Just as customers are influenced by marketing, firms change their tactics in light of buyers’ responses. How might markets be influenced similarly, to reflect the people that drive them?
On this episode, I talk with Ray Fisman about how human behavior affects markets — which many of us think of as near-mystical, self-directing phenomena. In reality, markets are a product of our behavior, and Ray explains the modern economy in these terms.
Ray is a behavioral economist with a knack for explaining economics in ways that relate to our everyday existence. In his new book, The Inner Lives of Markets: How People Shape Them—And They Shape Us, Ray and co-author Tim Sullivan turn complex economic concepts into easily understood prose.
Ray and I discuss his previous work with eBay, which illustrates how firms convey their trustworthiness to buyers and why bad firms won’t copy these tactics. Ray shares a couple of the techniques that firms use to convey their strength to competitors and customers alike.
We also touch on how marketplaces today are not as spontaneous as they once were — whether they are curated by sites like eBay, or directly influenced by the U.S. government, for example — and how this affects markets’ ability to accurately predict human needs.
Finally, we dive into how our thinking about markets has shifted over time, and how big firms continue to dominate markets even though they no longer follow the same successful templates of yesteryear’s firms.
Ray Fisman is a behavioral economics professor at Boston University. He received his Ph.D. in business economics from Harvard University in 1998 and spent the following year working on a manufacturing survey in Mozambique for the World Bank. Since then, he has dedicated his academic career to explaining the links between economic theory and everyday life, co-authoring The Org: The Underlying Logic of the Office and Economic Gangsters: Corruption, Violence, and the Poverty of Nations.
One of Ray’s most-cited studies revealed that UN diplomats from countries perceived to be more corrupt tend get more parking tickets than diplomats from less corrupt countries. Studies like this show off Ray’s creativity and the wider applicability of economic thought.
Since behavioral economics has informed many developments in neuromarketing and behavioral psychology, Ray’s knowledge perfectly dovetails with what we explore each week on The Brainfluence Podcast.
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On Today’s Episode We’ll Learn:
- How trustworthy firms signal their reliability to customers.
- Why markets are generally good at fulfilling human needs.
- Why companies might “burn” money, and what this signals to buyers.
- Why some jobs are advertised for “top-ten business school graduates only,” and whether this is effective hiring.
- Why market frictions are necessary for functional firms.
Key Resources for Ray Fisman:
- Connect with Ray: Twitter
- Hardcover: The Inner Lives of Markets: How People Shape Them—And They Shape Us
- Kindle: The Inner Lives of Markets: How People Shape Them—And They Shape Us
- Kindle: The Org: The Underlying Logic of the Office
- Kindle: Economic Gangsters: Corruption, Violence, and the Poverty of Nations
- Michael Spence: “Job Market Signaling”
- Ronald Coase
- Massey Energy
- Pets.com Final Superbowl Ad – 2000
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Full Episode Transcript: