The Arithmetic of Life and Death (4 page)

At this point, Gwendolyn understood her dilemma. She had preferred the first university for its excellent academic reputation and the fourth university for its quality of life, but the second university was clearly the best combination of quality education and reasonable cost. Cecilia was happy to agree. And they were both relieved to have such an important decision behind them.

As she neared the completion of her undergraduate degree in anthropology four years later, Gwendolyn found herself in a similar quandary, this time over which postgraduate assistantship to accept. On this occasion, Gwendolyn
brought the paper, the pencil, a Sharp (no relation) calculator, and the work she had already done, which had reduced the original six offers by half. However, there appeared to be no difference in the remaining three:

The first university had the best research program and an excellent reputation in Gwen’s field of study, but the compensation package was poor and it was far from home. The second university had the best compensation and living facilities, but it had poor lab facilities and a mediocre teaching staff. The third university had a renowned staff and was close to home, but the best research positions were already filled. Once again, Gwendolyn was in a dilemma, and the weighted ranking system had not managed to clarify the situation.

Cecilia reviewed Gwendolyn’s work carefully, asking many
questions in the process. After ascertaining that the table was a fair and reasonable illustration of the situation, Cecilia suggested that Gwendolyn replace the original ranking system with a relative system using ten as the highest score. Then the other two offers would each be given comparative scores of zero to nine depending upon their relative merit versus the top-ranked criterion, which would, once again, tend to amplify gaps in preference. Gwendolyn agreed and, with a little help from Cecilia at the calculator keys, quickly produced a revised table:

Although she could not be certain that the third university would turn out to be the best one, Gwendolyn was sure that accepting its offer was the best decision for the moment. Cecilia concurred and, since Gwendolyn had just turned twenty-one, offered to open a bottle of wine to
celebrate. First, though, she asked Gwen to decide between an excellent chardonnay, a new white zinfandel, and Cecilia’s personal favorite, Chablis.

Gwen, who was an inexperienced drinker, did not know which one to choose. After some deliberation, however, she decided to take a calculated risk on the chardonnay.

W
hen we are young, parents and teachers spend a lot of time teaching us how to make thoughtful, intelligent decisions. Once we have money, though, the circumstances reverse and it becomes important for us to be stupid.

Joe Bob DeNiall, Billy Ray’s older brother and the eldest son of Reginald, unexpectedly encountered exactly such a situation shortly after qualifying for his first credit card when, freshly outfitted with unprecedented wealth, he decided that he absolutely had to have a new, more powerful stereo. So, on an otherwise ordinary afternoon, he jumped into his pickup and drove right down to his local, multimedia entertainment superstore to check out the latest in sound systems for the home. Even Joe Bob, who prided himself on his knowledge of current technology, was surprised to find so many choices. In fact, there were more
than 100 stereo models on display produced by more than twenty different manufacturers, which varied in cost from less than $100 to more than $3,000.

Joe Bob found himself practically paralyzed by opportunity. Fortunately, however, there was a helpful salesperson on hand who, after learning that Joe Bob recently had been granted the instantaneous ability to borrow up to $3,000 without parental consent, was more than happy to spend as much time as necessary to ensure that her new acquaintance make an informed decision.

Joe Bob, who had been taught to pay attention in school, listened carefully while the salesperson explained all the important features of the latest new stereos and why the best equipment cost the most money. After no more than a few minutes, however, Joe Bob found all of the terminology, all of the acronyms, all of the various features, and all of the different choices more than a little bewildering. And all of the stereos sounded terrific. So, having also been taught that it was important to seek professional advice on complex matters, Joe Bob asked the salesperson which stereo was the best buy for the money.

Sensing his discomfort, the salesperson immediately pointed out a powerful little number that cost only $2,000 and which was personally endorsed by a famous rock star. She added that, because of its popularity, there were only a few of them left, that it was a thousand dollars less than Joe Bob had to spend, and that, if he bought the stereo that day, it would be shipped directly to his home for free. Thrilled that he had finally found the best stereo and relieved at not having to drive his new acquisition home on the flatbed of his pickup in the rain, Joe Bob quickly consummated the transaction.

Three days later, after uncrating and assembling the stereo in his room, Joe Bob invited his father and younger brother in for a demonstration featuring Pink Floyd. Billy Ray was mightily impressed, but Reginald, although he approved of the musical selection, was not. Instead, he left the room and quickly returned with several consumer magazines devoted to audiophiles, who are people that are abnormally interested in sound reproduction.

Joe Bob, who had just become a heavy investor in stereo technology, read the magazines that night. Unfortunately, he quickly learned that his new stereo had recently finished last in a comparison test of six similar systems in the same price range. He also read that a new, more powerful, more reliable, and less expensive model would soon replace his and, therefore, most retailers were heavily discounting the obsolete system that he had just bought at list price.

At that moment, Joe Bob swallowed his pride and admitted to himself that he had made the wrong choice. Unfortunately, since the boxes had been trashed and since the transaction had taken place three days earlier, the sale was final and there was no way that he could return the stereo.

That decision was bad for Joe Bob. Ironically, however, it was not necessarily bad for the economy. From an economic point of view, in fact, it would be difficult to overstate the importance of large quantities of hasty and uninformed decisions.

We live in an era of diversity. Thanks to globalization and the strength of the U.S. economy, we, like Joe Bob, are often faced with an unprecedented array of choices. In general, choice is beneficial to the consumer and at the very core of competition. But there is also a downside. It is that, regardless of the number of options, there can be precisely
one superior choice. All of the other alternatives must be, therefore, relatively inferior.

In the long run, consumers benefit from the fact that a plurality of buyers make the right buying decisions. That means that the manufacturer of the best product gets the largest share of the market and, therefore, that the focus of competition remains, at least to some extent, on producing the best possible product.

However, only one manufacturer stood to gain from Joe Bob buying the best stereo. Therefore, at that moment in time, it was in the interest of the other nineteen stereo manufacturers that Joe Bob make an error.

Thus, at a microeconomic level, it generally can be said that the majority of the supply side gains from an inferior decision. It is, in fact, an arithmetic certainty in any market where there are three or more competing suppliers,
*
as follows:

Although all reputable manufacturers strive to build the best product, and although many attempt to divide the market into smaller chunks (called segments) in which their products may be more favorably viewed, most manufacturers are aware that they may not always succeed. In addition, the majority of manufacturers believe that buying decisions are far more emotional than logical. As a result, much of their advertising is dedicated to inducing the consumer into an emotional, rather than informed, decision. The most common methods include:

1. Icon association, which means that a famous person, by virtue of his or her willingness to promote a specific product, therefore implies its superiority. Of course, the icon is usually paid large sums of money to deliver this message, which may induce icon bias.
   
2. Emotional appeal, wherein the promoter of the product equates something of emotional importance to the purchase decision: Fashion = belonging or coolness or sex; cosmetics = love or sex; food = approval or sex; cars = envy, stature, freedom, or sex.
   
3. Implied superiority. In complex markets, almost any producer can find some facet of its product, even if it is singular and somewhat unimportant, which is superior to at least one highly regarded competitor. The manufacturer will then use the promotion of this relative superiority as a basis upon which to imply general superiority of the entire product. (This is called generalizing from the particular, which is a logical fallacy and, therefore, endlessly employed by both business and government.)
   
4. Free goodies. With the exception of new product introductions,
   whoever has the worst product has to give away the most stuff so that people will buy it. The giveaways, of course, are worth a lot less than the cost of the product. Otherwise, it would be cheaper to throw the product away if it couldn’t be sold.
   

These mechanisms, and many others, are not just designed to induce the buyer to make an inferior selection. They are also intended to motivate consumers to buy more than necessary, to do it frequently and, if necessary, to borrow to keep up. That is because, the more often consumers consume, and the more often they err, the better the economy performs. So, to a
large
extent, the health of the economy depends upon bad buying decisions.