In today's conversation, I am joined by Leigh Caldwell, the founding partner of Irrational Agency. He is a behavioral economist and pricing expert with more than 10 years of experience in applying behavioral science commercially. He is the creator of the System 3 Methodology (which we will talk about a lot in today's episode) as well as being the author of The Psychology of Price, and a frequent speaker at academic and industry conferences.

That is actually how Leigh and I met in person -- while we were both speaking at IIEX Europe in Amsterdam this past summer. We had been connected on LinkedIn prior to that, and it was so great to chat in person a bit, and then follow up after for a virtual coffee, which of course led to this episode. My conversations with Leigh really got me thinking about what I believe, what I'm familiar with, and what it might mean to open up and consider how...things might not be exactly as they seem.

So, what I encourage you to do as you listen to today's episode, especially if you have been familiar with behavioral economics and behavioral science for a long time, is to be open to this idea. Be open to something that goes against what you believe to be true and wonder, "What might that look like?" I think if you allow it to be, this is one of those ideas and episodes that will really stick with you for a long time -- and I love that!

Show Notes:

• [00:39] In today's conversation, I am joined by Leigh Caldwell, the founding partner of Irrational Agency. 
• [03:02] Leigh shares his background and more about who he is. He describes himself as a mathematician above anything else. 
• [04:29] He realized there was something in the world about how people were buying and it wasn’t logical or rational.  
• [06:20] There were two directions he went after learning about behavioral science. One was pricing because he felt there was a gap in the market with helping businesses set their pricing.  
• [08:15] Second was that world of what is going on inside the head and what our imagination is made of. This really fascinated him. 
• [09:27] When it comes to pricing, first understand the value that you are providing as perceived by the customers. Then look at the alternative routes to solve the same problem and how much those cost. 
• [11:43] What is it worth to the customer to solve this problem and how can you capture as much as possible of that value?  
• [14:49] You are not your ideal client or customer, so how much you would pay for the thing is not how much the person who needs your services would pay. You often undervalue it. 
• [16:26] One thing that attracted Leigh to economics was the idea of being able to use math to model human behavior. 
• [19:12] When you are using a linear path to predict something complex, you are going to end up in a difficult spot.  
• [21:44] We have to be building, growing, and changing as the field of behavioral science is moving forward.  
• [24:19] System 1 thinking is fast, automatic, and unconscious - things that really are a gut reaction. System 2, the deliberate mind, is meant to be logical and calculating. 
• [25:05] There is another kind of thinking that is not captured by either one, and that is the thinking we typically do when we are daydreaming or watching a movie. It is the activity of imagination.  
• [27:12] Leigh calls this other type of thinking System 3.   
• [29:25] Melina reads the story from a paper he wrote to help us better understand System 3. In the story, what we are experiencing doesn’t have the logic of System 2 and it is not a learned reaction in System 1. 
• [31:34] We as humans can generate imaginary emotions and imaginary sensory feelings.  
• [34:20] If you want to understand people’s real experiences, you have to allow them to bring in all of the accidental influences that occur in real life and the different places that their minds can wander to. 
• [36:02] There can be real value in how the imaginative process can be useful to brands. 
• [38:11] Choices are important, but narratives are just as important.  
• [40:48] By uncovering the existing connections in people’s heads we can show brands how to tap into those stories and play their own part in that customer’s narrative. 
• [43:07] By uncovering how people really perceived their client’s product they were able to help them tell the right story in their marketing that was consistent with the story that the people already had and wanted. 
• [44:45] You have to understand who you are talking to and what it is you want them to do. 
• [47:41] People need to find ways and the right stories to help them through this challenging period, but brands also need to be able to find how they can play a part in customers' stories even in these challenging times. 
• [48:35] Melina shares her closing thoughts.
• [49:30] I don't know if there is a System 3 for sure, and what the field might adapt to in the coming years, but it is so cool to realize that we are on the forefront of something amazing.

Thanks for listening. Don’t forget to subscribe on Apple Podcasts or Android. If you like what you heard, please leave a review on iTunes and share what you liked about the show. 

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Get the Books Mentioned on (or related to) this Episode:

• The Psychology of Price, by Leigh Caldwell
• Branding That Means Business, by Matt Johnson and Tessa Misiaszek
• Blindsight, by Matt Johnson and Prince Ghuman
• Nudge, by Richard Thaler & Cass Sunstein
• Predictably Irrational, by Dan Ariely

Connect with Leigh: 

• Leigh’s Website
• Leigh on Twitter
• Leigh on LinkedIn

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