Thursday, June 21, 2007

The Myth of the Rational Consumer

via Chris Hayes, this quote from Schumpeter makes me laugh:
"[T]he typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again."
Economics, you see, is founded on the idea that individuals perceive their own self-interests clearly, and pursue those interests rationally. It would be impossible for Schumpeter -- and economists' economist -- to concede that the entire edifice of economics is challenged by the idea that individuals are periodically irrational, so he had to assume that they're only irrational when it comes to politics. They become, in his words, "primitive".

This makes me laugh, of course, because the entire consumer economy in which we live is explicitly based on appealing to our primitive side. Lest you think I'm exaggerating, you should read Malcolm Gladwell's New Yorker piece from a while back about SUV marketing and "the Lizard Brain". Just a small excerpt:
"The No. 1 feeling is that everything surrounding you should be round and soft, and should give," Rapaille told me. "There should be air bags everywhere. Then there's this notion that you need to be up high. That's a contradiction, because the people who buy these S.U.V.s know at the cortex level that if you are high there is more chance of a rollover. But at the reptilian level they think that if I am bigger and taller I'm safer. You feel secure because you are higher and dominate and look down. That you can look down is psychologically a very powerful notion. And what was the key element of safety when you were a child? It was that your mother fed you, and there was warm liquid. That's why cupholders are absolutely crucial for safety. If there is a car that has no cupholder, it is not safe. If I can put my coffee there, if I can have my food, if everything is round, if it's soft, and if I'm high, then I feel safe. It's amazing that intelligent, educated women will look at a car and the first thing they will look at is how many cupholders it has."
Cupholders = safety. That's the level of rational thought that Schumpeter thought citizens abandoned when they thought about which party to support. To take a wider view, try to think of one product -- a single one -- where the marketing isn't playing to some primitive urge on your part. So: no sexual appeals, no use of fear or security messaging, and no claims or implications that product or service X will elevate your social status or bring you in to a desirable community (one of the basic urges in any primitive society.) I'll give you a minute to think about that.


Alright, get back to me later.

Let's be clear -- the SUV is only the easiest potshot you can take at the myth of the rational consumer: people buy SUVs that are more expensive, more fuel-intensive, more dangerous, for entirely irrational reasons. Mothers think they're protecting their children when, in fact, they're putting them at much, much, much higher risk. Gladwell's article makes clear that these people are so stupid that Detroit's own executives regard them with pretty much unbridled contempt.

And this isn't trifling, remember: the home automobile is the second-largest expenditure a family is likely to make after their housing costs. If people are supposed to be rational -- especially when the costs to them are high -- than the craze for the SUV is kind of a big deal for economists to grapple with, at least if they're going to be simultaneously arguing that "consumers" are rational while "citizens" are primitives.


Closet Liberal said...

We aren't rational with our housing costs (Might as well start at the top).

Picking what we want completely dominates any thoughts of what we need and what we can afford. So you have many families living in massive homes with massive debt. Same thought processes go down on through the line (what car do I want? What size TV do I want? How big a steak can I buy?)

This is the real irony IMHO. The economy REQUIRES us to be irrational buyers, to keep revenues high for companies producing products. (Buy more, buy bigger, throw out the old, replace it with new. Don't use a cloth, use Bounty Paper Towels! Don't use a mop, use a disposable Swiffer WetJet!)

If we actually were rational consumers the whole Western capitalist economy would collapse in on itself.

Jeff said...

This is a thesis that needs to get around more, that the "rational actor" assumption of classic economics has lost its validity.

I've said it before, and I'll say it again: Economics, as a science, is where physics was between Faraday and Maxwell. Its Planck, its Einstein, its Feynman, are yet to emerge.

NonyNony said...

So: no sexual appeals, no use of fear or security messaging, and no claims or implications that product or service X will elevate your social status or bring you in to a desirable community (one of the basic urges in any primitive society.)

Toilet paper?

Seriously, that's the best I can do.

On another note, I remember taking my Econ 101 and 102 classes and being amazed by the assumptions thrown about. The "rational actor" assumption bugged me greatly, so I stuck it to my prof in office hours:

Me: This rational actor assumption - no one really believes that right?

Prof: Oh, of course. If you don't have rational actors then the models can't work.

Me: But what about marketing and advertising? Don't those prey on the irrational parts of a consumer?

Prof: Well, for our models we assume that advertising and marketing don't exist.

Me (mind boggling): You mean the models for this class, right?

Prof: No, pretty much most economic models ignore marketing and advertising.

That was the moment when I realized I needed to focus on my Math major. Because Econ would have driven me over the edge insane.

Niles said...

But cupholders do increase passenger safety and decrease interior vehicle cleaning bills. Especially with kids in the car. Unless you ban liquids in a vehicle altogether.

There are good basic design ideas out there, which are then taken over the cliff by offering this year's model in Pink! So dump what you had and get Pink! because you don't want to be so last year! And people buy into buying into it.

I wonder how economics would do if people were actually universally taught to be 'rational actors' (or at least rational consumers) at a young age in school. I expect the marketers would quake in their boots. And I'd see a lot fewer Bratz products.

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