Sunday, May 29, 2011

Angelina Jolie shows problem with some economic models

Watching Megamind, I'm reminded of an old Freakonomics post about voice actors. It was very educational: it showed how having a model for something could make smart people say dumb things.

The argument went as follows: because voice actors are not seen, producers who pay a premium to use Angelina Jolie instead of some unknown voice actor are using the burning money theory of advertising: by destroying a lot of money arbitrarily, they signal their confidence in the value of their product to the market; after all, if the product was bad, they'd never make that lost money back. (Skip two blue paragraphs to avoid economics geekery.)

As models go, the burning money theory of advertising is full of holes: it's based on inference, which means that the equilibrium depends on beliefs off the equilibrium path; there's a folk theorem over games with uncertainty that shows any outcome on the convex hull of the individually-rational outcomes can be an equilibrium; the model works for some equilibrium concepts, like Bayesian Perfect Equilibrium, but not others, like Trembling-Hand Perfection; and it makes the assumption that advertising adds nothing to the product.

The reason for that model's popularity with economists is that it "explains" how advertising can make people prefer a known product A over a known product B without changing the utility of the products. A model where firm actions change customers' utilities is a no-no in Industrial Organization economics, because it cannot serve as a foundation for regulation: all the results become an artifact of how the modeler formulates that change.*

Ok, but then why hire Angelina Jolie? Ms. Jolie is  rich and famous, so she didn't get the job by sexing the producer.

Two reasons: some people can act better than others and have a distinctive diction style (production reason) and Ms. Jolie's job is not just the acting part (promotion reason).

The first reason is obvious to anyone who ever had to read a speech to tape or narrate a slideshow: it's difficult work and the narration doesn't sound natural; acting out parts is even harder. Practice helps, but even professional readers (like the ones narrating audiobooks) aren't that good at acting parts. And some people's diction and voice have distinctive patterns and sounds that have proved themselves on the market: James Spader is now fat, but his voice still sells Lexus.

When the voice work is over, Ms Jolie will help promote the movie: her fame gets her bookings on Leno and Letterman; her presence at a promotional event will draw a crowd. This kind of promotion is worth a lot of money not spent on advertising, and, of course, her name helps with the advertising as well. A good voice actor might be a cheaper actor (and let's note here that Ms. Jolie doesn't command as high a fee for voice work as for her regular acting), but will not get top billing and promotion on talk shows.

I like Economics' models. But not when they imply that Angelina Jolie is a waste of money.**

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* For anyone who ever read a book about, took a course on, or worked in advertising, Industrial Organization models of advertising read like the Flat Earth Society trying to explain the Moon shot.

** And the video linked from the first sentence in that paragraph is evidence of the first reason above.