Opportunity Knocks: An Economic Analysis of Television Advertisements

Certain aspects of advertising–especially on television–are not easily explained with conventional economic models. In particular, much of the imagery and repetitive thematic content seen in advertisements seem “psychological” in nature, as opposed to “informative.” To understand the economic rationale for this phenomenon, we develop a theory of endogenous preferences in which information about threshold payoffs (which we interpret as being present over the course of human evolutionary history) induces sudden shifts in demand. We show that the resulting demand functions give firms incentive to provide threshold-related information. To examine the use of threshold-related content in practice, we study a sample of 370 television advertisements. We find occurrences of threshold-related content in 83% of food and beverage advertisements for children and in 71% of advertisements for general audiences. Furthermore, the threshold-related content in children’s food and beverage advertisements occurred with statistically greater frequency than factual content, which was not true for food and beverage advertisements aimed at general audiences.