Monday, December 30, 2013

Duhigg, The Power of Habit

A new year is right around the corner, and with it will come the usual host of resolutions—sadly, rarely kept. To be more precise, more than 40% of Americans make New Year’s resolutions and just 8% achieve their goals. Sometimes the goals they set are too daunting, sometimes too vague. And, perhaps the biggest problem with the whole resolution business is that people focus on goals rather than processes.

In 2012 Charles Duhigg, a Pulitzer Prize-winning journalist for The New York Times, wrote The Power of Habit, which spent 62 weeks on the paper’s best seller lists and was named one of the best books of the year by The Wall Street Journal and the Financial Times. It is now being reissued with an afterword by the author.

I reviewed the book when it first came out and thought I would write a new post now that I have the reissued edition. But then I reread my original piece and decided that I probably couldn’t improve on it. So instead I’ll republish it here.

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“All our life, so far as it has definite form, is but a mass of habits,” William James wrote in 1892. Well, that might be a bit of an overstatement: a researcher in 2006 knocked that “mass” down to “over 40 percent.” Whatever the percentage, we are creatures of habit. In The Power of Habit: Why We Do What We Do and How to Change It (Random House, 2012) Charles Duhigg explores the work that neurologists, psychologists, sociologists, and marketers have done over the past two decades to figure out how habits work and how they change. It’s a fascinating tale.

So what is a habit anyway and why are habits so important? After we figure out a sequence of actions and practice it sufficiently (Duhigg uses the example of backing out of the driveway), our brain converts that sequence into an automatic routine, a habit, and stores it in our basal ganglia. We no longer have to think about backing out of the driveway; our brain is free to think about something else or to quiet itself. “Habits, scientists say, emerge because the brain is constantly looking for ways to save effort. Left to its own devices, the brain will try to make almost any routine into a habit, because habits allow our minds to ramp down more often.” The brain becomes more efficient; we can devote our mental energy to “inventing spears, irrigation systems, and, eventually, airplanes and video games.” (p. 28)

Most habits are innocuous enough; they don’t make a major difference in our lives. But some habits do, and not always for the better. Moreover, no matter what we do, those bad habits never really disappear; “they’re encoded into the structures of our brain.” The good news is that although old habits never die, they can be “ignored, changed, or replaced.” (pp. 29-30) How? Quite simply, at least in theory: by changing the habit loop of cue, routine, reward.

Ad men figured this out early on. Claude Hopkins, for instance, was responsible for making Pepsodent a sensation at a time when hardly any Americans brushed their teeth; “when the government started drafting men for World War I, so many recruits had rotting teeth that officials said poor dental hygiene was a national security risk.” (p. 39) A decade after the first Pepsodent campaign, more than half the American population brushed their teeth daily and flashed that Pepsodent smile. And they presumably believed that they no longer had that dingy film on their teeth that they could feel when they ran their tongue across their teeth, the cue that Hopkins devised to entice them to brush in the first place. (In fact, the toothpaste did nothing to remove the film, but then ads have never been known for their truthfulness.) So a simple habit loop was formed: cue (tooth film), routine (brushing), reward (beautiful teeth).

What if you already have a habit that you want to change? In that case, “you must keep the old cue, and deliver the old reward, but insert a new routine.” (p. 60) As one of the developers of habit reversal training said, “It seems ridiculously simple, but once you’re aware of how your habit works, once you recognize the cues and rewards, you’re halfway to changing it.” (p. 70) Some people need a support group to reinforce their belief in change, others are fine on their own.

Changing some habits makes very little impact on other parts of a person’s life; keystone habits, by contrast, have ripple effects. They “start a process that, over time, transforms everything.” (p. 87) “They help other habits to flourish by creating new structures, and they establish cultures where change becomes contagious.” (p. 94) Duhigg recalls Paul O’Neill’s fixation with safety when he became CEO of the troubled Alcoa and how “O’Neill’s plan for getting to zero injuries entailed the most radical realignment in Alcoa’s history.” (p. 91)

Keystone habits, which admittedly are difficult to identify and put into practice, create widespread changes because of the principle of small wins. “A huge body of research has shown that small wins have enormous power, an influence disproportionate to the accomplishments of the victories themselves. ‘Small wins are a steady application of a small advantage,’ one Cornell professor wrote in 1984. ‘Once a small win has been accomplished, forces are set in motion that favor another small win.’ Small wins fuel transformative changes by leveraging tiny advantages into patterns that convince people that bigger achievements are within reach.” (p. 96)

One example of what seems for many people to be a keystone habit is exercising. “Typically, people who exercise start eating better and becoming more productive at work. They smoke less and show more patience with colleagues and family. They use their credit cards less frequently and say they feel less stressed. It’s not completely clear why. But for many people, exercise is a keystone habit that triggers widespread change.” (p. 93)

Duhigg extends his analysis to willpower, how retailers predict (and manipulate) habits, how movements happen, and the neurology of free will. But let me stop here and make a couple of off-the-cuff, not especially profound observations.

Traders often repeat the same mistakes over and over, acting on triggers that have served them poorly time and time again even as they continue to expect a tidy profit as a reward. Not only is this insanity, the problem is that they’ve developed a powerfully destructive habit loop. They need to figure out a new routine—and in this case, I believe, contrary to habit reversal theory, either a new, non-monetary reward or a more probabilistic view of the reward.

Beginning traders sometimes feel compelled to swing a big line, and normally they lose big. Just think how many accounts have been blown out. Small wins are powerful levers (and don’t have the downside risk of using too much leverage). “Levers, not leverage”—it has a nice ring to it!

The Power of Habit is chock full of fascinating information—from Michael Phelps’s training regimen to how Target “targets” pregnant women as potential big-time spenders without seeming intrusive. I thoroughly enjoyed it and learned from it. Who can ask for much more? Now on to that next small win. (If you’re intrigued with this topic, you can follow it up with Peter Sims, Little Bets: How Breakthrough Ideas Emerge from Small Discoveries. I admit I haven’t read it yet.)

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