When I was teaching Economics back in the 1990s, I was fortunate to have students who had gone to high school in dozens of different countries. These students had different experiences and had functioned in markets that were often driven by local custom and culture. Their questions and comments helped me to understand a lot about the expanding global marketplace.

When I wanted to create an example to illustrate the application of a theory that I was trying to explain, I always tried to create one that everyone would understand regardless of their country of origin. Consequently, I often talked about sex. 

I admit up front that this may have contributed to my being ranked as one of the more popular members of the adjunct faculty at the university. It also seemed to keep the students awake, which, when teaching a subject like Economics can be task number one.

Economics

Classical economics teaches that consumers are rational. It teaches that because most consumers have a limited amount of money to spend each month, they will organize their spending accordingly. First, they will allocate their funds to necessities (rent, food, clothing, and transportation) and then to items that are necessary but which can be put off (dentist, auto repairs). Any funds that are left over can be spent on items that the consumer may want to buy, but could literally live without (sporting events, vacations). 

In order to get the most “bang” from the bucks they have, consumers should be good shoppers.  They should compare the prices of like products and purchase the least expensive ones that suit their needs. In theory, it is a rational process throughout.

Most consumers acknowledge they should allocate some of their monthly earnings to savings, but few will. Most also acknowledge that they should spend no more than they earn each month.  In practice, that effectively went out of style with the advent of the credit card.

Today, the market is awash in consumer debt, a factor that the classical economists could not consider.

I tried to focus the students on the underlying question: “How could they induce consumers to make an irrational decision to buy their product?”  These were, after all, business school students. 

For most products the answer is advertising. The modern “in your face” daily onslaught of ads that encourage people to purchase products were also not considered by the classical economists for obvious reasons.  The textbook I used, followed the classical view, which, to my thinking, might not give students the whole picture.  

The purpose of any advertisement is to make consumers purchase the product. Many ads will stress a product’s “value” which speaks to our rational side.  But even those ads will frequently feature attractive people making the pitch.  Using actors who are “attractive” does not change the message. But it is likely to get more eyeballs on the ad. 

Sex Sells

Indeed much about advertising is rooted in sex. There is a constant, undisputed theme in advertising: “sex sells”.

I could not, in my mind, conjure up a source of more irrational behavior than the human sex drive. It is not “just the things we do for love”. Sex and our desire for it motivates a huge portion of the spending that people do, even if they have limited funds that might rationally be spent elsewhere. 

For example, sex is at the root of the global fashion and cosmetics industries. These represent trillions of dollars of annual commerce.  And it is not new. Evidence of consumers’ desire for fashion, cosmetics and adornments goes back into pre-history. 

Why would anyone teach that consumer purchases were rational when so much of it was driven by irrational emotions?  And this does not even touch purchases that are made based on other emotional responses such as fear, greed or envy. I thought that perhaps the rational consumer of the textbook who was focused on the price might be a myth. 

I caught up with Richard Posner’s Sex and Reason (1992) a few years after it was published. His well researched and well presented book came to the conclusion that the human sex drive was rooted in our biology and that acting upon it was perfectly rationale behavior.  

I still have difficulty in reconciling the perfectly rational price theory with less than rational human behavior.  Over time I have come to believe that the latter might actually be underestimated as the determining factor for our purchase decisions. In this regards, I think that business school students might need a lot more sex, at least in their curriculum. 

I liked to challenge my students. I asked the class why so many consumers would reach for a fragrance that was priced at $350 per bottle. People buy fragrances to attract a partner for sex. Would not a fragrance that cost $60 get the job done? 

Vegas Baby

I would ask: If a sex worker in Las Vegas charges $500 to perform a sex act when a sex worker in Brazil might charge $20 for the same service, what can you infer from this data? Yes it is about overhead and what the market will bear, but it is also an introduction to globalization. Change sex worker to software developer and you will see what I mean.

Cable television and the internet itself were once brand new technologies that were slowly beginning to find acceptance from the general public.  In both cases each got an early shot in the arm from one source, pornography.

On cable, networks like HBO screened soft core porn after midnight. It is what made the cost of cable acceptable to many new viewers and indeed what attracted many new viewers. Data at the time suggested that a lot of people liked to watch in bed. If you need a reference go to Wikipedia and look up Sylvia Kristel. 

I think that everyone knows that there is a lot of porn on the internet, but not everyone appreciates how large a business it represents. MindGeek, parent of Pornhub, does not report its revenues but measuring them in the billions would not seem inappropriate. It may not be as large in gross sales as Amazon, but MindGeek’s cost of goods is minimal. 

Sex is even prevalent in finance. I wrote an article about crowdfunding back in 2015 when it was still new and I was just beginning to look at it with a critical eye.  Investment crowdfunding was and is about getting people to look at your offering.

I wrote at the time: “If eyeballs are what you need to successfully crowdfund a company, it would seem logical then that the easiest company to crowdfund might be one selling a line of lingerie. No crowdfunding consultant worth his/her fee would likely tell the company not to include its product catalog in its presentation to investors if that catalog had pictures of models wearing lingerie.” About one year later a lingerie company in London started a crowdfunding campaign that followed that advice and raised all of the funds that they were seeking.  

Sex, Drugs and Rock n’ Roll

The music industry certainly uses sex to make sales. I grew up at a time when Elvis Presley appeared on television from the waist up because much of the audience had “issues” with the way in which he moved his hips.  Currently, it’s obvious that much of the music and entertainment industries have seen that portion of the audience as far out of the mainstream. A music video without some sexual reference? Hard to find near the top of the charts.  

A few years back, I caught an interview of Mick Jagger that was being conducted by a business reporter. Jagger has flaunted sex and sexuality throughout a very long career. The Rolling Stones were starting a tour and the topic was the economics of touring.

Jagger suggested that the tour itself would probably net the band over $100 million, not counting the record sales. The reporter asked how the band could achieve that kind of financial success from traveling around and playing music. Let’s face it, very few musical groups have had that kind of sustained success.

Jagger responded that he had just paid attention in school. The response made me smile. He is a graduate of the London School of Economics.    

I hope that my students were paying attention too.

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