Why people smile back?

Why people smile back?

Few years ago, a university professor tried a little experiment. He sent season’s greeting cards to a sample of people who were complete strangers.

Any guess as to what would have been the result of this experiment?

Although the professor expected some reaction, he was amazed with the response he got. Holiday cards addressed to him came pouring back from people who have never met or heard of him. Most of them never ever inquired about the identity of the unknown professor.

They received the holiday greeting card and they sent one in return.

Recollect when your little princess went for her friend’s birthday party? There was a gift and there was a return gift. I think the return gift concept would have come from parents more than children.

When someone invites us at their place, we also reciprocate by inviting them at our place.

Why do you think this happens?

Here is the reason. There is a powerful rule that is at play. Renowned psychologist Dr. Robert Cialdini calls it the ‘Rule of Reciprocation’.

The rule suggests that we should try to repay, in kind, what another person has provided us.

So when you do something for others, they have an overwhelming tendency to repay.

I am sure you have been to the sweet mart some time or the other. I have a very experience with sweet marts in two different circumstances. My re-action were different for these two different types of sweet shops. One type of sweet mart show you the displayed stuff and the other type not only shows the display, but also encourages you to taste different types of sweets.

I have always felt a sense of obligation to buy something in the sweet marts where I was coaxed into trying different sweets.

One such interesting study was done by Prof. Dennis Regan. Here is the gist of the experiment.

The set up was that of grading the paintings (‘art appreciation’). The subjects (they are the one on whom the researcher conducts the experiment) were divided into two groups.. First group 1 and then group 2 were asked to grade the paintings. In both the groups one person was common who was a research assistant with Prof. Regan. He acted as one of the participants in both the groups and behaved the same natural way except one change.

With group 1 he took a 2 minutes break, went out and got 2 cokes.  One for self and the other for fellow mates. With group 2, he did take a 2 minute break but did not bring the coke. Neither for self not for others.

Here is an interesting part of the experiment. When the grading was done and the participants waited in the other room, he told both the groups to do him a small favour.

He indicated that was selling raffle ticket @ 25 cents for a new car and that if he sold more tickets he would win fifty dollar prize.

What do you think may have happened?

People in group 1 for him he got the coke purchased twice the number of tickets compared to group 2.

The experiment through the rating scale also check the correlation between liking for the research assistant and tickets purchased.

The findings were again interesting. People who owed him something to him reacted differently. It did not matter to them whether they like him or not, they still purchased the tickets.

Give and you shall receive.

The question then is, can we use this powerful rule in sales, service, social context or for that matter any sphere that we are in?

Here are the three things we can conclude :

1.       People have a tendency to repay favours.

2.       Repaying an obligation overpowers liking for us.

3.       This can have great application in any profession that we are in.

And yes, for the same reason, if we smile the other person will smile back!!!

Wealth creation - Part 4 - Final

In the previous blog Prakash shared the following things with the group.

1.     Assured returns schemes/financial products have their benefits however number of such schemes has come down over last few years.

2.     Assured return schemes always do not give assured returns and sometimes even your principal amount also may be at stake.

3.      One must invest in equities if he/she is serious about wealth creation.

While the group understood the importance of equity investment, they were concerned with the fact that equity is a risky asset class. Prakash understood the discomfort of the group.

How many of you know Mutual funds and ULIPs (Unit linked insurance plans)? He asked.

All of us raised our hands. Some of them were investing in MFs and had ULIP policies. Others have read about them.

Prakash said if you don’t want to invest in equities directly, there are indirect ways as well. MFs is one way of indirect investments. You could look at ULIPs as well.

Hold on, Deepak said. I have two questions here. How will MF take care of the risks of equity investment and why are you clubbing ULIPs with it as an investment option?

I guess Prakash anticipated this concern. Prakash Continued. Depending upon the objective of the fund, MFs invest in different companies and hence your risk spreads. Second, they have fund managers who understand investments better than us by virtue of their expertise and experience.

With regards to ULIPs, IRDA (Insurance Regulatory and Development Authority) has taken some very important customer friendly measures since September 2010. If your investment horizon is more than 7 years you get three benefits. a. You get life Insurance cover; b. You get to choose fund basis your risk appetite; c. Since the minimum lock in for your premiums is 5 years, the fund managers are not under pressure to take un-necessary risks and d. You get tax benefits.

Wow Prakash. We have not thought about MFs and ULIPs this way. But tell us which MFs; ULIPs and Shares do we buy?

Deepak was wearing a cream colour shirt. Prakash appreciated the colour and said why are you not wearing a pink colour shirt like Sharad? Deepak said that it’s a personal choice.

Prakash said, precisely for the same reason, it is difficult to suggest the stock standard products to all.

It all boils down to the three things that we discussed earlier. Risk appetite; asset allocation and financial goals. And these things are different for different people.

The best person who can help you with specifics is your financial planner.

Prakash said we have discussed only paper assets and that too not entirely. He has asked us to take some interest in understanding about different asset classes and products.

He said knowing is important but once we know about them and take experts help, we must ACT.

We all dispersed with the resolve to engage an expert and most importantly act for the wealth creation journey.