On: Alchemy.
Episode: N/A
Date: November 2019
Background: Advertising executive and author of “Alchemy”.
Key Subjects:
- Markets are inventive, not necessarily efficient.
- Markets allow for trial and error, testing ideas, discovery.
- Leads to finding more than one solution for one problem.
- Solving the same problem for different people in different ways.
- Variance reduction.
- Human drive: reduce uncertainty.
- “What is the worst that could happen?”
- Assessing the importance of the worst case scenario.
- Assessing the risk of multiple bad outcomes in a row or at the same time.
- Brands.
- Have reputational skin in the game.
- Consumer willing to pay for the reliable certainty of a limited downside.
- Human drive: reduce uncertainty.
- Choice architecture.
- In hiring:
- If you want more diversity, hire more people at the same time (you are more conservative if you only make one hire at a time).
- In consumption:
- If you buy something more frequently (clothes, cars, houses), you’re more likely to buy differentiated items (as a producer: don’t be the average option).
- Minority rule:
- Offer variety to avoid being caught out by minority preferences (don’t be a seafood restaurant: one person may not like it…).
- In hiring:
- Advertising.
- Upfront cost.
- Only makes sense assuming repeat business.
- Therefore, can be a reliable indicator of the seller’s confidence.
- (That he can deliver “the goods” repeatedly).
- Danger of focusing on efficiency.
- Drive for economies of scale and commoditization removes incentives for innovation.
- Ignores the value of trust and developing longer term relationships (intermediaries).
- Replacement of intermediaries by top-down algorithms.
- Uniform questions, filters or categories.
- May not fully allow for bottom-up signals and discovery process.
- Quantification bias.
- Economics is an art, not a science.
- Human behavior is highly context dependent.
- Depending on the context, a given stimulus can lead to opposite behaviors.
- Therefore, attempts at fixing and mapping stimulus and behavior are difficult.
- What drives human behavior is not reality per se, but the perception of it.
- Understand how reality is perceived and develop stories and meaning accordingly (advertising).
- In other words, persuasion.
Key Takeaways:
- Markets are inventive, not necessarily efficient.
- Solving the same problem for different people in different ways.
- Brands provide certainty of limited downside.
Worth Listening:
8/10
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