Hey all -
Most of this newsletter’s content was inspired by a 2014 post from Kevin Simler below. It kicked off a good review for me in psychology, marketing, economics and game theory.. though I still have a few questions (see footnotes).
Cultural imprinting: Kevin Simler at Melting Asphalt suggests that ads don’t work how we commonly think. The conventional story - he calls it “emotional inception” - is that a brand (eg. Corona) associates itself with a message (the beach); we value the message (beaches are relaxing); then we end up buying Corona because we like relaxation. It’s a one-to-one relationship (the ad and you), which hinges on the assumption that ads hijack your emotional, irrational brain and create an otherwise arbitrary association so that you buy their product. Simler challenges this view - he argues, in fact, that we are quite rational. He claims that ads actually work via cultural imprinting - that is, ads imprint an association (brand & message) upon culture, and you - as a social animal - decide to publicly align or not with that message. Do you get the Corona because you think it’s relaxing, or because others see you got it and you’re signaling you align with the message of relaxation (i.e. you’re chill)? You might even be (costly) signaling that you are not cheap, since Coronas tend to cost more than other beers. According to Simler’s theory, ads are one-to-many: they must form an impression on many people (or at least you need to think they do), then you signal your alignment with that message by buying the product. What are the implications of this theory?
Conspicuous consumption: Why do people buy really fancy cars or eat at really expensive restaurants? Are they really getting that much functional value from the car or the meal? The theory of conspicuous consumption states that individuals signal that they can afford these expensive goods - and this signal of wealth confers social status. But we can broaden this economic explanation (largely limited to wealth) using what we learned from Simler: people are signaling whenever they are conspicuously consuming anything. Signaling tells others, “Hey, I agree with this!” or “Hey, I’m this kind of person!” via actions (implicit) as opposed to words (explicit). Actions are expensive and reliable (i.e. costly signals, discussed below), while talk is cheap and easy to fake. Consider wearing your favorite sports jersey, or whether you get your coffee from Starbucks or Dunkin’ Donuts, or what brand of watch you wear: what does the brand you choose say about you? I’m reminded of this scene from Fight Club: “what kind of dining set defines me as a person?”
The aspirational self: We signal alignment with things we value, but notice that we don’t necessarily signal alignment with who we are (which is far more complex, inconsistent & irrational). Our values reveal who we want to be (they are necessarily normative) and how we want to be perceived by others. You can best see this on Facebook or Instagram: people present their best selves - the selves they want to be viewed as by others (e.g. social, family-oriented, well-traveled, beautiful) - not necessarily who they are most of the time. We do this when we buy products as well - and marketers are well aware: they don’t sell to people as they are, they sell to aspirational selves. Scott Norton, who made a luxury brand (Sir Kensington’s) out of something as nondescript as ketchup, captures this idea in his phrase: “the me I want to be.” (surfaced by: Patrick O’Shaughnessy)
Costly signaling: I mentioned above that “talk is cheap” - this also goes by “actions speak louder than words.” For example, any recent graduate can say they’re a hard worker but how can you tell if they’re lying or telling the truth? One way is to “test” for that quality by having them perform an action only hardworking people can do, such as being an A-student. Getting A’s costs a lot of effort, so it’s a good test in separating hard workers from non-hard workers. If getting A’s required no effort at all (i.e. grade hyperinflation), then the test is bad and the signal isn’t costly enough (in terms of effort) to separate those lying and those telling the truth. Here are a few more examples of this:
Why does costly signaling matter? Because if you want to separate yourself from the crowd by showing your quality or commitment, you may have to pay a high cost (in terms of time, effort or money) simply because those not as dedicated are unwilling to pay the same cost. More concretely, if you want to show someone you care, do something you otherwise wouldn’t enjoy doing just to show you care - the sheer cost alone may be a sufficient indicator.
When I was replaying Scott Norton’s podcast with Patrick O’Shaughnessy, I stumbled across one of Patrick’s more recent posts. Patrick recently hiked 28 miles in remembrance of fallen military soldiers and briefly detailed his experience meeting the other hikers. He writes:
How odd is it that I know a few of those people that I met Saturday better than people I see all the time?
The experience highlighted the power of novelty, vulnerability (physical and mental), and appreciation. Screw steak dinners. If it means an experience like this march, give me full foot blisters anytime.
As usual, if anyone has any awesome concepts/readings to recommend, or feedback for what I’ve written above (too long? too short?), I’m all ears.
 Beyond ads to some degree being simply informational (Kevin explains this in his post), I still think the “emotional inception” story plays a role in advertising. I suspect people may buy things because they think they are “beautiful” or “modern” or “sleek” (and it’s truly just for them, one-to-one), but these associations have been created via persuasive advertising.
 The “costly signalling” bit was somewhat challenging to write because the definition seems so broad that almost any signal can be viewed as having some cost - the only question is “how much.” Maybe I’m not understanding it fully?