It was March 2007 and I was desperately looking for a tax saving investment product. Until that year I had been sticking to the old fashioned conservative options like tax saving FDs and LIC policies. But the stock market frenzy of 2007 was rubbing off on me.
So when I received a call from a stranger who called himself a “financial advisor” and showed a great concern for my financial well being, I couldn’t say no to his request for a meeting.
Although the young chap seemed to have just a few years of experience in the industry but his demeanor were nothing less than that of a CEO of a large company. He was well dressed, tidy, confident and articulate.
When we met he took interest in my hobbies and complimented me about my reading habits. Needless to say I took an instant liking to him.
He told me about a new financial product called ULIP (unit linked insurance plan). I had never heard of ULIP, so before committing any money to it I borrowed some time from him and did a quick research on google. The reviews on the internet weren’t very encouraging. Some even claimed of unethical mis-selling by private banks and insurance companies as far as ULIP was concerned.
But my financial advisor seemed to know what he was talking and I liked him. He even told me that one of his elder cousin was from my college. So I went ahead and (mis) invested my money.
It turned out that I wasn’t the only one who lost money in toxic financial products which were indiscriminately peddled by many suit-tie wearing sales people.
So why did I succumb in spite of knowing that ULIP wasn’t the best option for me? I would like to put the blame on the so called “financial advisor”. But he was just doing his job i.e. selling stuff. Even today I can’t imagine him as a crook or unethical person.
It was much later, after reading Robert Cialdini’s book Influence, when the realization set in that I has been a victim of something called Liking Bias or Liking Tendency.
Because of liking tendency we tend to like who are physically attractive, popular, cooperative, or people we have positive associations with. Also, those who are similar to us in background, opinion, lifestyle, interest, attitude, looks, values, and belief. We also like and trust anything familiar.
Most people prefer to say yes to the requests of someone they know and like. It’s a natural tendency to ignore the faults of those we find likeable while doing just the opposite to the people we don’t like.
According to Charlie Munger…
Liking tendency acts as a conditioning device that makes the liker or lover tend:
- To ignore the faults of, and comply with the wishes of, the object of his affection;
- To favor people, products, and actions merely associated with the object of his affection (Influence from Mere Association Tendency); and
- To distort other facts to facilitate love.
Just as liking and loving make humans agree with each other despite their vices, the tendency to hate or dislike does the absolute reverse and leads to ignoring or refuting the person we dislike or hate despite the virtues.
Here is what Munger has to say on that:
Disliking/hating tendency also acts as a conditioning device that makes the disliker/hater tend to:
- Ignore virtues in the objects of dislike,
- Dislike people, products and actions merely associated with the objects of his dislike, and
- Distort other facts to facilitate hatred
Liking bias, due to its persuasion power, is widely used by negotiation experts and salespeople to tip the scale in their favour.
Since it is extremely profitable, there is a huge demand of people who can persuade other people to take desired actions and some people have a natural flair for it. There are numerous examples of war marshalls, CEOs, sports managers etc.
In fact the first thing any salesman is taught is to Be Likeable. Which means their sales training programs not only teach them all the nuances of communications skills but also teach them to dress well and create an impeccable first impression. Their aim is to be likeable even before they open their mouth. People who exploit this bias know that first impression is not only the last impression but the lasting impression too.
Joe Girard is considered the most successful car salesman in the world. His tip for success: There is nothing more effective in selling than getting the customer to believe, really believe, that you like him and care about him.
What Creates Liking Bias
According to Cialdini following factors cause one person to like another person –
- Physical Attractiveness – Research has shown that we automatically assign to good-looking individuals such favorable traits as talent, kindness, honesty, and intelligence. Good looking people are likely to receive highly favorable treatment in many setups including elections, employment interviews and even in judicial process. Experiments show that attractive criminals are seen as less aggressive and get a milder punishment than ugly criminals. In another study the better looking men and women received aid more often, even from members of their own sex. In short, good-looking people enjoy an enormous social advantage in our culture.
- Similarity – We like people who are similar to us. This similarity could be in the area of opinions, personality traits, background, or lifestyle. Salespeople can manipulate similarity to increase liking by claiming that they have backgrounds and interests similar to ours. They are trained to look for evidence of such things while interacting with the potential customer. There are techniques like mirroring and matching the customer’s body posture, mood and verbal style to subconsciously trigger the feeling of similarity. As a corollary we don’t like the ones we perceive as dissimilar to us.
- Being Liked – We like people who like us. If we feel that a person likes us, we tend to like them back. Remember Joe Girard? Do you know his trick to get his customers to like him? Each month he sent every one of his thousands of former customers a holiday greeting card containing just one line – ‘I like you’. Being liked and accepted is basic emotional need for all human beings. British Prime Minister and novelist Benjamin Disraeli said, “Talk to a man about himself and he will listen for hours.” We are phenomenal suckers for flattery. And we reciprocate the way others see us. If we perceive others dislike us, we tend to dislike them.
- Cooperation – We like people who cooperate with us. How do we get people to cooperate? Create an external common threat or an opportunity for mutual gain. A typical example could be a salesman pretends to be on our side and “negotiates with his boss“ to secure a good deal for us. Another example is the good cop/bad cop trick routinely employed by police to get a confession from a suspect. One police officer acts hostile and other, acting as a good cop, tries to calm down his angry partner and pretending a soft corner for the suspect. The suspect develops a subconscious liking for the good cop and cooperates.
Here’s another interesting trick. Asking a favor of someone is likely to increase that person’s liking for us. Counterintuitive right? But it works because people want to be seen as consistent with their behavior.
Benjamin Franklin tells us about an old maxim: “He that has once done you a kindness will be more ready to do you another, than he whom you yourself have obliged.”
In his book, The Art of Thinking Clearly, Rolf Dobelli writes –
Aid agencies employ the liking bias to a great effect. Their campaigns use beaming children or women almost exclusively. Never will you see a stone faced, wounded guerrilla fighter staring at you from billboards – even though he also needs your support. Conservation organizations also carefully select who gets the starring role in their advertisements. Have you ever seen a World Wildlife Fund brochure filled with spiders, worms, algae or bacteria? They are perhaps just as endangered as pandas, gorillas, koalas and seals – and even more important for the ecosystem. But we feel nothing for them. The more human a creature acts, the more similar it is to us, the more we like it.
Companies already understand this. Employees at Disney theme parks and Hilton Hotels wear name tags emblazoned with their hometowns. So the visitors feel comfortable when they see people from their own place.
Almost all the financial news commentators on TV have great personalities and outstanding communication skills. You’ll never find them untidy or with unkempt hair. They’re articulate, confident, humourous and witty.
There’s no way you can’t like these talking heads on TV unless you have lost significant money following their advices and forecasts. Some of them are so likeable that people don’t mind losing money and still continue to like them. That’s the power of psychological biases. You can’t counter its force even if you know about it.
So the only way to save yourself from this is to stop watching financial news channels.
Many successful investors don’t talk to the management because they understand the power of liking bias. A direct talk with a management, especially a charismatic CEO with likeable personality, can trigger liking bias and create a prejudice in our minds.
The legendary investor Peter Lynch reminds us not to fall in love/get emotional with a stock. The stock doesn’t know that we own it, so falling in love with it only makes us susceptible to bad judgment.
Remaining detached enough from our investments to look at them objectively is a crucial skill to becoming a successful investor.
Overcoming Liking Bias
The biggest problem with behavioural biases is that their force is so strong that it’s extremely difficult to counter them. And the best strategy is to avoid being in such situations.
So this is what Guy Spier writes in his book, The Education of a Value Investor, about how he deals with such situations –
…I soon began to see that I made lousy decisions when I bought things that salespeople were hawking to me.
The problem is that my brain (and most likely your brain too) is awful at making rational decisions when confronted with a well-argued, detailed pitch from a gifted salesperson. So I adopted a simple rule that has proved extraordinarily beneficial. When people call to pitch me anything at all, I reply in as pleasant a manner as possible, “I’m sorry. But I have a rule that I don’t allow myself to buy anything that’s being sold to me.”
I may miss out in the short term. But over a lifetime I have no doubt that I’ll benefit much more by detaching myself from people with a self-interest in getting me to buy stuff.
So now whenever I get a call from these financial advisors, asking for a meeting, I just refuse to meet them.
Still you may find yourself in such situations where it’s unlikely that you could muster a timely protection against the unconscious effect of liking bias. First thing that needs to happen in that situation is to bring the awareness.
Ask yourself, “Have I come to like this person more than I would have expected in such a short time?”
If the answer is yes then it’s time for a quick counter maneuver, which doesn’t mean that you should look for reasons to dislike the person. That would be like fighting with natural force of behavioural bias which isn’t going to help much.
What you need to do is to put a conscious effort to separate the person from the deal. Concentrate exclusively on the merits of the deal. Try to look at the facts and situation objectively. This may save you.
We do things for people we like, because it’s a natural reciprocation to being liked.
William James said, “The deepest principle in human nature is the craving to be appreciated.”
Take care, keep learning and don’t forget that I like you. 🙂