Cialdini wrote a seminal book that laid out the six basic principles of influence, i.e., how we get influenced by people. These are:
· People return favours. Make sure you don't waive off what you do for them. Just log it up in the ledger. Use it to build the basis of friendship.
- People do things when they are committed. This can start as a small activity. Then it grows.
- People do something when they are already doing it.
- People do things when they see others doing them. This is called social proof.
- People do business with or listen to people they like.
- People are influenced by experts. People are influenced by the people in authority,
But under the conditions of uncertainty, people display different behaviours. The first is to be frozen into inaction, scared of what they might lose. They need to be reminded of the cost of their inaction. The notions of loss are more powerful than the notions of gain. Another behavioural pattern that people display under conditions of uncertainty is that they externalise responsibility. You might have heard people blaming the government for their own flawed investment decisions. Losses in past bear markets always happen because the government is a thief.
Now these are independent events. The government may or may not be a thief, but your losses happened because you have not understood how to handle uncertainty. The first thing we do to handle ambiguity is to look for authority - the 'expert' - usually somebody with a loud voice, who is constantly seen in the media. The public reinforcement of his image makes him an expert, who influences the behaviour of the hoi polloi.
A common mistake is to confuse/see people in authority as people who are an authority. I have often seen this in my family, at weddings, where the rich man of the family finds himself being asked for advice on what academic course a teenage son should do, whether he should take up a job or whom he should marry. It always strikes me that just because somebody's shop is selling more jewellery, he gets to influence the course of history, the gene pool that will take my family forward....a bit much, don't you think?
The process by which a crowd anoints someone as an expert is flawed at best. I have seen this best in board meetings of large companies. Often, these board meetings, which are called to consider multiple aspects of a complex issue, end up 'converging' everyone into a simplistic argument, which states the obvious. Members of the board are more worried about protecting their reputations than making good choices. They don't want to be seen 'diverging' or dissenting in the interest of conforming to the group. Mostly, power dynamics decide the course of action. Most members are too busy figuring out which way the wind is blowing and will vote to reinforce the leader's thought process.
Another pattern that decides group behaviour is 'herding', i.e., bunching up with your peers in the interest of conforming. Weak-minded members are more prone to do this. Look for a retired PSU banker, the so-called 'independent' member of the board, who is most prone to behave like this. He is half-asleep at the table and only wakes up shortly after the major shareholder has spoken. He speaks up to reinforce the consensus with a "hear, hear" before he goes back to sleep again. This explains 50 per cent of the NPAs in the Indian banking system.
Another factor at play in influencing people is advocacy. If a third person is speaking well (or ill) about a person, he carries greater credibility than if the said person speaks for himself. Personal certification does not carry the same weight as an independent award or qualification or even some media coverage. We all like to think that we are impervious to the pernicious influence of media, but that is completely untrue. The media, even if unfairly, continues to exercise a huge influence on our lives, our thinking and our behaviour.
The same advocacy, if done ourselves, with the same facts, creates jealousy and disliking. It is seen as braggadocio and causes us to be disliked. Remember, business is done with people we like and can be friends with. If we don't like a person for any reason, we don't want to associate with him and we tend to reject his influence. Donald Trump is an example of a celebrity we like to hate. Would you take marriage counseling, for example, from Donald Trump?
Readers may have noticed the backlash in the media when Deepika Padukone talked about depression. The underlying reason was that she is not seen as 'one of us'...more like a poor little rich girl, who doesn't really have the same problems as we do. If you are an ethnic minority, it might be a good idea to focus on values rather than surface-level similarities like skin colour and race.
A great influencer in our environment is ethical behaviour. It is a given that human beings tend to mimic each other; it is a part of our herding instinct. Given that, it is easy to see how ethics quickly tend to determine the culture of a place and drive behaviour. The same Indian with his attitudes to petty corruption and civic indiscipline in Delhi turns into a model citizen in squeaky clean Singapore, physically and metaphorically speaking. We have that famous example of 'zero tolerance' in New York, which found that following up on broken windows in city centres brought down crime rates in general.
The same is true at the microeconomic level of the individual or the firm. An organisation that promotes dishonest behaviour among its employees will find itself run entirely by dishonest people. While the honest will be driven out, the Frankenstein created by the people left behind will hollow out the organisation from within. Someone please explain this to the Pakistanis.
Group dynamics is a very powerful influencer of the behaviour of group members. Most groups have an 'authority', either appointed by a command-and-control mechanism or by peer review. In peer groups, like on the internet, knowledge is what gives authority to a select group. In both cases, once anointed a leader, you benefit from the 'halo effect', i.e., if one particular aspect of your argument is appealing, people like to extrapolate this to the other features of your argument. So even 'knowledge authority' can lead to distortions in the crowd behaviour.
Once leadership is established in a group, other patterns will kick in. Disagreement will be suppressed for many reasons. Some will want to avoid disagreement as a general principle. A desire to look competent may cause people to suppress comments they feel others will find foolish. This happens in peer groups, where junior members are cowed down by the superior knowledge of 'knowledge authorities'.
This means that all group dynamics tend to push a group towards 'convergence' of opinions, which has come to indicate the very identity of a group. We don't expect a group to be fractious and chaotic. The downside of this is that any decision taken by groups is biased by a preference for agreement. The level of discourse tends to trend down to the lowest common denominator. Conclusions made by groups are always obvious; finer nuances are always ignored. You can never get a group to evolve a philosophy.
Those of us who judge Modi harshly because he is riding roughshod over the lesser elements of that larger group called the Parliament would do well to remember these principles of group dynamics. Rarely do you hear an observer of group dynamics (often the leader) ending a meeting on the discordant note, "I did not hear any disagreements. This meeting was not successful." Mostly, we expect groups to be 'orderly', which means that we want to see convergence of thought processes.
Lastly, the largest, most fractious group of all, the market. Nowhere else do you see as much chaos and volatility. This adds to the quality of the process...an 'orderly' market which is guided by a single player, or a set of players, is going to be a distorted market. Take the dollar-rupee market, 'guided' by the RBI. How accurately do you think it has valued the rupee?
The author teaches, trades and writes at spandiya.blogspot.com.
This column appeared in the May 2015 issue of Wealth Insight.