A pigeon from the 1950s has the answer to your facebook addiction

12 minute read

It is estimated that the average person checks his mobile 150 times a day!

8 out of 10 smartphone owners check their device within 15 minutes of waking up every morning!

1/3rd of Americans say they would rather give up sex than lose their cell phones!

But, why in the world are we so addicted?

Is this a simple harmless habit formed by chance or is there a lot more than what-meets-the-eye that go behind these apps to make us addicted by design?

While there are a combination of factors which go behind our app addiction, today let us delve into what I believe is the most important contributor.

To understand this better let me press the rewind button and take you back to the 1950s.

Dr Skinner and his pigeons


Dr Skinner, a famous American psychologist conducted a weird experiment. He created a small box (which later on came to be known as the Skinner box) in which there is a small button which can be pecked by a pigeon and another opening below the button where the pigeon gets rewarded with food.

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Basically Mr Skinner was trying to find out, if he could create a habit (in this case the pecking of the button) in the pigeon by using appropriate rewards.

In the first set of experiments, he rewarded the pigeon every time they pecked. So basically whenever the pigeon was hungry, it used to peck the button and would be regularly rewarded with food.

Now he decided to do a small tweak. This time he rewarded the pigeons randomly both on the quantity of food rewarded and frequency at which they were rewarded. So instead of the regular 1 peck and immediate food, this time he made it variable i.e say 2 pecks- food-5 pecks-food-3pecks-food and so on in a random pattern.

To his surprise, he noticed something unbelievable. Unlike the pigeons that received the same food at regular intervals, the pigeons that received variable rewards went berserk.

They started to continuously peck at the button compulsively.

In fact, one pigeon hit the button 2.5 times per second for 16 hours!

Another tapped a whopping 87,000 times over the course of 14 hours,while it got the reward only less than 1 per cent of the time!

To Skinner’s surprise, similar experiments conducted on rats also showed the same phenomenon!

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So what would you have concluded if you were Skinner?

Simple. Animals can be persuaded to perform an activity more often, simply by giving a variable reward instead of promising a fixed reward.

But wait a minute..Holy shit..What if the same thing works on humans?

Brace yourself.

It just works the same with humans!

This weird rewarding system which helps create addictive behaviors is referred to as “intermittent variable rewards”

But is this stuff for real? Can you think of something that works on this concept?

The Gambling industry!

The entire gambling industry runs on this simple concept. Gamblers on the slot machines have no way of knowing how many times they have to play before they win. There is always the possibility that the next coin they put in will be the winning one. The gamblers just like Skinner’s pigeons, get addicted to the variable rewards and continue to obsessively play the slot machines.

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In fact it is so addictive that, gamblers have started wearing diapers to play longer at the machines. You can read more here.

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And just in case you are still skeptical, here is a stat that will blow you away..

The slot machines make more money in the United States than baseball, movies, and theme parks put together!!

Another example is the gaming industry..

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Check this video to understand how games are designed using Dr Skinner’s principles:

And to give you a shocking perspective of how addictive these can become, read the below news

A 17 year old gamer died after playing it for 22 days in a row (link)

A 20 year old Xbox addict died due to blood clot after 12-hour gaming sessions (link)

Welcome to the scary world of “intermittent variable rewards”

But, why the heck, do we get addicted to variable rewards??

The answer lies in a small part of our brain called the “nucleus accumbens” or sometimes informally referred to as the “brain’s pleasure center”.

This is that same region which gets activated by sex, luxury goods, delicious food, drugs, cigarettes, alcohol etc

In several experiments conducted, it was found that whenever this region of the brain was triggered it created significant addiction type behavior.

Sample this:

When a set of people were allowed to press a button in a machine which in turn sent electric impulses to their “nucleus accumben region”, the subjects wanted to do nothing but continuously press the brain stimulating button. The addiction was to such an extent, that the researchers had to forcibly take the devices from subjects who refused to give it back.

Unfortunately, this is exactly the same region which gets triggered whenever there is a variable reward in offer.

Now you can understand as to what goes behind the strange addictive power of variable rewards.

So “as we get the reward, our nucleus accumbens get activated and hence eventually we will get addicted to the habit ” – goes my naive conclusion.

But hang on. This is where it gets even more interesting.

Contradictory to what I concluded, the nucleus accumben was less active when the reward was actually received!

It actually becomes most active in anticipation or craving of the reward!!

…  and  calms  when  
 we  get  what  we  want. Source:  Knutson  et  al  2001   That’s  the  ITCH we  seek  to  SCRATCH.


So that essentially means it is not actually the reward that really matters as we normally would have thought. But rather the anticipation for that reward.

From an evolutionary point of view this is critical. This system kept us motivated to move around, learn, and survive. The rewards are not just restricted to food, drugs, sex, but also includes our search for information.

How many times have you searched for something on google, found the answer, and yet realized half an hour later that you are still online looking for more information?

Remember, that moment when you start scrolling through your facebook feeds and slowly what was supposed be 10 minutes eventually ends up becoming an hour. And you are still frantically scrolling through your feeds in search of your next reward – what are your friends up to, what’s the latest news, some nice article etc. And the key is, it is “variable”. You have no clue what reward you might find next.

Until now, if you still can’t spot the skinner’s pigeon, relax.
It’s us!

So more than the friend’s update it is the frantic scrolling in search of the next update, that is causing the brain’s pleasure center to activate.  We’re mesmerized by the prospect of another chance to find a reward – an endless search for the satisfaction that is never fully realized.

The variable rewards in social media take the form of new features,likes, feedback/responses, messages from friends, compliments, comments, new content, shares etc.

No wonder most of the popular apps have the “scroll” component (referred to as feeds) in it and work on the same principle of variable rewards.

Image result for twitter    Image result    Image result for linkedin

Other examples of variable rewards in the app world

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E-Commerce sites – the thrill of searching for a new product at an awesome discount

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Oops. Even our addiction to watching sports has the “variable rewards” angle to it!

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If interested, you can read more about sports addiction here

And do you have this experience of switching channels in the remote of your TV without actually stopping to watching any programme..

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Phew. This “variable reward” phenomenon is all around us. *Deep breathe*

Wait a minute. If this principle is used for creating negative habits, can’t it also be used for positive habits. Are there people out there doing this?

A few years back, I was trying to reduce weight and had joined a gym. It was a struggle for me to be regular and my attendance levels were extremely pathetic thanks to my low levels of discipline and will power. But astonishingly, in the last two years I have been reasonable consistent and work out 3 days per week with a fitness group called The Quad (read more about them here ). And making my job even more difficult, their classes are at 6 am in the morning which essentially means I wake up at around 5 am, three times a week!

How in the world did this miracle happen?

The key difference versus a normal gym was that workouts here are never repeated. Each and every class you go, you have no clue on what the workout is going to be.

It is the “Variable Rewards” yet again.

Confirming my suspicion, here is something that suddenly caught my attention from one of their testimonials,


And just when I thought, maybe I am taking it too far, I suddenly get reminded on the usual “What-happened-in-class-today?” messages from people who miss the class.

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The variability factor definitely seems to be working.

Great. Some good news finally.Variable rewards work equally well for creating good habits!


Variable rewards play a significant role in habit creation and addiction.

While the power of variable rewards can be used both for good and bad addictions, unfortunately most of them lean towards the latter.

Product designers know the power of variable rewards and are applying it across various products to get us addicted. These are guys paid in millions to crack the code to our brains and get us addicted to their apps or products.

All this makes it a one sided fight and the simple truth is that we need to brace ourselves for an environment where everyone out there is coming after our most precious thingtime.

While the fight to protect our time is going to be a long drawn one, the first simple step is to acknowledge and start consciously watching out for this variable reward created cravings in our day to day lives.

Now to start addressing the problem, we also need to know about the additional techniques which complete the loop of habit forming products.

In our next post we shall learn about the entire loop, the various types of rewards and figure out some ways to have some control in the way we use these products.

If you like the content, it would be awesome if you could drop in your comments and also don’t forget to subscribe to the blog (all posts shall be delivered directly to your inbox), because your valuable comments and subscription are my variable rewards 🙂 

If you have survived me till here, thanks a ton for reading and happy investing.


Why the odds are against you when it comes to good financial advice

All of us are regularly making decisions of varying degree of importance, for most part of our lives. This may include serious ones like how to improve sales in your company, buying a new house, evaluating a new job etc to day to day ones like which route to take, which restaurant for dinner etc. While simple decisions don’t require much of an effort as the stakes are pretty low, however in situations where the stakes are high, the decisions that we take, need to be taken after some reasonable analysis.

Though the situations and problems will be different, if we can develop a set of thinking tools which we can apply selectively to various problems, it would help us to improve our decisions dramatically. In essence, you don’t want to start a bike repair shop with only one spanner, you essentially want to have various tools which you can use based on the nature of problem in the bike.

So with the same premise, we are going to slowly build our own mental tool kit which will help us both in our day to day lives and investing. Our first tool that we will be adding to our mental tool kit is called “Incentives”

Most of economics can be summarized in four words: “People respond to incentives.”  The rest is commentary. – Steven E Landsburg

The basic idea is to ask the simple question “What’s in it for the fellow on the other side of the table”

Let’s apply this simple question to the financial industry and investing.

Most of us or someone in our family would definitely have an investment linked insurance product sold to us. But when it comes to mutual funds, most of us have hardly heard about them, leave alone buying them. Intuitively, our first line of reasoning goes – a better product gets more popular and hence insurance products must be better than mutual funds. But if you have held on to any investment linked insurance product (except for pure term insurance which in my honest opinion is the only decent product in the insurance industry) for more than 5 years and you do the calculation for returns, you realize the sad truth 😦

But what explains their popularity ??

You guessed it right. Incentives !!

When you are sold a mutual fund, the distributor commission is generally around 1% for equity mutual funds and around 0.5% for debt funds. So if you invest Rs 1 lakh in an equity mutual fund, your advisor will make just Rs 1,000 for the entire year.

But when you sell an investment linked insurance product, the first year commissions (including rewards) can be as high as 49% (see the below chart). So if your premium is Rs 1,00,000 then upto Rs 49,000 may go into the pockets of your agent or the bank. Then,the charges are capped at 7.5% of the premium till the 5th year and thereafter it is 5% of the premium. If you had a heart attack looking at this, hang on, these charges were even more exorbitant a few years back and the current rates are post the regulatory intervention putting a cap on the charges. You can imagine the “gala” times that your friendly insurance agent had those days.

You can see below the maximum commission charges for various plans and tenures. (Link)

Source: http://www.livemint.com/Money/AbOyobTzU0KrpbTSGEpysM/How-to-grab-70-of-a-premium.html

This has led to significant mis-selling in investment based insurance products. Since the incentives are front loaded the focus is on churning your insurance products given the high 1 st year commissions. This behavior is evident as seen from the low persistence of holding an insurance product beyond 5 years. Refer to this article for a detailed explanation  (Link)

Excerpts from the article,

“According to figures of financial year 2015, as reported by the insurance regulator in its handbook of statistics, the industry, on an average, reported a persistency of 59% in the 13th month, i.e., after a year of sale. In other words, out of 100, just 59 policies got renewed. In fact, the average persistency for the 61st month is about 22%, which means by the end of the fifth year, only 22 policies got renewed.

India compares badly with the rest of the world. The 13th month persistency in member countries of Organisation for Economic Co-operation and Development is above 90% and about 65% for the 61st month.”

Source: http://www.livemint.com/Money/wkeodGRDFxDjPYP3TtSWGJ/Life-insurers-selling-policies-that-die-early.html

This is a clear case of how incentives of our friendly insurance agent which are not aligned to our interests generally leads to a bad investing experience.

Quick take away:
At the current juncture, given the opaque cost structure, just-about-average investment managers who manage our money and not-in-our-favour commission structure avoid any insurance product which promises returns. Don’t confuse an insurance product with investments. If you need insurance, opt for pure term insurance which promise no investment returns but provide the insured value in case of your death within the term.

So, now let us assume you are just about 2-3 years into your career and you decide to save around 10,000 per month. Mutual funds are perhaps one of the best investment vehicle available for you (given their low costs, simple structure, high transparency, investor friendly regulator and the presence of seasoned fund managers). But you hardly have any knowledge on the markets and wish to work with an advisor. As you are relatively inexperienced, you also have a lot of queries and often get shit scared when markets go down. This means an advisor will also have to spend a lot of time hand holding you, meeting you, explaining to you about markets and stopping you from making hasty decisions. You would also like to meet your advisor regularly every month and discuss your various financial plans and queries. On top of it you are averse to paying your advisor. After all who pays for financial advice in India. We get it free of cost from our beloved news channels and friends 😦

So the advisor has to work on the wafer thin commissions that the mutual fund pays him which is approx 1% for distributing their funds. If your SIP is 100% equity, then the advisor gets around 1% of 1,20,000  (i.e 10,000 * 12) and it works out to Rs 1,200 !! Yup you read it right ..Lets assume the advisor remains patient and works with you for 5 years and your SIP of 10,000 each month has compounded at 15% and has increased to a value of Rs 9 lakhs. And how much does your advisor get paid for all this effort, honesty and persistence.. Rs 9000 !! Add to it the risk that the % of commission might further reduce after 5 years.

I hope you get the picture. Now you know why those lousy insurance products get sold to you (why in the world would anyone let go of an opportunity to make 30% plus 1st year commissions..to hell with long term client relationship). Did mutual funds not have a problem of incentives. Of course they did. The recent selling of closed ended funds (which had one time commissions which went as high as 7%) is a classic case. But the difference is you have an extremely investor friendly regulator by the name SEBI who regularly keeps a check on any possible investor unfriendly activities. While in insurance, the regulator IRDA continues to have its eyes closed on the high commission driven insurance sales.

For a good advisor, it generally makes sense to cater to larger clients where the efforts and time spent, while is the same as spent on a small client, provides him with a far better remuneration (a 1 cr client, with a 50% in equity and 50% in debt would provide an income of around Rs 75,000 per year)

So they key implication, is that if you are a small investor its extremely difficult to get decent and honest advice. 

Now given this practical reality, the safest choice for all of us is to educate ourselves on the bare minimal basics of investing. Sounds boring. But think about this, in a career spanning 38 years from the age of 22 to 60, you end up working approx 79,000 hours in exchange for all the money you make. Don’t you think should spend just about 2 hours a month, which works out to just 1% of your overall work hours, on making your money work equally hard as you.

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”  – Abraham Lincoln

This blog is a small attempt from my part to ensure that all of us get good financial advice, and hopefully have a reasonably good investing experience. (intelligent folks should interpret these lines as shameless marketing 🙂 )

Now for those of us for whom investing sounds like greek and latin, and that’s the last thing on which you want to spend your well earned free time, don’t worry, all is not lost. To your rescue comes the new breed of online based advisors called robo advisors (Eg Scripbox, Arthayantra, Advicesure, Fundsindia etc) which are slowly gaining popularity. These guys provide advice through apps/websites with bare minimal human intervention and address the main issue of cost to service us, as most of the investment advice is standardized and can be easily scaled (think of uber, airbnb etc). While this is still at an initial stage and most of them are very basic, my sense is that in another 2-3 years we will have some really solid and evolved online advisory models for people like us. Till then let’s keep learning !!


  • Keep an eye on incentives – Always ask what’s in it for the guy on the other side
  • Investment-linked-Insurance products are injurious to your financial health
  • Tough to find good financial advice for small investors – the incentives for advisors are tilted towards the larger investors
  • Invest in improving your investing knowledge – no two ways about it !!
  • Robo-Advisors, while currently at a nascent stage, may be the solution to decent financial advice for small investors in the coming years