The Grilled Cheese

That's why.

He's not only unbelievably funny (self-deprecating humor is one of my favorite types of comedy), he's also incredibly insightful. Who else actually makes intelligent and meaningful social commentary on late night tv? Certainly not Letterman, who is basically an old fart who somehow still has a job where he tries to talk to young people. And certainly not Conan, who is essentially a (sometimes very funny) clown. And certainly not Jimmy Fallon, who just stammers for an hour (which makes my dad nervous for some reason).

Craig's point in this clip is that by targeting youth, marketers have led society to value youth and stupidity over "experience and cleverness." Of course, he's overgeneralizing like a good comedian. But there's definitely something to it. At the very least, it shows how much influence advertising has on society as a whole. Whether or not that becomes an ethical question for marketers and advertisers is up for debate, but I think it is an important issue to ponder.

For another example of Mr. Ferguson's brilliance, check out this (long) clip of him speaking about his past trouble with alcohol. Who else is that honest?

On a lighter note, watch this for a good laugh. What an opening!

I also want to thank Adfreak for reminding me to write this post.

I have one of the first ever Beanie Babies. Patti the Platypus. The key here is that I still have Patti, even though at one point she would have fetched hundreds of dollars. Why? Because I got mine as a prize for selling a bunch of raffle tickets for my elementary school's auction, and the tag wasn't on it, so it was essentially worthless. You know something has a totally fabricated value when removing a little piece of paper with a poem and a birth date makes it worthless.

But that didn't matter to millions of people around the world. Beanie babies were all the rage in the mid-nineties. Kids everywhere cried till their parents gave in a bought them more and more and more. Even adults snatched them up. A secondary market developed, and the damn things began selling for hundreds of dollars.

That story, though, is false. Well, actually, everything in it is true, but the events are out of order. Well actually, they might be in order chronologically, but certainly not causally.

What?!?

Let's start over. Beanie babies are cool. They're cute little toys for kids. So it’s no surprised that kids wanted them. But that doesn't explain anything about the adults who wanted them so badly. (Outside of the really, really childish adults that we all know are out there. Or more accurately, in there, somewhere.)

What does explain that strange spike is a small piece of brilliant marketing by Ty. By retiring popular Beanie Babies, Ty ensured that a secondary market would develop. And since overall demand for individual Beanie Babies remained the same while supply stopped, Ty also ensured that the secondary market would support high prices.

That's where things started getting really interested. Imagine yourself in the shoes of a boring grownup. You don't like Beanie Babies. They're childish and stupid. But you notice that every time one of them gets retired, its price rises dramatically. And since money is your only joy, you decide to invest in Beanie Babies. You buy all the new ones and wait till they get retired. Then you sell them for a profit. 

Now step out of those shoes and into another pair (maybe these are shinier and smell less like bacteria dying from bad stenches). This time you notice that prices just keep going up, so you pretty much can't lose if you buy a Beanie Baby, not matter what the price. And it’s an easy game. Just buy the expensive ones (you high roller, you) and wait till the prices inevitably go up. Then sell.

(Back out of the shoes.)

What is going on here? Essentially, Ty created a situation in which the market for retired Beanie Babies sustained itself. No matter how high prices got, they'd always go up.

But of course, that's just not true. However, it remained true until people started realizing that it wasn't. And then the bottom tore off the market, spilling small rubber beans everywhere. 

Why tell this probably-not-entirely-true story now? Two reasons:

1.    Damn clever marketing. Ty created incredible demand out of nothing just by creating secondary markets. Intellectually awesome? Yes. Socially enriching and responsible? Hertz.

2.    A simple model of bubbles. The recent real estate bubble can be explained in Beanie Baby term s. Houses are good. But they aren’t worth such enorm ous amounts of money unless you know that you can get that money back when you sell. So as long as the prices kept going up, people thought they were completely safe buying an expensive house, and so prices kept going up. But once lenders realized people couldn’t afford their loans, the craziness stopped, and the bottom fell out of the market.

Something interesting happened to me the other day. I got a call from somebody wanting to ask me questions about my movie watching behavior. In the past I would have brushed it off, though up a not-so-clever excuse, and hung up.

In addition to his kind words, Chris brings up another point. He thinks I should shave! What he probably doesn't know is that my beard is the only thing keeping me from looking like a 17-year-old (I'm 22), but maybe he's right. Maybe my facial hair is also the only thing keeping me unemployed!

So I'm putting the vote to you. If you think I should shave my beard, say YES in the comments. If you think I should keep it, say NO. If more people say YES, I'll shave it (and post a picture of course). But keep in mind that this will be a one-tailed t-test. If the YES's aren't statistically significantly more abundant (alpha=.05) than the NO's, then I won't shave. I'm making this restriction because I imagine that my readership is pretty damn small.

So should I shave? Fire away!

I am applying to a program called Brandcamp, an intensive 10 week program for aspring advertising professionals. The application consists solely of a 1 minute video that shows why I deserve to be invited to the program.

I have a really good idea for my video, but I need your help to make it. What I need is a short video clip of you telling the world why I deserve to be at Brandcamp. It can be funny, sad, heartfelt, or sarcastic. Whatever you want. The only requirement is that you start with the word "Because." Some examples:

"Because he's funny, creative and an all around awesome guy."

"Because Spencer has really cool glasses, and you should see them in person."

"Because he has nothing else going for him."

You can find out more about Brandcamp here, and see some other candidates' videos here.

Please send your videos (any format will work) to an account I set up specially for this: slgbrandcamp@gmail.com. You could also post them to youtube and email me the link.

To show how much I appreciate your help, if you send me a video, I'll buy you two (thats 2!!!!) drinks the next time I see you.

What went wrong

I couldn't replicate the standard endowment effect using money. After some soul searching,  I came up with a few potential explanations.

1. Other researchers had participants trading with each other, whereas my participants traded with an unknown person. Also, my participants did not "trade" per se. Instead, I asked them if they would prefer money or the mug. Maybe the endowment effect works in only in true transaction situations.
2. The questions I asked participants might have pushed them too much. In other words, I might have induced buyers to quote a higher price, and sellers a lower price, than they otherwise would have. That would have made the gap smaller, reducing the effect of endowment.
3. Even though hypothetical experiments yield similar results to experiments with real outcomes, the hypothetical nature of my procedure might have interacted with the other two factors to dampen the effect.

Given these and other problems, I'd want to change up my procedure if I ever get the chance to do the experiment over. Here's what I'd change.

1. Make outcomes real. There's no need to mess around with hypotheticals.
2. Big group experiment. Instead of individual interviews, I'd give half of a big group the mug, and ask everybody how much it was worth to them.
3. No leading questions, just a list of prices. I would give everybody a list of prices. Buyers would check all the prices at which they'd buy the mug. Sellers would check all the prices at which they'd sell the mug.
4. Make the chocolate real. Instead of asking participants to imagine that "they have a bunch of chocolate" (a really dumb idea, in retrospect), I would give mug buyers 10 individually wrapped truffles. To make the replication equivalent, I would have to give buyers $10.
5. Finally, I'd add a Chooser group, who would simply choose between the mug and the money/chocolate at different prices/pieces. This would let me see whether the sellers or the buyers are the deviant group.

I found this company on craigslist.org while looking for a job (I have an interview for an internship there tomorrow!), and I think their service is worth writing about. The company's name is Crowdcast, which describes its service well: use the wisdom of the crowd to make better forecasts.

Just like Intrade, BetFair, and a host of other prediction market services, Crowdcast provides software that allows individuals to bet on an outcome, aggregating distributed knowledge into one place. It works using the beautifully simple principle of economics (the same principle that makes capitalism work, according to Hayek) that prices convey information about the market. If a certain outcome seems unlikely to a user, he or she can bet against it. That bet will change the market's predicted outcome, against which other users can bet. This method works really well. In fact, prediction markets are incredibly accurate in picking the winners of elections and other outcomes.

Intrade and BetFair are open to the public. They have markets to predict anything the public wants. Crowdcast, on the other hand, opens prediction markets within companies. Internal prediction markets enable companies to make full use of their employees' knowledge. The software also allows employees to make comments on their bets.

I love this for two reasons. The first is that Crowdcast themselves may be reading this, and they are probably more likely to hire me if I like their service. The second is that I think its an awesome combination of economic and democratic principles that improve company performance. Companies using Crowdcast get access to more information. But perhaps just as important, employees know that their input has value to the company, both because their input influences the prediction process and because they get paid for it.

At least in the Bay Area, fancier Chinese restaurants keep live catfish, crabs, and lobsters in tanks for their customers to see. The only issue with this strategy is that no potential new customers can see it. Fisch Frank, a seafood restaurant in Frankfurt, solves that problem by taking the tank outside. So cool!

Are there other examples of this? Anything a company gives a celebrity to wear or use seems similar, literally putting their product out in the real world. Same goes for iPhones and other mobile gadgets. And maybe that's one reason Microsoft plans to open up retail stores: let potential new customers see just how good Windows 7 is.

Of course, they could go further and put kiosks with Windows 7 on the street for people to use for free, kind of like Toyota is doing with their charging stations.

Hmm, that's a damn good idea. Microsoft: want to hire me? Please?

In Part 1, I talked about the question that drove my independent study. In short, my question was this: why should people experience loss aversion for an object they give up, but not for money that they give up?

Given this supposed difference between money and objects, studies of the endowment effect potentially confound an increase in value upon ownership with a simple difference in the form of what is owned and what is not owned. To get around that confusion, I needed to replace money with another object. And to get precise prices, that object needed to be easily conceptually divisible.

Previous studies had used gourmet chocolate bars in place of coffee mugs, so I decided to use chocolate bars to replace money in my experiment. Like money, chocolate bars can easily be broken into smaller, defined pieces, but unlike money, they have value unto themselves, so they should be subject to the same terms of loss aversion as a coffee mug.

Hypothesis

If, even when trading two objects, I found that the selling price was higher than the buying price for the mug, then I could reject the loss aversion hypothesis since people should have experienced the same loss aversion for the chocolate as for the mug, negating the effect.

But if the gap disappeared or got smaller, then I could say that the loss aversion explanation is plausible, with the added clause that money is somehow exempt from loss aversion in these situations.

Procedure

But before I could get ahead of myself and dive straight into my manipulation, I had to make sure that I could replicate the standard endowment effect. If I would not find the effect when people payed for the mug with money, how could I say anything about my contribution?

You can read the full procedure in my paper (linked below), but for now all you need to know is the following.

• 100 participants, 50 each in the control (money) experiment and the test (chocolate) experiment
• I "gave" half the participants in each experiment a mug from the campus bookstore. These were the sellers
• I showed the other half the mug, but did not give it to them. These were the buyers.
• In the money experiment, I asked the sellers a series of questions meant to find the point at which they were indifferent between their mug and some amount of money, or their willingness to accept (WTA). I asked the buyers similar questions to find their willingness to pay (WTP).
• In the chocolate experiment, I also "gave" the buyers some chocolate bars.
• In the chocolate experiment, I asked similar questions to find sellers WTA and buyers WTP in terms of number of pieces of chocolate.

he quotes here mean that the action within is hypothetical. Participants didn't really own the mug or the chocolate, and no actual trades were made as a result of their price information. My paper explains this decision further.

Results

In short, yikes! Kind of a mess.

I said that I had to replicate the standard endowment effect if I wanted to say anything about the chocolate experiment. And unfortunately, I could not. The selling price was higher than the buying price, but not by a statistically significant amount, so there was no effect of endowment in my replication.

Also, I learned that my hypothesis was wrong, not just in terms of what I thought would happen, but in terms of what that would mean. I'll go into both of these in the next post, since the implications are important. But I'll leave you a small cliff off of which to hang: if loss aversion is what is going on, then the gap between the selling and buying price should be bigger when trading two objects, not smaller.

Click here to download:

Choices Between Goods - Spencer Graham.docx (27 KB)

(download)

Click here to download:

Choices Between Goods - Spencer Graham.docx (27 KB)

...Holy Crap!!

You Must Be Old Enough To Watch This Video

I guess this is what Martin Lindstrom meant when he said that "sex in advertising is just going to increase across the globe--and that it will only get edgier, more extreme, and more in-your-face." While Buyology was slightly disappointing for anybody wanting real explanations of the science behind his findings, his insights into the future of advertising are second to none.