Why Does High-Pressure Salesmanship Work?
By Bryan Caplan
[Warning: Minor spoilers].
Just finished The Wolf of Wall St. Though based on a true story, the ugly facts are usually easy to minimize: Most investment firms aren’t run by stoned sociopaths, and most investment firms’ customers make money. But one ugly fact is hard to shrug off: people with a talent for high-pressure salesmanship often get rich.
Why does high-pressure salesmanship work? Many economists will lazily invoke textbook asymmetric information. High-pressure salesmanship works because… adverse selection. High-pressure salesmanship works because… moral hazard. High-pressure salesmanship works because… signaling.
None of these textbook stories remotely makes sense. Adverse selection, moral hazard, and signaling should all thwart high-pressure salesmen by making their potential clients wary. “If your stocks are so great, why are you trying so desperately to sell them to me?” “You probably get paid on commission, so I don’t trust you.” “If you’re so great at picking winners, convince me by giving me $500 in complimentary stock. Call me back once my account doubles in value.” High theory aside, everyone knows how to avoid being fleeced by high-pressure salesmen: Utterly refuse to deal with them. Hang up or walk out.
If standard economic theory can’t explain the power of high-pressure salesmanship, what does? Psychology, of course. Some human beings make important decisions on emotional grounds – and most human beings dislike saying “no.” High-pressure salesmen carefully study and coldly prey upon these weaknesses. The best high-pressure salesmen get rich – even though most of their customers would have been better off without them.
How can a libertarian say such things without having his head explode? By the power of hypothetical reasoning. High-pressure salesmanship and the human weakness that sustains it are hardly unique. Human weakness is all around us – and whenever human weakness exists, there are craftier human being waiting to cash in. Cult leaders cash in on believers’ weakness. Pick-up artists cash in on women’s weakness. Gold-diggers cash in on men’s weakness. Faith healers cash in on their patients’ weakness. Should government try to regulate all of these things? No? Then why should government regulate high-pressure salesmanship?
None of this means, of course, that I’m indifferent to these problems. I’m all for voluntary remedies. First and foremost: Urging everyone to consistently use the defensive strategies that everyone knows. When you encounter a high-pressure salesman, cult leader, pick-up artist, gold-digger, or faith-healer, utterly refuse to deal with them. Hang up or walk out.
Yes, you could call this “blaming the victim.” But when a wolf is eating sheep, preaching at the sheep is far more effective than preaching at the wolf.
P.S. Hope to see you at Capla-Con this weekend, where wolves and sheep alike can hone their social skills. 🙂