Why Behavioral Economics Is Really Marketing Science

By Philip Kotler – Economists rarely mention marketing. Occasionally an article appears in the American Economic Review on advertising or promotion or warranties. But to most economists, marketing is a sideshow in the economy. It is filled with too many particulars and virtually no theory. A cynical economist would even hold that marketing activity hurts the efficiency of the economy. Promotions distort the true price and lead consumers to buy on brand name, not real value.

Ironically, the discipline of marketing was started by economists! Marketing textbooks first made their appearance in the 1900-1910 period. Their authors were economists who were institutionally oriented rather than theory-oriented. These economists wanted to examine the role that different distribution organizations – wholesalers, jobbers, agents, retailers – played in the economy. They also wanted to describe and analyze the different promotion tools – advertising, sales discounts, guarantees and warranties—and determine whether they actually shifted demand.

Somehow classically-trained economists didn’t view marketing as an intrinsic economic activity. They couldn’t fit it into either macroeconomic theory or microeconomic theory.

The greatest irony is that traditional economics is now facing a new competitor, namely behavioral economics. Behavioral economics attacks the crucial assumption that consumers engage in maximizing behavior. Aiming to maximize utility or profits is the key to building economic decision models. Otherwise, economists would have to work with another assumption, that consumers are basically “satisficing,” stopping short of spending time to maximize and being happy enough to achieve enough of what they want. But the mathematics aren’t there for this behavior and hence the claim of economics to be a science is also weakened. more>

Updates from Chicago Booth

Why banning plastic bags doesn’t work as intended
Benefits of bag regulations are mitigated by changes in consumer behavior
By Rebecca Stropoli – As well-intentioned bans on plastic shopping bags roll out across the United States, there’s an unintended consequence that policy makers should take into account. It turns out that when shoppers stop receiving free bags from supermarkets and other retailers, they make up for it by buying more plastic trash bags, significantly reducing the environmental effectiveness of bag bans by substituting one form of plastic film for another, according to University of Sydney’s Rebecca L. C. Taylor.

Economists call this phenomenon “leakage”—when partial regulation of a product results in increased consumption of unregulated goods, Taylor writes. But her research focusing on the rollout of bag bans across 139 California cities and counties from 2007 to 2015 puts a figure on the leakage and develops an estimate for how much consumers already reuse those flimsy plastic shopping bags.

This is a live issue. After all those localities banned disposable bags, California outlawed them statewide, in 2016. In April 2019, New York became the second US state to impose a broad ban on single-use plastic bags. Since 2007, more than 240 local governments in the US have enacted similar policies.

She finds that the bag bans reduced the use of disposable shopping bags by 40 million pounds a year. But purchases of trash bags increased by almost 12 million pounds annually, offsetting about 29 percent of the benefit, her model demonstrates. Sales of small trash bags jumped 120 percent, of medium bags, 64 percent, and of tall kitchen garbage bags, 6 percent. Moreover, use of paper bags rose by more than 80 million pounds, or 652 million sacks, she finds. more>

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Why Autonomous Vehicle Developers Are Embracing Open Source

By Chris Wiltz – GM Cruise is turning loose its tool for autonomous vehicle visualization to the open source community for a wider range of applications, including robotics and automation. But its only the latest in a series of similar developments to happen over the course of the year.

This time the General Motors-owned Cruise is open-sourcing Webviz – a web browser-based tool for data visualization in autonomous vehicles and robotics. Webviz is an application capable of managing the petabytes of data from various autonomous vehicle sensors (both in simulation and on the road) and creating 2D and 3D charts, logs, and more in a customizable user interface.

Cruise is making that tool available to engineers in the autonomous vehicle space and beyond. “Now, anyone can drag and drop any [Robot Operating System (ROS)] bag file into Webviz to get immediate visual insight into their robotics data,” Esther Weon, a software engineer at Cruise, wrote in a Medium post.

Difficulties in testing autonomous vehicles have played in a key factor in major automakers rethinking their timetables on the delivery of fully-autonomous vehicles. Simulation is becoming an increasingly common solution in the face of time-consuming real-world road tests. But simulation comes with its own challenges – particularly around data and analysis. A robust autonomous vehicle is going to have to be intelligent enough to navigate and respond to all of the myriad of conditions that a human could encounter – everything from bad weather and road hazards to mechanical failures and even bad drivers.

To create and train vehicles to deal with all of these scenarios requires more data than any one company could feasibly gather on its own in a reasonable time frame.

By open sourcing their tools, companies are looking to leverage the wider community to take part in some of the heavy lifting. more>

How the marvel of electric light became a global blight to health

By Richard G ‘Bugs’ Stevens – Light pollution is often characterized as a soft issue in environmentalism. This perception needs to change. Light at night constitutes a massive assault on the ecology of the planet, including us. It also has indirect impacts because, while 20 per cent of electricity is used for lighting worldwide, at least 30 per cent of that light is wasted. Wasted light serves no purpose at all, and excessive lighting is too often used beyond what is needed for driving, or shopping, or Friday-night football.

The electric light bulb is touted as one of the most significant technological advancements of human beings. It ranks right up there with the wheel, control of fire, antibiotics and dynamite. But as with any new and spectacular technology, there are invariably unintended consequences. With electric light has come an obliteration of night in much of the modern world; both outside in the city, and indoors during what was once ‘night’ according to the natural position of the Sun.

Life has evolved for several billion years with a reliable cycle of bright light from the Sun during the day, and darkness at night. This has led to the development of an innate circadian rhythm in our physiology; that circadian rhythm depends on the solar cycle of night and day to maintain its precision. During the night, beginning at about sunset, body temperature drops, metabolism slows, hunger abates, sleepiness increases, and the hormone melatonin rises dramatically in the blood. This natural physiological transition to night is of ancient origin, and melatonin is crucial for the transition to proceed as it should.

We now know that bright, short-wavelength light – blue light – is the most efficient for suppressing melatonin and delaying transition to night-time physiology; meanwhile, dimmer, longer-wavelength light – yellow, orange, and red, from a campfire or a candle, for example – has very little effect. Bright light from the Sun contains blue light, which is a benefit in the morning when we need to be alert and awake; but whether we are outdoors or indoors, when bright, blue light comes after sunset, it fools the body into thinking it’s daytime.

The current ‘lightmare’ traces back to the 1950s, when a road-building frenzy, including construction of the Interstate Highway System, aimed to solve the problem of congestion in the United States. But the roads turned out to increase congestion and pollution, including light pollution, too. In retrospect, the result was preordained: build a bigger freeway, and more people will use it to the point where there is more congestion than before the new road.

To understand the phenomenon, economists developed the idea of induced demand – in which the supply of a commodity actually creates demand for it. So the more roads one builds, the more people drive on them, and the more that congestion results. more>

The Ideology of Self-interest Caused the Financial Crash. We Need a New Economic Paradigm

By Mark van Vugt and Michael E. Price – We are still feeling the effects of the global financial crisis, which started in the US in 2008, and that has now spread to every corner of the world.

The financial crisis should teach us some important lessons about the way economies work and the way we design our organizations. In essence, we have simply made the wrong assumptions about human nature. The leading model in economic theory is that of Homo economicus, a person who makes decisions based on their rational self-interest. Led by an invisible hand, that of the market, the pursuit of self-interest automatically produces the best outcomes for everyone. Looking at the financial crisis today this idea is no longer tenable. When individual greed dominates, everyone suffers. We could have known this all along had we looked more closely at human evolution.

Economic scientists often portray competition between firms as a Darwinian struggle where firms compete and only the fittest ones survive. The British financial historian Niall Ferguson wrote “Left to itself, natural selection should work fast to eliminate the weakest institutions in the market, which typically are gobbled up by the successful.”

This may be true but it is not the outcome of individual greed and competition.

Competition between firms presupposes that individuals cooperate well with each other, and the most cooperative organizations survive, and the least cooperative organizations go extinct. This is group selection, selection operating at the level of groups, where the best groups survive.

This is a far more accurate model of how economies and business operate, and it offers a totally new way of thinking about the design of organizations and ways to avert global financial crises.

A team of evolutionary minded psychologists, biologists and economists led by biologist David Sloan Wilson have come together over the past few years to come up with a more accurate model for how businesses and economies operate. It is based on Homo sapiens rather than Homo economicus. Their efforts are put together in an Evolution Institute report on socially responsible businesses “Doing Well By Doing Good.” more>

I’m a hacker, and here’s how your social media posts help me break into your company

By Stephanie Carruthers – Think twice before you snap and share that office selfie, #firstday badge pic, or group photo at work.

Hackers are trolling social media for photos, videos, and other clues that can help them better target your company in an attack. I know this because I’m one of them.

Fortunately, in my case, the “victim” of these attacks is paying me to hack them. My name is Snow, and I’m part of an elite team of hackers within IBM known as X-Force Red. Companies hire us to find gaps in their security–before the real bad guys do. For me, that means scouring the internet for information, tricking employees into revealing things over the phone, and even using disguises to break my way into your office.

Social media posts are a goldmine for details that aid in our “attacks.” What you find in the background of photos is particularly revealing–from security badges to laptop screens, or even Post-its with passwords.

No one wants to be the source of an unintended social media security fail. So let me explain how seemingly innocuous posts can help me–or a malicious hacker–target your company.

The first thing you may be surprised to know is that 75% of the time, the information I’m finding is coming from interns or new hires. Younger generations entering the workforce today have grown up on social media, and internships or new jobs are exciting updates to share. Add in the fact that companies often delay security training for new hires until weeks or months after they’ve started, and you’ve got a recipe for disaster.

Knowing this weak point, along with some handy hashtags, allows me to find tons of information I need within just a few hours. Take a look for yourself on your favorite social apps for posts tagged with #firstday, #newjob, or #intern + [#companyname].

So, what exactly am I looking for in these posts?

There are four specific kinds of risky social media posts that a hacker can use to their advantage. more>

Updates from Siemens

Well control equipment: Metal hat, Fireproof coveralls… CFD
nullBy Gaetan Bouzard – In the Oil & Gas industry, the integration of possible risk linked with well control — such as subsea plume, atmospheric dispersion, fire and explosion — is critical for minimizing impact on the entire system or on operations efficiency, and for ensuring worker health and safety. Risk to system integrity must be prevented at the design phase, but also addressed in case hazards happen along equipment lifetime or system in operation.

Last September 25th, Mr. Alistair E. Gill, from company Wild Well Control demonstrates the value of advanced structural and fluid dynamics mechanics simulation for well controls, emergency response and planning, as part of a Live Webinar organized by Siemens and Society of Petroleum Engineers. In this article I will try to summarize his presentation. To have more insights feel free to watch our On-Demand Webinar.

To be honest when talking about well control for Oil & Gas industry, people usual conception is that some disaster happened and guys wearing protections are trying to light off a big fire. Actually companies such as Wild Well Control are using modern and innovative techniques as Computational Fluid Dynamics (CFD) simulation to support practical team on a well control incident trying to keep asset integrity at the same time.

Mr. Gill provides several examples to demonstrate simulation techniques that were used from

  • Subsea plume and gas dispersion modeling to understand where hydrocarbons go in the event of a blow out
  • Radiant heat modeling in case of a fire
  • Erosion modeling
  • Thermal as well as Structural analysis

There is basically three major categories of simulation used, starting with everything related to the flow within the well bore, looking at kick tolerance, dynamic kill or bull heading; next anything to do with 3D flow using CFD simulation which is the main focus of this article; finally structural analysis using Finite Element modeling. more>

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Scholarly publishing is broken. Here’s how to fix it

By Jon Tennant – The world of scholarly communication is broken. Giant, corporate publishers with racketeering business practices and profit margins that exceed Apple’s treat life-saving research as a private commodity to be sold at exorbitant profits. Only around 25 per cent of the global corpus of research knowledge is ‘open access’, or accessible to the public for free and without subscription, which is a real impediment to resolving major problems, such as the United Nations’ Sustainable Development Goals.

Recently, Springer Nature, one of the largest academic publishers in the world, had to withdraw its European stock market floatation due to a lack of interest. This announcement came just days after Couperin, a French consortium, canceled its subscriptions to Springer Nature journals, after Swedish and German universities canceled their Elsevier subscriptions to no ill effect, besides replenished library budgets. At the same time, Elsevier has sued Sci-Hub, a website that provides free, easy access to 67 million research articles. All evidence of a broken system.

The European Commission is currently letting publishers bid for the development of an EU-wide open-access scholarly publishing platform. But is the idea for this platform too short-sighted?

What the Commission is doing is essentially finding new ways of channeling public funds into private hands.

At the same time, due to the scale of the operation, it prevents more innovative services from getting a foothold into the publishing world. This is happening at the same time as these mega-publishers are moving into controlling the entire research workflow – from ideation to evaluation. Researchers will become the provider, the product, and the consumer. more>

Takers and Makers: Who are the Real Value Creators?

By Mariana Mazzucato – We often hear businesses, entrepreneurs or sectors talking about themselves as ‘wealth-creating’. The contexts may differ – finance, big pharma or small start-ups – but the self-descriptions are similar: I am a particularly productive member of the economy, my activities create wealth, I take big ‘risks’, and so I deserve a higher income than people who simply benefit from the spillovers of this activity. But what if, in the end, these descriptions are simply just stories? Narratives created in order to justify inequalities of wealth and income, massively rewarding the few who are able to convince governments and society that they deserve high rewards, while the rest of us make do with the leftovers.

If value is defined by price – set by the supposed forces of supply and demand – then as long as an activity fetches a price (legally), it is seen as creating value. So if you earn a lot you must be a value creator.

I will argue that the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls.

What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.

This is not an abstract debate.

It has far-reaching consequences – social and political as well as economic – for everyone. How we discuss value affects the way all of us, from giant corporations to the most modest shopper, behave as actors in the economy and in turn feeds back into the economy, and how we measure its performance. This is what philosophers call ‘performativity’: how we talk about things affects behavior, and in turn how we theorize things. In other words, it is a self-fulfilling prophecy.

If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth. The understanding of value, then, is critical to all the other conversations we need to have about where our economy is going and how to change its course. more>

Updates from Chicago Booth

How to curb short-termism and boost the US economy
End the requirement for quarterly reporting
By Haresh Sapra – The United States is in the middle of that rarest of events: a public conversation on accounting standards. Since 1970, public companies in the US have been required to report quarterly. The Securities and Exchange Commission is now considering changing that frequency to biannual reporting, and in December 2018 issued a request for public comment on the matter.

Admittedly, the issue isn’t exactly igniting the passions of the masses, but the implications of these discussions could significantly affect the US economy. For the first time in many years, policy makers are seriously reconsidering the rules on corporate financial reporting. The SEC is examining how to change the system to lighten the burdens on corporations, and to reduce what it calls the “overly short-term focus by managers” of listed companies.

My research suggests there would be great benefits to the US ending mandatory quarterly reporting. It would help to kick-start innovation among US companies, for one. That should be of particular interest to the SEC, which stated in its request that it is interested in how the current system “may affect corporate decision making and strategic thinking.” more>

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