Monday, January 31, 2011

[rppfqszi] Fool some of the people all the time

Consider a business model based on, "you can fool some of the people all of the time", thereby providing a consistent stream of revenue.  Not only is it ethically wrong, but it's also market failure: the fooled market participant has made the wrong decision.  Can we correct this market failure?

Obviously this a problem of imperfect information, but if that's the problem, then, in principle, the market failure can be corrected by equalizing the information.

There's more to it.  Assuming a seller is fooling a consumer, a typical seller sells to many consumers, so can run experiments to determine what works best to "fool" the consumers.  This is how the imperfect information is generated: it's an active process, it takes place in the aggregate, and the results are typically psychological, like knowing the consumer better than the consumer knows himself or herself.

Is economics ready for such questions?

Store layout

The best restaurant is not at the touristy location.

This is a popular business model.

Obviously, the problems of psychologically manipulating a mass of people to do what you want (not necessarily what they want) is important for elections, too.  Political science.

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