] I just think that traditional financial education has now been well-documented to not be the way of it.

[00:22:17] Rod: So what's the brave new way?

[00:22:19] Maddie: Yeah. There are ways to deliver better information. And this almost comes back to what I had mentioned with the nonprofit organization and delivering information through that app.

[00:22:28] So there's something called "just in time information." And essentially what means is, as I said before, the right information in the right. So smaller pieces of information, but very relevant to the exact decision that you're about to make.

[00:22:50] So I'll give you an example of my business partner and experiments that he did in his dissertation. And it had to do with the disposition effect, which is the predisposition in a financial market for an investor to basically get out at the wrong time and get in at the wrong time.

[00:23:06] Art: And also hold their holdings forever too, Maddie. Right? Like if they have a big loss, they will actually they'll hold that stock to come back forever rather than take the money and build more utility with it.

[00:23:17] Maddie: Exactly. Yeah. So they'll hold onto a losing position. They'll leave when it's low, they'll buy when it's high and we see that not only with retail investors, we see this with institutional and professional traders as well.

[00:23:31] What the experiment did was to give a nudge in between two different sets of analyses based on candlestick charts, right? So you have those candlestick charts to show them five of them. You ask them what they would do. And then in the middle, you give them a little definition of what the disposition effect is. Right? So you say this is kind of how people tend to behave and it's biased.

[00:23:56] Rod: Here's the the mirror!

[00:23:56] Maddie: And then you give them five more. So that's like a very, very clear nudge, right? That's like a very, just in time "hey, just so you know, this is the thing that you might be doing."

[00:24:06] Art: Maddie, can you guys stop that? Can you guys stop that please? Because we believe that most of the profits from our Momentum portfolios comes from that misbehaviour. (Laughs)

[00:24:15] Maddie: Okay. So then becomes a moral dilemma, right? It's like bias. And this is what our entire market will struggle with, you know. But what we see is that you can actually improve behaviour. You can actually decrease a disposition effect with something as simple as that kind of idea of just in time information. So that's one example.

[00:24:35] Rod: Is that just a one-time thing, Maddie? Back to the concept of financial literacy, you know, you've described a methodology of just-in-time information to nudge someone into a better decision, a better financial decision based on a very specific set of circumstances.

[00:24:51] But you know the permutations and the numbers of decisions that we make every day in a financial context are infinite. And I can't imagine a universe where every single decision we have to make has the best for me nudge built into it. If we can't improve Rod's or Art's ability to make decisions in real time through financial literacy, and we know that the universe of nudges isn't large enough, are there other ways that people can help themselves?

[00:25:19] Maddie: Yeah. Yeah. A great question. And so much of what I think at least for individual investors and their portfolios, what we endeavour to do is actually to have them make less decisions overall. There's a lot less room for error in decision making if you simplify the amount that you're making. You know we saw, I think it was Fidelity, this was several years ago. But what they actually ended up finding was that the best performing accounts that they had were for people that had forgotten they had an account altogether.

[00:25:51] Art: Either died or forgotten them.

[00:25:53] Maddie: So sometimes the best thing that we can do is nothing at all. And so what can we do to create context? And a lot of the time now this all happens, you know, online and on platforms. But we think about what is the context of the decision. What are the pieces of choice architecture? So the bits and bobs that are hanging around, whether it's a click box here or an extra screen here that will lead people to be able to make a sounder decision for their financial lives.

[00:26:26] Art: Maddie, has there been any work done because yeah, I just want to bring it all back to me and my children. We'd started with this program called Cozy around chores. I have two 16 year old daughters and they're not too fond of chores for some reason. And what I found very quickly is that the notifications died and I noticed this myself.

[00:26:47] Like I start my meditation app and then I get really tired of notifications. Has there been any efforts done to look at randomizing, like maybe for a financial advisor that at different times a notification would go out, but maybe a physical call would go out? Is anyone going down that lane? And then I guess the other. thing I don't know if you're aware of, have you ever seen the paper of the misguided beliefs of retail advisors in Canada? Have you ever read that?

[00:27:15] Maddie: I haven't.

[00:27:16] Art: Oh, okay.

[00:27:17] Well, because it talks to a lot about what you're trying to reform and trying to make people better, but it basically comes to the conclusion that actually advisors themselves believe in trading too much buying high cost funds.

[00:27:31] And even when they leave the industry they continue the behaviours. So we can produce all of the nudges and cheap funds and various things. But if the advisory community has seminal flawed beliefs that not only carry on, so they're buying the same stuff as their clients. It's not a conflict of interest piece.

[00:27:52] So tackle the notifications things first and then talk about, you know, how do we do these things if people have an advisory system that have flawed beliefs, if you can elucidate on that?

[00:28:01] Maddie: So in terms of the randomization of notification timing, I haven't personally done a study in that realm. And I'm not completely familiar with how broad that evidence-based is. What I would imagine, what I would have as my hypothesis, based on what we know about incentives and the way that our attention is salient, things like that, is that notifications that are regular at the same time, same over and over and over lose traction over time. We get very bored of the same thing over and over. Status quo does not gather our attention. Salience, novelty, something that's unexpected. That's what we're talking about when we really need to change a behaviour.

[00:28:48] So what I would imagine, and what, you know, kind of we've planned out in certain projects. Actually that we're doing right now is to say, the timing of the notification should not be at the same time every day. I've experienced this, like in my personal life on apps. So there's, I think I mentioned that I'm reading a book by Sam Harris.

[00:29:07]But he also has a meditation app and I use his meditation app. So I do the meditation in the morning every day, but what he actually created in the app as well, were these things called Moments. And at a random time during your day, you set kind of the earliest time and the latest time, so that it's at least hitting you when you're in your waking hours.

[00:29:26] But anytime in between those hours, you will get one notification that says, take a Moment. And it's just like a one minute, little kind of mini recording, little insight, little meditation, just a little kind of deep breath sometime during your day, but it never comes at exactly the same time. And I respond to that.

[00:29:47] As much more responsive than I do when I have something that, oh I get this every day at eight.

[00:29:55] Rod: 4 o'clock is coming, better take my Moment.

[00:29:57] Maddie: If I don't know when it's coming, I'm like oh yeah, it got my attention. I think I will do that. So that feels stickier that kind of notification timing. So the randomness of that I believe is interesting.

[00:30:08] I also think, and this kind of takes it one step further into the sort of AI and technological sphere is if you can have something that learns when people are responsive. So you're actually understanding what their behaviours are through data. Then you can actually have it deliver based on that insight.

[00:30:30] So, if we know that you tend to be on your phone at this time, or we know that you tend to be in between meetings at this time, based on all of this data that we have from your calendars and the way that you interact with your phone, for example. This is, you know, putting away the fact that data consolidation and privacy and all that stuff, but let's say we know all these things and we can't know all these things, then we can learn what is the best time for you as an individual.

[00:30:50] And to me that's really the next era of behavioural science is to take this from the general population. You know, what do we know what most people do? How do we nudge people at the margins at a margin of population to make a difference, to be personalized? To tailor nudging, to tailor these insights based on more and more robust data that we have access to as a population.

[00:31:14] So that to me is sort of the next era of behavioural science is how do we take us from the general to the really personal.

[00:31:19] Art: There was another thing I read, which I thought was really profound too. People really reacted poorly if tech companies acted like they knew them. And do you have any insight into that?

[00:31:30] Like I thought that was really profound that in the new marketing age. Like when you know, you see some of these notifications like they're my best friend and I actually react quite negatively to that.

[00:31:42] Maddie: I mean, I think that this is something that again is important to test before you start to roll these things out. I think that the risk when people are designing these kinds of nudges based around these insights is they think, oh yeah personal language. That'll definitely get us close to our client. And without actually testing that and just rolling something like that out, you get what's called almost a backfiring effect. Which we can see if we haven't tested things properly, is that we understand then that, well actually people react really negatively to this.

[00:32:13] There's a balance between understanding you, and feeling like you are known to them. I think that's an interesting differentiation between, you know, understanding your needs and facilitating those is one thing. Pretending like we are best friends when we know that it's a for-profit company-

[00:32:32] Rod: It's disingenuous.

[00:32:34]Maddie: -and really just wants to milk us for all we're worth. Then it comes across as disingenuous and we're not interested in anymore, or we're really averse to that. So I think that the wiser that people get about these kinds of things, the more transparent companies are going to need to be. Because that kind of pseudo familiar language, it doesn't come across as authentic anymore.

[00:32:55] Rod: So Maddie, you've spent a lot of time both in the business aspect and studying, and now becoming a leading practitioner in the space. What would you say the percentage of bad actors out there are, have you run across any, or is there any research that indicates that, you know, a bunch of these nudges aren't necessarily trying to do the best for the individual? They have alternate goals in mind.

[00:33:20] Maddie: This is tough. And I would hesitate to even try to put a percent to it. When I think about behavioural science in practice, because of the relatively new nature of it as a field compared to something like, I don't know, accounting or being a lawyer, you know, things that have been around in practice, very familiar to people for a very long time.

[00:33:39] The actual practice of behavioural science in business, in policy-making is still relatively new. And so the idea that anybody can call themselves a behavioural scientist is of concern because you can read Nudge or you can read Misbehaving, start doing some seminars and call yourself a behavioural scientist without fully understanding the impact of the actions that you're taking on a population.

[00:34:05] For example, not taking into account potentially backfiring effects, potential spillover effects, potential externalities to what you're trying to do. And so this is something that became really interesting to me when I first started getting more familiar with behavioural science. I thought, is there a body that kind of regulates who is able to do this?

[00:34:26] Because there will be these misaligned incentives and a lot of moral hazard when you're thinking about the tools to change people's behaviour and the ability to do so with relative ease. So what's come since that sort of, you know, little nugget that I had been thinking about when I first got into the space is I realized that there were a lot of other practitioners that were very well qualified that had the same question and had the same concern. And at a conference at LSE a couple of summers ago

[00:34:56] now we were part of a panel talking about the commercialization of behavioural science and the ethical and practical implications of this kind of explosion in this wave of uptake in behavioural science and practice. And what we kind of, you know, committed to do in that panel is to say, we intend to form a body that will certify what a member looks like, what a behavioural scientist adheres to in terms of a code of ethics, you know?

[00:35:25] And so what we did is we established the Global Association of Applied Behavioural Scientists. And we formed last year, we have a membership now. You know, we're still relatively new and growing every day.

[00:35:38]Rod: And you're head of membership.

[00:35:39] Maddie: I'm head of membership. Yes. And it's been such an incredible journey in establishing this body because it's, you know, what do we stand for?

[00:35:47] And it is basically to represent the interests of behavioral scientists and to sort of protect the practice to say those people that are unqualified, that probably shouldn't be doing this they don't get to have the stamp of you're a member of this organization. So we're basically saying, you know, you're in a global network of people that are doing this work and they are committing to do it well. And of course this will evolve over time as the practice evolves as insights evolve. But I think it's a very important first step in understanding, you know, how can we protect this field.

[00:36:26] Rod: That's a fantastic initiative. And I think it's like self-regulating organizations around the world they do probably the best job than government coming in and trying to impose regulations on the practice. So we have about five minutes left Art and Maddie. Art, do you have any thing that you want to talk about to make sure we cover what we wanted to with Madeline?

[00:36:43] Art: Yeah. I just want to make sure that that organization has a room for someone in my field that I would at best call myself a researcher storyteller. So if I can get a certificate for that, Maddie, I'd love that.

[00:36:57] Maddie: Well, Art, we'll look for your application to come through. And we will see how that goes.

[00:37:04] Art: That's about as high as this certification I'd ever give myself. But no, for me as I've grown along the same lines, it sounds like you're doing the integration of wisdom, whether it's through Sam Harris or just like understanding that the mystery of people is something that I think has to be brought into this conversation.

[00:37:23] I think one of the failings of our society now is we've kind of tried to expunge mystery from things. We want everything to be black or white and right or wrong. And if you don't listen to me and various things like that, but in economics and in behavior and all that, there's still just a ton of mystery.

[00:37:40]That's why it's such an exciting field to be in. So that's kind of my take on this whole thing.

[00:37:44] Maddie: Yeah, it is. And it's a real humbling experience to realize just how much we don't know about people and how much there is left to discover in this field. I think if someone tells you that they've got it all figured out, that's an easy red flag to know that they don't know what they're talking about.

[00:38:04] These questions, what they bring are more and more questions. And we can start to have more insight. We can start to have more information, but this is ever growing because I mean, you know, anything about the human mind it's that we will probably never figure all of it out.

[00:38:19] Rod: So where's Maddie in five years from now, where's your consulting business, Salient Behavioral, paint us a picture of your vision.

[00:38:25] Maddie: Yeah, I I've been very excited at how things have been developing even in the last year. You know, COVID aside, it's, it's been a really fundamental year for the growth of not only the business, but for GAABS and the other initiatives that I'm working on for me, you know, what the ultimate dream is to be able to, you know, send her somewhere, whether that's Calgary and to basically sort of flower out. If you kind of draw a flower all around petals out and in and out and in, and sort of to go to where I need to be in the world to be with clients or engaging with initiatives or doing research. But doing what I'm doing, you know, it's really just scaling it at this point.

[00:39:11] It's like, how can I take who I am and the things that I think I bring to this field, make that what I do with a really strong ethos and commitment to doing it well, and then change the world just by doing that. Because I think you attract the people that then are on the same page as you, right?

[00:39:33] When I mentioned GAABS, it's like those people kind of naturally fell together and said, we've all been thinking about this. We all care about this. We're all moving in that same direction. And so then you sort of have this community of like-minded individuals who are working towards the same things that you are, and at scale that's how you change the world.

[00:39:50] That's how you change the face of a practice. So that's maybe like a very high level of my five-year plan, but, but essentially it's doing this, but just put doing it bigger.

[00:39:59] Rod: That's awesome. You know, and Art and I will both look forward to engaging with you along that journey. So this has been so fabulous to have you on the show, Maddie.

[00:40:07] And if I took three major points away from my lens, the first one was this whole thing is everything is relative to a reference. We're always anchored. And it's always a point of anchoring that we need to think about any decision that we make in life. I think that's just fascinating and sage advice for all of us, as we take our journey, whether it's through parenting or consulting or financial decisions.

[00:40:30] The second concept that struck me was this whole libertarian paternalism. It's a big word, but this concept of we are starting to now be able to experiment to understand how humans behave, but I think we're going to be all right as a society, as long as we hold to the tenant that we're trying to help people make decisions that are good for themselves. That we don't have ulterior motives or negative motives.

[00:40:55] I thought that was a very refreshing concept, especially in the context of your GAABS or Global Association of Applied Behavioural Scientists and the good work that you're trying to move forward in the future. That was another great takeaway for me. Then I think the final one came back to your and Art's conversation around making money and financial decisions in the market that too many decisions can be dangerous for your health.

[00:41:16] And just like set it and forget is a good strategy. So don't trade your way into some future state of being. So thank you so much. We really enjoyed having you, Maddie. You've been listening to the modern investor journey. My name is Rod Heard, and I've been here with my partner, Art Johnson co-founder of SmartBe Wealth. We've had the great pleasure today to talk to Maddie Quinlan, who's a behavioural scientist and co-founder of Salient Behaviour Consultants. Thanks so much for being on the show, Maddie!

[00:41:44] Maddie: Thank you so much. It's been a great conversation.

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