Sunday, April 09, 2006

Some not so Idle thoughts on a lazy Sunday

I really should be at the movies. Or watching a movie on the screen that's 2 remote control button pushes away. But despite the long term benefits in my emotional state that this would probably be responsible for, I feel like I must immediately reflect on this article I was just reading in Harvard Magazine.

Nothing against graduates of Harvard, but my pride insists on letting you know that I don't regularly read this magazine. Martha's mom did her undergraduate work there and Martha saw the words "economics" and "irrational" on the cover and deduced that I would be interested in the article. She's good.

Anyway, the article was talking about the hot new field of "Behavioral economics" which seems to have a growing appeal to the most current generation of people entering the field of economics. The way I understand it, behavioral economics is interested in the predictable, but not perfectly rational way in which people make decisions. This is a subset of the general study of economics which studies how people translate their values into choices, and how that can affect resource allocation, planning, production, finance, etc.

Naturally, this intersects with a lot of the "work" I've developed through this blog. Going to the movies involves people all around you (including yourself) making irrational decisions to the max. And a lot of the time, it seems to just work out so that most people win. In this way, it's a bit like a little model of the real world.
The part of the article that really got me thinking was this.
Suppose a company wants to sell more soap. Traditional economists would advise things like making a soap that people like more, or charging less for a bar of soap. A behavioral economist might suggest convincing supermarkets to display your soap at eye level -- people will see your brand first and grab it.

As an economist, even when you think psychology is important, you don't think it's this important. And changing interest rates is expensive, but these pyschological elements cost nothing.
Economists are famous/notorious for phrasing their world in terms of costs and values, and this article posits that behavioral economists are especially sensitive to empirical evidence (they see irrational behavior in real life and seek to resolve it). The problem with this line of thinking, is that the author has stopped thinking like either a tradional economost OR a behavioral economist.

Of course invoking psychological elements has a cost. What happens when people learn the hard way that they were manipulated into doing something that does not maximize their utility? Sometimes you use up your one chance at one shot gimmick. Shouldn't the behavioral economist attention to empirical evidence unturned this stone?

My guess is that this can be largely ignored, because in aggregate (as people in marketing know well) it's never a one shot deal. You get new, inexperienced "suckers", without even trying, and the gimmick never seems to lose it's power. The cost is negligible. Unless you're listening to the people who got suckered.

Let's say we're talking about movies (and we always are). Everyone on the production/distribution/exhibition side wants people to sell more movies. Moviegoers clamor for lower prices, a more comfortable experience, and better movies. Much like the traditional economists suggestions for how to sell more soap, people thinking rationally about what they think would make them go to more movies suggest "real" improvements to the value proposition. But time and time again, observable trends in box office results and extensive studies of moviegoer behavior will support the idea that if you cut a certain kind of trailer and follow a certain kind of plot formula, this will have a much bigger effect on how much you can sell, than all of those other things.

But amidst all this, there's no shortage of people complaining. Forums everywhere are full of embittered people who were duped by a trailer and convinced of nothing but Hollywood's disingenuity. Is behavioral economists to suggest that "psychological" elements like cutting a trailer that appeals to your generic instincts is as likely to work on these people as it is on people who haven't been burned?

I'll concede that in many cases, the same tricks work over and over again (seeing a trailer for the same kind of action movie, or reading a review that pumped up a movie that I initially didn't think I'd like have gotten me into a theater seat many many times). But you have to consider that a lot of times they don't. As people learn, and become more experienced, their decision making changes.

People are not static, and the decisions that we make are not independent of one another. That's what causes phenomena like "ad blindness" and over saturation of marketing efforts.

This is yet another predictable element of economic decision making that doesn't get a lot of press. I think it's pushed to the margins because the "educated" people in any given area of life will always be outnumbered by the inexperienced, and thus their actions will get drowned out as noise. But I think it would be an interesting and productive study how to wield an understanding of how people's decisions evolve as they mature.

Maybe what happens is that people eventually start doing what I have been doing: Constructing their own personal movie watching experience (choosing their own movies and viewing conditions), when their needs outgrow what the public venues are able to provide. The booming home theater and "netflix" industries are certainly evidence of this.

Then, in effect, what the hollywood blockbuster and multiplex machines have developed is a kind of moviewatching school. A crash course in the visual language. They have discovered the best ways to draw in the uninitiated into the world of movies, and give them enough of a taste to develop their own preferences.

This, of course, makes this idea of behavioral economics, a bit more like child pyschology. And just because those "children" occupy adult bodies, the idea that some parts of the way they make decisions is underdeveloped should not be ignored.


Post a Comment

<< Home