Game of Cults: Discover How Market Behavior Can Help You Gain Loyal Readers

The stock market

Let’s talk about the stock market for a second.

According to Nobel Laureate Gene Fama, the market is perfect for interpreting data. It captures the wisdom of the crowd and provides perfect pricing information. Billions of decisions coalesce into a self-organizing system with a mind of its own.

That’s sort of true, but there is a conflicting hypothesis.

Another Nobel Laureate, Richard Thaler, would say that Homo Economus, the perfectly rational being discussed in economics classrooms, doesn’t exist in the real world.

The market is made up of real people. Therefore, the market is just as emotional and irrational as the people who make it up.

Benjamin Graham, the major influence on Warren Buffet, once said:

Imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market, who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his. Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him. Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

The last twelve months have validated Graham’s narrative about Mr. Market. Very little that the market has communicated about price seems to have to do with reality.

The publishing market

The publishing market has similar irrational behavior because it’s also made up of people.

Our perception of the publishing market is similar to that of the stock market, an abstract interaction of forces that sort and organize public taste and reward the best with sales.

The fact is that Amazon accounts for 80% of US publishing sales and provides up to the hour sales ranking. It is a model of what the market wants.

Just like Graham’s Mr. Market, the publishing market seems equally irrational. What is even more strange is that we attribute the irrationality to technology, not human behavior. We try to understand the algorithm, not the humans making purchasing decisions.

A drop in demand is a cliff induced by an algorithm. A sudden surge in popularity is virality. All is the machine god, and little attention is paid to what may be influencing the group consciousness or how the group consciousness is influencing the market.

By the end of this series, you’ll understand that people are irrational and often act against their own best interests. You can use their unmet desires to drive their behavior.

This is where you, as a reader, are different. We will influence the market by creating a collective that you can control.

This is simple leverage—a force-multiplying machine that uses the technology to amplify your signal.

The market is a complex, self-organizing system with a mind of its own.

A unique organism like an ant colony, where the individual is a tiny part of the larger organism, and observation of the individual tells you little about how the larger organism is acting.

The prevailing wisdom is the Fama quant approach. The idea is that by applying logic, machine learning, and computation power, you can act on information faster and outsmart or influence the market. Somehow, you can create asymmetric knowledge to get ahead of the pack.

There’s a problem. Humans are involved…

Marketing isn’t solely an analytical problem. It’s also a behavior problem.

Analysis can be like looking at individual ants or a group of ants and extrapolating colony behavior.

What is the viewpoint you use to assess the market as a whole?

Think about it.

Consider also that our perception is influenced by the tools we have to measure—tools that are limited.

Advertising platforms tell you to look at what is measurable. The measurements they suggest are skewed to make advertising and agencies look productive. We will go deeper into this conspiracy in article four.

So, how do you influence the market?

Influencing the market

In Advantage, I talked about Dr. Deborah Gordon’s Observations and her experimentation with ant colonies.

In one experiment, her team created barriers that wouldn’t let scout ants return to the colony. Without the scouts returning, the foraging ants wouldn’t begin to forage. At the same time, the colony would continue to send out scouts. They were also not allowed to return, so foragers would never emerge from the anthill.

Conversely, if pellets with the scout pheromone were dropped into the anthill, foraging would begin. If more foraging pellets were dropped, then foraging would increase.

This brings us back to my model of the market and how this positive feedback loop can be spun up.

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If you read Advantage, you understand the idea, but let’s have a quick recap.

A reader goes to the market to make a book-buying decision.

A list of suggested purchases is presented based on purchase history and available data from search. They make a buying choice, and that purchase occasion is then assigned a value in the algorithm.

As a practitioner of Advantage, we understand that an author’s brand can make a deep psychological connection with the reader.

Once readers tie their personal identity to your brand, we can move them into your community. Then, that reader group can be mobilized to send a larger signal to the market that influences the market at the macroscopic level.

Let me put this another way. While the market is a complex self-organizing system, it, just like an ant colony, is based on simple rules and signals.

When you understand the tenets of this system, the game can be influenced and changed. While this may feel like a hack, we are doing this work at the behavioral level, not within the algorithm itself.

Here’s the difference. A hack to the algorithm will eventually fail. While the “false trigger” will promote visibility, the algorithm owners will learn how to defend against the hack, or widespread use of the hack will result in a loss of efficacy. Without a system to collect and care for the right readers that you find you never create your pure signal or an amplification method.

Instead of embracing the latest hack, we adopt a core tenet of the content market—the reader-writer relationship.

A system supporting this paradigm means all sub-systems perpetuate and support the best possible relationship with your sole source of income, the reader.

From there, we concentrate and amplify the reader signal to get the colony to do our bidding, just like Dr. Gordon dropping pellets into the anthill.

You create the biggest pool of buy “signal pellets” you can drop into the market. Then, the market understands the “pheromone” and sends out more signals like it.

For the ant colony, foraging is survival. All resources are used to optimize the foraging and storage of food. The market wants sales, so it will allocate more resources when it sees an easier path to sales.

This isn’t complex. If an above-average buying signal for a particular title is identified, that product is shown more frequently to people who look like the existing buyers. The product will be offered to more and more people with less of the purchaser’s attributes until the conversion signal drops below average.

We look to influence that signal by having a group of enough mass to influence the broader market. We create the group by influencing individual readers.

Behavior modification

Tesla is getting into insurance—or is it behavior modification?

Tesla will be using technology to provide use-based insurance. You pay based on how much and how well you drive.

This is an interesting experience, not because of the economics but the behavior.

Your rates for the time you drive will be based on how they score your driving. So Tesla will track your driving behavior.

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This will create a feedback loop for the driver with an economic incentive to change their driving habits.

Now, the insurance companies get what they want: the ability to get drivers to reduce their accident-causing behavior, which increases insurance risk. It’s logical—give the user an economic incentive for good behavior.

What if we could build a system like Tesla’s insurance feedback loop, but rather than an economic payoff, it had an emotional one?

I believe it will be more successful solely because people will do crazy things for an emotional payoff, as you will see in this season.

Here’s another issue with the insurance system.

Have you ever driven home and been on a phone call and suddenly realized you were home?

Your unconscious (system 1) just followed routines and behaviors to get you home, while your conscious system was engrossed in the call. The harsh reality is that 85% of our behaviors are driven by instinct and unconscious patterns that we never think about.

How can you change this unconscious behavior with an economic benefit? I think it will be hard.

However, if we can deliver a reliable emotional payoff, it’s easy to change the unconscious behavior and thereby influence what value a person sees in your story.

Here’s the thing. All this boils down to chemicals and electricity in your brain. Tesla’s on-demand insurance uses an analytical and economic approach to get you to drive how they want. They assume that your desire to save money will outweigh the joy of driving fast.

As an author, you want to influence the market to favor your books. We know that the market will give us preferential treatment by reducing the effort to find our books and helping to satisfice the reader. No, that’s not a misspelling. You’ll see the importance of satisficing in the next article.

We don’t want the reader to be able to explain the value of buying your book logically. We compel them with an emotional urge to want your book and to want others to have the same experience they have with your product.

One more thing…

Look at your market. Understand the signals that exist and how they influence behavior right now.

A quick way to do this is K-Lytics Genre Reports. You can also do this work yourself and develop an understanding of the sales and ranks within your genre and how that fits into the broader market.

Read through other authors’ reviews to hear the voices of readers and what they like and dislike. Hunt for emotional cues and unmet public desire. Write down your findings, then return to them in a few days to see if they give you insight into what the market wants.

​​​​P.S. I need to give credit where credit is due. The book that has been inspiring me lately is Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life by Rory Sutherland. You might want to pick it up and read it as well.

Read: Build a Trustworthy Brand to Capture Your Reader’s Attention

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