Tag Archive for 'Becker'


Low-information advertising

Go here to read a wonderful question from Richard Posner.  It’s much too long to post here, but here is his topic:

At the same time that sellers forgo much product disclosure that would seem advantageous both to them and to their customers, they make disclosures that have no information value and should not persuade any rational consumer, such as implausible, self-serving, and empty claims that their product is better, or super; and these claims are often wrapped in clever, funny pictures or anecdotes that are designed to seize the attention of the viewer, but that convey no information.

Posner’s question is a simple one:  why?  In their typical conversational posting style, Gary Becker posted his opinion.  It’s again too long to post in it’s entirety, but two paragraphs of note are:

Economists have generally not been friendly toward persuasive advertising since it is much easier with the usual economic analysis to discuss advertisements that provide information or misinformation. Yet tools are also available for considering the persuasive formation of attitudes and preferences with rational consumer behavior – see my book of essays, Accounting for Tastes, 1996. Although such an analysis of preference formation is dependent on some underlying psychological mechanisms that are not well understood, the process appears to be quite rational.

That said, challenging puzzles remain in using economic analysis to explain the types of information used and not used in advertisements, whether or not there are comparisons to the products of rivals. However, given all the professional time and thought that goes into advertisements, I am reluctant to claim that advertisers are not rational in what they do, for we do not understand all the relevant considerations that enter into the determination of the types of persuasion and information that are highlighted.

I have been fascinated by this for a while.  I think a good example lies in product packaging.  A year or two ago I was shopping for a new web-camera.  At the time, a major producer of webcams offered a “Webcam Live!” and a “Webcam Live! Pro”, with the latter 20% more expensive, in a noticeably larger box (despite housing a product of the same volume) and with insufficient information printed on either box to allow a potential customer to identify the functional difference between the two.

More than simple vertical product differentiation, this seems to me to also be a form of “information discrimination”.  By denying the consumer the details of the differences between the two options and offering only general, suggestive signals of their respective quality, the producer seems to ensure that wealthier consumers will purchase the more expensive option and that poorer individuals will choose the cheaper option, irrespective of their functional or qualitative differences.  Armed with complete information, the wealthy consumer might recognise that they only require the functionality of the cheaper option, or the poorer consumer – who cannot afford the more expensive option – might consider the cheaper option insufficient for their needs and so not buy either.

Of course, such a tactic on the part of the manufacturer would necessarily rely on two social norms: (a) that people generally accept the information presented to them and make their decision on that basis without seeking more; and (b) that people generally believe that information presented to them, if not entirely accurate, is at least indicative of the truth.

We can expand this by considering the retail outlet that sells the webcams. The retailer would be capable of circumventing the producer’s packaging strategy by, for example, putting information cards beside the two boxes or employing highly knowledgeable retail staff. However, assuming that the retailer shares in the profit from the product sales and not just the revenue, it is in their best interest to collude with the producer and provide no additional information.  Without naming names, I can assure readers that this is exactly the scenario that I encountered (the no extra information, that is, not the collusion).

Of course, the two companies would carry a risk of reputation damage as a result of their discrimination.  If, as seems intuitively reasonable to me, there is also a third social norm of tending to allot blame to the most visible perpetrator, the retailer carries the bulk of this risk.  How can they offset this?  By having an advertising campaign emphasise how helpful and informative their staff are …


What constitutes a racist statement?

James Watson, joint winner of the 1962 Nobel Prize in Physiology or Medicine for his contribution to “discoveries concerning the molecular structure of nucleic acids and its significance for information transfer in living material,” has been getting himself a public lashing (and, indeed, has lost his job) after making some controversial statements about race and intelligence. Here is an article from The Times:

The 79-year-old geneticist said he was “inherently gloomy about the prospect of Africa” because “all our social policies are based on the fact that their intelligence is the same as ours – whereas all the testing says not really.”. He said he hoped that everyone was equal, but countered that “people who have to deal with black employees find this not true”.

He says that you should not discriminate on the basis of colour, because “there are many people of colour who are very talented, but don’t promote them when they haven’t succeeded at the lower level”. He writes that “there is no firm reason to anticipate that the intellectual capacities of peoples geographically separated in their evolution should prove to have evolved identically. Our wanting to reserve equal powers of reason as some universal heritage of humanity will not be enough to make it so”.

He claimed genes responsible for creating differences in human intelligence could be found within a decade.

The upset has revolved largely around his quotes included in the first paragraph above, but it’s the second paragraph that I want to focus on.

For the record – and I want to stress this – I believe that early childhood environmental factors play by far the greatest role in determining how a person will score in standardised tests of mental aptitude later in life. Steven Levitt (of Freakonomics fame), working with Roland Fryer, has a working paper that I find compelling enough. Here is the paper. Here is the abstract:

On tests of intelligence, Blacks systematically score worse than Whites. Some have argued that genetic differences across races account for the gap. Using a newly available nationally representative data set that includes a test of mental function for children aged eight to twelve months, we find only minor racial differences in test outcomes (0.06 standard deviation units in the raw data) between Blacks and Whites that disappear with the inclusion of a limited set of controls. Relative to Whites, children of all other races lose ground by age two. We confirm similar patterns in another large, but not nationally representative data set. A calibration exercise demonstrates that the observed patterns are broadly consistent with large racial differences in environmental factors that grow in importance as children age. Our findings are not consistent with the simplest models of large genetic differences across races in intelligence, although we cannot rule out the possibility that intelligence has multiple dimensions and racial differences are present only in those dimensions that emerge later in life.

That said, I want to make a controversial statement of my own: While Professor Watson’s comments will certainly be popularly perceived as racist and might well be able to be regarded as an incitement to racism, they are not necessarily racist in and of themselves. Indeed, without ever having met him, I seriously doubt that Professor Watson has anything other than the highest regard for any member of any race.

Watson simply gave a statement of his beliefs about the facts of the world. Those beliefs may be controversial and even wrong, but that alone does not imply any kind of moral judgement on his part. Let me give a couple of examples to illustrate my point:

  • I believe that white Australians, on average, have worse eyesight than Australian Aboriginals. That does not imply that I think that white Australians are somehow intrinsically less human than Australian Aboriginals. It does not in any way condone or encourage discrimination against white Australians.
  • I believe that women, on average, are weaker and possess less physical endurance than men. That does not mean that I think that all women are weaker than all men, or that men are somehow more worthwhile than women. I pass no moral judgement when I make this statement.

I will grant you that Watson’s ideas are dangerous, but he should be challenged to justify them; he should not be vilified for expressing them. Steven Pinker wrote an article on this very topic for the Chicago Sun Times in July 2007. I’d strongly encourage you to click through and read it all, but here are a few highlights:

By “dangerous ideas” … I have in mind statements of fact or policy that are defended with evidence and argument by serious scientists and thinkers but which are felt to challenge the collective decency of an age.

Dangerous ideas are likely to confront us at an increasing rate and we are ill equipped to deal with them. When done right, science (together with other truth-seeking institutions, such as history and journalism) characterizes the world as it is, without regard to whose feelings get hurt. Science in particular has always been a source of heresy, and today the galloping advances in touchy areas like genetics, evolution and the environment sciences are bound to throw unsettling possibilities at us.

What makes an idea “dangerous”? One factor is an imaginable train of events in which acceptance of the idea could lead to an outcome recognized as harmful … [T]he fear is that if people ever were to acknowledge any differences between races, sexes or individuals, they would feel justified in discrimination or oppression. Other dangerous ideas set off fears that people will neglect or abuse their children, become indifferent to the environment, devalue human life, accept violence and prematurely resign themselves to social problems that could be solved with sufficient commitment and optimism.

Should we treat some ideas as dangerous? Let’s exclude outright lies, deceptive propaganda, incendiary conspiracy theories from malevolent crackpots and technological recipes for wanton destruction. Consider only ideas about the truth of empirical claims or the effectiveness of policies that, if they turned out to be true, would require a significant rethinking of our moral sensibilities. And consider ideas that, if they turn out to be false, could lead to harm if people believed them to be true. In either case, we don’t know whether they are true or false a priori, so only by examining and debating them can we find out. Finally, let’s assume that we’re not talking about burning people at the stake or cutting out their tongues but about discouraging their research and giving their ideas as little publicity as possible. There is a good case for exploring all ideas relevant to our current concerns, no matter where they lead. The idea that ideas should be discouraged a priori is inherently self-refuting. Indeed, it is the ultimate arrogance, as it assumes that one can be so certain about the goodness and truth of one’s own ideas that one is entitled to discourage other people’s opinions from even being examined.

Now, if you’re still with me, go back up to where I quoted the article from The Times and reread the second paragraph. He is not being racist here. He is being controversial. Unfortunately, that seems to have been enough for him to be fired.

As a bit of a plug for my newfound profession … After Professor Pinker’s article was published, Steven Levitt noted:

What did strike me about the list of questions was how many are linked in some way to economists. Larry Summers comes to mind on gender differences and shipping pollution to Africa, Alan Krueger on the education of terrorists, Milton Friedman on the legalization of drugs, Richard Posner on a market for babies, Gary Becker on a market for organs, and even John Donohue and me on legalized abortion and crime. I’m not saying these ideas necessarily originated with economists, but that, at a minimum, economists often find themselves on the “wrong” side of dangerous ideas.

I would love to see what would happen if economists got the chance to run the world. My guess is it would be fun for a while, but the ending wouldn’t be happy.