Alchemy: The Surprising Power of Ideas That Don't Make Sense

by Rory Sutherland

The overly simplistic model of advertising assumes that we ask ‘What is the advertisement saying?’ rather than ‘What does it mean that the advertiser is spending money to promote his wares?’, even though we clearly use social intelligence to decode the advertising we see. An example that emphasises the significance of our interpretation of information occurred in eastern Europe under communism; when a product was advertised there, demand often went down. This was because under communism anything desirable was in short supply, so people inferred that the government would only promote something that was of such hopelessly crappy quality that people wouldn’t be willing to queue for it. Or imagine you have two products for sale. Product A appears to offer more features than Product B, and is also offered at a lower price. To an economist, the decision is easy: with a higher utility and a lower cost, everyone should buy Product A. However, since a customer is making the decision without perfect knowledge of the two products and their reliability, they might assume that there must be a reason why the price of the ostensibly superior Product A is not higher. The most likely outcome, I suspect, would be for them to buy neither. Whatever economic logic might dictate, the manufacturer of Product A would be better off asking for a slightly higher price than the manufacturer of Product B. This is not irrationality – it is second-order social intelligence applied to an uncertain world....