Tuesday, February 3, 2009

Why the Talking E*Trade Babies Have Shaken My Faith in Free Market Economics

Everything was just about right while I was watching the Superbowl last Sunday. I had a cold beer and a juicy burger in front of me, unobstructed views of half a dozen huge flat screen TVs, and the game itself was unfolding as one of the most exciting ever. But something felt strange. Then I figured out what it was. It was those talking babies from the E*Trade ad. Somehow, they had managed to shake my whole faith in free market economics.

Economic theory has evolved slightly in the past few decades to recognize that human beings are human beings. Still, however, a fundamental underpinning of almost all economic thought is the assumption that people are logical, rational actors, defining their goals clearly and determining how most efficiently to achieve them by weighing each morsel of information without bias or emotion. Modern advertising in general, and hip-talking , day-trader-services-hawking babies in particular, are hard to reconcile with the rational actor view. The effectiveness of an ad makes sense relative to rational actors to the extent that the ad presents facts and demonstrates how some service or object is different from, or better than, others. Facts educate rational actors such that their cold calculations become more informed and, in effect, lead to decisions that more efficiently achieve the person's stated goals. But, of course, most modern ads don’t really present any information at all. Just images. And, while that makes sense if what is being sold is itself just an image-enhancer – radical shoes, extreme soda, sexy cologne – the reason for the effectiveness of the ad becomes a lot more murky when the value of the product stems from some other supposed utility. You would think that, when shopping for insurance – about as unsexy, non-image-based a product as you can imagine – a person wouldn’t pay any attention to an ad that wasn’t providing real information about the nature of the coverage. But, enter the talking Aflac duck. His steady march into the most expensive prime time ad spaces are proof positive that something else is going on.

Getting back to the talking E*Trade babies, it's true, they’re funny damn dudes. I’ve always liked the original baby (says into cell phone "yo I'm in the middle of something; can I hit you back later"). C'mon, that's funny. He's a baby. He has a cell phone. He talks. And he sounds a lot cooler than me. When the second baby showed up on the scene during this year’s Superbowl, it was even better. How could you not think an infant who's into Mr. Mister, singing "Broken Wings," is hilarious? How does an infant even come across such a cheesy '80s tune? Whatever happened to Mr. Mister anyway? So that's all fine. Good all-American entertainment.

But stop for a second and remember exactly what it is E*Trade is selling. Day trading services! What you use to buy and sell stock! Stock – the equity ownership interest in a company you have rationally determined will outperform the expectations of all other rational investors in the world! When everyone was so gung-ho about privatizing the country's pension plans, about individuals taking back control over their retirement, places like E*Trade were exactly where they were supposed to turn. Do it yourself. Make your own decisions. Stop subsidizing snobby brokers who like to think that they know more than you about stock just because they have MBAs and have been working in the finance industry for 30 years. Everyone has read at one point or another that Warren Buffet drives a pick-up truck and bases all of his investment decisions on his own self-taught, aw-shucks, common sense wisdom. If you just keep a watchful eye on what products your wife has been bringing home from the corner store, it's just a matter of time before you’ll have your very own un-assuming ten billion dollars.

I cannot think of a more black and white demonstration that human beings are not rational economic beings than the fact that people are switching day trading services because of a baby singing a Mr. Mister tune. The talking baby ads obviously work. And, as every rational actor worshiping economist must surely agree, those who base investment decisions on emotional factors such as, for example, babies singing Mr. Mister tunes, are not acting in their rational best interests and should be removed from the economic decision-making process. In the case of E*Trade, there is a simple way to ferret out these hysterical corrupters of the market. One of the required fields in the on-line subscription application would be "how did you hear about E*Trade?" If a person chose the "from the talking baby Superbowl ad" option, his computer would snap into market corrupter lock-down mode – BUZZ! BUZZ! ALERT! ALERT! FINANCIAL DECISION ABOUT TO BE MADE ON BASIS OF INFANT SINGING MR. MISTER TUNE! BUZZ! ALERT! – and notice would be sent to the SEC and all other appropriate regulatory agencies. Having exposed himself as a slave to emotion, the narrowly averted investor-to-be would obviously be banned from trading stock. But all of the his other economic decisions - whether to buy that additional bobblehead / ringtone / Ginsu knife that cuts through aluminum cans – would have to be questioned as well. All personal economic decision-making power would have to be transferred to some other more rational person whose judgment was not skewed by emotion.

I guess then we would have to figure out who that other person would be. It could be me, I suppose. I know for sure that advertising has no impact on me. I'm able to see 120,000 advertising images every hour (or whatever the current statistic is) without being at all affected; it's just all the other human beings in the world that are so easily manipulated. On the other hand, other people might say the same thing. Advertisers would beg to differ. They would probably do some kind of demonstration where they ask me three questions and then rattle off, within a 0.0000002% margin of error, the kind of breakfast cereal I ate this morning, what brand of shaving cream I use and how many no-whip Frappuccinos I've drunk in the past six weeks.

So then that would mean that we are all capable of being manipulated and that people out there are seizing on that fact to make us spend our dollars in ways they want, while at the same time, thinking we've made the decision ourselves? Well that doesn't seem right. That would mean that the whole market economy might not be democratic and that we’re not actually each in control of our own destiny and that.... Hmm. Just too much to handle. Better just let this one be. At least those babies were funny. There was the one that was singing a Mr. Mister song. Huh huh.


Ben Szekely said...

Funny post, however, in a world where online trading services have really become commoditized, all offering the same basic costs per trade, and thresholds to receive the really cheap trades, each online brokerage needs to have an edge. So deciding to use eTrade to purchase my IBM stock instead of Charles Schwabb because of the talking baby isn't that terrible. It's not as though the talking baby is convincing me to buy Google stock over IBM, though if he tried, I'm sure he could.

dfields said...

Who are the people who would load all their money in the stock market in this environment? Who are the people who would forget the crash and double down? Who are the people who look at the past 40 years return and realize it's 10% up, plus or minus 20%, so pretty good bet at it going up? Are there any of them still left out there? Gee... they must have been born yesterday. Oh wait, that is the target market here.

Rich said...

There is really one one statistic you need to see in order to determine if we as consumers are rational. See the negative personal savings rate pre economic meltdown. Could anything be more self destructive than an unsustainable level of personal consumption? Lets not be shocked. E*Trade is trying to sell us on day trading as much as The CMB were trying to get Chris Rock hooked on crack. The consumer was always willing to buy and just looking for an excuse...cue the talking monkeys.

Michael said...

I just do what the baby tells me. He gets me a better return than my "real" broker. And he's WAY more entertaining.