Online advertising exploits the malleable tastes of humanity

We humans like to think of ourselves as rational beings, unlike other creatures – pigeons or mice, for example. Yet behavioral science demystifies human exceptionalism. Often we act according to rules of thumb rather than rational calculations. By embracing this idea, economists are applying lessons long learned by advertisers and marketers, and demonstrated again by digital businesses that lure us in with just one more click, then another.

Historian Timothy Snyder argues in a recent test that digital addiction represents the wiring into our lives of psychologist BF Skinner’s experiments with conditioned behavior. Like the Mad Men of Madison Avenue, their Silicon Valley successors use these techniques to persuade us to buy, browse and click, in their pursuit of profit. Many digital businesses operate an ad-based business model. We don’t pay them money but give them plenty of time; in exchange for our attention, they earn revenue from advertisers.

Is this a good or a bad thing? There is evidence that people place a high value on these free digital goods. But the corrosive effects of compulsive clicking are also evident. Economists find it difficult to assess the cost and social benefits of advertising because the way we define economic well-being assumes that people have fixed and known preferences and, given these, decide how they want to spend their money. This standard approach ignores the essence of the ad-based model, which is that people spend time rather than money.

The thing is, no one has fixed preferences. We are eminently persuasive, concluding that we after all want the blouse or the lawn mower or the dog bed for which technology has served us an ad. Human desires are highly malleable; many people have a positive taste for novelty.

Economist Nicholas Kaldor made a first attempt in 1950 to consider the economic cost-benefit ratio of advertising. He weighed the benefits of providing information and creating jobs and demand against the fact that people might end up paying high prices for branded goods. Even before the Mad Men weaponized the company, he was skeptical that there was any net benefit to society. Today, there is no doubt that the online market is opaque, full of bots and fraudulent clicks. The majority of revenue goes to Google and Facebook. Competetion ask for information are underway or likely in several countries.

Yet even if the market were competitive and transparent, there would be reason to believe that digital advertising does nothing for economic well-being – or worse. One estimate of the dollar value of providing free digital goods, calculated by imputing a value to advertisers for people’s attention, was found to be minimal – less than 0.5% of global gross domestic product.

Adding an estimate of the value of attention absorbed by advertisements and click-addiction techniques – the value of our time – would make the cost-benefit calculation significantly negative. In a service-based economy, the value people derive from how they use their time is a better measure of economic well-being than prices. With zero-cost digital services, it is all the more important to remember the time cost, especially because everyone’s time budget is strictly limited, unlike monetary budgets.

If a much-loved pet were subjected to a Skinnerian behavioral experiment to have it obsessively spend several hours a day pushing levers for food, most loving owners would be outraged and put an end to the practice. Yet the massive experience on us is much worse. It does not rely on natural preferences for necessities but creates new desires, some positive, some harmless, others clearly damaging the fabric of our societies.

Nobel Prize winner Paul Romer called for a tax on online advertising. He identifies targeted advertising online as the source of socially corrosive behavior and argues that a tax could shift digital business models to the old model of selling people a service they want to buy. The Romer tax would be an excellent start to limit not only the social or civic costs but also the economic time cost of this massive behaviorist experimentation. Competition investigations are another weapon in the policy arsenal to limit damage to economic well-being. Regulations limiting the amount of online advertising – such as for television advertising – may also be necessary.

There is nothing inherently wrong with wanting to change preferences and get people to buy new goods and services – innovation drives market economies. But there really is a limit. And we are way beyond that.


The author is Bennett Professor of Public Policy at the University of Cambridge