Copernicus

The more I read about the field of Behavioural Economics the more I think that maybe the entire discipline is an increasingly complex set of workarounds to address the more fundamental issue that the science of economics is failing us.

It takes a lot to shift an entire academic discipline’s mindset, and the period leading to the end of the view that the the world wasn’t at the centre of the universe wasn’t one where astronomers welcomed Copernicus with open arms and said “Oh yes, of course!”. The observations of the physical world had led to increasingly complicated mathematical workarounds to explain what was being seen within the context of the Ptolemaic model. So much had been invested in underlying theories and the kludges to keep it all working that someone promoting a simpler model that sixty years after Copernicus published his theories there were reportedly only 15 people promoting his ideas.

And so maybe that’s where we are with Economics. So much of general economic theory seems to regard humans as rational actors making decisions on the basis of pure logic. The simple fact is that we’re not, and as our economies continue to evolve we seem possibly to be less so.

At the core of modern consumer society is the Brand. The brand – an emotional response by customer or client to a provider or vendor – makes no sense. I suppose that some could argue that people make decisions based on residual value or inherited prestige, but realistically that’s not happening: some people buy Audis, some people buy VWs, some Skoda, but they’re all the same bloomin’ car.

Over time, we have become a society and economy increasingly driven by interactions rather than pure transactions; a move from people being involved in Primary and Secondary industries to Tertiary (Service) industries. Where a century ago people in mass were involved in the production of things, most of us these days (in the UK at least) are involved in work that revolves around interacting with people. The efficiency models that we adopt in this realm of work are still the ones, dominated by ideas from Taylor and scientific management, that we deployed to increase the productivity and effectiveness of extraction and manufacturing. What evidence is there that these work in the services realm?

Maybe the economic ideas of old worked better when the economy was dominated by stuff not interactions? But automating and streamlining and efficiency – even the ways that we measure productivity – seem to lead to adverse consequences in the realm of interaction. Just think about the delights of dealing with contact centres to know how that feels.

But the somewhat creaky models of economics that don’t appear to work that well are the framework for decision making at board level in organisations that increasingly deal with people interactions rather than inanimate objects. That Behavioural Economics seems to provoke such glaring insight in these industries are maybe indicators that there are deeper underlying issues with how we strategically direct our organisations.

2 Comments

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  1. I think it is very interesting how you came to this conclusion. Personally I drew this conclusion from working in call center & marketing services for a decade or so (over half a decade ago now). The practices used there are the exact same practices used in factories like we know them from Charlie Chaplin movies. And that is still going on today, even when there is piles of evidence that it doesn’t work. It may be productive, it is far from effective when it comes to the goals most companies have (grow in customers and in profits).

    It’s also 6 years ago today that I was introduced to the work around “Service Dominant Logic” by Steve Vargo and Bob Lush, both marketing scholars. I think you’ll find it interesting as well.

    Please take a look at their website http://sdlogic.net and let me know what you think.

    Excellent thinking!

    Wim Rampen

  2. I think brands make perfect sense, but only if you abandon the economists’ assumption that people are trying to *maximise* their utility. If you accept that people are “satisfying” – or, more specifically, that they are more concerned with avoiding buying something awful than they are eager to buy something that is “best”, then brands make very good sense. They are a very good reputational signal of non-crapness.

    The difference between a good car and a better car is relatively trivial: what we are trying to do instinctively is to avoid buying an appallingly bad car. That makes much more difference – and makes much more sense in evolutionary terms.

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