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Kamis, 15 Januari 2009

Do You Believe in Market?

Adapted from Dan Ariely's Predictably Irrational
Chapter 4: The Cost of Social Norms: Why We Are Happy to Do Things, but Not When We Are Paid to Do Them

One of my longtime friends, an investor in the global financial market, argues that the market has its own wisdom and intelligence. He usually refers to the Challenger Explosion back in the year 1986. Without any disclosure from the authority, the market seemed to know who to blame. The stock price of the suspect eroded very fast. Eventually, it was disclosed that the poor performance of the suplier led to the blast along with the astronauts. When he first shot me with this fact, I was speechless. Probably, the performance of the financial market at that time blinded my sight. It is not the case anymore!

Citing Margaret Clark, Dan Ariely writes in his Predictably Irrational that we live in two worlds simultaneously. One is governed by market norms, while the other by social norms. Using a dramatic illustration of a disastrous Thanksgiving dinner, Dan states that in some circumstances, when social exchanges occur, imposing market norms means a fierce violation, damaging social exchanges and relationships at once. The effort to remedy the damaged relationships needs substantially more time, if not useless at all.

Take the example of the disastrous Thanksgiving Dinner written by Dan Ariely. After enjoying the dinner served by your mother in law, you pull out your wallet and ask, "Mom, with all effort you put for this lovely dinner, how much do I owe you?" You continue, "Three hundreed dollars maybe, or four hundreed?" I am sure you immediately can imagine what happens next. OK, you got the point. Right? But please take another example. What will happen when a wife (husband) bills her (his) husband (wife) after a lovely bed activity?

So, last time I had an argument with my speculator (ups sorry) friend, I used Predictably Irrational's Chapter 4. Using the examples above and more, I said, "My friend, we cannot live solely in market environments." I continued, "Peter Drucker said the market is so short-sighted that we severely need two other parties, the government and the society." Readily, I used the plunge of the global financial market to bold my statement. "Before the crisis really got worse a few months before, how do markets value and predict the value of the US stocks and property?" He admitted that we cannot let market norms alone deciding our future.

Dan Arielly and his colleagues conducted various social experiments to learn the effect of market norms and social norms. In one experiment, he invited volunteers to his lab. He offered them $5 to participate. They have to drag as many circles as possible appeared in the left of a computer screen into a square in the right of the screen. In average, they put 159 circles into the square. The experiment was slightly changed. Dan offered the volunteers 50 cents to participate. Then they put their effort to drag circles into the square. In average, this group put 101 circles into the square. Wow, money talks! Payment of $5 really made a difference. Then again, the experiment was conducted to a third group. They were asked to accomplish the job for free. Unlike the previous two groups, they were supposed to be in a world of social norms. The result? They put 168 circles into the square. Wow, social exchanges may be cheaper and more effective than market exchanges!

Many every day life events attest the above statement. We are happy to help our friend moving her or his couch, but we do not want to be paid. We wholeheartedly take care our neighbor's child for a few hours when they are away. We are willing to give away our money for charity. We warmly open a door for somebody else and let them enter first before ourselves. We helpfully instruct directions to a passerby. We help our friends. We help our sisters. We help our brothers. Not to mention our own family. Even we help strangers. Contributors of Linux and Wikipedia are just a few herculean examples who help strangers. We provide all of that good to others without immediate payments. We are just happy to do good. We know that in the future when in need we will be helped by others.

Dan Ariely has other important points. For example, a small gift keeps us in the world of social norms. However, attaching the cost of the gift invites the market norms to rule in. When the market norms set in, the social norms go away. In this case, the warm and fuzzy relationship turns into a cold and fierce business relationship. You get what you pay. If you decide to treat your customers like family, you have to do it all the time at all circumstances. If you violate the social norms by treating them impersonally because it is more profitable, be prepared to lose them who then complain about your lousy company to their friends.

Of course, we need markets and money. Markets are very efficient. We do not have to bring our duck to find others who have lettuce that we need. We do not have to figure out what part of the duck is at par with the lettuce. What we argue here is that market alone is not enough. "It's the society, stupid," said Peter Drucker!

In Islam, probably in other religions too that I know nothing about, the same principle prevails. Moslems should be players in the market. Key players, if possible. Nevertheless, moslems should balance their life, for example by helping others and paying zakah, infaq, and shodaqoh. Here is a hearth-warming example. During a very difficult time, one companion of the prophet was offered a very high price by a group of speculators for his goods vital for the society. He rejected the offer and said that Allah would pay him far, far higher. Then he gave the goods away.

So, once again... do you believe in market? I do but I also believe we need more than just money and market. Manytimes, in many circumstances, we indeed need to forget and forgo money and market... And enjoy life.

Next: A Monster in Each of Us
Prev: Free, Good or Bad

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