A colleague, after hearing my take on economics, suggested I should tell this story. It’s a bit light-hearted, but it does make a point. And I’ve expanded it here for the purposes of reading versus listening. You can use other services or products, but I’ve used fish and chips because it’s quite viscerally obvious.
Good fish and chips are a delight. When done well, they’re crispy, light, and not soggy. Texturally, the crunch of the batter complements the flakiness of the fish as the crunchier exterior of the chips (fries, for us Yanks) complements the softness of the potato inside. Flavorwise it’s similarly a win, the battered fish a culinary combination of a lightly savory batter against the simple perfection of the fish, and the chips provide a smooth complement. Even colorwise, the light gold of the chips set against the richer gold of the fish makes an appealing platter. It’s a favorite from England to the Antipodes.
And we know how to do it. We know that having the proper temperature, and a balanced batter, and the right sized fries, are key to the perfection. There is variation, the thickness of the fries or the components of the batter, but we know the parameters. We can do this reliably and repeatably.
So why, of all things, do we still have shops that sell greasy, sodden fish and chips? You know they’re out there. Certainly consumers should avoid such places and only patronize purveyors who are able to replicate a recipe that’s widely known. Yet, it is unfortunately all too easy to wander from town to town, from suburb to suburb, and find a surprising variation. This just doesn’t make sense!
And that’s an important “doesn’t make sense”. Because, economics tells us that competition will drive a continuing increase in the quality of products and services. Consumers will seek out the optimal product, and those who can’t compete will fall away. Yet these variations have existed for decades! “Ladies & gentlemen, we have a conundrum!”
The result? The fundamental foundation of our economy is broken. (And, of course, I’m using a wee bit of exaggeration for humor.) However, I’m also making a point: we need to be careful about the base statements we hear.
The fact of the matter is that consumers aren’t optimizing, they’re ‘satisficing’. That is, consumers will choose ‘satisfactory’ solutions rather than optimal. It’s a tradeoff: go a mile or two further for good fish and chips, or just go around the corner for the less desirable version. Hey, we’re tired at the end of a long day, or the kids are on a rampage, or… This, in the organizational sense, was the basis of Herb Simon’s Nobel Prize in Economics, before he went on to be a leader of the cognitive science revolution.
The underlying point, besides making an affectionate dig at our economic model, is that the details matter. A joke is that economics predictions have no real basis in science, but then important assumptions are made regardless. This isn’t a political rant, in any case, it’s more a point about the fundamentals of society, and how we evaluate them. As requested.