The American approach to pricing is strongly influenced by the philosophy of laissez-faire capitalism, as articulated by thinkers such as Adam Smith and John Stuart Mill. While both were British, their ideas found fertile ground in the American context, where individualism and free enterprise were already deeply embedded in the cultural ethos. Smith’s concept of the invisible hand suggests that prices are naturally determined by supply and demand, and that market forces, not regulatory bodies, should dictate value. This perspective fosters the belief that price is fluid and negotiable, rather than fixed and objective.
philosophy
Deductive reasoning
In mathematics, if A = B and B = C, then A = C. Since all humans are mortal, and I am a human, then I am mortal. All dolphins are mammals, all mammals have kidneys, therefore all dolphins have kidneys.
Since all squares are rectangles, and all rectangles have four sides, so all squares have four sides. If Dennis misses work and at work there is a party, then Dennis will miss the party.
Personal Experience
Although Americans strive to be analytical, objective, scientific, what most persuades them is experience. For Americans experience is fact, real data, empirical, irrefutable. Theory, logic, rigorous analysis are seldom more convincing than hearing a person say: “I was there. I saw it with my own eyes” or “We tried the approach and it worked”.
Empiricism is the theory that all knowledge is derived from sense-experience. As a philosophy, it emerged with the rise of experimental science and was developed in the 17th and 18th centuries by thinkers such as John Locke, George Berkeley, and David Hume. The idiom “seeing is believing” signals the belief that people can only really believe what they experience personally.
Avoid philosophical discussion
Americans do not engage in a discussion about the essence of a decision to be made. If a discussion does takes place about the decision in and of itself, however, it is strictly for the purpose of defining who and/or what is to be served by making a good decision.
Americans invest less time on identifying how a particular decision fits into the broader picture. Their approach to all decisions is primarily motived by pragmatism. Decisions lead to actions, which in turn lead to further decisions to be made. Americans avoid getting weighted down in what they view as over-analysis. Forward movement is of priority.
Gottfried Wilhelm Leibniz
Gottfried Wilhem Leibniz (1646-1716) was a German philosopher and polymath (someone with expertise in many different areas). He is considered one of the strongest proponents of rationalism, a school of philosophy which stresses that knowledge is accumulated primarily, solely through thought.
Rationalists did not believe that authentic knowledge could be gained via the senses, through empiricism (experience). Cogito ergo sum – I think, therefore I am – as Descartes put it, the founder of modern rationalism.
The historians of philosophy contrast rationalism with British empiricism, led by David Hume, Thomas Hobbes and John Locke. These empiricists argued that knowledge is gained first and foremostly via the senses. Simply stated, experience is more important than (informs) pure thought.
Although such overly simplified characterizations are questioned by today’s experts, they show a fundamental difference between continental philosophy (German and French) on the one side and British, and later British-American, philosophy on the other.
The competition between rationalism and empiricism is in the end a battle between deduction and induction.
Empirical
Inductive: Latin inducere, from in + ducere to lead. To induce means to: move by persuasion or influence; call forth, effect; cause the formation of. Inductive reasoning begins with observing particulars.
Should the particulars indicate a pattern, a conclusion might be drawn or inferred. The particular is the starting point. To infer means: to derive as a conclusion from facts or premise; guess, surmise; involve as a normal outcome of thought; point out, indicate, suggest, hint.
Deductive: Latin deducere, to lead away, from de- + ducere to lead. To deduce means to: infer from a general principle; trace the course of. Deductive reasoning draws a conclusion about particulars based on general or universal premises. The general is the starting point. A premise is something assumed or taken for granted, presupposed, believed.
Empirical: Originating in or based on observation or experience; relying on experience or observation alone often without due regard for system and theory; capable of being verified or disproved by observation or experiment. Latin empiricus, from Greek empeirikos, doctor relying on experience alone, from empeiria experience.
Inductive reasoning
Jennifer leaves for school at 7:00 a.m. Jennifer is always on time. Jennifer assumes, then, that she will always be on time if she leaves at 7:00 a.m.
Every windstorm in this area comes from the north. I can see a big cloud of dust caused by a windstorm in the distance; so, a new windstorm is coming from the north.
Bob is showing a big diamond ring to his friend Larry. Bob has told Larry that he is going to marry Joan. Bob has bought the diamond ring to give to Joan.
The chair in the living room is red. The chair in the dining room is red. The chair in the bedroom is red. All chairs in the house are red.
Kant and Pricing
The concept of objective pricing aligns closely with Immanuel Kant’s philosophy, which emphasizes rationality, structure, and universal principles. Kant argued that truth can be determined through reason, and that objective reality is knowable through structured analysis. Kant’s emphasis on universal principles suggests that there is a correct or just price that can be logically deduced, independent of market forces or subjective negotiation. Kantian ethics also emphasize duty and moral principles over personal gain. Thus, establishing a fair, objectively justified price is considered a moral obligation, rather than a transactional opportunity.
Pride comes before the fall
Deutsche Telekom – German Telecom – has had several stock offerings. Its first in 1996 was accompanied by a carefully orchestrated marketing campaign which was a huge success.
People who had never owned stocks flocked to the T-Aktie, to T-Shares. The Aktieneuphorie – stock market euphoria – in Germany lasted for several years.
The share price at the first offering was 28.50 DM (14.57 Euros), at the second 39.50 Euros, then 66.50 Euros. On March 6, 2000 the T-Aktie hit its highpoint of 103.50 Euros.
From there it was all downhill. On September 30, 2002 it was at 8.42 Euros. At the beginning of 2015 it just about at 16 Euros.
Shareholders sued Deutsche Telekom in 2008 in Frankfurt. Their claim was that Deutsche Telekom misinformed them about the true value of the company’s real estate holdings, as well as other incorrect statements in their financial statements.
Over 17,000 shareholders demanded roughly 80 million Euros in damages. The court case focused on whether the shareholders were sufficiently informed about the level of risk.
The marketing hype of the T-Aktie was criticized by the shareholders after the fact. “Such marketing campaigns are not appropriate for selling stocks. This isn’t laundry detergent, not toothpaste,” said Jürgen Kurz, head of the German Society for the Protection of Securities Holders. “People should buy stocks in companies, but they should be informed about the risk they are taking.”
The Süddeutsche Zeitung – one of Germany’s leading newspapers located in Munich – wrote at the end of 2014: “The T-Aktie is not just any old stock. It’s a symbol. It made Germans hungry to invest in stocks, and then killed that appetite for years to come. The investors felt cheated, tricked. Unrequited love. Today only half as many Germans hold stocks as in 2000.”
Popper’s Principle of Falsification
Deductive thinking is to make conclusions based on a law and a condition. Students in the social sciences at German universities learn deductive thinking early on.
Applying deductive thinking in the social sciences is not that simple, however. Statements (laws) can never be proven conclusively, because it is not possible to test every possible case.
The Germans in the social sciences, therefore, rely on the Falsifikationsprinzip or principle of falsification: to seek out cases which contradict the hypothesis, in order to refine that hypothesis.
The Falsifikationsprinzip was developed by the Austrian philosopher Karl Popper, and is foundational to social science thinking in Germany.
It is one of the key reasons why Germans are inclined to reject inductive thinking, which suggests the general based on the specific. German social scientists (and academics in general) believe that inductive thinking is fine for everyday life, but has no place in the sciences.