TIP106 : Influence and Pre-Suasion w/ Dr. Robert Cialdini (Business Podcast)

We Study Billionaires, and this is episode 106 of The Investor's Podcast. Broadcasting from Bel Air, Maryland, this is The Investor's Podcast.

They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your hosts, Preston Pysh and Stig Brodersen.

Hey, how's everybody doing out there? This is Preston Pysh, and I'm your host for The Investors Podcast, and as usual, I'm accompanied by my co-host Stig Brodersen out in Seoul, South Korea. And, uh, today we have a very exciting episode because we have a guest on the show today that is hands down one of our favorite authors of all times, New York Times bestselling author. We'll get to that in here just a second, but before we introduce him, we want to send out a quick shout out to Miss Kelly Evans from CNBC's Closing Bell because this past week she selected our show as her number one podcast pick from the 250,000 podcasts that are currently out there. She selected our show. And so Kelly, all we can say is that we are so humbled and honored, and thank you so much for highlighting our show to your awesome audience on CNBC. Okay, so let me introduce our guest this week. Almost 2 years ago, we had read a book called Influence, and it was written by Dr. Robert Cialdini. And we focused on this book because billionaire Charlie Munger has said it was one of his favorite books of all time. And after we read the book, I personally found myself recommending Dr. Cialdini's book more than any other book that I'd ever read. So a couple weeks ago, a close friend of mine who was a person I had told to read Dr. Cialdini's original book Influence, he sent me a text message and he said, dude, Dr. Cialdini just wrote a new book and it's now on Amazon. So I sent a message off to Stig and we were pumped. We were absolutely pumped to know that there's a new book out there by one of our favorite authors of all time. And so Stig and I were like, well, let's reach out and let's see if maybe Dr. Cialdini will come on the show and maybe he's interested in being a guest. So, um, believe it or not, we sent a message out to Dr. Cialdini's publicist and he said yes. So without further delay, uh, Dr. Cialdini, thank you so much. I, I really truly mean this because, um, we're beyond starstruck at this point to have you on our show, and we cannot thank you enough for taking time out of your busy day to be here to talk with us and everything that you've taught us through your writing So thank you so much.

Well, I'm very glad to be with you and your followers.

Awesome. So I'm kind of curious how you really kind of developed this fascination towards influence and psychology in general. What made you just really kind of start diving into this field? What created that spark or that interest for you?

Great question. And it has to do with something that occurred to me even before I began to study the influence process in any formal way. I recognized my status as sucker. I was always a pushover for the appeals of various sales operators or fundraisers who would come to my door, and I would buy things I didn't really want or contribute to causes I had never truly heard about. And I remember standing one time in sort of puzzlement about this. I'll tell you the situation. A guy came to the door and he was asking for a contribution to a childhood education project that he was involved in, after-school education. And I didn't know anything about this man or about the project. I had never heard of it, but I gave him more money than I could afford, and here is why. He brought his 6-year-old daughter with him. So it was not the merit of his message that spurred me to contribute. It was what he arranged before the delivery of that message that got me to say yes. It was the context in which the message was sent to me. And I thought to myself, oh, isn't this interesting? It's not the merits of the thing very often, the request or proposal or recommendation or offer. It's the way that that request or proposal or recommendation is delivered, is presented, that made the difference.

That's super interesting. Because one thing, clearly we're going to talk about your new book, Persuasion, but as Preston also mentioned before, Influence, your previous book, and the book that we also did on a podcast, it was episode 22, so everyone can actually go back and listen to that discussion, but it's probably better to hear from the author himself. Could you give like a super brief background on the 6 principles of influence that you discovered and how you discovered their overarching effect, not only on yourself but also on other people?

You know, I'm going to need to go to your question in reverse order, talk about how I got there and then what I got. I initially began to study the principles of persuasion and influence partially out of a need for self-defense because I was this patsy. I was always being taken in, but also because of the curiosity, the intellectual inquiry involved in studying what was going on. And I began to do that as a behavioral scientist, studying how you make a message, the very same message, more effective by changing various features of it. I was doing that in my laboratory with college students as my subjects, and I recognized that I was missing something very important by staying located in my lab on a college campus. And that was the power of these techniques that I was investigating, to make a difference in the world around us, the world we live in where we're fighting the influence wars all the time. So I began to answer ads for trainees in the most successful influence professions of our society. I began to answer ads for salespeople. I learned how to sell automobiles from a lot, insurance from an office, portrait photography over the phone, vacuum cleaners door-to-door, that sort of thing. But I also infiltrated charity organizations. What do the fundraisers do to get us to say yes? I did the same thing with corporate recruiters. How do they get somebody who's doing well in a particular job— otherwise they wouldn't be a target for recruitment— to throw that away and decide to roll the dice on the next job? What did they say? So I looked at all of these training programs, and across the widest range of them, I only counted 6 universal principles of influence that were being used in common wherever people were successful at getting others to say yes. I mean, there were hundreds, maybe thousands of tactics, but I thought they could be categorized in terms of one or another of the 6 universal principles of influence. And here they are. The first is reciprocity. People prefer to say yes to those who've previously done something for them. For example, there's a study that shows that if people come into a candy store and they're given a sample piece of chocolate They become 42% more likely to purchase something from the person who has given them from the store. A second is liking. People prefer to say yes to those they like. For example, those who identify their commonalities or similarities with them. There was a study of negotiators and found that there was a drop in deadlocks between negotiators by 67% if before the negotiation, the two individuals traded some information about themselves in which they could find a similarity or a commonality. "Oh, you're a runner? I'm a runner." "Oh, you're a firstborn child? I'm a firstborn child." That kind of thing. It wasn't just exchanging information and humanizing the other person. It was finding parallels that caused people to like the other person and give one another grace then in the negotiation. A third is the principle of social proof, the one that says people prefer to follow the evidence of what a lot of other people just like them are doing. There's a lovely study in Beijing which shows you the cross-cultural reach of this. In which restaurant owners were able to significantly increase the likelihood that their patrons would choose particular items from the menu by just putting a little asterisk next to those items that said, "This is one of our most popular dishes," and each one immediately became 13 to 20% more popular. Because people follow the lead of what others like them in that situation have been doing. A fourth example is authority. People say yes to those who can claim support with evidence of what the authorities, the experts, are saying they should do. There's a kind of harrowing study actually that was done at a university where students were asked to give their opinion on some difficult economic financial choices while they were hooked up to brain imaging equipment. If they were just given those choices, the areas of the brain that became activated were those associated with critical thinking. They were judging the quality of the problem and the various solutions to it in an evaluative way. What if they were told ahead of time that a distinguished economist there at the university had recommended certain answers to these problems? The critical thinking activity in their brain flatlined. They just accepted because an authority had given them the direction on a difficult problem. Another principle is people say yes to those who can show how what they're asking someone to do is consistent with an existing commitment that person has already made. There was a study in the UK where there's a problem of people who don't appear for their medical appointments, and they were able to reduce that percentage by 18% by doing a small thing different at the end of the previous appointment. You know how at the end of every doctor's or dentist's appointment we get a little card that has the date and time of our next appointment scheduled for us?

Yes, absolutely.

In this study, the receptionist gave the patient a blank card and asked the patient to fill in the date and time of the next appointment, which dropped no-shows because they wanted to remain consistent with something that they had done themselves. Think about the receptionist essentially gives you a date and time on you. Of course, you've agreed to it, but not in an active, dramatic way by writing it down yourself. And the research shows People live up to what they write down. And then the last of these principles is scarcity. People say yes to those who show them that the opportunity they're recommending is scarce or rare or dwindling in availability. There's an example from the Bose Acoustics Corporation that were advertising a new product, the Bose Wave music system, and they were disappointed in the response. And then they put 5 different words at the top of the very same ad, and it caused a skyrocket of purchasing. 5 words were: here, what you've been missing. You are missing this. There are unique features that are lost to you, being foregone. You don't want to miss those unique opportunities. So those are the principles. Now, to add this pre-suasive component, the new book, I used to say to people, if you build one or another of these principles into your message, you'll find that you'll get a significant movement in the direction of your message because those principles typically steer people in correct directions. Now what I say is not only should you address those concepts, you should address them in the moment before you deliver your message. That way your audience will become attuned to the principles before they encounter them in your message, making the principles even more effective.

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So it's almost like a tuning mechanism for the message that's about to be delivered, like you'd see before a concert or something like that.

Exactly right. You're readying people for the strength of your message that you think will make them most happy with the choice of that message, which will be wisest for them as a reason for choosing your message. Is it social proof? Is it an authority? Is it scarcity? Whatever it is, if you activate that concept before you ever deliver your message that embodies scarcity or social proof or whatever, they will have become, as you say, attuned to it. Receptive to it.

In the book, you mentioned the example of if you're exposed to listening to German music, you're more inclined to buy German wine. Is that the same type of example you're referring to here?

This is, and it is— that's really the bullseye question because there was this study that showed that if a wine store manager was playing German music when people came into the store they were more likely to buy German vintages. If the manager was playing French music, they were more likely to buy French because their mindset had been altered toward German things or French things, and now they were more attuned to— they were more receptive to the information on the shelves about German or French wine depending on what music had been playing.

So, Dr. Cialdini, in your new book you, uh, bring up Daniel Kahneman, who Stig and I are really big fans of Dr. Kahneman's work with his book Thinking Fast and Slow. But in the book you say that you were attending a conference or something like that where you heard him say that the one thing that most people were unaware of is this thing. Can you describe this and tell our audience about this event where you heard what he said?

Actually, it was— I read this in an online site that asked a variety of experts the following question: if there's one thing that people don't recognize that you think would help them better navigate their lives, what would it be? And Daniel Kahneman said, nothing is as important as you think it is. While you are thinking about it. In other words, as soon as you begin focusing on something or thinking about it, like German music or German thing, now things that are related to that become more important to you. German wine now becomes more important. So you would think that what Daniel Kahneman would say would be something that won him the Nobel Prize in Economics a while ago, which is about prospect theory, that when you're uncertain, you are more compelled by information about how to avoid losses than information about how to obtain gain. He didn't say the thing that won him the Nobel Prize. He said this other thing that he called the focusing illusion, that Nothing is as important as you think it is while you're thinking about it. That means that a communicator can get you to elevate the priority of anything that he or she wants by giving you access to that concept, making you focus or think about that concept before they send the message. Where that concept is the central element, you now become more receptive to it.

Can you give our audience an example of what it is that you're describing here so you can add some significance to the underlying meaning of this? Because this is such a phenomenal idea that I read in your book, so I really want you to describe this for our audience.

Here's my example that I think best allows us to understand what's going on. A study was done by an online furniture store, and they sent half of their visitors to their site to a landing page that had fluffy clouds depicted in the background wallpaper. The other half were sent to a landing page that had coin money depicted in the background wallpaper. Those who were sent randomly to the landing page with fluffy clouds now rated comfort as the more important feature for them to decide when buying furniture. They then searched the site for features related to comfort and ultimately preferred to purchase more comfortable furniture because fluffy cloud put them in mind of comfort, of soft. Now, those people who were sent to the site with coins on the landing page rated price as the most important feature of what they were going to use to determine what kind of furniture to purchase. They then searched the site for cost-related features, and they ultimately preferred inexpensive furniture. So wherever they were channeled in their attention initially, the clouds or coins directed them in the subsequent information to prioritize information about comfort or cost. And here's the thing about this that I think is especially worth recognizing. When they were asked afterward if they thought the clouds or the coins had in any way influenced their choice, they laughed. They said, "Of course not." They never recognized that this stealthy process had run under their radar and channeled them the direction of the initial concept, comfort or cost. Wow.

Amazing. Let's shift gears here a bit. I've really been looking forward to asking you this question, Dr. Cialdini, because we know that billionaire Charlie Munger is a really big fan of your work, and he hasn't been shy about saying that in public either. In your new book, you talk about how you received a gift from Buffett and Munger by becoming a shareholder of Berkshire Hathaway. Could you tell our audience a neat story about this relationship?

Yes. I was sitting in my office, went to the mailbox and got an envelope, a big envelope. And it came from Berkshire Hathaway. Of course, I had heard of Berkshire Hathaway. Everyone had by that time. This is about 15 years ago. When I opened it, there was a share of Berkshire stock. Wow. A letter from Charlie saying, this is by way of thanks. "Warren and I have read your book. We've made hundreds of millions of dollars. This is our way of saying thanks." Now, here's what that gift has provided me. I'm now a shareholder and I've since bought additional shares, but that first share allowed me access to the Berkshire Hathaway shareholders report that occurs at the end of every year. And access to the shareholders meeting where I've been able to examine or observe, let's say, the financial skills of those two men, which are of course spectacular. But here's what else I've been able to observe: their skills as communicators. I've been getting their shareholder reports for 15 to 18 years now. And I've noticed something that Warren Buffett does that I've never seen any other CEO do. On the first page or two, that report begins by telling us about a mistake Berkshire made. Actually, he says that I made this past year. It's so disarming. I've read it 15 times and I'm disarmed every time. Say to myself, wow, these guys are great. And I listen differently now. I process the next information differently than before.

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All right, back to the show.

The anchoring to the initial foundation of, hey, here's a mistake and then here's how I made $10 billion after that mistake.

Yeah. And the other thing about it is it tells you not only is he aware of the mistakes, he's now going to go and fix them. You get all this confidence. In the next thing that he's going to say.

It's truly amazing. And I think you come up with a specific example. I think it's his 50th annual letter he's talking about. Now I'm going to tell you, as I would tell someone in my family, why Berkshire Hathaway might be a good investment the next 50 years. And I remember reading that too. I didn't think about it like you did when you read it, but I was like, okay, so I'm family now. "I mean, now I'm really getting the good stuff." And you're right, it creates so much trust.

Yes. And this is all before he lays out the case for the strength of Berkshire into the future. He sets the frame.

Wow. It's totally phenomenal. I'm really glad that you addressed this in the new book because I was always curious what your relationship might have been with Charlie. I mean, to be honest with you, that's why we read your first book is because We go and we read all these different books that billionaires say were the most influential things that they've read. And your book was literally at the top of the list for Charlie Munger. And that's kind of how we found out about you in the first place. But it's really neat to hear the story of how some of that went down. Thank you so much for sharing that with us.

Well, it's not one that I've shared in a public forum before, but your question opened up the answer. Wow.

Thank you for saying that.

Now I'm curious, have you gone out to a meeting before?

I've always attended the meetings ever since I've had a ticket to go. As long as you're a shareholder, you're invited. And I had one share for a long time.

Well, Stig and I go each year, so hopefully we get a chance to shake hands one day.

Oh, that would be great.

All right. So I have a question that I'm really dying to ask you because after reading your first book and your second book, you bring up all these different studies for why you put these opinions out there on what influence is and isn't. And after studying all of this research and mounds of data, I have to ask you, what do you think is the most powerful principle of the 6? And what would you say the case is that kind of goes with that, if you can tie it together?

Here's what I would say, that the most powerful principle is the one that's inherent in the situation that we encounter. If we have genuine authority to apply, that's the one to use there. If we have genuine scarcity, use that one. If we have genuine social proof, that's the one to use. But here's what I'm going to say to be more responsive to your question. Social proof is the one that's trending right now, not because somehow social proof has become more potent in human consciousness as a reason to move. It's because it's become more available than ever before. We now have access to evidence about what a lot of other people just like us are doing or have been doing because of the internet. We've got networks of people who are of similar mind. They can be in user groups, they can be in interest groups, they can be on review sites of various kinds, TripAdvisor and so on, Amazon. We can get access to that in a way that we never had before. And that's where a lot of the power is going right now, to the social proof principle, just because that information is so easy to obtain. I just saw a report in a journal where somebody showed in a survey that 97% of online buyers check product reviews before they buy. 97%. We can't get 97% of people to believe that the world is round, but 97% check online reviews of people who've tried it like them. That's how powerful this principle is and how available it is.

Hmm, that is a really, really insightful answer to that question. I really appreciate that because, I mean, you're exactly right. You can't look at anything on the internet without some type of quantifiable number being below it or beside it, basically justifying its clickability. You know what I mean?

And there are even shortcuts to it— star rating. I don't need to read the review. I can just look at how many have 5 stars.

Yeah, it's amazing how we are influenced by other people and not always thinking for ourselves. Okay, so this is the final question I have for you, Dr. Cialdini. As the author of Influence and Persuasion, I can think of no one I would rather ask this question. Which book has had the most significant influence on your life and how you look at the world?

I'm going to give you two answers. One is a general answer and one having to do with investing. The general answer is Aristotle's Rhetoric. When I was in high school, it was assigned in a class I was taking on speech. In those days, persuasion was about orators and orating. Or Aristotle, and he provided the first systematic account I ever encountered on the topic of persuasion, how you move an audience. Now, it wasn't a scientific account, but it was a systematic, logical derivation of recommendations from his thinking and his experience. That just blew me away. And then within the realm of investing, this isn't by virtue of the rule for reciprocity, but for me, it's Poor Charlie's Almanac, in which they detail the wisdom of Charlie Munger in life and then turning that into implications for investing. That extraordinarily powerful source of information.

We're huge Charlie Munger fans. And I think once you go to a meeting and you hear how intelligent he is, I mean, the guy is— it's almost like he's from a different planet. He's so intelligent.

Yeah, he's breaking the ceiling. So this principle that they use of mentioning a weakness before they mention the strength to establish their credibility so people now believe the strength. Why do they do this and we don't see this in any other annual reports? Here's my answer. They read psychology books in their spare time.

I think it's that. I think it's they genuinely really don't have a big ego. I think that they're just so well-read and they understand how things work. Just because they've read so much. But oh, I could go on and on about how just impressive all that is. And this is just phenomenal to have you on our show. To be talking to you is just indescribable, to be quite honest with you. So Dr. Cialdini, uh, we've got to wrap things up, but thank you so much. And I sincerely mean this, thank you so much for coming on our show. This meant so much to Stig and me because we really are just enormous fans of your work, and you have had such a profound impact on our lives and so many other people's lives with your writing. So thank you, and we just really appreciate it.

Well, Preston, thank you for asking the question that allowed me to get to the heart of the material. I don't always get that. They were great questions.

So, Dr. Cialdini, if our audience wants to learn more about you, some of your books— we're going to have your books listed in our show notes— but if our audience wants to learn more about you, where can they go and where can they look up Well, we have a website, influenceatwork.com.

Influence at work is all one word,.com. And there they can get information about what we do in terms of speaking and training, as well as the books that we have to offer.

Fantastic. Thank you so much.

Guys, that was all that we had for this week's episode. We'll see each other again next week.

Thanks for listening to The Investor's Podcast.

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