Thursday, April 09, 2009

Taboo trade-offs

I am reading a paper by A. Peter McGraw and Philip E. Tetlock about "taboo trade-offs", i.e. trade-offs that, according to the authors' definition, violate deeply held intuitions about relationships and sacred values. Examples would be buying and selling votes in political elections, buying and selling sex with one's girlfriend, etc.
The key insight from the article is that market-pricing(MP) approach that underlies modern monetary transactions is bound to trigger emotional resistance when used in a variety of social contexts.
The lesson for inventor and/or innovator is to appreciate social implications of the changes he/she proposes, and ensure that his/her business model either does not carry inherent contradictions, or, even better, helps promote a healthy combination of social and economic values.
For example, LinkedIn social network works well with a for-profit job ads market. The company makes money by facilitating access to employment, which benefits both, potential employees and employers. On the other hand, Facebook's attempts to monetize personal product/service prefrences of one's friends by selling targeted ads is often perceived negatively by the community, and is treated more like a nuisance, rather than a benefit.
As A.P.McGraw and P.E.Tetlock note, "It is socially awkward to do business in a profit-maximizing fashion across [social] relational boundaries."

Remarkably, the modern US health care system probably encourages growth of medical costs because it breaks a direct financial link between doctors and patients. Today, most of the payments are handled by hospitals and insurance companies that had been created specifically for profit-maximizing purposes. Huge government bureaucracies like Medicare and Medicaid are not perceived as a next-door neighbor either.

Also, a good quote to underline the difference between mundane (homo economicus) and inventive approach to trade-offs, "The capacity to make trade-offs efficiently is a defining attribute of homo economicus."



References: 
McGraw, A. P., P. E. Tetlock. 2005. Taboo trade-offs, relational framing and the acceptability of exchanges. J. Consumer Psych. 15 2–15.
Kristina Shampanier, et all. 2007. Zero as a Special Price: The True Value of Free Products. Marketing Science. Vol. 26, No. 6, November–December 2007, pp. 742–757.

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