On advertising bias

Advertising creates a bias in our preferences; we need a counterweight to this

Whenever you watch any football game on TV, you are bombarded with adverts for gambling companies - not just during the advertising breaks, but during the game itself with shirt sponsorship (though this will end this season) and advertising hoardings in the ground. What you are not so bombarded with are adverts warning of the dangers of gambling; yes, there’s a line at the end of TV adverts telling us to gamble responsibly, but this is added with less sincerety than “T&Cs apply.”

Equally, we see adverts for cars but not ones telling us the virtues of cycling. There are adverts for fast food and takeaways but not ones for healthy eating; adverts for trading cryptocurrencies but fewer for low-cost equity tracker funds; adverts telling us to spend our money, but few giving us the advantages of saving. And there are none saying that, for many people, happiness consists not in having more material goods, but in having good friends and relationships.

Which matters, because what gets advertised and what doesn’t creates a systematic bias in what we want. We overvalue some material goods and services and undervalue other things, such as a healthy lifestyle. Which isn’t good for us.

If we spent less, interest rates would be lower which would encourage a larger capital stock and hence higher productivity. That would enable people to work shorter hours or retire early. And more of us would have a buffer of savings to protect us against shocks to prices or incomes such as we’re seeing now with soaring energy prices. And this is not to mention any environmental improvements. But we don’t see advertisements for these benefits. As Robert Frank wrote:

Increases in time spent with family and friends, safety and autonomy in the workplace, urban parkland, freedom from traffic congestion and a host of other items confer signifcant and lasting increases in human satisfaction - much larger and more enduring increases than we get from comparable investments in bigger houses and more expensive cars. Yet because [these] items typically are not offered for sale in the marketplace, we do not hear a steady stream of advertising messages touting their benefits. (Luxury Fever, p175)

It’s plausible therefore that we’d be happier if there weren’t this advertising bias. “A large body of empirical research suggests that people are systematically prone to make a variety of serious errors in the pursuit of happiness” says Daniel Haybron.

There was a time when all this was well-known. The fact that advertising creates wants, wrote J.K. Galbraith in The Affluent Society, “would be regarded as elementary by the most retarded student in the nation’s most primitive school of business administration.” If this were not so companies would be wasting billions of pounds, and governments wouldn’t have bothered banning some advertising such as for tobacco. It’s importance, however, has been neglected in recent years.

You might think this is leading to an argument for tougher regulation of advertising, or for the government to advertise better ways of living.

Not so. The sort of regulation that works - an outright ban - is illiberal, and anything less merely creates another bureaucracy which can be bought by the industry. And government adverts work perhaps work best only when they scare people, which is why those public information films of the 70s are so memorable.

Instead, I’m pointing out that there are missing markets. Whilst there is a large market for gambling adverts there’s a much smaller or even absent one for advertising cycling, healthy eating, country walks, refraining from shopping, and so on. If you think free markets are a good thing, you should lament this absence. Yes, we have good men like Martin Lewis, Chris Boardman or Patrick Grant helping us, but there aren’t enough of them.

Let’s put this another way. Ronald Coase famously pointed out (pdf) that “there is a cost of using the price mechanism”: discovering the best-value suppliers, negotiating prices, and suchlike. Companies employ specialist experts such as buyers and HR managers to do these jobs. Individuals don’t. We don’t have well-funded high-profile organizations helping us to buy less stuff or live healthy lifestyles.

Sure, we have price comparison websites - though where do think these get their income from? And there are Google reviews, though AI is making these increasingly easy to gamify. But most of us, when selling our labour or buying investment products, are on our own. We enter the market unprotected and unaided. To paraphrase Marx, we bring nothing to markets but our own hides, and get a hiding.

What we need are advocacy and advice groups - to do something like what skilled buyers, marketers and HR managers do for companies. And we need a market in such groups because markets, when they function well, provide strong incentives for suppliers to up their game.

So, here’s a proposal. The government should give people a small sum each year which they can spend only upon advice and advocacy groups, financed perhaps by a tax on advertising. These might offer financial advice, or advice on how to manage debt, or on where to find the best tradesmen, or best energy or broadband deals, or how to eat healthier, and so on: trades unions, of course, are one such advocacy group. It’ll be up to individuals to choose. And demand should call forth supply. Even a modest sum - say, £1 per adult per week - would create an industry with a £2.7bn annual turnover. That would be a counterweight to distortionary advertising. We’d have better informed customers. That’d be good for companies offering good deals, but not for those offering bad - which would help markets function better.

Contrary to the just-so stories of some pseudo-free marketeers, well-functioning markets don’t emerge naturally. For example, In An Engine, Not a Camera, Donald MacKenzie describes how the market in index futures (the basis for index tracker funds) emerged through strong-arm persuasion by Leo Melamed of the CME. Innovating new markets is like other forms of innovation: the private returns to doing so are often low. That means the markets we get are those who creation is monetizable, not those that are worthwhile. So we get (or got) NFTs and mortgage derivatives but not so many useful financial products such as GDP futures or house price futures. And we get a market in advertising gambling but in advertising healthy lifestyles. If we want well-functioning markets, we need government intervention to create some.

You might object here that I’m too optimistic about the emergence of advice and advocacy groups. Maybe: most policies are experiments. But there’s little downside to it either - and that more than you can say about many other policies such as immigration controls, or staying out of the single market, or the commitment not to raise income tax rates, or the rise in the minimum wage...

Opposition to my idea, I suspect, isn’t founded so much upon evidence as ideology, the fact that it’s so far from our ruling class’s mindset. Statists don’t like the idea of empowering consumers or - worse still - workers. And most so-called free marketeers in fact prefer to defend monopolies than to genuinely expand the realm of functioning markets.

And from their point of view, they’re right not to want to open this can of worms. There’s another important example of the advertising bias - politics. This is dominated by the question: who should we vote for? Which squeezes out another question: how can we create a public realm that facilitates intelligent policy-making? It’s clear that our present realm does not do this, but the issue of how to improve it is off the agenda except among wonks.

There’s a question posed by all this that’s also off the agenda: how to justify capitalism? Yes, it does a decent job (better than the old USSR anyway) in satisfying consumers’ wants. But to the extent that capitalism has created these wants, this justification is circular: we’re all good, moral people by our own standards. But there are other standards for judging capitalism: does it foster well-being, or rewarding work, or good relationships, or a pleasant environment, or meaningful democracy, or genuine freedom?

Once we recognise that preferences are malleable, and that our desire for these things might have been downgraded by social forces of which advertising is only one, these questions come onto the agenda. It’s a good thing for many of us, therefore, that our ruling class does not enquire into the origin of what people want.