Daily Archives: July 16, 2019

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>