Frederick the Great and Getting away from Mean Economics
I had a quote from Frederick the Great running through my head today. I don’t remember where I heard it, but the wording is something similar to: “If you seek to defend everything, you defend nothing.” I was looking at some data while this idea was in my head and it became obvious to me that Frederick the Great may just as well have been talking about regression analysis and the use of averages in economic data, as we was about protecting Prussia.
I know it wasn’t Frederick’s meaning but his idea about getting nothing by attempting to do everything caused me to begin questioning just how relevant it is to focus on the mean (average) of variables when considering some economic data. Malcolm Gladwell was telling a story on TED.com about a psycho-physicist Dr. Howard Moskowitz who came to the stunning conclusion that marketers should not be looking for the most perfect version of their product, but instead the most perfect versions of their product – in other words the optimal variations of that product. Dr. Moskowitz is the reason why we have 30 varieties of spaghetti sauce and whole aisles of salad dressing. It is the conclusion that came out of finding wild data that didn’t adhere to the standard bell-curve and concluding that instead of trying to find the bell-curve average of their product, the key was to create all the varieties of the product that people were indicating they preferred. This is a huge insight into how we, not only prefer our salad dressing, but how we organize as humans.
The essence of Dr. Moskowitz’s idea is that people exist not in the average of their variety but in the variety of their variety – that our proximity to the mean is greater than our proximity to our most common cluster or group. It means that we perhaps it would be more accurate to assess some economic data by not looking for some sacred average human who we work to please with our models, but by looking for the many varying types of people as they associate in groups of all kinds. This seems to me to be a much more accurate interpretation of reality than to always seek the mean, and it suggests something important about how we understand economics.
Currently there is a never-ending disagreements about what one set of data may indicate in economics. Several economists will consider the same data and come to vastly different conclusions. My suggestions for thought is that if we can assume Dr. Moskowitz’s findings are an example of not only how we purchase condiments, but of how we associate our preferences, then perhaps the disparity in interpreting some economic data is due more to the fact that people cluster and that we should be looking to identify the nature of groups instead of the nature of the non-existent “average” human. This may be a completely obvious point for a lot of people, but the idea that economics tends to seek an average identity that may not exist and is less accurate than an assortment of group identities was somewhat striking to me.
- Jeff
