The Dividend Pirate

Two days back I attended a fantastic seminar on “Influence” by Linda Rising. So what does the word Influence mean? I dug up the following definition from the web,

in·flu·ence [ ín floo ənss ]: a power to affect persons or events

So why this blog on “Influence”? How does it help you in learning about finance, investing and saving money? My friends, it certainly does.

• When did you buy something that you really didn’t want to buy?
• When did you land up helping someone when you really didn’t want to?
• When did you land up overpaying?

If your answer to any of the questions was yes, read further. Understanding how people/ advertisements influence us will help you in making better choices in life with respect to everything and yes that includes money. A lot of people also believe that if you have a good idea and facts that support that, you don’t need to influence people to adopt that. Completely incorrect, as we all know a lot of good ideas are never implemented and not all implemented ideas are good. How do you think that people with evil ideas have been able to influence an entire nation? History is filled with such examples.

Let me introduce Linda Rising briefly before I proceed further.

Linda Rising, Ph.D.
With a Ph.D. from Arizona State University in the field of object-based design metrics, Linda Rising’s background includes university teaching and industry work in telecommunications, avionics, and strategic weapons systems. An internationally known presenter on topics related to patterns, retrospectives, customer interaction, influence strategies, and the change process, Linda is the author of numerous articles and four books.

Linda spoke about six strategies that you can use to influence people. It is equally important to think in terms that these are the six strategies that people/companies use to influence us. These six strategies are very well explained in the book, Influence: the Psychology of Persuasion by Robert B. Cialdini. (Added this book to my wish list, if anyone feels like gifting this :)). Without further ado let’s jump into learning about the six weapons of influence. The points below are my summary from the presentation and http://www.rickross.com/reference/brainwashing/brainwashing20.html

1. Liking

People prefer to say yes to individuals they know and like. This simple rule helps to understand how Liking can create influence. Several factors can create liking,

Physical attractiveness is one feature of a person that often may help to create some influence. Although it has long been suspected that physical beauty provides an advantage in social interaction, research indicates that this advantage may be greater than once supposed. As a result, attractive people are more persuasive both in terms of getting what they request and in changing others’ attitudes. Why else do you think that most professionals in sales, marketing and HR are attractive? What can you do about this? Well I am no Tom Cruise, but dressing better and neatly certainly helps you in influencing people.

Similarity is a second factor that influences both Liking and compliance. We like people who are like us and are more willing to say yes to their requests, often without much critical consideration. The next time when you go to a shop to buy something take notice if the sales person tries to play the similarity card by mentioning that he is from the same country, he also enjoys the same kind of food, etc. This happened to me recently. I had a carpet contractor come to my place and the first thing she says to me is that she saw that my phone number indicates that I am from LA and she also used to live there. Hmm and the first thing that crossed my mind was that “I can relate to her.”

Praise is another factor that produces Liking, though this can sometimes backfire when they are crudely transparent. This is kind of obvious.

To reduce our influence to “Liking”, it helps to step back from some social interaction and objectively separate the requester from the request. We should make decisions, commitments and offer compliance based upon the actual merits of the offer or request.
2. Rule of Reciprocity

How many times have you felt that you are being manipulated by someone but nevertheless you have still helped the person because they had helped you before? According to sociologists and anthropologists, one of the most widespread and basic norms of human culture is embodied in the rule of reciprocity. This rule requires that one person try to repay what another person has provided.

There are three characteristics of the Rule of Reciprocity:

1. The rule is extremely powerful, often overwhelming the influence of other factors that normally determine compliance with a request.
2. The rule applies even to uninvited first favors, which reduces our ability to decide whom we wish to owe and putting the choice in the hands of others
3. The rule can spur unequal exchanges. That is–to be rid of the uncomfortable feeling of indebtedness, an individual will often agree to a request for a substantially larger favor, than the one he or she first received.

So the next time you get some freebie from a complete stranger be careful. At the same time this rule makes me a little uncomfortable. I think it is worth while mentioning here that I feel that this rule is applicable more to strangers/companies/salesman and not to family/ friends. Of course when you receive favors/ gifts from your family and friends it’s not that they want to extract a favor out of you.

3. Social Proof

Imagine that you have gone out for a lunch buffet and you are confused on how to pick a food item up. What do you usually do? You will look around and see how are people picking it up and you will use the same approach. This brings us to the next factor of influence, social proof.

One of the means used to determine what is correct is to find out what others believe is correct. People often view a behavior as more correct in a given situation–to the degree that we see others performing it.

This principle of Social Proof can be used to stimulate a person’s compliance with a request by informing him or her that many other individuals, perhaps some that are role models, are or have observed this behavior. How many times has social proof influenced your decisions? When you are buying something on Amazon.com for example you will see that if there are 2 camcorders with the same specs, you will tend to buy the one which is more popular. When most people like a particular movie star, they are influencing you to somehow start liking him.

Social proof is most influential under two conditions:

1. Uncertainty–when people are unsure and the situation is ambiguous they are more likely to observe the behavior of others and to accept that behavior as correct
2. Similarity–people are more inclined to follow the lead of others who are similar.

Some recommendations on how to reduce susceptibility to contrived social proofs would include a greater sensitivity to clearly counterfeit evidence.

4. Authority

To read a great research study on this factor of influence read, http://en.wikipedia.org/wiki/Milgram_experiment

There is evidence of the strong pressure within our society for compliance when requested by an authority figure. When reacting to authority in an automatic fashion there is a tendency to often do so in response to the mere symbols of authority rather than to its substance.

Three types of symbols have been demonstrated through research as effective in this regard:

1. Titles
2. Clothing
3. Automobiles.

I have seen this is very true in the way we respond to people. For example if you are asked to do something by a person wearing a police officer dress you will do it.

5. Commitment and Consistency

People have a desire to look consistent through their words, beliefs, attitudes and deeds and this tendency is supported or fed from three sources:

1. Good personal consistency is highly valued by society.
2. Consistent conduct provides a beneficial approach to daily life.
3. A consistent orientation affords a valuable shortcut through the complexity of modern existence. That is– by being consistent with earlier decisions we can reduce the need to process all the relevant information in future similar situations. Instead, one merely needs to recall the earlier decision and respond consistently.

Commitments are most effective when they are active, public, effortful, and viewed as internally motivated and not coerced. Once a stand is taken, there is a natural tendency to behave in ways that are stubbornly consistent with the stand. The drive to be and look consistent constitutes a highly potent tool of social influence, often causing people to act in ways that are clearly contrary to their own best interests.

To recognize and resist the undue influence of consistency pressures upon our compliance decisions–we can listen for signals coming from two places within us–our stomach or “gut reaction” and our heart.

• A bad feeling in the pit of the stomach may appear when we realize that we are being pushed by commitment and consistency pressures to agree to requests we know we don’t want to perform.

• Our heart may bother us when it is not clear that an initial commitment was right.

At such points it is meaningful to ask a crucial question, “Knowing what I know now, if I could go back, would I have made the same commitment?”

6. Scarcity

This is a really good one. How many times have you responded quickly when there is a sign that says that the deal is valid only today or the sale ends in half an hour? You know I really don’t want to buy a Wii because I don’t think I will use it too much but since Wii’s are so mighty difficult to buy I know that I will buy one if I see it available in a store. That is the reason companies also purposely create a scarcity of supply. Another great example is the Amazon Kindle. Although the product got not so good reviews, because it is sold out people want to buy more of it.

According to the Principle of Scarcity people assign more value to opportunities when they are less available. The use of this principle for profit can be seen in such high-pressure sales techniques as only a “limited number” now available and a “deadline” set for an offer. Such tactics attempt to persuade people that number and/or time restrict access to what is offered.

In addition to its effect on the valuation of commodities, the Principle of Scarcity also applies to the way that information is evaluated. Research indicates that the act of limiting access to a message may cause individuals to want it more and to become increasingly favorable to it. .

It is difficult to prepare ourselves cognitively against scarcity pressures because they have an emotional quality that makes thinking difficult. In defense, we might attempt to be alert regarding the sudden rush of emotions in situations involving scarcity. Perhaps this awareness may allow us to remain calm and take steps to assess the merits of an opportunity in terms of why we really want and objectively need.

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