The Idea Shop: The economy as persuasion

The economy as persuasion

Is conversation an “economic” activity?

Most would say no. We tend to think of things like trade, investment and work as “economic,” but not things like relationships, religion or art.

That’s a false dichotomy. In an important sense, all social activity is economic activity—it’s based on people trying to forward the projects that interest them.

But another symmetry between them—popularized by polymath economist Deirdre McCloskey—is that they’re all fundamentally driven by persuasion.

Consider conversation. Here’s how it works: first, we establish common ground—that’s our medium of exchange. Next, we swap ideas, recombining and expanding them. At the end, there are more and better ideas than were in either of our heads to begin with.

To an economist, that looks a lot like trade.

Similarly, to linguists trade looks a lot like conversation. The link between them? Both are an attempt to mutually reconcile goals through persuasion.

McCloskey’s claim that persuasion matters in the economy may seem bizarre, but it’s old news in business schools. Marketing and management theory—the micro microeconomics—are dominated by psychological principles of persuasion. More importantly, so are day-to-day practices in the actual companies that make up markets.

So who cares? Well, if economists want a micro-level understanding of markets, a good first step might be a better understanding of how the people in those markets go about their daily business. B-school research on persuasion can help here.

See here for a typical example of persuasive techniques in marketing and business, and here for the academic theories behind them.