Monday, March 3, 2014
Here's a thought experiment: We have two companies that are in essentially the same line of business--widgets, massages, whatever; and we want to make a prediction about their prospects in a free market.
The first business, which we'll call Tversky Inc., conducts its operations based on the philosophy that its customers, suppliers, employers, and executives are deeply irrational. It gears its marketing and service delivery towards emotional appeals. Contracts and prices are arranged based on what it determines to be the psychological status of respective parties.
The second business, which we'll call Fama Corp., conducts its operations based on the principle of rational behavior on the part of all parties and individuals. It sets pricing based on input costs and reasonably sustainable profit margins. It does not assume that information asymmetry exists in its marketplace and it makes not efforts to curry political favor to create business opportunities.
What is the outcome after ten years for both companies based on market share, employer satisfaction, customer satisfaction, quality of service, profit margin, and social benefit?