Economics looks at humans and assumes they are rational. This is an inherently flawed assumption. One of the many pieces of evidence which leads to this conclusion is the "money illusion." This is the concept that people are happier if they feel like they are making more money, even though inflation may cause these perceived gains to amount to nothing. For example this newest Star Wars, it was the highest grossing film in the franchise's history. However when adjusted for inflation, this most recent Star Wars has only made about half the profits of its original 1977 counterpart. However after Disney's purchase of LucasArts at a whopping price of $4 billion, Disney needs a huge success. When consumers have the perception that something is successful that gives the product a certain prestige, indicating that the movie is of a higher quality and increases the likelihood of attendance. "People want to see a winner." This is a misperception of success driven by inflation that has been driven by Hollywood and the Federal Reserve.
This is a couple which doesn't get covered in the tabloids. But they've been coexisting since Hollywood was conceived. At the relationship's foundation, the concept that inflation is good, to some degree at least. There was a study which indicated that two-thirds of participants were happier with a raise of 5% with 4% inflation as opposed to a 2% raise with no inflation. So nominal revenue is secondary if the individual, at least, perceives that they are better off. That is a tool that Hollywood continues to employ. The list of the highest grossing films of all time is riddled with inflation. Nominally the most successful film of all time is still Gone with the Wind, however, it's not even on the top 50 as a direct result of inflation. Though there is an importance to inflation beyond record-breaking films.
When there is inflation during economically prosperous times people are more willing to borrow, spend, and risk money. In addition, inflation makes debt burdens (commonly associated with developing million dollar movies) a little more bearable. Which are ideal conditions to make films in. While when the economy is a little weaker inflation helps ease the burden of wages on employers. So haveing a little inflation helps everyone, but Hollywood is one of the most evident examples. Inflation helps the "money illusion" which in turn makes blockbuster movies appear to be more successful than may be necessarily true. However when a move is record breaking it makes it more appealing, which drives more consumers to purchase tickets.
http://www.nytimes.com/2016/01/12/upshot/star-wars-and-how-a-force-helps-the-federal-reserve.html?ref=economy&_r=0
Greyson, I found this idea of inflation related to the movie industry quite interesting, I had never really thought about the effects of inflation on the grossing dollar amount of films. I think that probably everyone in the movie industry is aware of the effects of inflation, but ultimately this "money illusion" is a marketing ploy in many cases just to claim that they had the highest grossing movie to entice consumers.
ReplyDeleteI agree with Christopher as well. You always hear through the marketing done by the movie industry that there has been an astronomical amount of money made since the movie has been released and by hearing these figures it does make the movie more appealing to go and actually see. However, you and the article bring up a great point that once that is adjusted for inflation that the movie has still done very well, but not as well as you originally may have believed to be true. It is amazing how little consumers tend to look into the facts and figures that are presented to them and rather when it comes to entertainment we just take them for their face value as they are presented. It would be interesting to see how the consumers would take it if this "money illusion" was exploited and to see the effects it could have on the movie industry as a whole.
ReplyDeleteI never actually thought about the relationship between inflation and movie revenue. I always am amazed when each year a movie breaks the record for highest-grossing film. However, according to you, when adjusted for inflation, the movie is most likely nowhere near some of the all-time most popular movies. Very interesting article.
ReplyDeleteI never actually thought about the relationship between inflation and movie revenue. I always am amazed when each year a movie breaks the record for highest-grossing film. However, according to you, when adjusted for inflation, the movie is most likely nowhere near some of the all-time most popular movies. Very interesting article.
ReplyDeleteIt would also be interesting to examine these money illusions with the number of tickets actually bought to see the movie. With inflation comes higher ticket prices and it would be beneficial to see how movies from the past and present would compare on a more standard unit of measurement to determine their success and popularity.
ReplyDeleteI think this is a very good way to explain the “money effect,” and how people at the individual level fail to account for inflation. I would like to point out that if you Bing the top grossing movies, Wikipedia actually makes a note that Gone with the Wind sold the most when adjusted for inflation within its first paragraph. Not to mention it’s the first thing that comes up when you google top grossing movies (Gone with the wind is on top of the list). I’m sure enough movie buffs point this out, making Gone with the Wind in turn adjusted on the list. I agree with Chris that this is probably a marketing ploy to the masses. However, since the information is so accessible it may not be as strong of a marketing ploy as it once was. Who knows maybe this issue with movies will draw more attention to the concept of inflation and how it affects us.
ReplyDeleteI found the article and your explanation quite interesting as I feel it is often overlooked to connect the movie industry with inflation. I do agree that people too often look at nominal statistics as the truth, when in reality inflation could greatly affect the real data. Far too often, you only find those who have a relatively extensive education as the ones who know and understand to look at inflation and real data as opposed to nominal data, which can often be the more easily accessible number. It does take a trained mind to sift through nominality and look for the real data as those are the numbers which can really make a difference in people's perceptions of the economy.
ReplyDelete