From the world of medicine, we have a wonderful object lesson in the effectiveness of price-based market incentives.

The FDA requires new medicines to be carefully tested for their effectiveness; you don't get to sell a new pill unless it has definitively proven itself more effective than a placebo. However, they don't require you to prove that it is more effective than other medicines that were already on the market. So, we know that two classes of new, high-tech blood pressure medications, ACE inhibitors and calcium channel blockers, both work to reduce high blood pressure. But are the calcium channel blockers, at $500 a year, really worth the premium over the ACE inhibitors, at $250? A recent study tried to address the question --- and just for a laugh, they threw in the low-tech, old-fashioned, disfavored alternative, diuretics, generic drugs which have been around for decades, and cost $25 a year total. The envelope please?

Compared to participants who took the diuretic, the ACE inhibitor group had, on average, about two points higher systolic blood pressure, the top number in the blood pressure reading. Blacks in the group had a systolic blood pressure four points higher.

There was a 15 percent higher risk of stroke overall for the ACE inhibitor group and a 40 percent higher risk for blacks. The risk for heart failure among all groups was 19 percent higher, and the risk for hospitalization or treatment for the chest pains of angina was 11 percent higher. Further, the risk of needing a coronary bypass operation or angioplasty was 10 percent higher.

Compared with participants who took the diuretic, the calcium channel blocker group had, on average, a systolic blood pressure about one point higher and a 38 percent higher risk of developing heart failure.

Faced with this study, Homo Economicus would immediately abandon the use of the new drugs except for patients in which diuretics were themselves, for some reason, completely unsuitable. But medical observers don't expect the same behavior from Homo Sapiens:

Analysts say that the results of the government study that were announced yesterday were likely to have little effect on sales of the newer drugs, in part because drug makers will continue to urge doctors to prescribe their medicines as additional treatments for heart patients who need more than one drug to control their blood pressure. ...

Which they attribute almost entirely to massive promotional efforts by the drug companies, which puffed up the new drugs, and trashed the old generic alternatives, says one of the new study's authors, "more based on opinion than fact". In 1996, the New England Journal of Medicine featured more ads for calcium channel blockers than anything else --- and none for diuretics, as their makers have no money to spend on the ads. And the influence of big pharma spread beyond the advertising pages:

Another study, published in The New England Journal of Medicine in 1998, reviewed 70 medical journal articles that discussed calcium channel blockers and found that 96 percent of the authors who supported the drugs had financial relationships with the drugs' makers. Among the researchers who published work critical of the drugs, only 37 percent received financial support from the companies making the products.

And yet, asked to explain the situation, company spokesmen fall back on the rationality of markets:

"Physicians still are in control," said Christopher Loder, a spokesman for Merck. "Doctors will not prescribe a medicine unless it delivers value."

Which is right, to an extent --- these are well-educated, highly trained professionals, operating in their field of professional expertise. If we don't see rational behavior from these guys, how can we possibly expect it in, say, the stock market?