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.
• 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…).
• 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

Additional Links:

• YouTube Lecture