Have you ever gotten an advertising jingle stuck in your head? Why are they so effective? How does advertising change or enhance the value of a product? And what can an understanding of economics contribute to the practice of advertising? In this week’s episode, host Russ Roberts welcomes real-world Mad Man Rory Sutherland, of Ogilvy to talk about these questions and his new book, Alchemy: The Dark and Curious Science of Creating Magic in Brands, Business, and Life. Sutherland tells fascinating tales from  advertising, or as he calls is, “the science of knowing what economists are wrong about.”

So how do you determine which of your kitchen ware is dishwasher safe? How do you measure the quality of your lighting fixtures?

 

1- Why does Sutherland argue that economists like markets for all the wrong reasons, and why does he view competition as “deeply wasteful”? And how is Sutherland, according to his own admission, Austrian?

 

2- Sutherland and Roberts suggest a wide array of goods and services… So here are a few related questions for thought… How is Uber a psychological innovation? How is Starbucks selling complexity rather than coffee? Why is pizza so successful as a food? Why is all lamb in New Zealand halal? How does Nassim Taleb’s “minority rule” apply to these cases?

 

3- What does Sutherland mean when he says,  “…in a non-ergodic environment, two or three bad outcomes in a row are significantly worse than spaced misfortune.” How do brand names help us make decisions under such conditions?

 

4- Sutherland says that”…advertising can perform this kind of alchemical trick of turning–literally–turning a weakness into a strength by telling a different story about it.” He tells the stories of Avis and Cunard to help illustrate this point. What other advertising successes of this kind can you think of?

 

5- How does the “efficiency fetish” of economists inhibit innovation, according to Sutherland? What is the value of intermediaries,and why does Sutherland believe they are systematically undervalued by economics? (This 2008 episode with Mike Munger might be helpful here…) How does Roberts counter these claims?

 

And finally, a Bonus Question, because we want all your EconTak experiences to be “dishwasher safe”… What was your favorite “life hack” from this episode? What’s stayed with you?