Wednesday, April 27, 2011

Preblog -- Businessmen seldom believe in efficient markets and rational actors

I've got to head off for lunch in a minute, but I wanted to at least throw this out now and address it in more detail later (hence the term 'preblog'). The impetus was this post* which seemed to assume that the market-based approach was more likely to provide real vs. perceived benefits (my wording, not his).

Back in my marketing days when I was building consumer response models and working with the BAs, we would talk about maximizing the perceived to real value ratio -- find a cheap product that looked expensive. Like many, if not most, of our strategies and business plans, this idea was based on assumptions that violated some of the axioms of freshwater economics.

Efficiency and rationality are useful for businesses for lobbying and PR purposes but most people in the private sector don't believe in them. They think can beat the system. That's why they're there.

* nicely rebutted here and here.

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