August 24, 2009

Warning: Beware Of Math

One of the most interesting aspects of the financial meltdown of the past few years is the role that mathematics played in it.

Over several decades, Wall Street developed very sophisticated mathematical models of financial markets. During the 90's they were literally recruiting rocket scientists to work in investment houses.

As we now know, everything they were doing turned out to be a bunch of bullshit. But during its heyday, it was a very rare and brave analyst who would contradict the conventional wisdom.

In a piece in The New York Times Review of Books, August 9th, entitled "School For Scoundrels" Noble prize winner Paul Krugman tells us...
"...supporters of the approach start to resemble fervent political activists — or members of a cult..."
Today we are often told that analytics are leading the way to the future of advertising. This point of view is particularly popular among members of the Divine Church of the Web. As you might imagine, I'm officially skeptical.

I can understand why advertisers hunger for quantitative analysis. The insufferable imitation-science-sociology-lite of account planning that has infected the ad industry has turned out to be a major whack-a-thon. Just about anything is better than listening to these people blather on about their ethnographics and their brilliant consumer insights.

Nonetheless, it would also be wise to maintain a healthy skepticism about analytics.

There are some aspects of marketing that are conducive to mathematics: How many? When? How? How much? Understanding these and other factors are essential to marketing.

However, analytics are becoming far more sophisticated than we are used to. Soon we are sure to be hearing from hustlers who tell us that they have derived formulas for every kind of marketing activity.

Let's keep in mind that when all is said and done, advertising is about persuasiveness. As Bill Bernbach said:
"Advertising is fundamentally persuasion and persuasion happens to be not a science, but an art."
Advertisers have always hungered to quantify persuasiveness. For better or worse, the creative --persuasive -- aspect of advertising is highly resistant to statistical analysis.

Until someone comes up with a way to quantify the creative factor, it's going to take an awful lot to convince me that rocket scientists were unable to create valid mathematical models of financial markets, but MBAs can construct useful mathematical models for advertising.

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