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Views from the Prairie

May 11

Unintended Consequences

During the current economic difficulties, several school systems offered incentives for people to leave. The unintended consequence is that some school systems have lost so many of their top teachers that they are hiring to replace some of the lost skills even when trying to lay off others.

Every action we take has consequences. Some are the ones we wanted. Others are "pleasant surprises". Still others are negative and we call them "Unintended Consequences". How we handle these can demonstrate who we are.

History is full of examples of unintended consequences. One example happened in the Nazi regime. In the push to "purify" their science, they fired all the Jewish scientists. The unintended consequence was that a number of those scientists made their way to the US and worked on projects that aided the war. Other attempts to purify society have always wound up with negative economic consequences.

To deal with unintended consequences of our own actions, we start by accepting that such consequences will happen. A number of people are not ready to accept consequences that they did not foresee. This is especially true for many politicians. Thus, we have a number of laws and enforcement efforts that have created significant social costs due to the unintended consequences (such as Prohibition which generated large profits for criminal gangs and made law breakers out of many people). Kenneth Arrow claims that most people underestimate the uncertainty of this world. The result is that we believe too easily in the clarity of our own interpretation of the world.

Last year, one department of the U.S. Department of Health and Human Services advertised a position of Policy Analyst for examining the unintended consequences of their effort to computerize the nation's health system. That they recognized that there would be such unintended consequences is a good first step.

After accepting that such consequences can happen, we do better when we plan on how we would respond to them. There are two good ways to deal with such consequences.

One is to be humble in the face of the consequences and admit when we made a mistake. Our country did that when we repealed Prohibition.

The other way is to accept those consequences as necessary costs of reaching the stated goal. This works when we have a clear goal and the goal clearly comes from our deeply held values.

Ethical thought requires us to consider that we may have consequences we had not planned on. To deal with these consequences, we can work to gain more knowledge of the situation, collaborate with others to build some insurance, or try to outlaw the consequences. History shows that attempts to outlaw the consequences rarely work.

Predictable Irrationality

“It has been said that man is a rational animal. All my life I have been searching for evidence which could support this." Bertrand Russell

As any good car sales person knows, human beings make major decisions based on emotions, not rationality. In business, we do better when we recognize that and plan on this irrationality. Numerous luxury marketing consultants run focus group after focus group to find what emotions people have about their lives and what they want. Then, work to identify how to match those emotions with the right product.

A number of experiments are showing patterns to our irrationality. These patterns can be used in marketing to achieve our goals. Dan Ariely published a book listing a number of these patterns with examples of how they were discovered. Such as, when black pearls were first introduced, few people would buy them (as they were perceived as defective pearls). Once the pearls were marketed as rare, high priced items, people bought them.

One key point in the research is that we have different value systems depending on the context of our actions. We will take risks in business that we would never take for our family life. We value our time and efforts more in a business environment than in a social environment.

Americans want to move up the social ladder. As we change our social status, we change our standards of how to act. When we are in the society that we aspire to, we will take actions that we wouldn't take back in our previous social environment. Thus, marketing to social aspirants has been very effective in the past.

Risks of Automatic Pricing - Outrageous Price

A number of book sellers are using Amazon to sell books. Recently, a college textbook reached the price of $23 Million. Only two sellers were offering the book. Each was using software to set their own price from the other's price. The two computers bounced the price up and up and up.


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