(This is my first non-soccer post in awhile, but it will factor into a future post about soccer.)
The title is from Rory Sutherland on this Econtalk podcast (emphasis added):
…one of the things that annoys me about economics is that it likes markets for the wrong reason. Which is, that it likes free markets because they’re notionally efficient, whereas I like markets because they’re inventive. And, the two narratives–you know, it’s a perfectly–you can understand why free market people leapt on this idea of efficiency through competition. In fact, competition seems to be deeply wasteful if you look at it in a short time horizon. What’s magical about markets, of course, is that they solve problems through a process of kind of market-tested innovation.
Trial and error. But it’s a bit more than that too, because I think one of the extraordinary things markets do–which, I think this is one of the reasons I’m uncomfortable about economics trying to model itself on Newtonian physics–is quite often what markets find is more than one solution to the same problem. And I think if you approach business problems with the mentality of someone who is trying to make it look like physics, then one of the dangers is that you’re always trying to optimize something or find the single overarching solution that works for the average. And in many cases, I think markets and business do something much more ingenious than that. They solve the same problem for different people in a different way.
I’ve been trying to find words for this for a long time, but kept falling back on the not-so-compelling “competition is good because trial-and-error and solutions aren’t so obvious” yada.
His last sentence sums up what I’ve been trying to articulate.
Markets and businesses solve the same problem for different people in a different way.
That’s good. That gives more of us what we want.
What I like about McDonald’s, you may not like, and you might prefer Chipotle instead.
We both get more of what works best for us, instead of having to settle for what works for the average of us, which might not even represent real people.
For example, let’s say I’m age 50 and you are 30. Our average age is 40. Someone might solve a problem for a 40 year old, since that’s average.
But, in our small sample of two, a 40 year old doesn’t even exist. So, their solution isn’t good for either of us.