Market Research Philosophies

 My students are often confused about the relationship between philosophy and research. In particular, in the sober, analytical world of business, philosophy can seem too soft and distanced from the concerns of the business world. Yet this is far from the case. All research begins with a philosophical foundation, an idea that explains what reality is like, what is possible and what is not. 

Let's look at how markets work. What causes prices in the market to change? Is it supply and demand? At first glance, this seems plausible. But what causes demand? For simple things like food, we can estimate the need and understand the demand. But what about the demand for luxury cars, for example? Can it be explained by extra income? Or the midlife crisis? But does the midlife crisis exist? Can it be proven objectively? From another point of view, do we need to prove it? If we observe it often enough and if "we", in this case, are a luxury car manufacturer, we can simply make cars for those who - objectively or subjectively - experience the crisis and buy our cars. This is the difference between positivism and interpretivism. From the positivist point of view, we need objective measures of the midlife crisis. From a constructivist perspective, we believe that the people who are experiencing this crisis are the best experts on it and if it is real to them, it exists. 

Another example: what drives the demand for stocks? In an interview with the Chicago Booth, Nobel laureate Eugene Fama talked about taste [1], i.e., stocks that people don't like, which are, surprisingly enough, value stocks. Why wouldn't people like value stocks? If we consider that human beings are rational and instinctively try to improve their chances of survival, value stocks tend to outperform growth stocks and should therefore be valued higher. On average, however, this is not the case. The belief in rationality cannot explain this. This is where irrationalist philosophies come in, and there are few of them. For example, pragmatism emphasizes the principles of utility and practicality. If people generally don't like value stocks, they are likely to be underpriced most of the time and it is practical not to buy them. 

Now back to the question of research. In the examples above, we could see that the variables used to explore the same phenomenon depend on the philosophy of the researcher. In the first example of buying luxury cars, the researcher from a positivist tradition may look at physical indicators of midlife crisis, such as weight gain, wrinkles, hair loss. A constructivist, on the other hand, will be interested in the evolution of thought patterns, beliefs, and self-esteem. In the second example, a positivist researcher would look at historical stock performance, demand, company value, dividends, etc. A constructivist researcher will look at risk perceptions, emotions, investor personality.

Of course, in the real world, things happen and can be explained from different philosophical positions. But choosing and sticking to one's philosophical position in research is also important for the reason for the recommendations produced and the target audience that will follow your recommendations. Do you believe that having particular investment beliefs determines the outcomes of those investments? Or do you think that only hard work (analysis, study) defines the results?  Arguments can be made for either position, but at some point you have to face the fact that you can't prove which is more important and comes first. And this is where we rely on philosophy.

[1] https://review.chicagobooth.edu/economics/2016/video/are-markets-efficient

[2] https://www.britannica.com/topic/pragmatism-philosophy