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The Invisible Hand (in a society of morons)

By kitten in Op-Ed
Tue Apr 24, 2001 at 02:49:00 PM EST
Tags: Culture (all tags)
Culture

Some two hundred and twenty five years ago, a man named Adam Smith proposed a theory about supply and demand economics: laissez-faire capitalism is governed by a series of factors, the sum total of which he called "the invisble hand".

Assuming - as I do - that the collective common(?) sense of the population is decreasing, does Smith's invisible hand really work as well as it should?


When it comes to luxury items - "elastic goods" - the general concept is fairly simple. Because these items are not strictly necessary, consumers may purchase them at their own leisure. Moreover, because there is a wide variety of substitutes for these items, there is competition among the vendors. For example, gasoline is not a luxury, whereas a car is; you are at greater liberty to be selective about which automobile to purchase than you are about petrol.

The concept runs something like this: Excess demand forces the price for an item up, while excess supply forces it down, such that over time, an equalibrium is reached: a high price yields lower demand, which in turn causes a excess supply, which drives the price down. Of course this applies to inelastic goods as well, but not to the same degree.

The concept applies to the vendors as well. For example, if Store X sells items, but Store Y sells identical items for less, then over time, Store Y will aquire much more profit than Store X, because the lower prices attract more customers. A customer may also favor a particular store for other reasons: greater selection, friendler service, etc. These factors also take part in Smith's invisible hand that directs the economy, allowing some products or vendors to prosper while others do not.

So, what do I care?

I've had many jobs in customer-service related fields, mostly retail and food-service (read: I've been both a cashier and a waiter before). One of the very few benefits of this sort of job, at least for someone like me, is that it provides me with examples to cement my notion that people are, by and large, idiots.

Scene 1: The waiter brings a customer's food to the table. After a moment, the customer flags the waiter down, points to the food, and says that it is not prepared how he wanted it. The waiter apologizes and explains that he will take care of it. "You know," mentions the customer, "this happens every time I come in here."

Scene 2: A customer approaches the register with an item in hand. This may be any luxury item which isn't strictly necessary to the customer, but he desires anyway. The cashier dutifully rings the item up, at which point the customer exclaims, "It's that much? I can't believe it's that expensive! How can you charge that much for this?" After complaining, he grudgingly pays and exits, muttering.

I am not making these up, as those of you who have had these types of jobs know. Waiters and cashiers hear this sort of thing at least once a day, if not more.
What's going on here?

In scene 1, the customer clearly states that his experience at the restaurant is usually not a satisfactory one. According to Smith's theory, the restaurant's profits should be suffer because of poor quality/service. Why, then, does the customer continue to patronize the establishment?

In scene 2, the customer gripes about the high price of an item, and then pays for it anyway. Smith says that if an item is priced too high, the demand will decrease, forcing the price back down. If the price of this item is not to the customer's liking, why does he purchase it?

Overpriced items (here, I refer to items which are obviously not worth the pricetag, and disregard 'utility' because it can only account for a small percentage of this phenomenon) continue to sell despite the public's outrage of the cost, and poorly run establishments continue to prosper despite overwhelming flaws.

Smith's invisble hand is losing it's grip because customers, by and large, seem totally unwilling to utilize it. We would rather bitch about the service of a restaurant than go elsewhere. We would rather harrass somebody about the price of something than select a different item or do without it altogether.
I'm strongly reminded of the old joke: "Doctor, it hurts when I do this." "Then stop doing it."

What's the reason for this? Is it laziness? Stupidity? Apathy? Some combination of the above? Or am I missing something vital here?

If a lab rat receives an electric shock when it engages a specific action, it doesn't take long for the rat to realize that it shouldn't perform that action anymore. It seems to me as if a rat is more adept at employing logic than your average customer is.

Adam Smith would not be pleased.

Thoughts?

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The Invisible Hand (in a society of morons) | 57 comments (46 topical, 11 editorial, 0 hidden)
You just remember the exceptions (3.83 / 6) (#3)
by Paul Johnson on Tue Apr 24, 2001 at 05:27:45 AM EST

Most people deal with service people on a straightforward basis, get what they want, pay what the label says, and don't complain. If you are in the business of serving these people then you stop noticing them because one customer asking for Fries With That is pretty much like another.

What you do notice are the exceptions, because the human brain has evolved to look out for and remember exceptional situations. By definition the exceptions are rare, so your thinking about any situation tends to be dominated by the exception rather than the rule.

So why are the exceptionally dumb ones so dumb? Well in some cases its just because they are. The bottom few percent of the population on any measure of capacity are going to be pretty bad at whatever it is. But you may also be dealing with people who actually like behaving that way. The customer who complains that his food is always prepared wrong might just like bullying waiters. He probably spends his entire working time obeying orders, and has finally discovered a situation where its socially acceptable to order someone else around for a change.

Paul.
You are lost in a twisty maze of little standards, all different.

I'll make a gift out of other peoples' trash (3.66 / 3) (#4)
by slaytanic killer on Tue Apr 24, 2001 at 05:30:38 AM EST

In scene 1, the customer clearly states that his experience at the restaurant is usually not a satisfactory one.

Scene 2: ...After complaining, he grudgingly pays and exits, muttering.
Both scenes you listed offer an exchange of information. In our current economy, where people are treated like dumb hands of the company, you're right -- it is totally pointless to complain or give your thoughts. But in a society where corporations vie for the best & most expensive information systems, it is laughable that they still use drones to work instead of intelligent humans who actually touch the customer.

If I owned a shop, I would want to feel my customer like this, with whatever hands I have. That sounds a bit disturbing, but in some sense it would just be a cold extraction of information. Do many people complain that we overpriced something? Does my restaurant system have some communication problem where the food is consistently misprepared? Enough complaints leaves me open to a competitor. I want my customers' loyalty, the irrational devotion to not switch over when it would benefit them a little bit financially.

One must realize that megastores that blight their competitors like Wal-mart and Barnes & Noble do this.

Irrelevant. (3.00 / 3) (#6)
by kitten on Tue Apr 24, 2001 at 05:52:44 AM EST

Of course, a shopkeeper will want feedback if his shop is doing poorly: "Am I charging too much? Are my employees causing problems?"

But I'm not talking about the shopkeeper's interests here. I'm talking about the overall degredation of the system, in which customers continue to fuel those things which they claim to dislike.

Moreover, it is rare that the problem a customer has is brought to the attention of someone who can actually rectify the issue. Hassling the cashier of Wal Mart isn't going to change the prices. Hassling the manager probably will not change anything either. Even assuming that one could go straight to the top and gripe to the corporate suit in charge of pricing, I find it unlikely that anything would change.

So, what should you do? How about this: Don't buy it. If the price is truly that unreasonable, and enough people notice and refuse to purchase it, eventually someone will get the hint.
And that's what the Invisible Hand is about:

High price -> Less demand -> Excess supply ->price decreases

But here's how it works instead:

High price -> Complain and gripe -> Purchase anyway -> Demand remains steady -> Supply remains steady -> Price remains steady -> repeat.




mirrorshades radio - darkwave, synthpop, industrial, futurepop.
[ Parent ]
Perfectly relevant. (3.50 / 2) (#7)
by slaytanic killer on Tue Apr 24, 2001 at 06:16:52 AM EST

Don't buy it. If the price is truly that unreasonable, and enough people notice and refuse to purchase it, eventually someone will get the hint.
Well you see, we've got the difference between our styles of management. I believe your prescribed action helps no one -- not the person who sells the product, nor the person who decides to buy it after all things are considered.

What lies underneath Adam Smith's classical economics? Information. When there is a lack of information, things don't work perfectly according to supply & demand. It is a perfectly known strategy to jack up the price when people don't have the information to know otherwise -- that is why there is so much secrecy regarding automobile parts supplier lists.

Adam Smith posited that when people are acting rationally, their competition and choices and up creating a mathematically describable system that works pretty damn well. Does a rational actor pass up the opportunity to give or receive information? No. The scene 2 complainer just explained that the price of the product was at his very threshold of purchase, information that would normally get lost in most companies.

Was the complainer in scene 2 rude? Yes. But that's irrelevant, if we're talking about acting rationally.

[ Parent ]
Er, wait a second. (3.00 / 1) (#11)
by kitten on Tue Apr 24, 2001 at 08:46:41 AM EST

Adam Smith posited that when people are acting rationally, their competition and choices and up creating a mathematically describable system that works pretty damn well. Does a rational actor pass up the opportunity to give or receive information? No. The scene 2 complainer just explained that the price of the product was at his very threshold of purchase, information that would normally get lost in most companies.

Great. I'm the owner of a shop, and a customer has just given me information: "Your product is overpriced."
Okay, I've factored that into my paradigm of the universe, and I am comfortable with it. Know why? Because this clown just bought the product anyway and helped my profit.
Why on earth would I lower the price just because someone thinks it's too costly, if they're going to buy it anyway?

The customer can verbally give all the "information" he wants, but it won't matter to me as long as boosts my bottom line.

If, however, he refused to purchase the item because it was overpriced, then after a while, I'm going to have to either stop selling the product (the demand would be too low), or lower the price (I've got too many of these things and nobody's buying them).

mirrorshades radio - darkwave, synthpop, industrial, futurepop.
[ Parent ]
I guess we're agreed, then. (4.00 / 1) (#14)
by slaytanic killer on Tue Apr 24, 2001 at 09:31:52 AM EST

Why on earth would I lower the price just because someone thinks it's too costly, if they're going to buy it anyway?
As I said, our management styles are different. You find that information irrelevant. You would probably find success in that, since it would be consistent with your strategy. I wish you luck; it just wouldn't work for me.

I empathize with you for working customer-service and hating how bone-headed people are to you. I've done this, and almost everyday I listen to a friend letting off steam about some idiot. It's just that I think the best way to deal with customer-service stress is to accept that the customer is some consuming idiot, be surprised when they turn out to be human beings, and take what information they give you regardless of how dumb they are in giving it to you. Dumb people can still give good information, and if it inspires me to have a sale or increase value-added services, great. Or if it's just one person taking it out on one of my cashiers, then I ignore it. If the guy is obviously rude to my cashier, then I take it as an opportunity to show what behavior is not tolerated from visitors to my shop, so my cashiers know that they don't have to eat shit for money.

And I have to reiterate that companies like Dell and Wal-mart really spend a lot of money predicting how people will act, so they don't have to wait for people to stop buying before they realize they must reduce their inventories. It just loses money. We're getting severely off topic, but I think it's a useful point.

[ Parent ]
This Clearly (3.00 / 1) (#27)
by Devil Ducky on Tue Apr 24, 2001 at 12:31:47 PM EST

Thoguh the customer bought this luxury item this time. Next time he will not.

As a shopkeeper you do not want to lose the buisness. The easiest way to see that your prices are too high is when Wal-Mart comes into town and takes all of your buisness away (it's what they do best). The smartest way to see when your prices are too high is to listen to that customer and change your price so he will buy it (or anything else from you) again. Once Wal-Mart comes in it's too late, they're too good at listening to their (your former) customers...

Devil Ducky

Immune to the Forces of Duct Tape
Day trading at it's Funnest
[ Parent ]
It's a little more complicated than that (4.00 / 1) (#30)
by davidduncanscott on Tue Apr 24, 2001 at 12:39:26 PM EST

A good shop owner also knows that the customer doesn't stop bitching at the store -- he goes home and bitches too. He goes to work and bitches. He stands at the bar and bitches. He posts to k5 and bitches. The customers who fuss and then buy anyway are the tip of the iceberg -- there will be others who never enter the store because they already know you're too expensive, or rude, or don't have parking, or things you don't even know that you don't have, or things you do have but they don't know you have ("There's parking in the back?")

A bad owner never gets this point, of course, and sits in his half-empty establishment wondering what happened until the auctioneer takes his chair away. (He also thinks of his customers as clowns).

[ Parent ]

The theory is colder than that (none / 0) (#32)
by error 404 on Tue Apr 24, 2001 at 12:45:26 PM EST

Sure, it is driven by information on certain levels. But the information the theory is interested in is in the form of profit, and while one shopkeeper may use the griping of customers to refine pricing and service and another not, that isn't what Adam Smith was talking about.

As a shopkeeper, what customers say is very, very interesting to me. As an economist, it is meaningless.


..................................
Electrical banana is bound to be the very next phase
- Donovan

[ Parent ]

Hmm... (none / 0) (#37)
by slaytanic killer on Tue Apr 24, 2001 at 01:43:11 PM EST

while one shopkeeper may use the griping of customers to refine pricing and service and another not, that isn't what Adam Smith was talking about.
I am not certain I agree, though you clearly have a point. Ideally, the information that goes into pricing is assumed to be instantaneous. The faster your information and the better it is, the closer to zero inventory you can go. I imagine that inventory is one measure of how far from ideal real-world economies are.

I believe Smith's theories are both descriptive and prescriptive. The prescriptive parts depend on predictability, so if you have enough information you can predict what should happen next. Unpredictability == lack of information.

And with supply/demand curves, the faster your information, the faster you can go into equilibrium... After all, we don't talk about price, but demand. Finding out that demand (price/quantity that the aggregate would pay) either takes a little bit of listening skills, or a lot of trial & error.

[ Parent ]
Crux of the error (4.66 / 3) (#35)
by ucblockhead on Tue Apr 24, 2001 at 01:13:47 PM EST

The crux of the error in this story is this:

...in which customers continue to fuel those things which they claim to dislike.
You are making the assumption that what people claim they dislike is what they dislike.

From a purely rationalistic standpoint, it is in the customer's best interest to appear unsatisfied. No one ever got better service by saying "Oh, I just love this place, I'll never go elsewhere, but could you please improve the service?". How's that going to motivate anyone? No, the rationalistic thing to do is to say something like "God, this service is crap, I don't know if I'll ever come back!" even if you intend to be back the next day. From a customer's standpoint, they are better off appearing as if they're always ready to bolt to the competition.


-----------------------
This is k5. We're all tools - duxup
[ Parent ]

You also don't need the consumer to migrate... (none / 0) (#44)
by _Quinn on Tue Apr 24, 2001 at 04:09:07 PM EST

   ... because of that lovely modern technology caused advertising. I don't have to go looking for a cheaper/better product if someone is telling me it's available. So:

High price -> Complain and gripe -> Purchase anyway -> Demand remains steady -> some other company realizes they can make money by selling for less -> see advertising -> switch companies -> price goes down.

   Now, the price/quality difference has to be large enough to offset the force of habit, inconvience, etc, but I think most people understand this: you pay more at the corner grocery store because you save time ( proportional to money ) by not going out to the warehouse store.

-_Quinn
Reality Maintenance Group, Silver City Construction Co., Ltd.
[ Parent ]
Aha! (3.00 / 1) (#31)
by jabber on Tue Apr 24, 2001 at 12:43:40 PM EST

I see somebody has been reading the Cluetrain Manifesto.

[TINK5C] |"Is K5 my kapusta intellectual teddy bear?"| "Yes"
[ Parent ]

Rationality not needed for the Invisible Hand (4.30 / 10) (#8)
by TuxNugget on Tue Apr 24, 2001 at 06:30:23 AM EST

The theory of the "invisible hand" can also be thought of simply as conservation of mass. Turns out rationality doesn't play quite as large a role as everyone likes to believe. All you need is a world where firms need to charge above costs to keep producing (but otherwise, their costs are random) and consumers can't spend more money than their budget (try as we might, you can't do it forever).

Imagine a graph giving the quantity of a good that sellers produce vs. price. For most normal goods, as the price goes up, more and more (inefficient) producers can sell at a profit, and so the quantity produced will increase. Note that this need not be because rational businessmen are attracted to the profit. It could be totally random. More firms that randomly decided to "try producing this product" were able to stick around when prices were higher than when lower.

Now imagine a graph giving the quantity of a good that is bought vs. price. For most normal goods, one can argue that as the price drops, more people who want the good can afford it, and so the quantity bought will increase as price decreases.

Now put these two graphs together, and apply the conservation of mass: the quantity bought has to equal the quantity sold. But with the normal shapes of these curves, this will typically imply a particular price and quantity.

In introductory and even some advanced econ courses, much is made of the notion that these curves derive from profit-maximizing or utility-maximizing behavior. Sometimes this is a springboard for those critical of free market economics or policies to then give a false argument: we know people aren't very good maximizers, and firms are riddled with inefficient humans, and this fact is used to argue that market equilibrium or "supply and demand" is not an accurate picture of how the economy functions.

But a little reflection should reveal that the causality in that counterargument is going the wrong way. One way to get downward sloping demand and upward sloping supply is utility and profit maximization, but it is not the only way!

Turns out, fairly random behavior and budget constraints will also do the trick. Just think about it: a thousand monkeys banging away on a thousand websites will never be able to buy a new ferrari -- as they are a bit short on cash. On the other hand, they might buy an inflatable Penguin if it is just $1.95.

This approach isn't new. It just isn't taught very much. Becker wrote about this sort of stuff in the 1960s, and it was recently revisited by Gode and Sunder [1993] for a cute computer sim of market supply-demand economics without full rationality.

Behavior (4.22 / 9) (#10)
by dcodea on Tue Apr 24, 2001 at 08:31:49 AM EST

In re: scenes 1 and 2:

Most economists agree that what matters are not the stated preferences of the consumers, but the revealed preferences; ie the preferences as revealed by their actions. These guys complain, and say it's too expensive, but when all is said and done, they are perfectly willing to buy what is being offered at that price, or else they wouldn't have. I don't think these scenes drive any stakes through the heart of economics.

That said, there's currently a big new branch of economics that it being badmouthed by old-school economics that is questioning the old assumptions of rationality. It's called behavioral economics. For example: If you wanted to go to a basketball game, but on the night of the game is was snowing so badly as to make the trip really annoying, you just choose not to go. If you had already bought your ticket, however, the desire to "get your money's worth" may influence you to go despite the annoyance. According to traditional economics, this wouldn't happen: the ticket is a sunk cost and can't be recovered in either case, so it shouldn't influence your decision. But it does, and some new hotshot ecnonomists are seeing how this sort of behavior changes things. Neat stuff, IMHO.

Who Dares Wins

Diversion (none / 0) (#47)
by ubu on Tue Apr 24, 2001 at 06:57:04 PM EST

A lot of those working in the field of so-called "Behavioral Economics" are using it as another stick to beat traditional economics, as you are. Which is not to say that behavioral irrationality does not influence human economic behavior; it is more of an indicator of widespread confusion about economics in the general public that irrational economic behavior persists.

Part of the reason for the rise of "Behavioral Economics" is the movement of many economists away from their Keynesian/socialist roots in search of something to explain the worldwide collapse of socialism. From the Leftist point of view, socialism is the system of science and reason, and laissez-faire capitalism is a system of chaos and superstition. The fact that capitalism succeeds wildly in the face of socialism's abject failures frustrates the Left, and has led many to assume that a lack of "science and reason" in human behavior is the primary cause.

This subtle philosophical shift has opened the door even wider for State-imposed order and regulation, provided the Left can convince the general population that it is theoretically incapable of acting in its own best interests. Clever stuff, no doubt about it.

Ubu


--
As good old software hats say - "You are in very safe hands, if you are using CVS !!!"
[ Parent ]
My impression (none / 0) (#53)
by dcodea on Wed Apr 25, 2001 at 04:08:18 PM EST

was that the behavioral economists were reacting to the increasing mathematical treatment of economics. At least, that was what I gathered from my own professors. When I talk to my math professors, they more or less ridicule how mathematical economics is for being based on such obviously and non-trivially false presmises. My economics professors seem to yearn for the good ole days when being an economist meant more than being good at statistics.

And I'm not sure why "socialism" would be considered reasonable while "laissez-faire capitalism" would not be; I don't think the distinction between the two is that strong. By this I mean the difference between any real-world implementation of the two. There has certainly been rigorous and mathematical treatments of both of them, and I don't think either has any particular claim to "natural" superiority. I have not noticed any particular bias on the part of economics in general or my own interaction with economics education to indicate any "frustration" of the left due to the failure of capitalism. Economists, as far as I can tell, seem wholly unsurprised by the failure of socialism as it has been implemented.

And I further contend that behavioral economics has very little to do with any sort of conpsiracy by the "the left" to impose some sort of Leviathan on anyone.

Who Dares Wins
[ Parent ]

two things (3.60 / 5) (#12)
by DesiredUsername on Tue Apr 24, 2001 at 08:59:14 AM EST

First, the obvious one. Take scene 1. Maybe that guy works near the restaurant (so the "commute" is short for lunch), it's cheaper than anything around and he hates making his own lunch. From his perspective the innaccurate order taking doesn't tip the balance away from the restaurant's favor. Also, I note that you claim all waiters hear this every day. That sounds to me like the customer can't do any better by switching restaurants anyway.

Second, the less obvious one. Even if the individual consumer doesn't act rationally, the invisible hand can still be working as long as everybody is acting similarly. That is, if everybody chooses "innaccurate orders" over "accurate orders" eventually all restaurants will be innaccurate all the time (or however often customers "demand" it). It's like N'Sync: We may think they suck, but if nobody was listening, they wouldn't exist.

Play 囲碁
Actions vs Words (4.00 / 2) (#15)
by kitten on Tue Apr 24, 2001 at 09:43:52 AM EST

Take scene 1. Maybe that guy works near the restaurant (so the "commute" is short for lunch), it's cheaper than anything around and he hates making his own lunch. From his perspective the innaccurate order taking doesn't tip the balance away from the restaurant's favor.

So as you say, this man has other options: He could drive elsewhere, he could spend a bit more for what he believes to be 'better service', or he could make his own lunch. Given these options, he has chosen to patronize the establishment anyway, and therefore shouldn't gripe. "Doctor, it hurts when I do this.."
If he has a problem "every time" he goes to that restaurant, then he has nobody but himself to blame for his dissatisfaction.
Furthermore, if he continues to supply the restaurant with his money, they are not going to listen to his complaint.. his actions speak much louder than his words.

Also, I note that you claim all waiters hear this every day. That sounds to me like the customer can't do any better by switching restaurants anyway.

Perhaps I'm simply bitter because I've been the waiter far too many times, and have had to listen to this. I've been bitched at, yelled at, and otherwise harrassed for things that weren't my fault (I put the order in correctly, but I'm not cooking the food, you know? I don't set the prices, either). And almost invariably the bitchiest customers are the repeat customers.

Even if the individual consumer doesn't act rationally, the invisible hand can still be working as long as everybody is acting similarly.

Very true. Very true indeed. But is that really what Smith (and the rest of us) want? Do we really want to encourage poor service and low-quality products because people are too lazy or stupid to explore the other options available to them? Would these crappy establishments really reflect what the people wanted?
mirrorshades radio - darkwave, synthpop, industrial, futurepop.
[ Parent ]
Lesser of two evils (and dropping) (none / 0) (#34)
by DesiredUsername on Tue Apr 24, 2001 at 12:52:38 PM EST

"Given these options, he has chosen to patronize the establishment anyway, and therefore shouldn't gripe."

He has to eat lunch *somewhere*. So he chooses the "least worst" and then complains to see if he can fix the last remaining bug. He doesn't have any direct leverage (since he doesn't want to go anywhere else)--but he has indirect leverage: he could tell his more discriminating friend to eat elsewhere.

We could also turn this question around: If you don't want to hear customers complain, get a different job.

"Do we really want to encourage poor service and low-quality products because people are too lazy or stupid to explore the other options available to them?"

This is the classic argument of "people are getting in the way of what The People want". "The People" ARE people. If *we* are doing something, then apparently *we* want it. *You* might not want it and *I* might not want it...but *we* do. The only way around this problem is for every (or enough) individuals to think beyond the individual. Unfortunately not many people do that....

Play 囲碁
[ Parent ]
stated / revealed (3.66 / 3) (#13)
by finkployd on Tue Apr 24, 2001 at 09:27:51 AM EST

As said elsewhere, economics isn't concerned with stated preferences, they mean very little. What we have here is two revealed preferences. Both customers have shown that they are willing to pay the price for the service (or good). This doesn't prove any flaw in traditional economics as it is working just as it is supposed to. It DOES show that some people are obnxious and that people in the retail and service industries have to put up with annoying people. The more effective response would be to complain, and stop patronizing the stores in question, the ineffective response is demonstrated in this submission. "Money talks", as it were.

Finkployd
Sig: (This will get posted after your comments)
Ahem. (3.66 / 3) (#16)
by Signal 11 on Tue Apr 24, 2001 at 10:07:35 AM EST

Economics is not Psychology

Economics tells you what people will do in groups (macroeconomics), or why people might make particular decisions by illustrating the principles behind their decision-making process. It does not, it cannot, tell you what decision they will make ahead of time. In addition, economics doesn't take into account things like the fact that some people can bitch loudly and obnoxiously until others tire of them and give them what they want, just to get them out of their face. Having worked tech support myself (service sector job!) I have met a fair number of people like this. I'd say about 5% of the problem suffers from this affliction.

Economics doesn't take irrational behavior into account, but many people are irrational. Adam Smith's model would work perfectly if people were rational.. but they're not all rational. Enough of them are to make the model somewhat reliable, but this isn't physics - afterall, when was the last time the apparatus got mad at you and tried to bite you?


--
Society needs therapy. It's having
trouble accepting itself.

The problem. (3.42 / 7) (#17)
by kitten on Tue Apr 24, 2001 at 10:07:57 AM EST

An interesting point has been raised by several people so far, summed up nicely in this quote:
Most economists agree that what matters are not the stated preferences of the consumers, but the revealed preferences; ie the preferences as revealed by their actions. These guys complain, and say it's too expensive, but when all is said and done, they are perfectly willing to buy what is being offered at that price, or else they wouldn't have.

This is a good point, but I still have issues.
To my understanding, the system should work something like this:

High price -> Lower demand -> Excess supply -> Price goes down.

And what do we see instead?

High price -> Complain and whine -> Purchase anyway -> Demand remains steady -> Price remains high -> Complain and whine -> Purchase anyway -> Demand remains steady -> Price remains high... ad infinitum.

We're left with a customer base that is obviously displeased with the situation (otherwise they wouldn't be complaining), but continue to fuel the profit margin of the entity in question.

Because of this, the vendor can get away with charging too much, and the restaurant can get away with providing poor service, and will continue to do so until it becomes unprofitable to do so - when people stop patronizing the establishment they have problems with - at which point the establishment will either fold, or be forced to make changes.

But because customers are totally unwilling to embrace this, we are left with establishments that do not reflect the desires of the customer, and that, to me, is a problem.
mirrorshades radio - darkwave, synthpop, industrial, futurepop.
Too much... (4.00 / 2) (#26)
by ucblockhead on Tue Apr 24, 2001 at 12:14:26 PM EST

If consumers are willing to pay it, it is not "too much", by definition.... Yeah, they may whine and complain, but it is obvious that if they are willing to pay, then the price isn't "too much" for them to pay.

A great example of this is the price of gas in the San Francisco Bay Area. People are constantly bitching and whining about it. But is it "too much"? Well, obviously not, because people are still buying gas guzzling SUVs and driving to Tahoe for the weekend. This means that they value driving oversized trucks and ski trips more than the money used to purchase the gas. Thus, it is not "too much".

Yeah, they'd rather pay less, and thus complain, but that's pretty meaningless.
-----------------------
This is k5. We're all tools - duxup
[ Parent ]

Gas/Petrol (3.00 / 2) (#33)
by Devil Ducky on Tue Apr 24, 2001 at 12:47:08 PM EST

Last summer when gasoline prices went over $2 everywhere in the U.S, it dominated the news, conversations, everything. People actually did (temporarily) change their driving habits. Mass transit system saw an all time high for usage.

Obviously the price can get too high. In the San Francisco area people are going to pay more for gas then they are in State College, PA. The difference is the people and the culture. You californians pay way too much for everything in my opinion (except for alcohol which is way more expensive in PA) so you will be more willing to pay more for gas. To illustrate this though I would be paid a lot more (should I be able to find work) in CA, my standard of living would actually decrease.

Gasoline is a praticularly special case, too. If you were to go to europe and complain about paying $2US for a gallon(US) of gas they would laugh at you. Most of the world pays a lot more for gasoline. But the US uses more than the rest of the world (combined?). The trade off for the arabs is lower the price for us (to keep us using it at the amazing rate we do) and raise the price for everyone else (because their consumption isn't as improtant).

As to the alcohol problem, that's one of the things that does screw up Adam Smith's plan. In PA all Liquor stores are owned and operated by the state, thus there is no competition and set prices.

Devil Ducky

Immune to the Forces of Duct Tape
Day trading at it's Funnest
[ Parent ]
Actually, (none / 0) (#43)
by _Quinn on Tue Apr 24, 2001 at 04:02:34 PM EST

   we just tax gasoline differently than the Europeans. OPEC targets (complete fiction, but...) apply to the global market; if the location of the first sale was the cause of the difference, it would seen be arbitraged* into (almost) nothing.

-_Quinn

* An American buys a supertanker worth of gasoline at $2 in/from Saudi Arabia. S/he then can sell it for say, $4 in Europe, and make a $2 profit, less the transport cost (which is why it's only *almost*). But a competitors can do the exact same thing; unless there's price collusion (e.g. airlines), the price of oil in Europe will drop to the cost in America plus the (small) cost of the oil tanker crossing the Atlantic.


Reality Maintenance Group, Silver City Construction Co., Ltd.
[ Parent ]
Happens (none / 0) (#49)
by Devil Ducky on Wed Apr 25, 2001 at 12:20:37 AM EST

That really does happen, but there's an even better twist. Big Oil can get oil cheaper in Alaska then they can from the Mid East. Mostly because they own the fields it comes from. The oil is taken down the pipeline and put in a ship (not the Valdeez, that ship operates in the mediteranean now). The ship sets sail. Where to? America (that's where Bush says his friends will send it), or to Japan (where the cost of gas is much higher)?

Bear in mind that there are major U.S. owned refineries in Japan and the Philipines. The obvious buisness answer is: Japan. The cost of shipping is nearly the same, a little more to Japan but not too bad. And the profit margin kicks the arab's butts to Asia. They're shipping is very expensive coming around the bottom of Africa and back up through the Indian Ocean (that will change if the Pan-Asia Pipeline is ever finished).

No matter what our undeserving President may say, producing more oil in the U.S., especially Alaska, will have little effect on our "price burden."

Devil Ducky

Immune to the Forces of Duct Tape
Day trading at it's Funnest
[ Parent ]
Interpretation of reaction (4.00 / 5) (#19)
by GiTm on Tue Apr 24, 2001 at 10:58:42 AM EST

The difference between the reactions you describe and the pure interpretation of Adam Smiths ideal may be as follows.

In the first example - the person in question may come to an establishment that they personally know is sub-standard (ie - charge more than what you would exprect for the price) because it is worth more to them to show off this knowledge (Oh - this is a 5 star restuarant but I send the food back because it is not up to my standard [or the expected quality of a five star restuarant]) as a purely personal enhancement geusture (sp?) ... I know peole like this, they deliberately take you to a restaurant that has 5 stars in the latest popular magazine (an establishment that I have been to before) entirely for the reason that they can send the meal back to show how modern (tastefull, high class, whatever) that they are.

In your second scenario - how many times do these people come back? In my personal experience - I have come across items that I *KNOW* my significant other would love, only to find that they were more expensive than I anticipated (or that they are realistically worth). I still buy them (rather than hunt for the same item again - if only my SO at the time liked handhelds or palmPC's ... unfortunately she generally knows how much they're worth ... and that a bit of looking around and forward thinking would get them even cheaper than the list price) ... end result, I pay the price but never come back to that shop again.

In both scenarios Adam Smiths general rules hold true. In the first case, the perceived value of the customer (being able to send the meal back and being able to look good in the eyes of a customer or superior) is greater than the cost of meal - if this is duplicatable they will continue to come back, sure in the knowledge that their percieved sophistication is sure to be duplicated.

In the second example the customer pays the money (to save the cost of finding a duplicate item in another store for a cheaper price - tell me you saw these customers more than once, or that the item they were buying was not unique [to put it in a time related sense - if your shop was selling PS2's for $AU 900 and everyone else was selling them for $AU 750, reasonable prices here in AU btw, some retailers are selling them for $AU 900 ++] they would go to another store. If the item was a diamond ring [designed and made at your store - but massively overpriced for the carets] the situation is different). Walk around for another few hours to find something else that he/she would appreciate as much or take it for the inflated price and never come back?

What would you do (in the first case) for someone you were trying to impress (and in the second case) for your significant other?
--- I have nothing funny to say here.
Utility. (5.00 / 1) (#24)
by kitten on Tue Apr 24, 2001 at 11:31:29 AM EST

The utility of an item is the satisfaction one gets from having that item. For example, designer clothes. I may think they're overpriced and not worth the money, whereas another person may think that the extra money is worth the satisfaction of having designer clothes.

I believe I specifically excluded utility in the article, believing that it can only account for a very small fraction of the problem I perceive.

The customers who would rather gripe than opt to not patronize a subpar establishment are generally not trying to impress anybody. They are either lazy or stupid or - more and more frequently, it seems - both.


mirrorshades radio - darkwave, synthpop, industrial, futurepop.
[ Parent ]
Why? (3.50 / 4) (#20)
by trhurler on Tue Apr 24, 2001 at 11:13:24 AM EST

Yes, in theory, the customer who is unhappy could go elsewhere. Whether he does so depends, of course, on how upset he is. More specifically, there is a cost to him in time, effort, and familiarity(which is a very real motivator,) to go somewhere else. Unless that cost is exceeded by the cost of continuing to patronize the substandard establishment, he's not going to change his ways. Adam Smith may not have realized this(I suspect he would have, but that's beside the point,) but von Mises certainly would have, along with most any modern psychologist and probably a fair percentage of reasonably bright eight year olds. As it happens, this is actually just another part of the cost evaluations people make; the important thing people often forget is that every choice has a cost.

Why do people have such a total lack of ability to introspect? We all do these sorts of things - and we all can see how they work in ourselves, even if we aren't economists or psychologists or whatever - and yet so many people point the finger at someone else for doing something they themselves would also do and then say "what an idiot!" I don't get it.

By the way, people ARE by and large idiots, but that doesn't really matter. If it did, we'd have been extinct a long time ago. I bet some of those idiots would see humor value in misspelling the word invisible when talking about how other people are morons:)

--
'God dammit, your posts make me hard.' --LilDebbie

Yup (none / 0) (#46)
by ubu on Tue Apr 24, 2001 at 06:45:20 PM EST

Good points. You're right that the whole thing about people being idiots doesn't matter, and I think it's because whatever their level of intelligence, human beings are rather good at organizing for survival. It doesn't matter if people are collectively stupid, so long as they have the intelligence to consult wiser heads for advice on particular matters.

For instance, I may not have a head for accounting, and I may be absolutely worthless with investments. But I can use another person's skills and acumen to manage my money by paying him for the service. As Wanniski so eloquently says here:

We don't expect the 125 million people who are in the work force to "know a bad investment when they see one." That's why we have a market economy, in which tiny amounts of money are deposited in banks, S&Ls and credit unions or pension funds or mutual funds. People who are supposed to know good from bad investments work for these institutions. They gather the mites into bundles and package them for other people who show up in search of capital. The mechanics of the marketplace requires that the experts -- the broad class of financial intermediaries -- be able to assess the likelihood of the potential return on investment to these bundles of cash.

Ubu


--
As good old software hats say - "You are in very safe hands, if you are using CVS !!!"
[ Parent ]
Was Adam Smith's theory ever correct? (3.50 / 8) (#22)
by marlowe on Tue Apr 24, 2001 at 11:20:24 AM EST

Human nature doesn't change over time. People have always been stupid. That enlightened self interest thing is a rarity at best, and a fantasy at worst.

All the arguments I've ever seen in support of Wealth of Nations boil down to" capitalism obviously works better than any other system, and captialism==Adam Smith, therefore Adam Smith is obviously correct. But the equation in the middle is bogus. The success of capitalism came first, and then Adam Smith and his thery came along to explain it. Who's to say his explanation was the correct one? Maybe our glorious free enterprise system works because of some entirely different mechanism, which no has ever bothered to even look for, let alone discover.

<br>-- I'm not looking for perfection. I'll settle for adequacy. --
<br>

An ode to streetlawyer (none / 0) (#40)
by sugarman on Tue Apr 24, 2001 at 02:26:17 PM EST

The success of capitalism came first, and then Adam Smith and his thery came along to explain it.

So the successes of Open-Source occurred, and then ESR wrote a theory that tried to explain it, and since then everyone has taken his word as gospel, without looking at the reality of the situation that preceded the "Holy Scripture"?

Hmmm, interesting.
--sugarman--
[ Parent ]

Whatever (5.00 / 1) (#45)
by ubu on Tue Apr 24, 2001 at 06:38:17 PM EST

That's funny, but just because you haven't the slightest familiarity with economics doesn't mean everybody else is ignorant.

There is a great deal of crossover between the two groups. Supply-side economics emerged in the late 20th century, largely as a response to the overwhelming adoption of Keynesian theory in public policy.

Ubu


--
As good old software hats say - "You are in very safe hands, if you are using CVS !!!"
[ Parent ]
Uh...not quite (4.90 / 10) (#25)
by ucblockhead on Tue Apr 24, 2001 at 12:05:01 PM EST

In scene 1, the customer clearly states that his experience at the restaurant is usually not a satisfactory one. According to Smith's theory, the restaurant's profits should be suffer because of poor quality/service. Why, then, does the customer continue to patronize the establishment?
Because the whole point of making an economic choice is not chosing a particular thing, but choosing one particular thing out of a number of choices. It is not a matter of the customer's experience at the restaurant so much as the customer's experience at that restaurant compared to all the other restaurants. Without knowing more about the customer and his preferences, you really can't say whether or not he is being "illogical". If restaurant A has better food and worse service than restaurant B, the customer is perfectly rational if he chooses restaurant A. This just means that he finds food more important than service. And he is also perfectly logical to bitch about the service.

In scene 2, the customer gripes about the high price of an item, and then pays for it anyway. Smith says that if an item is priced too high, the demand will decrease, forcing the price back down. If the price of this item is not to the customer's liking, why does he purchase it?
Just because you gripe about a price doesn't mean you aren't willing to pay it. It just means that the price is nearing the decision point. The theory is that every person has a price $X that they are willing to pay for something. Above $X, they won't pay, below $X they will. But realistically speaking, that X is pretty fuzzy and what you'll see is that as the price approaches $X, people will have a harder time deciding. And that is when you'll see griping. But it doesn't mean that this price point isn't there and in fact the griping makes it clear that there is a point where the person won't buy, and he's pretty close.

So basically, you are not seeing what you think you are seeing.

This story reflects some fundamental misunderstandings about Smith. Consumers don't "use" the invisible hand. Consumer actions cause the effects that we call "the invisible hand". What makes it very hard to see is that while it makes the math easy to talk about price points and things as if they were fixed, and choices as if they were simple, in reality, price points vary over time according to the consumer's experiences and choices are wildly complex.

The number of factors involved in chosing restaurant A over restaurant B can be huge, and there is no way an outside observer can see them all and therefore judge the "rationality" of the choice. Which restaurant is closer? Has better service? Has better food? Has cuter checkout girls? Is the place mommy used to take me when I was five? Is "classier"? Doesn't have that creepy homeless guy across the street who just stares? Etc, etc, etc.

There's no way you can know the factors, so traditional economics just assumes that the consumer chooses rationally because of them. That is definitely a weakness, but just saying that some consumers appear to not be acting rationally without knowing all of their desires isn't really a good attack.


-----------------------
This is k5. We're all tools - duxup

no... (3.33 / 3) (#38)
by pb on Tue Apr 24, 2001 at 01:47:14 PM EST

Actually, I think that pointing out that people don't act rationally, or do research, or many other things, is a *great* attack. Besides, what is and is not rational is another incredibly complicated question that economics ignores.

For instance, Intel and Microsoft have dominated their relative markets why? Mostly advertising, public perception, monopoly leverage, and their install base. They rely every day on the people who don't evaluate their options or do their research.

No, economics in the general sense knows nothing about people, and therefore can't predict their actions on a basic level. The world is a much more complex place, as Kitten points out. Some people buy stocks based on these principles, i.e., see what their friends are purchasing and make investments based on that. For instance, herd mentality is observable, predictable, and relies on people who don't spend the time to evaluate their purchasing decisions for themselves...

Anyhow, you could probably hammer this into an economic theory, (I know I could) but the point is, that at a basic level, factors like these aren't taken into account. And I think that's a flaw, and that Kitten has an interesting point.
---
"See what the drooling, ravening, flesh-eating hordes^W^W^W^WKuro5hin.org readers have to say."
-- pwhysall
[ Parent ]
Well, actually.... (3.50 / 2) (#41)
by ucblockhead on Tue Apr 24, 2001 at 03:00:38 PM EST

A huge part of the reason that Microsoft and Intel dominate the market is because as far as computing technology goes, there are advantages to the consumer in using what everyone else uses. There are natural monopolies there. In other words, using an otherwise substandard OS is a quite rational choice when the fact that everyone else already uses it means that more software is available.

In other words, people use Windows because that's what the games run on, and game companies write games for Windows because that's what most people have. Both are acting completely rationally in choosing a substandard OS.

The error here is in looking at only one factor and assuming that this is the only important factor. But there is almost never just one factor. People are usually thinking something like "Well, maybe Linux doesn't crash much, but crashes don't bother me too much, and I want to 'share' software with work". That's a perfectly rational reason for using a poorer product.
-----------------------
This is k5. We're all tools - duxup
[ Parent ]

Psychology 1 ( Doh! ) 1 (4.20 / 5) (#29)
by jabber on Tue Apr 24, 2001 at 12:36:31 PM EST

The anecdotes you provide have nothing to do with economics, or the idiocy of sheople in general. It has to do with psychology. By your own assertion, eating in a restaurant and buying whatever item, is a case of 'luxury purchase'. The customer knows full well the cost of the item that they do not need. They completely realize that orders are sometimes ill-prepared.

Odds are that the food was perfectly fine, and that the customer already made a commitment to spending the money - but, since they do so voluntarily, there is guilt and resentment. Their desire for the benefit of frivolous spending outweighs their frugality and sense of financial responsibility, and they displace this frustration by complaining about the quality of what they are buying. They cause themselves to feel victimized, and that makes their loss of money YOUR FAULT, not their choice.

The alternative to this, for people who can not live without drama, is "buyer's remorse", where they wait to get home and then feel sorry for themselves for buying something. It's just so much more fulfilling to vent your frustrations on another person, rather than obssess in the privacy of your own home, isn't it?

[TINK5C] |"Is K5 my kapusta intellectual teddy bear?"| "Yes"

What's wrong with the invisible hand? (3.80 / 5) (#39)
by Elendale on Tue Apr 24, 2001 at 02:03:21 PM EST

When companies started figuring out that marketing their products as luxuries wasn't the way to go and instead started marketing them as necessary (and getting away with it, meaning "people fell for it" not "gov didn't step in") then the whole thing started falling apart. Now the line between stuff like food and operating systems is blurring- not to mention the ads are horribly bad. From Microsoft's almost laughable "Where do you want to go today" (as a side note, i was unaware a software program could bring me somewhere- but i guess the magic of doublespeak wins again) to "Do stuff faster" (gee, making generalized claims that tell you nothing about the product (other than that it, in some way, lets you do stuff faster) is good marketing now?). Of course, lets not forget AOL's non-claim of being "easy to use" and of course, the ironic "so easy to use its number one".

What about the fact that people are swayed by these "customer testimonials"? Why do you trust these customers you see on TV? Are they somehow more honest because they're merely accepting huge sums of money to do a commercial once than several times? Do you somehow think they're more informed about the products than yourself? Maybe you're saying "well see, the product isn't completely worthless- look at those customers, they're happy with it"- now think about that. Are these products so pathetic you have to be convinced they aren't completely worthless?

Think the "free market" encourages price competition? What about people who seem oblivious to market pressure (the Microsoft monopoly anyone?) yet can somehow argue that their being a monopoly is "good for the consumers"? And MS isn't the worst of them either. The economics textbook in my High School econ class was (you guessed it) created by corporations, these textbooks argued such things like "price wars are bad for the end consumer" and that the government should allow customers to decide which companies get big or not instead of "unfairly" punishing those who obtain monopolies.

It works in theory, but it seems that we've thrown it in a burlap bag and beaten it.

-Elendale
---

When free speech is outlawed, only criminals will complain.


What is rationality? (4.66 / 3) (#48)
by ghjm on Tue Apr 24, 2001 at 07:56:01 PM EST

Traditional economics assumes that "rational consumers" posess perfect information about all available alternatives that exist in a market. Given that this cannot possibly be the case, actual consumers in the real world cannot possibly be "rational" in this sense. Actual people do things from a vast, seething stew of complex motivations, desires, beliefs and perceptions that defies any detailed analysis or description.

But it can be manipulated to your advantage.

During the World Wars, the effectiveness and 'art' of propaganda was studied extensively by all sides. It turned out to be possible to get large populations to believe in things, or at least act as if they did, through a reasonably cost-effective application of carefully calculated stimuli. This forms the basis for modern advertising. Consumers have been so heavily indoctrinated by advertising so effectively constructed that they no act in ways directly contrary to their own best interests, as those interests would otherwise have been defined.

The kuro5hin demographic generally seems to believe itself to be above the effects of advertising. We're so media-saturated and our critical skills are so good that advertising has no effect on us, or so we assume. I'm not so sure. If a propaganda machine is doing its job successfully, people believe the doctrine as if it were their own idea. If the older generation complains about advertising and the younger generation doesn't, perhaps the usual assumptions can be reversed: Since we (the youngsters) were born into a world of propaganda, we have bought into it so thoroughly that we don't even question its validity; the lack of cognitive dissonance, instead of indicating an immunity to advertising, might instead indicate a total passive acceptance of it.

It's certainly clear that in other areas, notably social and political dialog, people are not behaving rationally. Both left- and right-wing opinions are framed by their disciples in remarkably uniform sets of apparently faith-based beliefs. Where does this faith come from? If people were really forming their own opinions, wouldn't there be a broader spectrum of beliefs with much greater variation between individuals? Instead, we see clustering into half a dozen readily identifiable platforms, with little internal variation between proponents. Surely this remarkable conformity implies strong external control over what opinions people hold?

If we are all in a state of cognitive exhaustion brought about by propaganda and resulting in blind acceptance of media-provided dogma, then it should be no surprise that allegedly populist 'free' market methods just wind up handing over all control to the vested interests.

-Graham

Have you ever thought .... (2.66 / 3) (#51)
by streetlawyer on Wed Apr 25, 2001 at 05:34:23 AM EST

That people might actually enjoy griping, as a sort of leisure activity? Since they do so much of it, one would have thought that the theory at least bore investigation.

More generally, I'd like to congratulate kuro5hin for having collaboratively generated, as far as I can tell, about fifteen thousand words of text on the general subject of Adam Smith, apparently without the participation (until this post) of *anyone* who has read Smith's work. It's a towering achievement, of a sort.

--
Just because things have been nonergodic so far, doesn't mean that they'll be nonergodic forever

But a lot of economists haven't read it either (none / 0) (#54)
by TuxNugget on Thu Apr 26, 2001 at 08:43:39 PM EST

It is not required reading in grad school...

One recent author in AER (or was it JPE?) points out this whole invisible hand business in Smith was not at all about Walrasian tatonnement or similar supply-demand models of market prices.

But the "invisible hand" is a great metaphor for a number of different economic processes, and since metaphors weren't copyrighted and trademarked to death back then, it got re-used.

[ Parent ]

How can WE tell? Hmmm, let's see (4.00 / 1) (#52)
by Kasreyn on Wed Apr 25, 2001 at 12:46:30 PM EST

You've given us no actual data that indicates there is such a trend. And before you get on my case, I too have been a waiter in many establishments. But the particular item of non-common-sense I have usually seen in customers is the inability to decide for themselves what they want.

More often what I see is, customer #1 will give an incoherent order for food, and then bitch out the waiter when he brings the order, having done the best he can, possibly report him to management, and certainly not tip him. Customer #2 will shoplift the item if he thinks he can. I don't see many people just plain walk away from a desired purchase after a look at the price these days - either there's something about the desire to buy that makes them not want to change their plans, or the glitzy packaging hypnotizes them. Idiotic, either way.

Actual words of an idiot, overheard in a gas station: "I don't know why gas keeps costing more and more, I always put in a full tank every time!" (Sigh)... face facts, some people just can't do math.

If anything is corrupting Smith's model of ideal capitalism, it is the increasing ability of advertising and marketing to make up people's minds for them. Such concepts as "it costs more because it's better somehow, don't ask us!" blow supply and demand all to flinders, and people believe it.

Advertisers can get away with almost any lie they spew; what about these medicine ads on TV? One of them had weeks of commercials where they did nothing but show the pill bottle and show sexy people dancing. It was weeks into the ad campaign before they even SAID WHAT THE DRUG DID. Just flash the pills and the happy people, like any other subliminal brainwashing scheme. In a few years I expect TV's to start coming with a little lever that dispenses a treat...

-Kasreyn


"Intolerant people should be shot." - the best one-sentence troll I have ever seen.


Sometimes there isn't any other 'real' choice (none / 0) (#55)
by bored on Fri Apr 27, 2001 at 03:40:44 PM EST

For instance, I continue to go to Denny's because they are open at 3AM when I'm hungry and I don't have to drive half way across town to get there. I hate them though, the food is nasty, the wait staff suck, and the service is slow. There are a couple of good 24 hour restaurants down town, but they are often so busy that it take 30 mins to get in. The other problem is that I don't want to drive for 15 minutes to get downtown.

Wal-Mart, I don't like Wal-Mart because there is ALWAYSa big line at the cash register. On the other hand I go to Wal-Mart because when I want to get more soap, paper towels, etc they are the cheapest around. Not only that, but they are also open 24 hours so I can go late at night when I feel motivated rather than going when I get off of work. Plus I understand that they put the local little guys out of business, which I don't like because it moves more of the profit into the hands of a few out of state people without faces who already are to well off for their own good.

I guess what I'm trying to say is that the real problem is that there often times isn't a perfect restaurant to go to, or a perfect product to buy. You can trade price for service, convenience for quality etc. These restaurants, businesses, products survive not because they are 'perfect' or even the 'best' but because the alternatives also have disadvantages that sometimes outweighs the advantages. This is why I build/assemble all of my own computers and did a lot of the work on my old car. I try to support the local guy because he tends to have better service but sometimes he is at a serious disadvantage when it comes to pricing, location, and the ability to stay open during strange hours. For the geeks in the audience who still don't understand... Its like windows, it sucks, but the advantages that the average customer sees still outweigh the disadvantages when compared to other options.



Rant time. Yes, again. (3.00 / 1) (#56)
by kitten on Sat Apr 28, 2001 at 05:16:58 AM EST

This has actually been preying on my mind a bit, in a vague and offhand sort of way.

I guess what I'm trying to say is that the real problem is that there often times isn't a perfect restaurant to go to, or a perfect product to buy.

What I've noticed in my years in the workforce (since 1996!) is that as time has progressed, customers have gotten more and more bitchy.
At first I thought it was probably just me being jaded and disgruntled, but most other customer-service types I speak to confirm this.
Why is this?

We live now in an age where things are expected to be right now. I think the Internet's widespread availablility has a lot to do with that.
The thing I've noticed about customer complaints is that they're getting more and more demanding, but less and less important. Customers - it seems to me, at any rate - are no longer complaining because something is actually wrong per se; they're complaining because everything isn't perfect. Their whining is the whining of an irate infant, and it's tiresome.

No. Products are not perfect, nor is service. And yes, sometimes you must trade off an advantage for a disadvantage and decide between the lesser of two inconveniences. You could go to Wal Mart and pay less, but you'll have to wait in a longer line (probably because more people go to Wal Mart because of the low prices, and therefore, the wait is longer).

Still. I maintain that complaining about it will not solve anything if you're still giving them your money. As long as John Q Customer continues to fuel the bottom line, the store is not going to care what his actual complaint is, because in the end, he's obviously willing to pay anyway.
The only thing that will get the store (or vendor or manufacturer or whatever) to actually DO something to correct the situation, is when their profits begin to suffer because of poor product/service/prices/etc.

"There are always alternatives." -Spock

Take the Honda del Sol, for example. It couldn't compete with the Mazda Miata, and therefore was discontinued by Honda. People refused to purchase the del Sol, because the Miata was - apparently - a better product. When Honda saw that it could no longer make a profit on the del Sol, it stopped making them.
Now imagine that people had done nothing but complain about the del Sol, but continued to purchase it anyway. Is Honda going to listen to the complaints? Well, they *might* tweak next year's model a bit, but probably not. Sure, the people are griping about the car, but they're still paying for it. So why should Honda care?

For once the consumer base did the right thing and purchased an alternative. This punished Honda for making a car that didn't appeal to the public, and rewarded Miata for being better at the game.

I'm done now. No, really.
mirrorshades radio - darkwave, synthpop, industrial, futurepop.
[ Parent ]
Something "strange" happened between 179 (none / 0) (#57)
by strlen on Thu May 10, 2001 at 12:10:54 PM EST

That's called advance of modern capitalism. There wasn't true capitalism back in those days. There were very few "join stock companies" -- a very primitive form of modern corporation. There was no real industry. In those days laissez faire was a liberal idea: as opposed to mercantilism, which thought to establish the colonies are a guaranteed market, and a guaranteed supplier of raw resources -- pretty much the effect of neo-liberal politics on the Third World (former colonies) right now.

Also, why do you assume there's a "market" for all products? Some things, like electricity, like cable television, like telephone service can't truly be chosen. So there isn't a market, unless you claim that your choice is not consuming those services (which is not very practical). In some things you might have a choice who to get it from, but no choice of whether to get it or not. Such as health care. In the days of Adam Smith, they would bleed your (visible) hand, to cure a decease, there was no modern health care industry. You also assume that the supply and demand side of the equation is both infinite. Not true now. Oil is running out, and people are switching to diesel, natural gas and electricity. Thus if you start a new oil company, to protect yourself against any actions which are commited by all the main oil companies, shit you're out of luck.

Nature of business, as I have said before changed now. Whether in Adam Smith's day there was generally a family, a person, or a partnership which owned an enterprise, right now it's stock holders who do. They are not driven by sences of deceny, of morality, of social responsibility. They are driven by senses of profit. Why? Not because they are all immoral beings -- because there's so many of them, profit is the only thing in common. Anyone can buy stock of a company, or sell it, as long as they have money. Hense there's vertical or horizontal expansion, which given a limited supply or demand can allow a monopoly to be established. Thus a corporation now has guaranteed supply and guaranteed demand, and both a source of supply and a market is fixed for a corporation or a group of corporations. You get the same situation as with mercantilism.

Now you may say, "well tough luck, this is how it works". Then don't talk about the invisible hand, don't use an outdated argument. You might have a point if you mentioned that government regulated markets offered more dissadvantages and capitalism is the only market system compatible with <your ideology>. Now there's a debate.

And why do you think that everything Adam Smith said is right? He is just like any human being. Even worse a politician. Do you also trust everything Dubya or Clinton say? You may argue that he was a scholar who presented a radical theory, which worked so well in many cases. So did the many scholars who advocated socialist change, and it worked well in so many cases, and with side effects as well.

And humans have not dumbened down, they've only become more and more intelligent. Public education, so advocated by Jefferson is now a reality. Adam Smith could only dream of a time where majority of a nation could read and write, much less talk about economics. Heh, Jefferson could even only dream of the time there would be no slavery.



--
[T]he strongest man in the world is he who stands most alone. - Henrik Ibsen.
The Invisible Hand (in a society of morons) | 57 comments (46 topical, 11 editorial, 0 hidden)
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