Consider this scenario: You ask 100 of your clients to rank themselves in a survey according to their perceived tolerance for taking investment risk. Following a bear market, you revisit the survey and find out the responses don't correlate with reality: Many of those who rated themselves as a high tolerant pulled out of stocks when the market turned stock; others who rated themselves low stayed course.
This disconnect between predicted and actual behavior — between "declared preferences" and "actual preferences" — is precisely what transpired during the economic and stock market downtown of 2007-2009. The disconnect is also a professional focus of Stephen Dubner, an award-winning author, journalist and radio and television personality. Best known for books he's coauthored — "Freakonomics," "SuperFreakonomics" and "Think Like a Freak" — Dubner was the featured speaker during an exclusive presentation of elite Court of the Table and Top of the Table members attending the 2015 annual meeting of the Million Dollar Round Table, in New Orleans June 14-17.
"We live in a world full of predictions by people who don't have skin in the game," said Dubner. "But when their predictions aren't accurate, then we have to do two things: first, find the data that reflects what's really going on in the world; and second, understand the incentives — financial, moral, social, among others — that people respond to."
"If you can find data that reflects the real world, and the incentives that people really respond to, and not just what they say they'll respond to, then you'll do better in predicting the future," he added.
To illustrate his point, Dubner outlined several examples highlighting the difference between perceived and actual incentives. Two focused on basic task of hygiene: hand-washing.
On average, he noted, 70 percent of men who use public restrooms wash their hands. The other 30 percent, depending on how the question is posed, will likely not admit to not washing their hands. Hence a key point of the presentation: The circumstances under which one asks a question (and, more broadly, gathers data) will determine the reliability of survey results.
The lack of hand-washing is, oddly, far more pronounced among people for whom the task is a critical part of their jobs: doctors. In U.S. hospitals, said Dubner, many of the more than 100,000 preventable deaths that take place annually could be avoided if doctors only washed their hands.
And why don't they? A key reason, Dubner suggested, is the time and effort involved. Because they're in close contact with patients in hospital wards throughout much of the day, they would repeatedly have to wash and dry their hands for more than 90 minutes a day to keep them sanitized. The effort involved, Dubner suggested, could represent for the doctors "an opportunity cost" — time perceived as better spent on other tasks.
For hospital administrators, however, the problem can't be ignored. And so some institutions have endeavored to quantify the scale of the problem and find solutions.
It's a big problem. At one hospital based on Australia, said Dubner, 73 percent of surveyed doctors reported washing their hands. The actual rate — as determined by nurses deputized to spy on the doctors — was just 9 percent.
The percentage difference brought into stark relief the importance of gathering accurate data.
"Think about your own business," said Dubner. "If in your business three out of four people say they do something but only one 1/10 actually do it, then you are solving a different problem. "Not only is the scale of the problem different but also the nature of the problem," he added. "That's what real data can do. It can help you determine what problem you're actually trying to solve."
At Cedar-Sinai Medical Center in Los Angeles — a world class institution where good hygiene is a high priority — hand-washing among doctors was just 60 percent a few years ago. To try to boost it to 100 percent, a 20-person committee composed of the hospital's top administrators decided to offer $10 Starbucks gift cards to doctors who were observed (again using nurses deputized to spy on them) to actually wash their hands in patients' wardrooms.
The solution worked — for a time — this despite the fact that the financial reward was minimal compared to the hundreds of thousands of dollars the doctors earn annually in salary.
"Never underestimate the power of free," said Dubner. "The doctors loved the free gift card so much that they never turned it down. Moreover, they started to game the system so as to acquire additional gift cards."
The gift card program did not, however, improve the hand-washing rate over the long-term. So, after further trial-and-error and deliberation, the committee hit upon a winning formula: to display as a screen-saver on every doctor's PC an imprint of an unwashed hand pressed into a Petri dish used to culture cells — the imprint brimming with bacteria.
The screen-saver proved remarkably successful, boosting the hand-washing rate to 100 percent. When other medical facilities in the U.S. and internationally caught wind of the initiative, said Dubner, they contacted Cedar-Sanai to learn more.
All well and good. But the program, said Dubner, could not be considered an unqualified success because of the length of time needed to arrive at a lasting solution, and because of the harm caused to patients due to bacterial contamination.
