American business and economic leaders increasingly recognize the need for sociological intelligence — insight that explains and anticipates the patterns of human behavior impacting their respective enterprises. This intelligence is valuable, sought-after capital. Consider the massive rise of social database sites like Google, Facebook, Twitter, YouTube, and many others. These companies collect data from users, and use these data to know what people want, like, listen to, etc. Consider also the advanced use of data by companies like Target to better understand consumer action, as portrayed here by NY Times reporter Charles Duhigg in an article based on his book The Power of Habit:
Andrew Pole had just started working as a statistician for Target in 2002, when two colleagues from the marketing department stopped by his desk to ask an odd question: “If we wanted to figure out if a customer is pregnant, even if she didn’t want us to know, can you do that? ”
Pole has a master’s degree in statistics and another in economics, and has been obsessed with the intersection of data and human behavior most of his life. His parents were teachers in North Dakota, and while other kids were going to 4-H, Pole was doing algebra and writing computer programs. “The stereotype of a math nerd is true,” he told me when I spoke with him last year. “I kind of like going out and evangelizing analytics.”
As the marketers explained to Pole — and as Pole later explained to me, back when we were still speaking and before Target told him to stop — new parents are a retailer’s holy grail. Most shoppers don’t buy everything they need at one store. Instead, they buy groceries at the grocery store and toys at the toy store, and they visit Target only when they need certain items they associate with Target — cleaning supplies, say, or new socks or a six-month supply of toilet paper. But Target sells everything from milk to stuffed animals to lawn furniture to electronics, so one of the company’s primary goals is convincing customers that the only store they need is Target. But it’s a tough message to get across, even with the most ingenious ad campaigns, because once consumers’ shopping habits are ingrained, it’s incredibly difficult to change them.
It is not just business actors but also economists who recognize the need for sociological intelligence. For example, consider the Federal Reserve’s use of the concept “inflation expectations,” the essence of which is that audience’s interpretation of inflation comes to define actual inflation itself. The important data, in Bernanke’s formulation, are the data accounting for how and why particular audiences think what they think.
[T]he state of inflation expectations greatly influences actual inflation and thus the central bank’s ability to achieve price stability. But what do we mean, precisely, by “the state of inflation expectations”? How should we measure inflation expectations, and how should we use that information for forecasting and controlling inflation? I certainly do not have complete answers to those questions, but I believe that they are of great practical importance. I hope my remarks here will stimulate some of you to work on these issues.
Let me quote Bernanke at length, because he describes quite well the search for sociological intelligence:
What is the right conceptual framework for thinking about inflation expectations in the current context? The traditional rational-expectations model of inflation and inflation expectations has been a useful workhorse for thinking about issues of credibility and institutional design, but, to my mind, it is less helpful for thinking about economies in which (1) the structure of the economy is constantly evolving in ways that are imperfectly understood by both the public and policymakers and (2) the policymakers’ objective function is not fully known by private agents. In particular, together with the assumption that the central bank’s objective function is fixed and known to the public, the traditional rational-expectations approach implies that the public has firm knowledge of the long-run equilibrium inflation rate; consequently, their long-run inflation expectations do not vary over time in response to new information.
(link to Bernanke’s speech, Chairman Ben S. Bernanke, “Inflation Expectations and Inflation Forecasting,” speech given at the Monetary Economics Workshop of the National Bureau of Economic Research Summer Institute, Cambridge, Massachusetts, July 10, 2007)