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what happens on average when a thousand people do something once is not a clue to what will happen when one person does something a thousand times. In this, it seems, evolved human instinct may be a much better at statistics than modern economists.fn4 To explain this distinction using an extreme analogy, if you offered ten people PS10m to play Russian roulette once, two or three people might be interested, but no one would accept PS100m to play ten times in a row.

One eighteenth-century monarch, Frederick the Great, used the same magic in the promotion of the potato as a domestic crop, transforming something worthless and unwanted into something valuable through the elixir of psychology. The reason he wanted eighteenth-century Prussian peasants to cultivate and eat the potato was because he hoped that they would be less at risk of famine when bread was in short supply if they had an alternative source of carbohydrate; it would also make food prices less volatile. The problem was that the peasants weren't keen on potatoes; even when Frederick tried coercion and the threat of fines, they simply showed no interest in eating them. Some people objected because the potato was not mentioned in the Bible, while others argued that, since dogs wouldn't eat potatoes, why should humans? So, having given up on compulsion, Frederick tried subtle persuasion. He established a royal potato patch in the grounds of his palace, and declared that it was to be a royal vegetable, that could only be consumed by members of the royal household or with royal permission.fn1 If you declare something highly exclusive and out of reach, it makes us all want it much more - call it 'the elixir of scarcity'. Frederick knew this and so posted guards around his potato patch to protect his crop, but gave them secret instructions not to guard the patch too closely. Curious Prussians found they could sneak into the royal potato patch and could steal, eat and even cultivate this fabulously exclusive vegetable for themselves.

Religion feels incompatible with modern life because it seems to involve delusional beliefs, but if the above results came from a trial of a new drug, we would want to add it to tap water. Just because we don't know why it works, we should not be blind to the fact that it does.

This practice of answering an easier proxy question is what leads to a lot of 'irrational' human behaviour. It may fall short of being perfectly rational and it may not even be conscious, but that's not to say that it isn't clever. Never call a behaviour irrational until you really know what the person is trying to do.

In nineteenth-century Prussia, a glorious feat of alchemy saved the public exchequer, when the kingdom's royal family managed to make iron jewellery more desirable than gold jewellery. To fund the war effort against France, Princess Marianne appealed in 1813 to all wealthy and aristocratic women there to swap their gold ornaments for base metal, to fund the war effort. In return they were given iron replicas of the gold items of jewellery they had donated, stamped with the words 'Gold gab ich fur Eisen', 'I gave gold for iron'. At social events thereafter, wearing and displaying the iron replica jewellery and ornaments became a far better indication of status than wearing gold itself. Gold jewellery merely proved that your family was rich, while iron jewellery proved that your family was not only rich but also generous and patriotic. As one contemporary observed, 'Iron jewellery became the fashion of all patriot women, thus showing their contribution in support of the wars of liberation.'

'Defensive Decision-Making' - making a decision which is unconsciously designed not to maximise welfare overall but to minimise the damage to the decision maker in the event of a negative outcome.

Medieval guilds existed for this reason. Trust is always more difficult to gain in cities because of the anonymity they afford, and guilds help to offset this problem. If it is costly and time-consuming to join one, the only people who enter are those with a serious commitment to a craft. Guilds are also self-policing; the upfront cost of being admitted adds to the fear of being ejected.

our tendency to attribute our successes to a planned and scientific approach and to play down the part of accidental and unplanned factors in our success is misleading and possibly even limits our scope for innovative work.

One astonishing possible explanation for the function of reason only emerged about ten years ago: the argumentative hypothesisfn5 suggests reason arose in the human brain not to inform our actions and beliefs, but to explain and defend them to others. In other words, it is an adaptation necessitated by our being a highly social species. We may use reason to detect lying in others, to resolve disputes, to attempt to influence other people or to explain our actions in retrospect, but it seems not to play the decisive role in individual decision-making.

Remember, making decisions under uncertainty is like travelling to Gatwick Airport: you have to consider two things - not only the expected average outcome, but also the worst-case scenario. It is no good judging things on their average expectation without considering the possible level of variance.

'aspergic design' - design which gives consideration to the working of every part of the system, except the biological part.

We should also remember that all big data comes from the same place: the past. Yet a single change in context can change human behaviour significantly. For instance, all the behavioural data in 1993 would have predicted a great future for the fax machine.

Blame, unlike credit, always finds a home, and no one ever got fired for booking JFK.

Branding isn't just something to add to great products - it's essential to their existence.

Cornish sardines are another example of geographical alchemy at work.fn5 Merely adding a geographical or topographical adjective to food - whether on a menu in a restaurant or on packaging in a supermarket - allows you to charge more for it and means you will sell more. According to research from the University of Illinois at Urbana-Champaign, descriptive menu labels raised sales by 27 per cent in restaurants, compared to food items without descriptors.

'No one ever got fired for buying IBM' was never the company's official slogan - but when it gained currency among corporate buyers of IT systems, it became what several commentators have called 'the most valuable marketing mantra in existence'. The strongest marketing approach in a business-to-business context comes not from explaining that your product is good, but from sowing fear, uncertainty and doubt (now commonly abbreviated as FUD) around the available alternatives.

The Polish-American academic Alfred Korzybski (1879-1950) is perhaps most famous for his dictum that 'The map is not the territory.' He created a field called general semantics, and argued that because human knowledge of the world is limited by human biology, the nervous system and the languages humans have developed, no one can perceive reality, given that everything we know arrived filtered by the brain's own interpretation of it. Top man!

by removing the recording function from Walkmans, Sony produced a product that had a lower range of functionality, but a far greater potential to a change behaviour. By reducing the possible applications of the device to a single use, it clarified what the device was for. The technical design term for this is an 'affordance',

Wine tastes better when poured from a heavier bottle. Painkillers are more effective when people believe they are expensive. Almost everything becomes more desirable when people believe it is in scarce supply, and possessions become more enjoyable when they have a famous brand name attached.

Being slightly bonkers can be a good negotiating strategy: being rational means you are predictable, and being predictable makes you weak. Hillary thinks like an economist, while Donald is a game theorist, and is able to achieve with one tweet what would take Clinton four years of congressional infighting. That's alchemy; you may hate it, but it works.

'People do not choose Brand A over Brand B because they think Brand A is better, but because they are more certain that it is good.'

If there is a mystery at the heart of this book, it is why psychology has been so peculiarly uninfluential in business and in policy-making when, whether done well or badly, it makes a spectacular difference.

The psychophysicist Mark Changizi has a simple evolutionary explanation for why water 'doesn't taste of anything': he thinks that the human taste mechanism has been calibrated not to notice the taste of water, so it is optimally attuned to the taste of anything that might be polluting it. If water tasted like Dr Pepper, it would be easier for sensory overload to drown out the hint of 'dead sheep', which would alert us to the fact that a car-cass was decaying in a pool five hundred yards upstream.

our different senses - though we don't realise this - act in concert; what we see affects what we hear, and what we feel affects what we taste.

Irrational people are much more powerful than rational people, because their threats are so much more convincing.

There is a name for the addition of consumer effort to increase someone's estimation of value. It should perhaps be called the Betty Crocker effect, since they spotted it first, but it's instead known as the IKEA effect, because the furniture chain's eccentric billionaire founder Ingvar Kamprad was convinced that the effort invested in buying and assembling his company's furniture added to its perceived value. When working with IKEA I was once advised: 'Do not, under any circumstances, suggest ways of making the IKEA experience more convenient. If you do, we shall fire you on the spot.'

Our body is calibrated not to notice the taste of pure water, because it is valuable in evolutionary terms that we notice any deviation from its normal taste.

My contention is that placebos need to be slightly absurd to work.fn1 All three elements that seem to make Red Bull such a potent mental hackfn2 make no sense from a logical point of view. People want cheap, abundant and nice-tasting drinks, surely? And yet the success of Red Bull proves that they don't. Something about these three illogicalities may well be essential to its unconscious appeal, or to its potency as a placebo. If we are to subconsciously believe that a drink has medicinal or psychotropic powers, perhaps it can't taste conventionally nice. Imagine a doctor saying, 'I have some pills here to treat your extremely aggressive cancer - take as many as you like. Now, would you like them in strawberry or blackcurrant flavour?' Somehow, that last sentence doesn't quite work.

look at the paper money in your wallet or purse; the value is exclusively psychological. Value resides not in the thing itself, but in the minds of those who value it. You can therefore create (or destroy) value it in two ways - either by changing the thing or by changing minds about what it is.

If this book provides you with nothing else, I hope it gives you permission to suggest slightly silly things from time to time. To fail a little more often. To think unlike an economist. There are many problems which are logic-proof, and which will never be solved by the kind of people who aspire to go to the World Economic Forum at Davos.fn3 Remember the story of those envelopes.

'advertisements featuring cute animals tend to be more successful than ads that don't'.

reason seems to have given us remarkable advantages over other animals - and it is unlikely that we could have produced many of our technological and cultural successes without it.

To quote a Caribbean proverb, 'Trust grows at the speed of a coconut tree and falls at the speed of a coconut.'

let's imagine four people toss the coin just twice. There are four possible outcomes: HH, HT, TH or TT, all of equal likelihood. So let's imagine that each of the four people starts with $100 and throws a different combination of heads and tails: HH HT TH TT The returns on these four are PS225, PS90, PS90 and PS36. There are two ways of looking at this. One is to say, 'What a fabulous return: our collective net wealth has grown over 10 per cent, from PS400 to PS441, so we must all be winning.' The more pessimistic viewpoint is to say, 'Sure, but most of you are now poorer than when you started, and one of you is seriously broke. In fact, the person with PS36 needs to throw three heads in a row just to recover his original stake.'

What do the following things have in common? The fact that large, carnivorous fish desist from eating useful fish such as wrasse, which clean the parasites from their bodies The posh rope-handled carrier bags you get when you spend an appreciable amount of money on clothes or cosmetics The free extra scoop of fries they give you at Five Guys The fortune spent on a wedding Your modest minibar charges that are waived by a hotel The marble and oak lavishly used in bank branches That fancy training course your company sent you on A lavish advertising campaign A free glass of limoncello given to you by a restaurant after your meal Investment in a brand ... All these things only make sense if we assume that some signalling is going on - they are examples of a behaviour which is costly in the short term and which will only pay off, if at all, in the long term. They are thus - if nothing else - reliable signals that the person, animal or business engaging in that behaviour is acting on the basis of long-term self-interest rather than short-term expediency.

Many things which do not make sense in a logical context suddenly make perfect sense if you consider what they mean rather than what they are. For instance, an engagement ring serves no practical purpose as an object. However, the object - and its expense - make it highly redolent with meaning; an expensive ring is a costly bet by a man in his belief that he believes - and intends - his marriage to last.

Economic logic is an attempt to create a psychology-free model of human behaviour based on presumptions of rationality, but it can be a very costly mistake. Not only can a rational approach to pricing be very destructive of perceived savings, but it also assumes that everyone reacts to savings the same way. They don't, and context and framing matter.

Evolution does not care about objectivity - it only cares about fitness.

It's important to remember that big data all comes from the same place - the past.

have you ever eaten Chilean sea bass?fn1 It is the product of a particular sort of alchemy, 'The Alchemy of Semantics'. The $20 slice of fish that graces plates in high-end restaurants under the name 'Chilean sea bass' actually comes from a fish that for many years was known as the Patagonian toothfish. No one is going to pay $20 for a plate of Patagonian toothfish - call it Chilean sea bass, however, and the rules change. An American fish wholesaler called Lee Lentz had the idea, even though, strictly speaking, most of the catch doesn't come from Chile and the toothfish isn't even related to the bass.

Reciprocation, reputation and pre-commitment signalling are the three big mechanisms that underpin trust. You can repeatedly use a small local firm that needs your loyalty, you can use a larger company with a brand reputation, such as Addison Lee or Green Tomato Cars, or you can trust someone who has made a big investment in getting a badge and stands to lose everything if he is caught cheating.

As Alfred Hitchcock once said, 'drama is just real life with the boring bits edited out'.

if we allow the world to be run by logical people, we will only discover logical things. But in real life, most things aren't logical - they are psycho-logical.

The human mind does not run on logic any more than a horse runs on petrol.

Several experts I have talked to in the high-end wine business regard their own field as essentially a placebo market; one of them admitted that he was relatively uninterested in the products he sold and would sneak off and fetch a beer at premium tastings of burgundies costing thousands of pounds a bottle. Another described himself as 'the eunuch in the whorehouse' - someone who was valuable because he was immune to the charms of the product he promoted.