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Did Gary Becker prove that advertising is informative?
So claims a NYT obituary for John Kenneth Galbraith. CrookedTimber and Brad DeLong question whether such models should be called "proofs." Fair enough, but neither does the obituary correctly represent Becker's theory of advertising. As I understand Becker's work (with Kevin Murphy) on the topic, individuals consume "social images" or "self-images." Having Nike shoes gives you the "benefits of being cool" if a) you actually have Nikes, and b) the ad links Nikes to a cool image for your relevant peer group. The standard economic theory of complements then applies for analyzing ads. Under some conditions, advertising can be a "bad" for consumers, not a "good," and advertisers will pay consumers to watch ads. Furthermore ads will present images and cultural linkages, rather than substantive information in the traditional sense. This generates some Galbraithian results, but without requiring that consumers are "tricked" or even "persuaded" into a particular point of view. This is not a proof; I think of it as an existence theorem that advertising can make corporate sense, and sometimes be socially welfare-improving, yet without being very informative.
Keep in mind that Becker titled his 1998 book Accounting for Tastes, a concession to the Galbraithian way of thinking.
Posted by Tyler Cowen on April 30, 2006 at 03:58 PM in Economics | Permalink
Comments
I know the man died, so we should be nice to him, but that is no excuse for leftist to get away with their usual nonsence.
1. What empirical proof did Galbraight exactly give for his advertisement arguments? Or any of his arguments? It is mostly a question of logical reasoning, and Becker-Murphy certainly explain firm and induvidual behaviour better than Galbraight. Furthermore intro-spection alone lends support to the Becker-model (I certainly enjoy certain products more because of marketing, for example coke and popcorn toghether)
2. The core of Beckers argument is that advertisement for a good is a complement in it’s consumption. (This can but does not have to be based on a social equlibrium argument, I can start liking Coka cola more because I see ads that make me associate it with pleasant experiences.) The consumption-complementary view has plenty of empirical support.
3. There is even neurological evidence that tends to support Beckers view of advertising
http://www.eurekalert.org/pub_releases/2004-10/cp-cvp101204.php
(of course don’t mention this to Brad Delong, he tends to erase scintific arguments related with biologi and genetics on his blog).
If leftwingers belive adversitins is so powerfull let’t make a deal, give up legislagion on personal life and interference in the economy, just put a few billion a year advertising femenism and whatever else behaviour you like. It should work like a charm…
Posted by: Teller at Apr 30, 2006 9:19:24 PM
I don't know, shouldn't the empirical fact that historically, where advertising is banned, prices are higher and qualtiy lower than otherwised would be a decent enough proof that Galbraith was wrong?
Posted by: Trent McBride at Apr 30, 2006 9:26:40 PM
Didn't Yale Brozen and Julian Simon emphasize the informational effectiveness of advertising?
Here's a real wold example. I spent over $6,000, inclusing almost three hospital visits, since last November for a "respiratory illness" that wouln't quit - yet doctors could not help me out of a disabling period of the last three months. Until an old and in fact my cheapest doc - my allergist - suggested GERD (or acid reflux disease) could be the problem (accounting for accute and chronic chest pain, recurrent GI distress, and horrible headaches). He proved correct.
So much for the theory that "acid reflux" is a gratuitous cortporate invention (ala JKG's friends)! In my case, however, changing medical practices appear to blame. Less than five years ago, doctors would have kept prescribing anti-biotics again and again instead of just three times. Now that standard practice eliminates the promiscuous deployment of anti-biotics, I was left to suffer or pay thousands more ("another PET scan! it could be a lung clot!"), when in reality $10 in OTC meds would solve it.
Capitalist exploiters are way ahead of most "medical professionals." I pray that more exploitation continues.
Posted by: Orson Olson at May 1, 2006 6:19:30 AM
I know that, when following up on an obit, we should be nice to other commenters, but that is no excuse to let people who use "leftist" is an epithet rather than a positive (non-normative) description get way with their usual nonsense.
1. What empirical proof does Teller have that Becker-Murphy explains firm and individual behavior better than Galbraith? Or for any of his other claims for empirical support?
2. Why does Teller fail to realize, or at least to acknowledge, that empiricism is not the be-all and end-all in arriving at good answers? It seems rather a cheap way around Galbraith's arguments to claim that his approach to arriving at answers isn't valid. His was, in fact, an approach that has served to further understanding throughout much of human history. The obit writer seems to understand this, even if Teller does not.
3. If right-wingers, or Teller anyhow, believe(s) that trading legislation on personal lives and interference in the economy for a few billion in advertising is a fair trade, then let's try it first with marijuana laws, family planning and abortion, copyright and patent law, and limited liability for corporations and corporate officers.
Is there no chance that Galbraith made a significant contribution to thinking about economic and social issues, without resorting to mathematical modeling? Isn't there a chance that the challenges he laid down, whether he is proven right or wrong in the end, fostered useful thinking about a variety of economic and social phenomena? Would Becker have studied advertising as a source of information if Galbraith's critique had not made advertising a topic of interest?
Sad, sad, sad, when the first thought one has in relation to a giant of the past century is to slap a label on him, and the rest of one's thought grows from that label. It seems a little small-minded not to realize that (I'd guess) none of us here could stand up to the force of Galbraith's thinking without arming ourselves with the thinking already done by Becker, Posner, Freidman, and so on. It is sad when minds that have undergone (I'm guessing) extensive higher education fail to realize that advertising can have informational value its defenders ascribe to it, can serve a complementary function to the goods and services advertised, and also serve as the slippery manipulation that Galbraith identified.
Posted by: kharris at May 1, 2006 11:17:19 AM
I would say that current behavioral and experimental economics
favors the view of Galbraith more than of Becker-Murphy-Stigler,
in particular with regard to the stability of preferences. The
Chicago group argues that people know what their preferences are
and act on them. At most advertising simply reveals to them
aspects of their preferences they did not realize or understand.
Modern experimental economics suggests that people do not have
well formed preferences, are subject to all kinds of framing
effects and so forth and what not. This puts the ball rather
back much more into Galbraith's court. He is not so out of
date as the NY Times idiotic obit claimed.
Posted by: Barkley Rosser at May 1, 2006 6:07:18 PM
“At most advertising simply reveals to them
aspects of their preferences they did not realize or understand.”
You clearly have not read Becker–Murphy style preference theory and are just repeating a straq-man, please read up before further discussion. The whole advertising theory is built on the idea that preferences readily can change though investment (whereas meta-preferences do not). Modelling ads as a way to build up consumption capital complementary to a good -and useless without it - in your preferences is just a practical way to express an idea. That your enjoyment of a product increases through good marketing of that product (in contrast to JKG:s view where you just fool people and waste resources.) That is one reason we are ready to pay more for goods after advertising.
There is a simple empirical test between Becker and JKG theory of advertisement. Do people get more utility from goods that have been marketed to them? Do you? The map of the brain test is pretty strong evidence if you ask me.
Behavioral theory certain does NOT disprove this obvious fact. It is depressing how people are suing results from behavioral theory an excuse for convenient nihilism and for misunderstanding human behavior.
Which takes me to the next point:
Galbraight was not “giant”. He was a caricature of a leftist, an ideologue that refused to adapt to reality and who was wrong about just about every novel thing he ever preached. Here is a great empirical quote from 1984 about the Communist system:
"Partly, the Russian system succeeds because, in contrast to the Western industrial economies, it makes full use of its manpower."
You want me to respect a man that in 1984 (let me repeat, in 1984) still believed the Soviet system “succeeds”, in “contrast to the Western industrial economies”?!?
There is no “end”, he has already been proven wrong, and was proven wrong about socialism and American capitalism when he was 67, not 97. He just refused to accept it.
Math has nothing to do with it, except you can’t demands hard core proof from Becker, but excuse Galbraight because “empiricism is not the be-all and end-all in arriving at good answers”.
There is a paper by Levitt about empirical support of Becker style micro, it is pretty overwhelming.
I have no problem with marijuana, collectivists are collectivists. But even billions of ads against it would not work very well,just as I said, and in constrst to our Great heros theories would have predicted. Abortion (that I support) is a moral issue based on the start of life, if you think it starts at conception abortion is murder, and laws against it are not intrusion in privacy.
Family planning is already being done this way (advertising), hardly through coercion. Is it working very well? I would say not. What does that prove to you about advertising and preferences?
At any rate, YOU are inconsistent when you believe corporate advertising is all-powerful but the government has to coerce people, I don’t believe your JKG-style dark vision of weak people as victims of Strong corporations.
Posted by: Teller at May 1, 2006 7:02:36 PM
straw-man
Posted by: teller at May 1, 2006 7:03:11 PM
straw-man
Posted by: teller at May 1, 2006 7:03:13 PM
Teller,
Um, I did not say that advertising is all powerful.
I would also say that you are way overselling what we
know from neuroeconomics. I would also suggest that you
tone down your personal insults. Some who are discussing
with you have read and know a lot more than you think
they do. I am fully aware of all the aspects of the
Becker et al theory that you mention. I would also
suggest that your (and Levitt's) claim that Becker
micro has been overwhelmingly proven is, well, overwhemingly
exaggerated.
Posted by: Barkley Rosser at May 1, 2006 7:11:21 PM
Teller,
I think maybe it is worthwhile doing a more comprehensive
review of Galbraith's ideas to see what is right and what
is not and what is up in the air.
So, in WW II he oversaw price controls in the US economy.
He continued to support that later. Pretty much nobody
agreed with him then and even fewer do now. Wrong.
In 1952 he published American Capitalism, introducing the
concept of countervailing power, that unions and government
would offset power of oligopolistic corporations. That was
accurate then. Later unions would get broken and government
regs would get rolled back under Carter and Reagan after
getting increased under Johnson and Nixon. Arguably corporate
power became constrained by international competition. Or
maybe it just ran wild and took over, as some might argue
looking at off the wall CEO salaries and so forth. Call this
one a mixed bag, although an important idea.
In 1954 (or 55) he published The Great Crash, an accounting of
the 1929 stock market crash that argued that financial markets
can be irrationally speculative and unstable. This view fell
out of favor during the 1970s and early 1980s when the rational
expectations view out of Chicago argued that speculative bubbles
could not happen, although there were some such as Charles Kindleberger
in his Manias, Panics, and Crashes, who kept the Galbraithian view
alive. Then came a 22% decline of the DJI on October 19, 1987, when
nothing was happening, followed by a series of crashes in the 1990s
and 2000 and since. Today, heterogeneous agents econophysics models
are the hot rage for analyzing financial markets. Score a big win
for Galbraith on this one.
Then in 1958 we get his most famous book, The Affluent Society.
I see this one as a matter of opinion. Is there too much or too
little of public goods out there? This is not something that can
be scientifically determined. But to say that Galbraith was or is
clearly wrong is not supportible.
The New Industrial State is another one where he does not look so
hot today. In the mid-60s he described what was then an apparent
trend of convergence between the US and the USSR in the way their
planning bureaucracies worked. But then that convergence ended and
went the other way. Call Galbraith wrong on that one.
Then we have his 1973 Economics and the Public Purpose. Here he
ends up following the public choice folks in arguing that government
agencies can be taken over by the private interests they regulate.
Right, but not original, although neither he nor the pub choicers
would recognize their agreement on this one.
Which brings us back to the preferences/advertising argument.
So, you think that neuroecon studies show that advertising gets
people to buy goods that bring them "utility"? Now, Tyler Cowen
has provided a link about some story that supposedly advertisers
will love. But, I would warn that even when one observes certain
"pleasure" zones of the brain being activated in certain situations,
this does not prove much about "utility." I would warn that
behavioral and neuro economists like Vernon Smith and Kevin McCabe
are highly skeptical about the concept of utiltiy at all. The
brain is too complex to be characterized by such a one dimensional
concept.
Thus, Ernst Fehr and others have shown indeed that certain sites
are activated when people look at ones they love, receive money,
and take cocaine. Are we to view all of these as equivalent in
terms of either personal or social utility? We know that "experienced
utility" (how do you feel now?) and "remembered utility" (was it good
for you?) can differ greatly.
Let me also bring up the spectre of the happiness studies, which
correlate strongly with satisfaction studies. In the US, recorded
happiness peaked in 1956, back when Galbraith's countervailing power
was working. Basically happiness has been going downhill ever since,
if somewhat gradually and with some ups and downs. This corresponds
with the rise of corporate power, the collapse of unions, and the
rise of CEO pay. Does Galbraith look all that wrong in the end, Mr.
Teller. (BTW, do you make H-bombs?).
Posted by: Barkley Rosser at May 1, 2006 9:52:27 PM
Barkley:
Thank your for the summary, I do not accept much of what you write, but there is not much to say since you don’t cite any evidence, just your personal opinion. Let me just make three points:
1. Very little of government is involved with “public goods”. It is publicly finances private goods, and redistribution.
2. Again I repeat, the core of Becker-Murphy theory is very simple to verify, do you get more utility from products that are marketed to you? I am quite certain most people can readily understand this, by just thinking a moment. The car you drive often is a reflection of your personality, and it’s brand is produced by marketing.
The fact that consumers have access to
3. You don’t want me to be insulting, so I will say this in the softest way I can: Happiness “research” is the worst junk trend in economics today. No one can take this stuff seriously, you are not measuring anything close to happiness by asking people questions in a survery.
But hey I would love it if the happiness people would start taking this stuff seriously. The correlation between self-reported happiness/life satisfaction and income inequality is strongly positive. After all, Mexico and Porto Rico are the two most “happy” nations on earth (I am sure those who think this stuff is science have many excellent theories why).
I don’t make H-bombs (yet…) But I am glad Edward Teller did, against the will of the left-wing scientific community, so that Galbraith and Samuelson could see with their own eyes the fall of the Soviet union and it’s marvelous economy.
Posted by: Teller at May 2, 2006 2:56:00 AM
[No one can take this stuff seriously, you are not measuring anything close to happiness by asking people questions in a survery. ]
Well, then, why do they match up so well with suicide rates, alcoholism, divorce and other indicators that give tangible, measurable outcomes out in the left tail of the distribution of happiness? There is actually empirical evidence on how well questionnaires do in measuring tangible concomitants of happiness and the answer is "surprisngly well".
Posted by: dsquared at May 2, 2006 7:26:53 AM
Teller,
Yeah, mostly just my opinions.
1. Of course this would reinforce Galbraith's public goods argument,
although I think we have less pollution and better roads than we did
in 1958 when he published The Affluent Society.
2. There are substantial portions of the Becker-Murphy and distinct
Stigler arguments that are reasonable. If someone cares about an image
or a lifestyle, then advertising that "informs" them that buying a given
product will help them achieve that may increase their utility. The old
lit on "informative advertising" tended to focus on advertising about prices
or product quality. That part of product quality is all its complementarities
is not a big deal.
I also accept parts of their model, also used in their "rational addiction"
model, that say we learn to like certain things by consuming them. My
current preference for snails, black fish eggs, and bloated duck liver was
due to learning, not my initial reactions to those items.
The problem really does get back to the fact that "utility" is not a uni
dimensional or stable or well defined concept (for stuff on experienced vs
remembered utilty, see the lead article by Krueger and Kahnemann in the latest
issue of the Journal of Economic Perspectives). So, someone may get a buzz
when they buy a pair of shoes they saw Carrie Bradshaw buy on "Sex and the
City." But, they may find the buzz is gone after wearing them once. They
may have becomne a "rational addict." They go back to buy more to get that
buzz again. Then they wake up and discover that they do not have enough
money to pay the rent next month.
The terms "buyer regret" and "hedonic treadmill" and "conspicuous consumption"
are not mirage myths (the last one from Galbraith's original mentor, Veblen).
3. To both Teller and dsquared. Well, one can dispute the happiness lit
all one wants, although I find it weird for someone to defend a "brain map"
study as "proving" what "utility" is but then dismiss what people say they
feel.
Personally I take most seriously panel studies that follow the same people
over time. I take least seriously these cross-country studies at a point in
time. In between are time series of a single country.
I am not aware of any regression that shows income inequality correlated
with happiness. Both of you interestingly have provided the offsetting
examples. So, roughly, the countries that come out happier than the US
on these surveys are the Nordic countries (all of them) and some Caribbean
and Central American countries. So, the former have lots of equality but
also have high suicide, divorce, and alcoholism rates (and high average
incomes). The latter have lots of inequality (and low average incomes)
but low suicide, alcoholism, and divorce rates. So what?
Panels in Russia so that people got a whole lot less happy on average
after the Soviet Union fell. They are picking up again, but have a long
way to go (and most peoples' real incomes collapsed also).
In the US, we have seen savings rates and reported happiness fall since
1956 while incomes, advertising, conspicuous consumption, and income
inequality have all risen. Hedonic treadmill anyone? Buyer regret
anyone? Robert Frank wrote about this in Luxury Fever. I don't think
Galbraith is looking too bad on his advertising arguments, and, again,
the boys in Chicago have certainly not "disproven" his arguments ,not
by several country miles.
Posted by: Barkley Rosser at May 2, 2006 11:17:49 AM
'Furthermore ads will present images and cultural linkages, rather than substantive information in the traditional sense. This generates some Galbraithian results, but without requiring that consumers are "tricked" or even "persuaded" into a particular point of view.'
If ads create more cultural linkages and facilitate construction of new social identities, isn't it likely (based on at least given the literature in psychology, sociology, and anthropology) that ads are influencing our preferences through unconscious processes? Then it would follow that ads are essentially shifting our utility functions (through processes that we are not fully conscious of) and that the more traditional arguments concerning ads are on target.
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Posted by: levan at Sep 7, 2006 4:08:37 AM
Well, then, why do they match up so well with suicide rates, alcoholism, divorce and other indicators that give tangible, measurable outcomes out in the left tail of the distribution of happiness?
They don't. That's why one sees countries that are replete with murder, poverty, and squalor score high in happiness studies. There are people who claim that more terrorism means more happiness, and like you, they claimed that reams of empirical data show this to be true.
There is actually empirical evidence on how well questionnaires do in measuring tangible concomitants of happiness and the answer is "surprisngly well".
False.
Posted by: R. at Jan 20, 2007 1:12:09 PM
Yeah, these countries REALLY correlate SO well with empirical indicators of happiness. LOL.
Ranking of the World's Happiest Countries
1. Nigeria
2. Mexico
3. Venezuela
4. El Salvador
5. Puerto Rico
Ronald Inglehart et al. (eds.) HUMAN BELIEFS AND VALUES: A CROSS-CULTURAL SOURCEBOOK BASED ON THE 1999-2002 VALUES SURVEYS (Mexico City: Siglo XXI, 2004).
http://thehappinessshow.com/HappiestCountries.htm
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