Category: Behavioral Law and Economics


Why Advertise Here?

cocacolla.jpgSo we’ve decided to take some advertising. Now that we’ve disclosed what we’re going to do with the ginormous revenue stream, no doubt other ads are on the way.

Now in my view, you should absolutely click through to our advertisers’ webpages. It will help make this site better, and it doesn’t cost you much time. But I have the nagging suspicion that click-through rates for most blogs are quite low. So, why would rational businesses spend their marketing budgets here?

There is some literature on this problem. The answer seems to be something called the “exposure effect.” As John Timmer explains:

There is a long history of experiments that show that repeated exposure to a stimulus that’s barely perceptible can enhance a person’s feelings towards what’s otherwise a neutral object. These feelings can include a liking or more subjective things such as “fame, truth, duration, loudness, stimulus brightness and darkness.”

Timmer is summarizing the findings from Xiang Fanget al.’s An Examination of Different Explanations for the Mere Exposure Effect, in which the authors noted that banner ads are a great candidate for increasing brand strength. They tested the hypothesis, and found that

“repeated incidental exposures to banner ads resulted in increased perceptual fluency without increasing recognition. Consistent with past research, we found increased perceptual fluency to be accompanied with more positive evaluations of the ad but not with negative evaluations, suggestive of a positive affect.”

Thus, the article tartly notes that a “practical implication of this research is that online advertisers might be placing excessive emphasis on the click-through rates—the primary metric for measuring the effectiveness of online ads. Our results suggest that even when there is no overt sign of effectiveness, such as recognition or click through, the banner ads may still impact ad liking.” Even more interesting, from the perspective of some who might be worried about overkill, “consumers tend to have a relatively high level of tolerance for repeated exposure to banner ads—the wear-out effects of banner ads did not kick in even after 20 exposures in this experiment.”

I’ve got to say that I find this research both fascinating and frightening. On the one hand, it hooks into my total persuasion hypothesis. On another, it suggests an inefficiency in the market for online advertising dollars, which allocates money based on click through rates. Perhaps as this research is replicated, that inefficiency will dissipate. What metric for online advertising’s efficacy is on the horizon? Change in Q-Scores?

(Photo Credit: Wikipedia Commons).

The Genius of Metaphor: Obesity “Epidemic”

A fascinating recent study has found that obesity “can spread from one person to another like the flu or a fad:”

The researchers found that when one spouse became obese, the other was 37 percent more likely to do so in the next two to four years, compared to other couples. If a man became obese, his brother’s risk rose by 40 percent. The risk rose even more sharply among friends — between 57 and 171 percent, depending on whether they considered each other mutual friends.

The study reminded me of the troubled place of metaphor in contemporary reasoning. I recall reading many libertarians who dismissed the idea of an obesity “epidemic”–who felt this designation unduly alarmist and politically manipulative. An “epidemic” unfortunately calls to mind quarantines, panic, and an uncontrollable disease vector. But the ideas of “contagiousness” and “communicability” provide useful frames for thinking here, like Dawkin’s translation of natural genetics into cultural memetics. (For the legal implications, check out Balkin or Cotter.)

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How Not to Argue Against Inequality

Like his previous work, Robert Frank’s new book Falling Behind makes much of “happiness surveys” to demonstrate that once a country reaches a certain level of prosperity, one’s relative position in the economic hierarchy may do more to determine one’s happiness than one’s absolute level of buying power. As he stated in a 2001 piece coauthored with Cass Sunstein,

Such surveys have found that happiness levels within a country at a given moment are strongly positively correlated with relative position in the country’s income distribution. But the same studies find only weak long-term trends in average reported happiness levels, even for countries whose incomes have been growing steadily over time.

Sunstein and Frank argue that such studies demonstrate the importance of equality, or at least of collective action designed to prevent “arms races” for relative position.

This is perhaps the most controversial of Frank’s arguments for equality, and for good reason. As Gregory Besharov has argued, the most important question here is “what is the relevant group to which people compare themselves?” Certainly I might resent my neighbor’s purchase of a $10,000 gas grill when I can only afford an aluminum charcoal plate on a tripod. But should I really be comparing myself to him? Why not just be grateful that I have a BBQ apparatus at all?

Gregg Easterbrook’s book The Progress Paradox makes that point compellingly:

Our forebears, who worked and sacrificed tirelessly in the hopes their descendants would someday be free, comfortable, healthy and educated, might be dismayed to observe how acidly we deny we now are these things.

In short, mere subjective feelings of resentment oughtn’t count for much in the social calculus–a point Rawls made foundational in his treatment of the original position in A Theory of Justice. Many spiritual traditions counsel against resentment. Though Frank is often at pains to discuss the objective bases of the dismay of those at the bottom of the economic pyramid, those objective problems (such as suffering a higher likelihood of injury in a car crash when they can’t afford the larger cars driven by wealthier drivers) are what really matters. As I have argued elsewhere, the reverse finding–that “happy slaves” are perfectly satisfied with preventable injustices done to them–should not count in favor of a social system.

Ultimately, Frank’s subjectivism is part of a larger, and disturbing, trend in philosophy: an emphasis on brute feelings where our true concern is with the rightness, the appropriateness, of such feelings.

Is Inequality Bad in Itself?


As the AMT debate heats up, there are a lot of efforts to justify the trend in income distribution represented in the chart above (which appears to only be getting more pronounced). But few economists have chronicled the rise of inequality in America as insightfully as Robert Frank.

Twenty years ago, Frank’s groundbreaking Choosing the Right Pond focused on the importance of status in everyday life, eloquently documenting the hidden injuries of class. Ten years later, in The Winner Take All Society, Frank questioned the myths of merit so often used to justify high levels of inequality. He showed how technology could exponentially increase returns to “superstars” who were marginally (or perhaps not at all) better performers than “also-rans.” Frank’s Luxury Fever chronicled the disastrous effects of “spending cascades” unleashed by the new inequality: as the near-rich strived to emulate the ever-wealthier rich, so the middle class strived to emulate the near-rich, leading to extraordinary levels of indebtedness. Each book developed the theme of “positional competition“–the wasteful race for goods that are valued to the extent others are denied them.

Between these books, Frank has also published fascinating works on moral psychology (such as Passions Within Reason and What Price the Moral High Ground), and has formalized his insights in leading economics journals. In the tradition of Albert O. Hirschman and Jon Elster, Frank is one of few leading social scientists capable of enriching economic thought with philosophical, psychological, and sociological insight.

But Frank’s work has also attracted an array of critics. . . .

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Consent Decrees and Unintended Consequences

lapd.jpgRobert Parry of the LA Daily News has written a curious column about the relationship between legal rules and police behavior.

As Parry explains:

In the late 1990s, rogue Rampart Division CRASH officers provided the Los Angeles Police Department’s legion of critics with ammunition . . . to place their vaunted enemy under the oversight of a federal court . . . All complaints against officers are now thoroughly investigated and subject to triple audits — by the LAPD Audit Bureau, the inspector general and the consent decree monitor . . . Serious uses of force are double-investigated — one administrative investigation and one criminal one . . . In short, after six years, if the LAPD was at all brutal and corrupt, shootings should be down, use of force down, complaints down, sustained complaints up and more officers prosecuted.

But, Parry asserts, shootings have increased 15%, complaints have increased, but guilty findings have decreased. Indeed, the “only statistic that appears to have tracked as the activists indicated is use of force. On a per-100-arrests basis, serious use of force is down about 20 percent.”

Parry asserts that these complicated data can be boiled down to a simple cause: “Cops are fleeing in record numbers [because of the increased supervision] . . . As a result, inexperienced cops with unseasoned supervision are using more deadly force and getting more complaints, but the force is deemed acceptable and the complaints are increasingly bogus.”

To my reading, this claim is bogus.

Attrition problems at the LAPD are old – they certainly predate the consent decree, starting as early in the mid-1980s. The problem’s severity has engendered a number of explanations, and solutions, varying from: excessive financial disclosure requirements, bad press due to the Rodney King riots, insufficient funds, a convoluted application process, bad equipment and physical plant, and even affirmative action policies. Shucks, the only explanation not offered is that LA’s famously sunny climate makes officers too happy to effectively walk the beat.

Even were attrition to be exacerbated by the consent decree, Parry still hasn’t come close to making his claim stick.

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The Last Shall Be First

diamond.jpgThe WSJ has a terrific article on “stretch” givers–people who make “donations seemingly out of proportion to the givers’ resources . . . . [which] require donors to make sacrifices or at least live more modestly than their income would allow.” Recent legal changes have helped this “movement,” as “[t]he Pension Protection Act of 2006 allows people 70½ years of age and older to make tax-free donations of up to $100,000 directly from Individual Retirement Accounts.” What’s particularly surprising about the article is that the big givers often end up doing better than stingier peers:

Arthur C. Brooks argues in his book “Who Really Cares,” which identifies the forces behind American charity, that people who give in a way that pinches are happier and, surprisingly, end up wealthier. According to Mr. Brooks’s analysis, a dollar donated to charity led to $3.75 in extra income for the donor in 2000. “They often create great discomfort among their families, but when people give there is substantial personal transformation,” says Mr. Brooks, an economist and professor of public administration at Syracuse University’s Maxwell School. “They tend to work harder,” leading to greater prosperity, and in the long run, he says, “this leads to more success, both financial and nonfinancial.”

I had worried that the “super givers” would Darwinianly be out-competed by greedier peers intent on keeping every penny “in the family.” But as one interviewee says in the article, she doesn’t “believe in inherited wealth” in part because she’s “seen it ruin so many nice families.” If that logic takes hold, perhaps we can expect to see “more aging Baby Boomers are choosing charity to add meaning to their lives — and to get a buzz that lasts longer than the kick that comes from splurging on a designer watch or expensive car.” Such a movement could well be self-reinforcing, as often the only reason people (believe they) need such luxuries is because of the competitive spending of peers. Perhaps diamond taxes can help keep the giving going.

Photo Credit: Flickr/Scottwills.


When Does Jail Fail to Scare?

This past April, a milestone passed with little fanfare: H. Beatty Chadwick entered his thirteenth year in Pennsylvania jail. He has never been adjudicated guilty of a criminal offense, but, rather, continues to face charges of civil contempt related to a 1995 order in divorce litigation. In that proceeding, Chadwick was ordered to turn over $2.5 million in assets that the courts found he had stashed overseas. Twelve years and many appeals later, Chadwick still refuses to comply. The Third Circuit’s dispositive, and standard-setting, ruling came in 2002 in an opinion by then-judge Alito:

“The Supreme Court has never endorsed the proposition that confinement for civil contempt must cease when there is “no substantial likelihood of compliance.” On the contrary, in words that might as well have been written to describe the case now before us, the Bagwell Court stated that “[t]he paradigmatic coercive, civil contempt sanction … involves confining a contemnor indefinitely until he complies with an affirmative command such as an order ‘to pay alimony, or to surrender property ordered to be turned over to a receiver ….’ ” Bagwell, 512 U.S. at 828, 114 S.Ct. 2552 (emphasis added) (citation omitted) . . . Because the state courts have repeatedly found that Mr. Chadwick has the present ability to comply with the July 1994 state court order, we cannot disturb the state courts’ decision that there is no federal constitutional bar to Mr. Chadwick’s indefinite confinement for civil contempt so long as he retains the ability to comply with the order requiring him to pay over the money at issue. “

On one level, twelve years in jail without the full panoply of due process protections that come with a criminal trial seems unjust. Much of Chadwick’s defense rests on the claim that he doesn’t have the money: in a criminal trial, maybe the burden of proof would have made his claim more plausible. And there is a nagging feeling that he would not have seen twelve years for stealing $2.5 million, so maybe he has served his time, however it is constituted.

But, ultimately, Alito’s opinion seems right to me. (I say that even though it reversed a judgment issued by the Judge I clerked for.) If the constitutional status of a civil contempt order depended on its effect on defendants’ will, the resulting rule would produce perverse incentives. Those with greater fortitude and demonstrated willingness to continue to serve time rather than comply would be let out earlier than those who seem afraid of jail. This would promote false confidence and bravado, and reduce the general deterrent effect of contempt sanctions.

Unless circumstances change, Chadwick will die in jail to preserve an idea: even civil law must be obeyed. As Robert Cover wrote, “Legal interpretation takes place in a field of pain and death.”

Vanity Taxes vs. Worthless Competitions

vanity.jpgNew Jersey adopted a “vanity tax” in 2004, levied on “any medical procedure performed on [an] individual which is directed at improving [his/her] appearance and which does not meaningfully promote the proper function of the body or prevent or treat illness or disease.” In a critique of the tax, Michael Duel argues that it is sexist and such surgery is frequently nondiscretionary:

Women can either feel inferior, enjoy a lower quality of life, and be rejected by mainstream society, or else suffer the pain and toil of cosmetic surgery to achieve the exact same ideals society uses to reject them.

Cosmetic surgeons have also railed against the tax, unctuously declaiming that it “discriminates against women” because they buy about 86% of the procedures.

NOW President Kim Gandy has a nice response to that canard:

In general, I’m opposed to most things that impact women disproportionately, but disproportionate use isn’t a good measure if a tax is unfair or not. I can’t imagine someone arguing against having a luxury tax on yachts because more of them are bought by men.

State Senator Karen Keiser is uppping the redistributive ante in Washington state, with a plan to earmark vanity tax revenue for health insurance for poor children. As one tax policy analyst claims, “In this anti-tax climate, these user-based, selective tax proposals are more palatable than broader ones.”

Duel also attacks the vanity tax as a matter of tax policy, but I have a feeling he misses its point. . .

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Politics, Private Space, and Total Persuasion


A lunch today with a colleague at another school, coupled with an article in the Wall Street Journal, has brought me to back to a topic I blogged about back in January: Total Persuasion. As I suggested, there are analogies to be drawn between the government’s defunct secret possibly ongoing program to gather reams of information about its citizens and corporations’ desire to grab consumer mind-share by every persuasive avenue possible. Indeed, we’re rapidly approaching a time when it will be exceedingly difficult for the law to draw lines between advertising and not-advertising; between fraud and persuasion; and between censorship and consumer protection.

These claims are easy to overdraw, so let me give you an example and a theory to help set the stage for the discussion. In today’s Journal, John McKinnon has a interesting article about Sara Taylor’s decision to leave her job as the White House’s political director to join the private sector. Taylor is an expert in microtargeting, a marketing technique developed by corporations to segment their consumer markets by mining data to learn more about the structure of consumer’s preferences. According to McKinnon, microtargeting was “honed” by political operations to “more effectively zero in on voters’ emotion triggers,” and uncover groups of voters that are susceptible to future efforts. Taylor sees a “big future” for taking such political lessons back to the corporate world by “helping corporations focus on potential customers’ . . . feelings about buying a product or service.”

There are some roadblocks in this prosperous path, as the article points out. Most salient, businesses are “more constrained in the claims they can make” than politicians, presumably by the law of fraud (in its various guises). But there is a solution to this problem: encourage consumers to make their own persuasive advertising by creating “social networks around products and brands . . .” In the future, we should anticipate that such social persuasion will become an increasingly prevalent aspect of corporate marketing efforts, just as politicians have worked to co-opt social networking sites for their own ends.

Why? Because consumers have fewer defenses to social persuasion, and aren’t cynical about it yet. Moreover, social persuasion is probably less subject to legal sanction in the general case (indeed, it may be immune under circumstances where the same language if spoken by the corporation would be actionable). It is also, obviously, cheaper to produce. The downside (loss of control over message) is probably something that corporations will learn to live with. (I thank my lunch companion for pointing this problem out to me!)

What’s wrong with a society in which most speech that you hear is designed to persuade you to consume? When framed that way, some might immediately respond: nothing! After all, no one is being compelled to any particular purchase. If the consumer market is efficient, and consumers had a taste not to consume, wouldn’t savvy marketers satisfy the taste with a unpersuasive campaign? (The idea is silly on its face, but isn’t it sort of what Saturn and Berkshire Hathaway were/are up to?) Even assuming that the consumer product market is somehow irrational, marketers would presumably compete to satisfy whatever inefficient desires are extant.

But I doubt that market rhetoric is going to provide satisfying answers to whether the law should work to hinder a total persuasion society. I haven’t fully thought this issue through, but my starting point is an essay by Jonathan Franzen called Imperial Bedroom, in his book How to Be Alone. Franzen attacks privacy advocates for focusing on privacy as just problem of being from free from others’ (corporations, the government, space aliens, the U.N., etc.) prying eyes and grasping hands.

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When Words Lose Their Meaning

I’ve recently been reading James Boyd White’s wise book When Words Lose Their Meaning. His take on Thucydides is particularly relevant to our predicament. Given that it’s graduation speech season, I thought the following lines might be of particular interest:

Imagine you are invited to give a speech in appreciation of a public or private figure you actually admire. How can you do it without sounding like an idiot? (“Unparalleled devotion to public service”; “wonderful family man, loyal friend”; “great personal sacrifice”; “exemplar of American ideals”, etc., etc.). It is not an adequate response to say that one will simply state in plain terms what one means, as if language were a simple intellectual instrument for naming qualities and expressing judgments. (118)

Rather, White argues, “It is the task of the writer on such an occasion to remake his language so that it and his judgments are sound and fresh. . . . ”

But what if this seems impossible? Steven Millhauser has a fascinating short story in the New Yorker about a PR man who loses all faith in the ability of words to communicate. He once celebrated business for “the precision of its vocabulary—a self-enclosed world of carefully defined words that permitted clarity of thought.” But doubt sets in:

I was still able to do some work, during the day, a little work, though I was also staring a lot at the screen. I had command of a precise and specialized vocabulary that I could summon more or less at will. But the doubt had arisen, corroding my belief. Groups of words began to disintegrate under my intense gaze. I was like a man losing his faith, with no priest to turn to.

White’s solution to such a dilemma is to call for the use of language that is “literary–merging fact, value, and reason, fusing the particular and the general, uniting thought and emotion, logic and image–rather than theoretical or conceptual” (229). He insists that “the law is less a branch of the social sciences than of the humanities in that it seeks not to be a closed system but an open one” (273). That may well be an overreaction to the types of Law & Econ and CLS dominant at the time he wrote the book (1984). But it is a good guiding sentiment for how we allow the specialized vocabularies of other fields of knowledge to inform our work. . . . and how much confidence we should have in the degree of fit between our own conceptual apparatus and a messy world.