Not to flood the blog with This American Life links, but the third segment of the aforementioned show is also worth a listen. It narrates the closure of Circuit City from the perspective of the employees who had to staff its decline. Dean Baker will be pleased to hear the workers lash the management for firing 13,000 experienced employees because their benefits proved too pricey. As the salesman says, once there were no knowledgeable employees left on the shop floor, it ceased being clear why customers would step foot onto it, either. And so they didn't.But what really caught my eye -- or, I guess, ear -- is the account of the liquidation. Circuit City hired professional liquidation services to run the final days of the chain. And somewhat counterintuitively, the first thing the liquidators did was raise prices. Substantially. And it worked. Merchandise flew out of the showroom and the company made some real money in its final moments of existence.The reasoning actually proves pretty simple: A high-profile closure brings a crush of bargain-hunters. Circuit City was mobbed. Those customers, however, were operating off of a fairly simple theory of why they would get a good deal; Circuit City was going out of business and needed to sell down its stock. But the liquidator had a lot more experience with closures than the customers and so knew full well that the consumers would think they were getting a good deal whether or not they were. And so they in fact got a bad deal. Behavioral economists talk of predictable irrationality. But the corollary problem is what I call asymmetric rationality. Businesses have enough consumer data to detect patterns in our recurrent screw-ups. We fail predictably. They track those failures continually. And so there are many times when we think we're gaming them -- like rushing to Circuit City's final sale -- and they're actually gaming us. THE DEATH OF CIRCUIT CITY.
Not to flood the blog with This American Life links, but the third segment of the aforementioned show is also worth a listen. It narrates the closure of Circuit City from the perspective of the employees who had to staff its decline. Dean Baker will be pleased to hear the workers lash the management for firing 13,000 experienced employees because their benefits proved too pricey. As the salesman says, once there were no knowledgeable employees left on the shop floor, it ceased being clear why customers would step foot onto it, either. And so they didn't.But what really caught my eye -- or, I guess, ear -- is the account of the liquidation. Circuit City hired professional liquidation services to run the final days of the chain. And somewhat counterintuitively, the first thing the liquidators did was raise prices. Substantially. And it worked. Merchandise flew out of the showroom and the company made some real money in its final moments of existence.The reasoning actually proves pretty simple: A high-profile closure brings a crush of bargain-hunters. Circuit City was mobbed. Those customers, however, were operating off of a fairly simple theory of why they would get a good deal; Circuit City was going out of business and needed to sell down its stock. But the liquidator had a lot more experience with closures than the customers and so knew full well that the consumers would think they were getting a good deal whether or not they were. And so they in fact got a bad deal. Behavioral economists talk of predictable irrationality. But the corollary problem is what I call asymmetric rationality. Businesses have enough consumer data to detect patterns in our recurrent screw-ups. We fail predictably. They track those failures continually. And so there are many times when we think we're gaming them -- like rushing to Circuit City's final sale -- and they're actually gaming us. 
