Views | Steve Jobs, the iPhone 5 and the economics of language

Views | Steve Jobs, the iPhone 5 and the economics of language

Technology worshippers were eagerly awaiting the launch of the iPhone 5 at the time this article was being written. The buzz around the latest gizmo from the Apple stable was expected. The company has mastered the art of getting prospective consumers to talk about its iconic products even before they are launched.

Hyperbolic adjectives are not unknown among Apple groupies. An economist believes that such use of passionate language is central to economic activity.

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Deidre N. McCloskey is a brilliant economic thinker who challenges the dry economics taught in universities. She opens a new paper with a lament: “A worrying feature of economics as presently constituted is that it ignores language working in the economy." An economy is not just an information exchange; it is a conversation.

“… a large part of economic talk is not merely informational or commanding but persuasive," says McCloskey. So your boss will not just inform you about a handsome bonus but say that your work in the year has been brilliant --- or vice versa. You do not just tell your regular fisherwoman that you will not buy her fresh catch but will tend to tell her why the prices are absurdly high. Or, in an example borrowed from the McCloskey paper, you will exclaim: “The new iPhone is lovely!"

Does any of this have any economic significance? It does, says McCloskey. The value of such sweet talk --- as opposed to the cheap talk that game theorists like to talk about --- is around a quarter of income in a modern economy, an insight that is not supported by direct data in the paper but which obviously pleases a columnist who is in the business of persuasion.

McCloskey was writing in response to a question posed by the US National Science Foundation to 252 top economists in the country on what the big research ideas for the next ten years could be. “Formal maximum-utility economics cannot explain the sweet talk. The research would need to establish the fact beyond doubt, bringing together for example mathematical economists and rhetorical theorists. It can be treated mathematically by showing the cooperative equilibria (for example) cannot be achieved without trust created by earnest talk. In a way it is the oldest and most obvious finding of game theory that games have of course always a context of rules and customs and relationships, all of them affected by language."

Information is central to the economics of people as diverse as F.A. Hayek and George Akerlof. Hayek’s greatest contribution to economics was to tell us about the role of knowledge in society and how information is transferred between economic agents in a market. Akerlof showed how markets can implode when there is asymmetric information. McCloskey seems to be pushing the research agenda further, by pointing out that we transmit information through language.

Steve Jobs seems to have instinctively understood this in the way he has built excitement around his products.