Economists and sociologists debate whether the homo
economicus exists and make rational decisions based on profit maximization and
utility considerations or not. Critics of the neoclassical economic theory
argue that a lot of people seem to behave differently, that markets are not
always efficient, that power can play a big role, information is not available
and that people have group-behavior. (e.g. debate in FD on 12 and 24 april
2014). Nico Lemmens argues that group-behavior and consensus seeking, love and
emotion can still be rational from an ecological perspective. Sure.
What (neo-)classical economists and their opponents overlook
is the fact that there are stocks and flows involved here. The debate described
above is a debate with a linear world view. A happens thus B happens thus C
happens and all in the same proportion. Even when emotions are to be included
it is still linear: more love is more marriage. This is not realistic and therefore it does
not fit the empirical observations.
In Stock and Flow terms (hence “Flostock”) not only a
quantity of matter is a stock, but also opinions and feelings are stocks. Any
movement is a flow and linear behavior like selling or travelling is a flow. But there is also other behavior and that is
much less straightforward and non-linear. That is behavior in relation to the
speed of response to a pulse. A person or a group of persons can adapt their
opinion on a subject fast or slow. This behavior is rational, and rather stable
over time, and for large groups it is therefore predictable, but it is
non-linear.
Example: suppose a group of the population has a strong preference
for supplier A (say Apple) and a second group has a strong preference for
supplier B (say Huawei). Both preferences are stocks, with advertisements, coffee-machine
conversations, user friendliness, price comparisons and other experiences as
inflow. After a couple of years, the preference has become quite strong, a big stock.
You could call this stock customer loyalty. This stock has a memory, of course,
in fact it is a memory, and it generates a rather constant flow of buying products
of supplier A respectively B. Now one of the two suppliers introduces a new
toy, or one of the suppliers is found to be secretly spying on its consumers.
This new experience and knowledge is an inflow into the preference stock and
slowly changes its value. The speed at which it changes is a behavioral
parameter and could be referred to as customer inertness. So customer inertness
is the speed at which customer loyalty adapts to an inflow. Obviously if the
stock is large and the inflow is small, the change in preference will be small.
So a strong brand can survive a small PR mistake. When the preference stock changes in value,
the group will change its buying flow.
By the way, there is a second non-linear determinant of the
buying flow and that is the amount of products already owned by the group. This
is also a stock and let’s call that the pool of toys. The pool of toys will
make the buying behavior flow non-linear e.g. when saturation is almost reached.
The speed at which the group wants to reach saturation is also a behavioral
parameter that we could call customer eagerness. Customer eagerness is the
speed at which customers want to follow a trend. High eagerness will create
hypes, panic run-aways, bank runs and overshoots. Medium eagerness creates
fashion waves. Low but positive eagerness creates stable growth.
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