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Economics for non-rational actors?

by Greg Krehbiel on 10 October 2017

I haven’t read too much about this, so consider this a top of mind comment.

Based on some things I’ve skimmed the last few days, Richard Thaler just won the Nobel Prize for his work showing that people are far from the “rational actors” they are (allegedly) assumed to be in standard economics.

I’ve read a fair bit about how irrational people can be in the context of persuasion. Especially sales and marketing. E.g., there are words and colors and phrases that work better than others.

For example, you probably remember when TV sales pitches for a new product had a line like, “operators are standing by.” Somebody realized that creates a mental image of idle operators who aren’t doing anything because nobody is calling to get the silly product. They changed it to “if it’s busy, please call again,” and results were much better.

Is that the future of “economics”? What’s the best way to trick people into buying things?

2017-10-10  »  Greg Krehbiel

Talkback x 13

  1. William
    10 October 2017 @ 12:36 pm

    QUOTE: What’s the best way to trick people into buying things?

    If you’ve not already done so, you may want to study Apple’s business practices. They’ve had a sustained period of people doing ridiculous things to buy products at exorbitant prices that aren’t necessarily leading technology.

  2. Greg Krehbiel Greg Krehbiel
    10 October 2017 @ 12:54 pm

    Good idea. They certainly have created incredible brand loyalty for not very good products.

  3. Robin R.
    10 October 2017 @ 1:16 pm

    I haven’t looked into this, but it seems to me that phrases like “sugar free” are used instead of ones like “no sugar” because freedom is good and negativity is bad, as far as primitive human responses are concerned.

  4. Greg Krehbiel Greg Krehbiel
    10 October 2017 @ 1:21 pm

    Could be. Most marketers test language to see what works best. They may get the idea from some opinion, like “freedom is good,” but they usually adopt the winning slogan, whatever it happens to be.

  5. Robin R.
    10 October 2017 @ 1:30 pm

    I’m pretty sure that it has been proved by testing that “no” and “not” do not register well on a primitive level.

  6. Greg Krehbiel Greg Krehbiel
    10 October 2017 @ 1:33 pm

    In my experience it depends on the context. Language that implies a threat of loss — e.g., “Don’t miss this limited offer” — does well.

    People tend to fear loss more than they value gain.

  7. William
    10 October 2017 @ 1:58 pm

    Apple has done a yeoman’s job at creating an ecosystem that’s diffficult to depart from once you’re a part of it (e.g., iTunes, iCloud, iMessage, etc). Even when some of their customers like competitive products better they hesitate to purchase it because so many of their other products are already integrated into the Apple ecosystem. As well, Apple has done a good job at making it appear “cool” to own their products…especially for their target markets.

    Interestingly enough, many of the “innovations” Apple has included in their products over the past few years have already been introduced to the market by their competitors but they got the credit (e.g., face recognition, photo editing, finger print scanning, wireless earbuds, etc). So, they’ve been able to successfully convince people to pay more money, wait in line, buy multiple products and make them believe it was “their” work. It’s quite fascinating to observe. Just wait till the iPhone X launches in a few weeks…let the games begin…again!

  8. Ken Crawford
    10 October 2017 @ 3:30 pm

    William, Apple has been a “me too” in hardware for quite some time. Where they lead is in interconnected software. But in my humble opinion, their “leadership” is of the cheapest variety. It’s the software version of “more volume means cheaper cost.”

    Because they’re the only one big enough to meaningfully do comprehensive interconnection between software and hardware, they’re just taking advantage of their gorilla status in the industry and not really doing anything meaningfully innovative.

    All of that is *NOT* to say that I disagree with you about their marketing. They’re incredible in that department. One of their best innovations in this area is how to use the press to create a buzz that has credibility far beyond their own ads, and even more, does it for really cheap.

  9. William
    10 October 2017 @ 3:54 pm

    Can’t say I fully agree, Ken. At best, Apple’s software is on par with a competitor like Android. They really don’t “innovate” in the sense of “product leadership”. They just design software differently. Wiith Apple, it’s all about software “simplicity”. With Andriod, it’s all about software “customization”.

    Each provider is appealing to the “customer experience” driven by their software. Some customers like the “customized” experience and others prefer the “simplicity” experience. Yet, if you compare “apples to apples” both sets of software perform generally the same functions and at the same level of proficiency. Some might argue that Android has the lead..given they have a larger market share across multiple providers. As well, they tend ot come out with software innovations more quickly than Apple.

    As for Apple’s marketing, they’ve mastered it to the point they don’t need the press nor industry conventions. They hold their own independent events/press releases and then it takes off like wild fire! It’s amazing how they’ve consistently broken the internet with pre-ordering some of their devices. As well, how people react just to get their hands on one of their new products.

  10. smitemouth
    10 October 2017 @ 4:16 pm

    My son has joked that Apple is a marketing company with a single client.

    Apple is foremost a hardware company. They write software to support their hardware. With Jobs at the helm, they were always going for the user experience. They have a great advantage in writing their software in that they only have to support their hardware. It can be more specialized.

    I really don’t know why I would want to customize my phone software except to change the background image on my phone and to move and organize the Apps. I can do that on my iPhone. I used to play around on Linux with all of the customize-able desktops. Now, I just prefer simple something out of the box that works. I have a custom background on my Windows box at home, but on my home computers I have the default one installed by Windows. I’m not interested in the different look. Sometimes I will customize the themes on my browser, but only so that I can tell the difference between my work and personal profiles on my browser. Only other customization is to pick a font I find easier to read.

    Again, Apple is a hardware company. If you look at the chips going in the new iPhones (8 and X), you will see a big leap over every competitor. I have my gripes with Apple. I got a fantastic deal on an AppleTV for prepaying 3 months of DirectTV Now. I did that because it wasn’t available on Roku. (it is now.) I find the remote for the Apple TV to be almost useless. I hate the touchpad on it. When I pick it up, it changes the channel. Their is good integration with using an iPhone as a remote which makes it a little easier. Last night I found a way to use my receiver remote to control the Apple TV which now makes it tons better–real buttons to scroll.

    I was thinking of trying an Android phone, but after what Google did to Damore, they can bl*w me. I will stick with the iPhone for now and it’s better security. Maybe I’ll even get one with one of those fancy processors. For now I’m using my old 6.

  11. William
    11 October 2017 @ 12:36 am

    I’d agree Apple is foremost a hardware company. Yet, it’s hardware isn’t its competitive advantage. If you look at their last few iPhone releases (excluding iPhone X) it’s hardware has basically remained consistent while competitors (such as Samsung) have taken the lead in hardware innovations (e.g., finger print scanner, larger phone screens super AMOLED screen, bezeless screen, faster chip, memory expansion, enhanced battery life, wireless charging, dual keyboards–physical and soft, etc.). In some cases, it seemed as if Apple let competitors take the lead in developing the hardware innovations and then tweaked it and marketed it as if they developed it. I just LOVED this year’s Apple conference were they said…”this is the first year the AMOLED screen has been able to live up to Apple standard”. Really???…lol! Samsung had been using it for years. BTW, on the software side, remember the first release of artificial intelligence from Apple (Siri precursor)? It was horrible!! The same with Apple maps. It was so bad they had to put Google maps back on their phones.

    Nevertheless, there have been times, like this year, when Apple has leap frogged the competition with the enhancement of their processor, design modification or software improvement. Yet, typically those have been easily replicated and surpassed by the competition in their next release. For instance, I fully expect the next flagship release from Samsung to contain a chip that’s equal or superior to iPhone X/iPhone 8.

    That said, I think Apple’s biggest competitive strength is it’s marketing, brand loyalty and ecosystem. They’ve created the perfect balance of good hardware, software, integrated products/services and “cool factor” that’s hard for competitors to replicate. They can go after 1 or 2 of those things…some are superior…but Apple’s blend makes it unique in its appeal and sustainability. It’s gotten to the point where it doesn’t matter that they are not leading in innovations. They can now just take what’s in the market and integrate it into their products and make money hand over fist. What a position to be in, right? Yet, I wonder how long that will be sustainable? Motorola once had that position. They created the mobile phone and developed hardware that was unique and wildly popular. Remember the “Razr” craze? They even had the opportunity to lead the market in developing the first touch screen phone but let it go and Apple grabbed the technology. Because they rested on their laurels and thought that “hardware design” alone was going to sustain them…competitors like Nokia and Apple came along to eat their lunch…especially as they introduced software innovations to drive a superior customer experience. Interesting enough, Motorola still exists but has nearly gone the way of Wang computers. It’s interesting that the creator of the mobile phone is not even a major contender in today’s market place. I wonder if we’ll be saying the same about Apple in 5 years?

    I own both iPhone (iOS) and Android phones. Each has their strengths and downsides. Many people love Android because they like the customizable features and innovations. It’s cool to be able to use my S-pen on my Samsung Note and do what the iPhone can’t do. Interesting that Apple has developed the Apple Pencil. Hmm…I wonder where they got that idea??? Steve Jobs is probably rolling over in his grave since he somewhat vowed that Apple would only use a finger as a navigation device. But, I digress. Despite finding Samsung/Android devices innovative and interesting, if I had to choose, I’d likely lean to iPhone. I like its simplicity and intuitive software design. As well, it is a bit more secure and updates are more frequent. Lastly, I enjoy the seamless integration with other Apple products.

  12. ABoyNamedJoe
    15 October 2017 @ 12:12 pm

    Greg – I would recommend Thinking, Fast and Slow by Daniel Kahneman. It delves into how our brains work and make us into non-rational actors despite our best efforts.

  13. Greg Krehbiel Greg Krehbiel
    16 October 2017 @ 1:35 pm

    I have a feeling that I read that.

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