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by avmich
4030 days ago
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Indeed. Roughly, the whole idea of free market economy, a.k.a. capitalism, is based on theory of rational behavior of participants - and also on assumption of complete information about the matters which are being decided. Advertisements heavily change that last assumption (lies, selective omissions or inclusions), so much that the whole system doesn't work as expected. Game-theoretically, everybody incentivized to advertise his goods, while together we make market working worse for everyone - conflicting goals. I wonder if there are theories modelling this state of things. |
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Quite the opposite in fact. It allows for and can easily withstand significant irrationality among participants, while still producing vastly superior outcomes. The 19th century in the US more than proved that fact; by ~1910 the US was embarrassing every major economy of Europe in terms of median incomes, growth, wealth production, etc. The free market results in an economy with far greater flexibility across the board. It can absorb shocks from irrational behavior better than any other system. The more distance you get from the free market, the harsher the penalties for irrationality: just ask all the Socialist, Communist, and Fascist systems of the 20th century.
The free market system has no opinion on the behavior of individuals, that's a relationship that exists among people and not with the system itself. In actuality there is no "free market" that you're interacting with, such that it punishes you for being irrational, there are only other people with economic interests of some sort that may take advantage of your irrationality.
Reputation is the answer to your last issue with the free market, regarding both advertising and complete information. Nearly every economic structure in any market system depends on reputation, and even more so in the free market. The free market doesn't require instant or perfect information, or expect participants to possess such god-like powers - the free market runs on eventual consistency, eventual recognition of reputation. Over time customers will come to know you as either honest, or dishonest, and they will vote with their money depending on the grievance.
Try running a typical business in a free market, lie to your customers non-stop, over-charge them compared to what you advertise, and see what happens to you. Your reputation will destroy you over time. This happens every day to businesses of every size in every city in America.