Effect of Advertising

by jefftkjefftk2 min read26th Nov 201924 comments



I've recently had several conversations around whether advertising is harmful, and specifically whether ads primarily work by tricking people into purchasing things they don't need. One way to think about this is, what would the world would be like if we didn't allow advertising? No internet ads, TV ads, magazine ads, affiliate links, sponsored posts, product placement, everything. Let's also assume that enforcement is perfect, though of course edge cases would be very tricky. Here's my speculation about how this would change people's purchasing:

  • Products would be a lot stickier. A lot of advertising tries to move people between competitors. Sometimes it's an explicit "here's a way we're better" (ex: we don't charge late fees), other times it's a more general "you should think positively of our company" (ex: we agree with you on political issue Y). Banning ads would probably mean higher prices (Benham 2013) since it would be harder to compete on price.

  • Relatedly, it would be much harder to get many new products started. Say a startup makes a new credit card that keeps your purchase history private: right now a straightforward marketing approach would be (a) show that other credit cards are doing something their target audience doesn't like, (b) build on the audience's sense that this isn't ok, and (c) present the new card as a solution. Without ads they would likely still see uptake among people who were aware of the problem and actively looking for a solution, but mostly people would just stick with the well-known cards.

  • A major way ads work is by building brand associations: people who eat Powdermilk Biscuits are probably Norwegian bachelor farmers, listen to public radio, or want to signal something along those lines. Branded products both provide something of a service, by making more ways to signal identity, and charge for it, by being more expensive to pay for clever ad campaigns. Without ads we would probably still have these associations, however, and products that happened to be associated with coveted identities would still have this role. The way these associations would develop would be less directed, though brands would probably still try pretty hard to influence them even without ads. You can also choose to signal the "frugal" identity, which lets you avoid the brand tax.

  • Reviewers would be much more trustworthy. There's a long history of reviewers getting 'captured' by the industry they review.

  • Purchases of things people hadn't tried before would decrease, both things that people were in retrospect happy to have bought and things they were not. One of the roles of advertising is to let people know about things that, if they knew about them they would want to buy. But "buy stuff they don't need" isn't a great gloss for this, since after buying the products people often like them a lot. On the other hand I do think this applies to children, and one of the things people learn as they grow up is how to interpret ads. Which is also why we have regulations on ads directed at kids.

Don't put too much stock in this: I work on the technical side of ads and don't have a great view into their social role, and even if I was in a role like that it would still be very hard to predict how the world would be different with such a large change. But broad "we'd see more of X and less of Y" analysis gives a way to explore the question, and I'm curious what other people's impressions are.

(Disclosure: I work in ads but am speaking only for myself. I may be biased, though if I thought my work was net negative I wouldn't do it.)

Comment via: facebook


24 comments, sorted by Highlighting new comments since Today at 2:44 PM
New Comment

Whenever I use adblock, or visit a place that bans roadside billboards, I'm dipping a toe in your imagined world. By your argument, that should make me worse off. But to me it feels better.

The effects I'm describing are mostly about how advertising changes market-wide dynamics. One person not seeing any ads, or all the people not seeing one kind of ad, would have disproportionately smaller effects.

"Ads are annoying and we should have fewer" is a very different sort of claim than "ads are fundamentally illegitimate because they operate by corrupting your desires".

The wording "disproportionately smaller effects" seems like assuming the conclusion. To me, using adblock has a positive effect. You say if everyone does that, another effect will arise and the sum of two effects will be net negative. But in econ, when everyone chooses what's good for them, the result is usually net positive. There's an exception in case of tragedy of the commons, but many people refusing to look at ads isn't a tragedy of the commons, because all goods involved are private and excludable.

I think this is simpler to talk about with the case of publisher funding than purchasing decisions, and your arguments still apply. If you start using adblock you observe your experience on news sites is better, with no visible deterioration in the quality of reporting available to you. But each adblock user slightly decreases the publisher's income, and a world where adblock usage was, say, 98%, would mean you really couldn't run sites supported by advertising.

Applying "if everyone does what's good for them" here is tricky. The publisher would like to say "you're welcome to read my articles for free, as long as you don't bypass the ads", and then adblockers let users take one half of the offer without the other. Which I guess violates the "excludable" premise you have above?

A rough analogy (and I'm just talking about the economics and explicitly not trying to say adblocking is morally similar to shoplifting) is that you could save money by shoplifting, and it would be good for you individually. But the more people shoplift the less a business model of "put products on shelves, users will pay for them when they leave" stops working.

Yeah, "excludable" is the key part. Privatizing the commons is supposed to prevent tragedy of the commons and lead to an efficient outcome. Since privately owned websites can choose anytime to use an adblock detector (these exist and work fine) or start charging viewers, we should expect an efficient outcome.

Why would you say adblock detectors work fine? My understanding is any time a popular site starts using one, adblockers work around the detector: https://medium.com/@BugReplay/f-kadblock-how-publishers-are-defeating-ad-blockers-how-ad-blockers-are-fighting-back-678392e03ac1

EDIT: another example (https://github.com/uBlockOrigin/uAssets/issues/883) and a long list of issues (https://github.com/uBlockOrigin/uAssets/issues?q=anti-adblock)

You're probably better informed than me, but I thought it was relatively easy to deny service in case of adblock (without trying to show a content teaser, nag message, or ad). Or at least that's easier than getting an ad through.

Ads are annoying. How can we have fewer?

Maybe I am too negative about advertising, but it seems like its major strategy is to annoy me. Like that advertisement I won't mention that I have recently seen (the first five seconds of) perhaps several hundred times, because YouTube plays it at the beginning of almost every video I see.

I feel quite helpless, because even if as a policy I would never buy a product I associate with such annoying campaign, it doesn't matter at a larger scale. If only 1% of targets would buy the product, it may still be profitable to annoy the remaining 99%. My suffering is an acceptable negative externality for people who cooperate on making sure I hear about the product several times a day.

Yeah, one could argue that my suffering is not an externality; it is how I pay for having access to YouTube. Anyway, the explanations how "the advertising provides me useful information about a product" feel completely alien to me. Telling me the name of the product several hundred times, whenever I want to listen to a song, I don't call that "useful information". Yes, I know already, it's a fucking spellchecker, you already told me. (Or should it be "more than a spellchecker"? Because in ads, every X is "more than X" in an unspecified way.)

I would probably be quite happy if some artificial intelligence would provide me relevant information about the products I might actually want. Well, not at the beginning of every song, of course. But the current state of advertising feels more like spamming everyone with random stuff. Despite all the information that Google et al. collect about me, the products they are trying to sell me are very generic. After having read all my e-mails, the only information they seem to actually use is my sex and age group.

So... my guess is that the world without "targeted advertising" would be almost exactly the same as the world we have now; except you wouldn't suddenly get dozens of ads for a product you have already bought (because apparently the strongest evidence for "being the kind of person who buys X" is having bought X recently).

because apparently the strongest evidence for "being the kind of person who buys X" is having bought X recently

In general, that you’ve bought something is evidence that you’re the kind of person who buys that thing. Furthermore, if you’ve bought certain items recently, you are far more likely to buy a similar product (for example, you regret the purchase and want to replace it) than someone who hasn’t.

Perhaps those 99% could somehow come together to pay consumers of the product to stop buying it, in order to make their suffering matter to that advertiser?

You could pay youtube to buy out the ads. Have you considered doing so?

When youtube launched their subscription service, they now have two customers and thus divided loyalties. They adjusted their policies to be more annoying, to put more pressure on the user to subscribe. So this is not quite the pure advertising example.

Maybe I am too negative about advertising, but it seems like its major strategy is to annoy me. Like that advertisement I won't mention that I have recently seen (the first five seconds of) perhaps several hundred times, because YouTube plays it at the beginning of almost every video I see.

FYI, adblockers (like ublock origin) work fine to prevent all of youtube's ads, including the video ones.

Yes, but this also involves using a service without paying for it (one framing of this is stealing)

After having read all my e-mails...

This is a minor quibble, but Google doesn't use emails to target ads anymore: https://blog.google/products/gmail/g-suite-gains-traction-in-the-enterprise-g-suites-gmail-and-consumer-gmail-to-more-closely-align/

I find it unlikely that you couldn't capture reviewers in a system where advertising was banned. Inviting a reviewer to an all-experience paid trade show in the Maldives isn't advertising.

If you want a trustworthy review that isn't paid for by affiliate commissions you currently have the choice to go to ConsumerReports and pay for their subscription.

Inviting a reviewer to an all-experience paid trade show in the Maldives isn't advertising.

I'm not so sure; that seems like a kind of sponsored review. Inviting a government regulator to a similar thing would be bribery, for example.

If you want a trustworthy review that isn't paid for by affiliate commissions you currently have the choice to go to ConsumerReports and pay for their subscription.

I really like that ConsumerReports works this way, and I respect them a lot for it. Unfortunately their main demographic is so different from mine that their reviews are generally not useful to me.

It would be a form of bribery but it seems that bribery always exists. It might take less direct ways but when there's money looking to influence behavior that money generally finds a way to be spend.

It's not clear to me what counts as advertising for the purpose of this scenario. It seems to me that without all the things I would call advertising, I would never discover many of the things I would want to buy.

A nicely presented shop window (or, for that matter, badly presented) is advertising. A book listing on Amazon is advertising. The web site for a business is advertising.

If reviewers would indeed be more trustworthy, I don't see why they couldn't take over the function of letting interested people know about new products etc. that you say would go away.

The discussion on the FB version of the post convinced me this part isn't right. Yes, if you assume perfect enforcement then the reviewers become trustworthy, but in practice reviewing would be so lucrative and there would be so many ways to disguise compensation that reviews would probably be even more captured.

I don't disagree with any of the object-level claims, but I think the framing is confused and could be greatly improved.

One way to think about this is, what would the world would be like if we didn’t al­low ad­ver­tis­ing?

I don't think that is what you are doing in this essay. Instead you are proposing other methods by way which advertising could work. That's what Kevin does and I think his essay is better because he is explicit that this is what he is doing. Once you have explicitly said that ads contain information, maybe then it is good to talk about the hypothetical to explain how important information is. But asserting your hypothetical using your model of the world seems to me rhetorically poor. If you don't understand how you disagree with other people, perhaps there is no other approach, but in this case you do know.

Asking people to make open-ended investment in hypotheticals could be useful, but how? If people have coherent theories, then they should find it easy to think about hypotheticals without changing their minds. If people have incoherent theories, maybe it is useful to get them to notice that by having them consider hypotheticals. But I don't think that you're doing that. Also, this seems very difficult, probably only viable in an interactive way. If the writer of a static essay knows exactly how the audience theories are incoherent, eg, because they hold two contradictory theories, then it is probably better to write down the contradiction explicitly. For an example of this logical structure, Kevin does this with tricking vs Homo economicus. But that's not the same rhetorical structure, because his audience doesn't actually believe that. (I dub this rhetorical move the Robin Hanson.)

I’ve re­cently had sev­eral con­ver­sa­tions around whether ad­ver­tis­ing is harm­ful, and speci­fi­cally whether ads pri­mar­ily work by trick­ing peo­ple into pur­chas­ing things they don’t need.

It would probably be better to expand on this. There are several separate questions. Ads have two obvious costs, the cash to the advertiser and the attention to the audience. Why do advertisers buy ads? Is it to trick the audience, or to inform? That is the topic of the essay, explicitly bracketing off of the attention cost. But, reading the responses, not explicit enough.

Advertisement is a component of the cost of a product, right? Some percentage of the total cost associated with producing and selling a product is ads. If they're no longer allowed, that component disappears.

I'm not saying this leads to a net decrease in cost, but it is a factor which leads to some decrease in cost, so if you want to argue that a net increase in cost takes place, you have to argue why the decreased competition matters more than the direct savings.

Have a look at https://www.jefftk.com/benham2013.pdf for a discussion around this with eyeglasses advertising