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People pay for experiences, not goods and services
in Economy

By MayCaesarMayCaesar 3208 Pts
Here is an interesting idea from behavioral psychology that has applications in some behavior-focused fields of economics, such as public choice theory, and several economical schools, mainly the Austrian school.

When the individual makes a purchase on a private market, they pay for more than just the item. The item itself can be meaningless without a proper context or only have a symbolic value; for example, a necklace does not have any practical function outside the cultural fashion context. A robot shopping for goods and services that does not have any ethical, moral or cultural considerations might wonder why anyone would ever buy a necklace, as in the "eyes" of the robot its value might be close to zero.
Now, one might intuitively feel that it is only the case for symbolic item categories such as jewelry or sculptures, or for direct experiences, such as sightseeing tours. However, this is certainly not the case.

The value of an item is comprised of many different entities. Consider a bottle of Coca-Cola. One might think that this is just a bottle with a sugary drink - but it is much more.
The company, Coca-Cola, has made this brand into something special. When people come to the "soft drinks" section of a grocery store and see many different drinks, most of them from brands they have never heard of, then they will statistically strongly prefer Coca-Cola and other similarly renown drinks. You will often see a bottle of Coca-Cola costing 3 times as much as a similar in volume bottle of a generic cola, and even though the taste is very-very similar, people still will heavily prefer Coca-Cola.
All the advertisement, all the other areas of the market Coca-Cola has expanded to and made products and services in, all the philanthropic efforts it has partaken in have resulted in a product that is much more than a physical bottle of physical drink; it is an idea, a symbol.

In the end, what you are paying for collectively is the experience. It is not just the taste of the drink or its ability to quail your thirst; it is everything you consciously and subconsciously think about when buying it, putting it on your table, pouring the drink in your cup and drinking it.
There is an interesting psychological concept of "anchoring", where one's perception from an activity are heavily colored by their past related experiences. That is, if you know a lot about the Coca-Cola company and have a positive and a luxurious impression of it, then it will actually improve the taste of the drink in your eyes and all the related experiences.


Now, what does this have to do with anything? 

The reason I am writing this post is to close the gap in many discussions on economics happening on this website. There is a lot of arguments here between proponents of freer markets and heavier market regulations, and they usually come down to discussing the potential for a small group of people or corporations to amass a large amount of wealth and power, causing them to use those wealth and power to force the rest of the population into unfavorable conditions, allowing them pretty literally extract those people's wealth by leaving them few other choices.

I by no means am trying to refute this consideration; it obviously is important and must be taken into account whenever making any general proposal for economical reforms.
However, I find that in this discussions many people miss one crucial aspect of the issue: that all good and service providers' actions are strongly dependent on the type of experiences people want to receive.

Consider the relatively recent case that occurred at Blizzard, a video game corporation owing arguably the most popular video game in the history of humanity: World of Warcraft.
Last fall, during the Hong Kong protests, the Chinese government, leveraging a large population of World of Warcraft gamers in the country bringing a sizable profit to Blizzard, threatened the corporation with a regulatory nightmare if it does not take some action to counter the wide support of the Hong Kong protests in the Blizzard community. The corporation eventually caved in and introduced some policies that nobody would have noticed... Until one of the popular Hong Kongese youtubers, Blitzchung, playing Hearthstone (another popular Blizzard game) on his channel, made a strong statement on his channel in support of the protests, and Blizzard subsequently banned him from competing in the tournaments for a year. Given how important playing Hearthstone was for the youtube (it formed a bulk of his personal income sources), he was devastated and broke into tears on his channel, saying that he loves Blizzard and did not expect to be mistreated this way.
The following backlash was truly spectacular, with thousands players worldwide boycotting Blizzard games and cancelling their World of Warcraft subscriptions. Perhaps, a more notable event was coverage of Blitzchung's losses by an Australian company, siding openly with Hong-Kongers.
Blizzard never revoked the decision, however endless protests made the company apologise in public multiple times and, at least self-proclaimedly, abort the censorship practice.

This is just one example, but similar examples can be found across many different industries and many different companies and time periods. The takeaway from this is that making unethical business choices has serious repercussions and affects one's profits considerably, while going out of one's way to do something that is widely considered a good deed improves people's image of the company. That image, in turn, affects people's experiences, influencing how much they are willing to pay for the company's products and, in turn, how much the company's profits can be.
Obviously, it is a trade, and, for example, doing too much philanthropy might not be overall profitable - but doing too little of it does have repercussions. There seems to be a soft spot somewhere, and very crudely we could claim that the soft spot is approximately where society as a whole believes exactly how much of it the company should do.


I would like this point to be considered more often in economical discussions; it offers a solid argument in support of the idea that governmental regulations are, at the very least, not always needed to induce the desirable behaviors from companies and rich people, as the social pressure naturally converts into the market forces that could have a similar function to the governmental regulations.

Obviously how reliable the market forces induced by the social pressure alone are, what companies can try to do to circumvent it, whether they produce some negative externalities or unintended consequences that governmental policies might not - all of these are good topics to debate. The point I am trying to make here is that they should not be omitted in economical discussions, as the effects described here are real and something business people have to wrestle with every day.
  1. Live Poll

    What do you think about the validity of the point brought up?

    2 votes
    1. It is reasonable and proves that the free market is the best system possible
    2. It is reasonable and suggests that the free market vs regulated market debate is quite nuanced
    3. It is overall sound, but has some flaws
    4. It is a fallacy, and there is a complicated logical argument undermining it
    5. It is a fallacy, and you are an idiot if you have not realised that already
    6. I do not know; I wish I did though
    7. I do not know, nor do I care
    8. Other

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