Award-winning economist gives insight into consumer behavior
Kiran Ramsey | Digital Design Editor
American consumers make purchase decisions based on marketing and temptation in a phishing culture, said a Nobel Prize winner Wednesday afternoon during the second annual Paul Volcker Lecture in Behavioral Economics.
George Akerlof, an economics professor at Georgetown University, spoke in front of about 150 people in Goldstein Auditorium at Schine Student Center. David Van Slyke, the dean of the Maxwell School of Citizenship and Public Affairs, introduced the speaker.
Van Slyke described behavioral economics, the field Akerlof specializes in, as the intersection of psychology that Akerlof has a long history of breakthrough in. Behavioral economics has challenged the beliefs of economists and helped provide clear insights for consumers, Van Slyke said.
Leonard Burman, the Paul Volcker chair in behavioral economics at Maxwell, followed Van Slyke, saying Akerlof’s 1970 paper “The Market for Lemons,” which earned him the 2001 Nobel Memorial Prize in Economic Sciences, transformed economics.
The paper presented the so-called “lemon theory” that says if buyers and sellers don’t possess the same information, buyers have a hard time evaluating goods provided by sellers. That theory, Burman said, gave insight into how goods can be priced at far below their market value, which further leads to a collapse of the market.
In his lecture, Akerlof identified two types of what economists call “tastes” that every consumer possesses. Akerlof said the first type of taste is what people would exercise if they were to make decisions that are good for them, whereas the second kind of taste is what they actually exercise. For example, people may purchase vegetables following the first type of taste but some may buy ice cream as a result of following the second taste.
“With a complete free market, there’s not only freedom to choose, there’s also freedom to phish,” Akerlof said.
Akerlof said “phishing” — essentially the tendency for businesses to prey on consumer’s weaknesses — affects consumer behavior in a way that is not addressed in most economic theories. For instance, Akerlof said in most economics textbooks, an equation explains how consumers decide what to buy based on budget and what kind of combination of goods would provide the most happiness.
But in reality, consumers do not follow such a textbook equation. Key parts of consumer behavior, he said, lie in the way they are constantly confronted with marketing and temptation. Akerlof said a free market economy will provide not only choices that are good for the consumer, but choices that consumers will overwhelmingly buy, as long as there is a profit.
“In the United States, the goal of almost every businessperson is to get you to spend your money,” Akerlof said. “Life in a capitalist economy is a continual temptation.”
The best defense for consumers against phishing, he said, is an awareness of phishing itself. He said knowing that “wrong” choices exist in a market is a protection against making those decisions.
Akerlof also gave warning on unpaid internships, saying they are a form of phishing. College students who take unpaid internship often work for less than what they should when considering other non-financial rewards that they may or may not receive from the internship, he said.
“Be careful when you’re taking internships,” Akerlof said.
Published on September 28, 2016 at 11:50 pm
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