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kottke.org posts about economics

Ted Chiang on the similarities between “civilization-destroying AIs and Silicon Valley tech companies”

posted by Jason Kottke   Dec 19, 2017

Ted Chiang is most widely known for writing Story of Your Life, an award-winning short story that became the basis for Arrival. In this essay for Buzzfeed, Chiang argues that we should worry less about machines becoming superintelligent and more about the machines we’ve already built that lack remorse & insight and have the capability to destroy the world: “we just call them corporations”.

Speaking to Maureen Dowd for a Vanity Fair article published in April, Musk gave an example of an artificial intelligence that’s given the task of picking strawberries. It seems harmless enough, but as the AI redesigns itself to be more effective, it might decide that the best way to maximize its output would be to destroy civilization and convert the entire surface of the Earth into strawberry fields. Thus, in its pursuit of a seemingly innocuous goal, an AI could bring about the extinction of humanity purely as an unintended side effect.

This scenario sounds absurd to most people, yet there are a surprising number of technologists who think it illustrates a real danger. Why? Perhaps it’s because they’re already accustomed to entities that operate this way: Silicon Valley tech companies.

Consider: Who pursues their goals with monomaniacal focus, oblivious to the possibility of negative consequences? Who adopts a scorched-earth approach to increasing market share? This hypothetical strawberry-picking AI does what every tech startup wishes it could do — grows at an exponential rate and destroys its competitors until it’s achieved an absolute monopoly. The idea of superintelligence is such a poorly defined notion that one could envision it taking almost any form with equal justification: a benevolent genie that solves all the world’s problems, or a mathematician that spends all its time proving theorems so abstract that humans can’t even understand them. But when Silicon Valley tries to imagine superintelligence, what it comes up with is no-holds-barred capitalism.

As you might expect from Chiang, this piece is full of cracking writing. I had to stop myself from just excerpting the whole thing here, ultimately deciding that would go against the spirit of the whole thing. So just this one bit:

The ethos of startup culture could serve as a blueprint for civilization-destroying AIs. “Move fast and break things” was once Facebook’s motto; they later changed it to “Move fast with stable infrastructure,” but they were talking about preserving what they had built, not what anyone else had. This attitude of treating the rest of the world as eggs to be broken for one’s own omelet could be the prime directive for an AI bringing about the apocalypse.

Ok, just one more:

The fears of superintelligent AI are probably genuine on the part of the doomsayers. That doesn’t mean they reflect a real threat; what they reflect is the inability of technologists to conceive of moderation as a virtue. Billionaires like Bill Gates and Elon Musk assume that a superintelligent AI will stop at nothing to achieves its goals because that’s the attitude they adopted. (Of course, they saw nothing wrong with this strategy when they were the ones engaging in it; it’s only the possibility that someone else might be better at it than they were that gives them cause for concern.)

You should really just read the whole thing. It’s not long and Chiang’s point is quietly but powerfully persuasive.

Unlocking the commons: or, the psychoeconomics of patronage

posted by Tim Carmody   Dec 15, 2017

Nieman Journalism Lab is running its annual predictions for the next year in journalism. I wound up pitching something about audio platforms that is weirdly optimistic about Spotify? but for a hot minute, I tried to talk Jason (and he tried to talk me) into writing something about the new patron economy.

It was too late to pitch it as a prediction, but I couldn’t get it out of my head. So I do what I do, which is to write as much of it down as I can. In the end, I couldn’t think of a better place to run it than right here at Kottke.org.

Here’s the picture as generally agreed upon: ads are still alive and well, but the collapse and consolidation of the ad market means ads alone can’t support media companies any more, whether they’re big like the New York Times or small like Kottke.org.

There’s a puritanical argument that says ads have failed media, they bring out media’s worse impulses, and might be inherently bad. The only way to break with the ad model is to break with it completely, and sell media like a product. Make readers pay for content. If they don’t pay for it, don’t give it to them. Only when media companies are wholly accountable to their subscribers can you fix what’s wrong with media. Big companies need paywalls: little ones need exclusive subscribers.

Kottke.org, obviously, does not work this way. It has ads, although those are a very small part of the site and a shrinking part of the revenue. It has members, but very, very little is directed only to them: right now, subscribers to the newsletters get some behind-the-scenes stuff and a few early previews and experiments. Stuff that only real fans even want. The site, the tweets, the RSS feed, and everything else the site’s produced or ever will produce is available to everyone, whether they’re a member or not.

I call this “unlocking the commons,” and it’s the same approach I’ve taken with my Patreon and newsletter. Fans support the person and the work. But it’s not a transaction, a fee for service. It’s a contribution that benefits everyone. Free-riders aren’t just welcome; free-riding is the point.

This, I think, is key to understanding the psychology of patronage. Normally, if you buy a product — let’s say you’re buying a book. Books aren’t perfect commodities, but they’re still commodities. As a shopper, you’re trying to get as much value for your book as you can for your money. If I can get the book cheaper and faster from retailer A(mazon) than retailer B(arnes & Noble), most of the time, that’s what I’m going to do.

If I’m skeptical of A, and prefer to support B or C(ity bookstore of my choice), I’m not strictly speaking in a purchasing relationship any more, but something closer to a patronage one. I don’t just want my money to buy an object; I want it to support institutions and individuals I like, and I want it to support the common good.

This is one of the weird things about patronage. As a consumer, your first thought is to your own benefit. As a patron, it’s to the good of your beneficiary. Likewise, as an artisan supported by patronage, you tend to think more about what’s best for your patrons and audience than you do yourself.

For instance, when Patreon recently changed its fee structure, I thought about it on two levels. First, it seemed really bad for patrons, slightly less bad for beneficiaries, and clearly helped out Patreon more than either group. As a customer of Patreon — they’re the ones I give my money to — I felt like I was being ripped off. I was being asked for more money without getting more in return. But as a patron, my first thought was, does this help the people I pledge money to each month? And as a beneficiary, I thought, how does this affect the people who pledge money to me?

In both cases, I wanted what was best for that other person. I wanted them to be getting the full value of the transaction. The only time it was about me was when I thought about my relationship with Patreon — which is completely different.

Please note that this is not fuzzy-headed idealism or just sentiment: this is as concrete and comprehensive as it gets. It’s economic thinking that recognizes that goods don’t just exist to be used up, but are objects of labor produced by and for members of a commonwealth. The truth of the transaction is in the whole.

The most economically powerful thing you can do is to buy something for your own enjoyment that also improves the world. This has always been the value proposition of journalism and art. It’s a nonexclusive good that’s best enjoyed nonexclusively.

Anyways. This is a prediction for 2018 and beyond. The most powerful and interesting media model will remain raising money from members who don’t just permit but insist that the product be given away for free. The value comes not just what they’re buying, but who they’re buying it from and who gets to enjoy it.

The bigger those two pools get — the bigger the membership, and the bigger the audience — the better it gets for everyone. This is why we need more tools, so more people can try to do it. PBS as a service.

It’s not quite socialized art. Mutualist art, maybe. Proudhon probably would have thought it was pretty cool. So would the Florentines, arch-capitalists as they were. And it might not work. But so far, it’s the only model I’ve found worth trying.

An interactive map of debt in America

posted by Jason Kottke   Dec 13, 2017

Interactive Debt Map

The Urban Institute has built an interactive map for exploring debt in America.

Credit can be a lifeline during emergencies and a bridge to education and homeownership. But debt-which can stem from credit or unpaid bills-often burdens families and communities and exacerbates wealth inequality. This map shows the geography of debt in America at the national, state, and county levels.

I’d love to hear why the “share with any debt in collections” is so relatively low in the Upper Midwest, Minnesota in particular.

Update: Unsurprisingly, health insurance coverage is a significant factor in American debt…and Minnesota has a low rate of medical debt in collections along with a relatively low rate of uninsured. This 2016 press release from MN Department of Health provides some clues as to why the uninsured rate is so comparatively low. (via @yodaui)

Universal Basic Income explained

posted by Jason Kottke   Dec 07, 2017

In their distinctive style, Kurzgesagt tries to explain the concepts behind and pros & cons of Universal Basic Income in just 10 minutes. In US, UBI would be a massive change to how our economy and society functions, so much so that it’s challenging to predict what the effects would be. Nonlinear systems, yo!

Update: Aw dammit… I totally forgot to connect the part of the video where they talk about the non-monetary value of work — which is a worry of UBI critics — to something that Ludicorp (the small company that built Flickr and sold to Yahoo! in the mid-2000s) had on the company’s about page. It was a passage from Disclosing New Worlds: Entrepreneurship, Democratic Action and the Cultivation of Solidarity by Charles Spinosa, Fernando Flores & Hubert Dreyfus:

Business owners do not normally work for money either. They work for the enjoyment of their competitive skill, in the context of a life where competing skillfully makes sense. The money they earn supports this way of life. The same is true of their businesses. One might think that they view their businesses as nothing more than machines to produce profits, since they do closely monitor their accounts to keep tabs on those profits.

But this way of thinking replaces the point of the machine’s activity with a diagnostic test of how well it is performing. Normally, one senses whether one is performing skillfully. A basketball player does not need to count baskets to know whether the team as a whole is in flow. Saying that the point of business is to produce profit is like saying that the whole point of playing basketball is to make as many baskets as possible. One could make many more baskets by having no opponent.

The game and styles of playing the game are what matter because they produce identities people care about. Likewise, a business develops an identity by providing a product or a service to people. To do that it needs capital, and it needs to make a profit, but no more than it needs to have competent employees or customers or any other thing that enables production to take place. None of this is the goal of the activity.

When behavioral economics meets a $700M Powerball jackpot

posted by Jason Kottke   Aug 24, 2017

Business Insider went out onto the streets of NYC and tried to buy people’s just-purchased Powerball tickets ahead of the $700 million drawing. They did not get many takers, even when offering twice the price they paid (which meant they could just go and buy double the number of tickets and slash their odds of winning). The video says this is an example of regret avoidance.

A theory of investor behavior that attempts to explain why investors refuse to admit to themselves that they’ve made a poor investment decision so they don’t have to face the unpleasant feelings associated with that decision. Regret avoidance causes investors to not correct bad decisions, which can make those decisions worse. Regret avoidance is the result of cognitive dissonance.

As Alex Tabarrok notes, it’s also a demonstration of the endowment effect (Tabarrok: “these people are crazy!”).

In psychology and behavioral economics, the endowment effect…is the hypothesis that people ascribe more value to things merely because they own them. This is typically illustrated in two ways. In a valuation paradigm, people will tend to pay more to retain something they own than to obtain something they do not own — even when there is no cause for attachment, or even if the item was only obtained minutes ago. In an exchange paradigm, people given a good are reluctant to trade it for another good of similar value. For example, participants first given a Swiss chocolate bar were generally unwilling to trade it for a coffee mug, whereas participants first given the coffee mug were generally unwilling to trade it for the chocolate bar.

One way to think about it is if you buy a lottery ticket for $5 and someone offers you $10 and you don’t take it, financially it’s like you’ve paid $10 for the ticket, an easily replaceable item with an average worth of about $2.50 (and more likely worth nothing). But no one should be buying tickets anyway because the lottery sucks.

Apple’s diseconomies of scale and the next iPhone

posted by Jason Kottke   Jul 19, 2017

Apple is the biggest company in the world and they sell one of history’s most successful consumer products. As the total human population of Earth becomes a limiting factor in the iPhone’s continued sales growth (see also Facebook), they are perhaps running into problems designing a desirable product that they need to produce 200 million times over the course of a year.

This is one of those areas where Apple may be the victim of its own success. The iPhone is so popular a product that Apple can’t include any technology or source any part if it can’t be made more than 200 million times a year. If the supplier of a cutting-edge part Apple wants can only provide the company with 50 million per year, it simply can’t be used in the iPhone. Apple sells too many, too fast.

A Daring Fireball reader put it this way:

People commonly think that scale is an unambiguously good thing in production, but the tremendous scale at which Apple operates shows this not to be the case. Annual iPhone production is so large that Apple is likely experiencing diseconomies of scale, a phenomenon one doesn’t often hear about. What significant, break-through technology can a company practically introduce to 300 million new devices in a year?

Diseconomies of scale is a real thing, btw. John Gruber has been arguing that Apple’s way around this is to produce a more expensive iPhone ($1000-1200) with exceptional components and features that the company simply can’t produce at a scale of 200 million/year. Rene Ritchie describes this iPhone++ strategy as “bringing tomorrow’s iPhone to market today”. Gruber compares it to the Honda Prelude, quoting from the Edmunds description of the car:

Honda established itself in America with the Civic and Accord — both good, solid but basic cars. But big profits in the automotive world don’t come from basic cars that sell for commodity prices. Those profits come from cars that get consumers so excited that they’ll pay a premium price just to have one. The Prelude was Honda’s first attempt at an exciting car.

The Prelude was Honda’s technological leading edge. Features that are now expected from Honda, like the double-wishbone suspension under the Accord, fuel injection, and VTEC electronic variable valve timing system showed up first on the Prelude before migrating across the Honda line (though VTEC first showed up on the 1990 Acura NSX).

Keen observations all around and it will be interesting to see if Apple can benefit from this strategy.

Made In Iowa, a Rust Belt comeback story

posted by Jason Kottke   Jul 03, 2017

Produced by Square, Made In Iowa tells the story of what happened after the Electrolux plant closed in the small town of Webster City, Iowa in 2011. The company had decided to move those jobs to Mexico and in the years after the closing, the unemployment rate in the town rose from about 3% to 10%. The video shows how the town rallied around the reopening of the movie theater and pursued an entrepreneurial strategy of revitalizing downtown through opening a number of small businesses. That approach brought the town’s unemployment rate back up to 3%.

But that’s not the entire story. The new jobs are mostly non-union and pay less than Electrolux jobs did. The town’s pivot was not entirely a bootstrap effort…the former workers had the government’s assistance and the advantage of their union’s negotiation of benefits. From a 2013 NPR story about the plant closure:

On March 31, 2011, Electrolux shut its washer-dryer plant in Webster City and sent the jobs to Juarez, Mexico. The employees were warned more than a year in advance of the closure, and many used the time to pay off debt and begin thinking about a new career.

Because their jobs had left the country, the laid-off workers qualified for federally funded retraining. A large number enrolled in two-year programs at community colleges and have been living off unemployment benefits as they learn new skills.

And those new businesses downtown are possible in part because people have access to healthcare through the ACA.

It seems relevant at this point to mention that in the 2016 election, the county in which Webster City is situated went for Trump 58.6% (to Clinton’s 35.8%). I mean, bootstrap all you want, but just don’t forget the massive governmental safety net that makes it possible for communities to recover when shit like this goes down and which party wants to dismantle it.

America runs on taxpayer-funded services *and* capitalism

posted by Jason Kottke   Jun 26, 2017

Yesterday, Grover Norquist shared a short parable about taxes on Twitter:

How Republicans are born…
Daughter, 8, has been savings up to buy her first Guitar.
Found it for $35. She had 35 exact.
Then…sales tax

Norquist has famously been on a quest to stop tax increases in the US…in 2015 he wrote a book called End the IRS Before It Ends Us.1 Many people took Norquist to task over his remarks:

Did you mention that you drove her to the guitar store on roads that were partly funded by sales taxes?

In a car which only has seat belts preventing you from being badly injured in the event of a crash due to taxpayer funded regulations?

or those same taxes that pay for emergency services that will respond if you do get in an accident?

These responses remind me of a pair of posts written several years ago about the contributions to society of both taxpayer-funded and corporate goods & services. From the liberal version:

After spending another day not being maimed or killed at work thanks to the workplace regulations imposed by the department of labor and the occupational safety and health administration, enjoying another two meals which again do not kill me because of the USDA, I drive my NHTSA car back home on the DOT roads, to my house which has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all its valuables thanks to the local police department.

And from the conservative viewpoint:

When my Motorola-manufactured Cable Set Top Box showed the appropriate time, I got into my Toyota-manufactured Prius vehicle and set out to my graphic design workplace and stopped to purchase some gasoline refined by the Royal Dutch Shell company, using my debit card issued to me by Bank of the West. On the way to my workplace, I dropped off a package at the local UPS store for delivery, and dropped my children off at a local private school.

  1. How was Norquist radicalized about taxes? In part because his dad was a dick: “After church, his father would buy him and his three younger siblings ice-cream cones and then steal bites, announcing with each chomp, ‘Oops, income tax. Oops, sales tax.’”

Fifty Inventions That Shaped the Modern Economy

posted by Jason Kottke   Jun 21, 2017

50 Things Economy

Tim Harford, aka The Undercover Economist, is coming out with a new book called Fifty Inventions That Shaped the Modern Economy.

New ideas and inventions have woven, tangled or sliced right through the invisible economic web that surrounds us every day. From the bar code to double-entry bookkeeping, covering ideas as solid as concrete or as intangible as the limited liability company, this book not only shows us how new ideas come about, it also shows us their unintended consequences — for example, the gramophone introducing radically unequal pay in the music industry, or how the fridge shaped the politics of developing countries across the globe.

It’s based on his BBC podcast 50 Things That Made the Modern Economy.

Fun fact that I just discovered: Harford and I share the same birthday, both date and year.

Why did Amazon buy Whole Foods? World domination.

posted by Jason Kottke   Jun 20, 2017

Amazon’s New Customer is a really great analysis by Ben Thompson of Amazon’s strategy and why Amazon bought Whole Foods: they purchased a new customer for Amazon infrastructure, not a retailer. Early on in the piece, Thompson lays this one on us:

Amazon’s goal is to take a cut of all economic activity.

No qualifiers. All economic activity. In the world. Sort of a Dutch East India Company for the internet age. Thompson explains how they’re going to do it and why fresh food is such a strategic hole for them.

As you might expect, given a goal as audacious as “taking a cut of all economic activity”, Amazon has several different strategies. The key to the enterprise is AWS: if it is better to build an Internet-enabled business on the public cloud, and if all businesses will soon be Internet-enabled businesses, it follows that AWS is well-placed to take a cut of all business activity.

On the consumer side the key is Prime. While Amazon has long pursued a dominant strategy in retail — superior cost and superior selection — it is difficult to build sustainable differentiation on these factors alone. After all, another retailer is only a click away.

This, though, is the brilliance of Prime: thanks to its reliability and convenience (two days shipping, sometimes faster!), plus human fallibility when it comes to considering sunk costs (you’ve already paid $99!), why even bother looking anywhere else? With Prime Amazon has created a powerful moat around consumer goods that does not depend on simply having the lowest price, because Prime customers don’t even bother to check.

This, though, is why groceries is a strategic hole: not only is it the largest retail category, it is the most persistent opportunity for other retailers to gain access to Prime members and remind them there are alternatives. That is why Amazon has been so determined in the space: AmazonFresh launched a decade ago, and unlike other Amazon experiments, has continued to receive funding along with other rumored initiatives like convenience store and grocery pick-ups. Amazon simply hasn’t been able to figure out the right tactics.

When I heard about the Whole Foods deal, the first thing I thought about was Amazon Go. The company has been trying to experiment with different retail environments, but without the proper scale, it doesn’t make a lot of sense. Whole Foods gives them a chance to develop their fresh food delivery infrastructure at scale…so that they can offer it to other customers just like they do with AWS.

P.S. Whenever I think about Amazon as a business, I recall this 2012 post by Eugene Wei on Amazon’s low-margin strategy. I suspect Thompson’s post will join it in my thoughts.

Information Age automation is coming for your job

posted by Jason Kottke   Jun 09, 2017

This new video by Kurzgesagt examines automation in the past (“big stupid machines doing repetitive work in factories”) and argues that automation in the information age is fundamentally different. In a nutshell,1 whereas past automation resulted in higher productivity and created new and better jobs for a growing population, automation in the future will happen at a much quicker pace, outpacing the creation of new types of jobs for humans.

Their two main sources for the video are Martin Ford’s Rise of the Robots and The Second Machine Age by Erik Brynjolfsson and Andrew McAfee.

  1. The German phrase “kurz gesagt” means roughly “in a nutshell”, so this is a pun. Laugh now!

Systemic racism in America explained in just three minutes

posted by Jason Kottke   Jun 07, 2017

This short video shows several ways in which systemic racism is still very much alive and well in the United States in 2017. See also Race Forward’s video series featuring Jay Smooth.

“What Is Systemic Racism?” is an 8-part video series that shows how racism shows up in our lives across institutions and society: Wealth Gap, Employment, Housing Discrimination, Government Surveillance, Incarceration, Drug Arrests, Immigration Arrests, Infant Mortality… yes, systemic racism is really a thing.

The reason why this matters should be obvious. Just like extra effort can harness the power of compound interest in knowledge and productivity, even tiny losses that occur frequently can add up to a large deficit. If you are constantly getting dinged in even small ways just for being black, those losses add up and compound over time. Being charged more for a car and other purchases means less life savings. Less choice in housing results in higher prices for property in less desirable neighborhoods, which can impact choice of schools for your kids, etc. Fewer callbacks for employment means you’re less likely to get hired. Even if you do get the job, if you’re late for work even once every few months because you get stopped by the police, you’re a little more likely to get fired or receive a poor evaluation from your boss. Add up all those little losses over 30-40 years, and you get exponential losses in income and social status.

And these losses often aren’t small at all, to say nothing of drug offenses and prison issues; those are massive life-changing setbacks. The war on drugs and racially selective enforcement have hollowed out black America’s social and economic core. There’s a huge tax on being black in America and unless that changes, the “American Dream” will remain unavailable to many of its citizens.

America is a developing nation for most of its citizens

posted by Jason Kottke   May 02, 2017

In his new book, The Vanishing Middle Class: Prejudice and Power in a Dual Economy, MIT economics professor Peter Temin says that the US “is coming to have an economic and political structure more like a developing nation” and that the US is really two countries at this point:

In one of these countries live members of what Temin calls the “FTE sector” (named for finance, technology, and electronics, the industries which largely support its growth). These are the 20 percent of Americans who enjoy college educations, have good jobs, and sleep soundly knowing that they have not only enough money to meet life’s challenges, but also social networks to bolster their success. They grow up with parents who read books to them, tutors to help with homework, and plenty of stimulating things to do and places to go. They travel in planes and drive new cars. The citizens of this country see economic growth all around them and exciting possibilities for the future. They make plans, influence policies, and count themselves as lucky to be Americans.

The FTE citizens rarely visit the country where the other 80 percent of Americans live: the low-wage sector. Here, the world of possibility is shrinking, often dramatically. People are burdened with debt and anxious about their insecure jobs if they have a job at all. Many of them are getting sicker and dying younger than they used to. They get around by crumbling public transport and cars they have trouble paying for. Family life is uncertain here; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt. They are not thinking about the future; they are focused on surviving the present. The world in which they reside is very different from the one they were taught to believe in. While members of the first country act, these people are acted upon.

This whole piece on the book by Lynn Parramore is worth a read. Another small tidbit:

In the Lewis model of a dual economy, much of the low-wage sector has little influence over public policy. Check. The high-income sector will keep wages down in the other sector to provide cheap labor for its businesses. Check. Social control is used to keep the low-wage sector from challenging the policies favored by the high-income sector. Check. Mass incarceration. Check. The primary goal of the richest members of the high-income sector is to lower taxes. Check. Social and economic mobility is low. Check.

The importance of social capital in public life

posted by Jason Kottke   Mar 24, 2017

In 1993, Robert Putnam, who later went on to write Bowling Alone (which inspired Meetup), wrote a piece for The American Prospect called The Prosperous Community: Social Capital and Public Life about social capital and its contribution to political and economic well-being of a society. Much has changed since then, but Putnam’s piece is solidly relevant to the political situation in America today.

How does social capital undergird good government and economic progress? First, networks of civic engagement foster sturdy norms of generalized reciprocity: I’ll do this for you now, in the expectation that down the road you or someone else will return the favor. “Social capital is akin to what Tom Wolfe called the ‘favor bank’ in his novel, The Bonfire of the Vanities,” notes economist Robert Frank. A society that relies on generalized reciprocity is more efficient than a distrustful society, for the same reason that money is more efficient than barter. Trust lubricates social life.

Networks of civic engagement also facilitate coordination and communication and amplify information about the trustworthiness of other individuals. Students of prisoners’ dilemmas and related games report that cooperation is most easily sustained through repeat play. When economic and political dealing is embedded in dense networks of social interaction, incentives for opportunism and malfeasance are reduced. This is why the diamond trade, with its extreme possibilities for fraud, is concentrated within close-knit ethnic enclaves. Dense social ties facilitate gossip and other valuable ways of cultivating reputation—an essential foundation for trust in a complex society.

This quote by 18th-century Scottish philosopher David Hume that leads off the piece succinctly sums up the challenges involved and the potential consequences in not addressing them properly:

Your corn is ripe today; mine will be so tomorrow. ‘Tis profitable for us both, that I should labour with you today, and that you should aid me tomorrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains upon your account; and should I labour with you upon my own account, in expectation of a return, I know I should be disappointed, and that I should in vain depend upon your gratitude. Here then I leave you to labour alone; You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security.

(via @timoreilly)

The economics of airline classes

posted by Jason Kottke   Mar 17, 2017

How much money does an airline make on a typical flight in the various classes of service? On some flights, revenue from first & business class seats can be up to 5 times that of economy seats. This video explores the economics of airline classes and looks at how we got to the present moment, where the people and companies buying business class and first class tickets are subsidizing those of us who fly economy.

The 8 richest men are now as wealthy as half the world’s population

posted by Jason Kottke   Jan 17, 2017

According to a report by Oxfam, the world’s 8 richest men are as wealthy as the poorest half of the world’s population. That’s 8 men with the same combined wealth of 3.6 billion people.

As decision makers and many of the super-rich gather for this week’s World Economic Forum (WEF) annual meeting in Davos, the charity’s report suggests the wealth gap is wider than ever, with new data for China and India indicating that the poorest half of the world owns less than previously estimated.

Oxfam, which described the gap as “obscene,” said if the new data had been available before, it would have shown that in 2016 nine people owned the same as the 3.6 billion who make up the poorest half of humanity, rather than 62 estimated at the time.

The gap between the super-rich and poor is widening: in 2010, it would have taken 43 of the richest people to equal the bottom 50%. The eight men in question are Bill Gates, Amancio Ortega, Warren Buffett, Carlos Slim, Jeff Bezos, Mark Zuckerberg, Larry Ellison, and Michael Bloomberg.

Five of the men on this list — Gates, Buffett, Ellison, Bloomberg, and Zuckerberg (all Americans) — have signed the Giving Pledge, a public promise to give away the majority of their fortunes while still alive (or upon their deaths). They are essentially agreeing with Oxfam that their wealth should be redistributed. When five men who control, say, as much wealth as 25-30% of the world’s poorest are saying, by their actions, that the wealth inequality gap needs to be narrowed, shouldn’t the government take that as a sign that something needs to be done about it?

Update: The way Oxfam is calculating wealth here takes debt into account:

If you look at the numbers that the statistic is based on, from Forbes and Credit Suisse, you’ll see that the equality here is that the eight richest people in the world have a combined net worth of roughly $426 billion, or 0.16% of all the world’s wealth.

Is it really true that the bottom 50% of the world’s population accounts for only 0.16% of the wealth on the planet? Well, not really. The bottom 50% comprises five different deciles. Of those deciles, the fourth has 0.17% of the world’s wealth, and the fifth has 0.32%. Those are both very small numbers — but they’re both bigger than 0.16%.

So something funny is going on here — and that something funny is debt. When Oxfam looks at net worth, it adds up your assets, and then subtracts your liabilities. And when your liabilities are bigger than your assets, that means you have negative net worth. According to Oxfam’s methodology, the bottom 10% of the world’s population has a net worth of one trillion negative dollars — an almost inconceivably large sum.

The inequality is there, and growing, but Oxfam’s formulation is misleading without the proper context. (thx, everyone)

My holiday shopping adventures and Amazon’s continued retail dominance

posted by Jason Kottke   Jan 12, 2017

French drone company Parrot recently announced significant layoffs and will shift focus away from their recreational drone business.

French company Parrot has had a rough year and missed its sales expectations. That’s why the company will lay off 290 employees who were working on drones. In total, Parrot currently has 840 employees on the drone team and more than a thousand employees in total.

While the company isn’t just selling drones, it represents a good chunk of the business. But it looks like other companies, such as DJI, are doing better in this market. Parrot expected to report $105.9 million in sales for 2016. It reported $90 million instead (€85 million vs. €100 million expected).

Even though the company is still selling quite a few drones, Parrot says that it doesn’t generate healthy margins. So here’s the new plan: focusing on commercial drones.

Well, this explains my holiday shopping difficulties with Parrot. Ollie asked for a drone for Christmas and after doing some research, I decided on the Parrot Swing. Amazon was out of stock, so I decided to buy directly from Parrot. They had stock and the site said they’d ship in plenty of time for Xmas. So I ordered one. The next day, I get a call from Parrot saying I need to “verify my order”. So, I call them back, give them some info about my order and where it’s being shipped and the very nice woman on the phone tells me that I’m all set and they’re shipping it out.

Two days go by, no shipping confirmation email in sight. I get another voicemail: you need to call us to verify your order. I call back, give them the same info and tell them, oh by the way I’ve already done this once. Profuse apologies were offered, that was a mistake, and the very nice woman on the phone tells me she’s going to tell the shipping people to send out my order “right away”. It will still arrive in time for Xmas. The next day I get an email from Parrot:

Hello! We have refunded your order No. XXXXX-XXXXX placed 12/15/2016. We are sorry that your order did not meet your expectations and hope that you will visit us again.

Obviously, I am done with them at this point but still need that drone. Amazon is still out of stock, but Walmart has them. I order one, it arrives two days later (with free shipping), and on Christmas morning, after some reflection, Ollie says it was the best present Santa has ever gotten him.

I did quite a bit of holiday shopping this year…went a bit nuts making up for some not-so-great efforts the past two years. The kids and I shopped for Toys for Tots (twice), I bought gifts for them from me and from Santa, I bought non-holiday stuff like clothes for myself,1 and I shopped virtually for the gift guide. I shopped every which way: small, locally, at big box stores, and online at 4-5 different retailers. My main takeaway from that experience? Amazon is miles and miles and miles ahead of everyone else. It is not even close.

Sure, Walmart had the drone in stock, but when I’d tried shopping with them earlier in the month, the product page threw a 404 error. I switched to Safari and was able to put the item into my cart, but then a form in the ordering flow wouldn’t work, so I had to get that item elsewhere. (When I did finally create an account while ordering the drone, Walmart thought my name was “Ashley”?!)

Target’s site was so slow that it was nearly unusable (like 30-40 seconds for a product page to start loading). But I persevered because they had an item I really wanted that no one else had in stock. I got an email two days before Xmas saying they were out of stock and couldn’t ship until Jan 4 at the earliest, but that if I still wanted the item, I would have to log in to my account to verify the new shipping date. I didn’t want the item later, so I did nothing. Guess what arrived on my doorstep last week?

My troubles with Parrot I shared above. The local toy stores are expensive (Lego sets are $5-10 more than if you buy online) and ran out of popular items 2-3 weeks before Xmas. Very few online stores outside Amazon, Walmart, etc. had clear holiday shipping policies, so relying on them more than a week or two out was risky. Zappos was great (Amazon owns them) and Patagonia was pretty good, although their shipping estimates aren’t that great and returns aren’t free.

And Amazon? The site is always fast, I have never seen a 404’d product page, the URLs for their products haven’t changed in almost 20 years,1 each product page was clearly marked with holiday shipping information, they showed the number of items in stock if they were running low, shipping was free (b/c I’m a Prime member), returns are often free, and the items arrived on time as promised. More than 20 years after the invention of online retailing, how is it that Amazon seems to be the only one that’s figured all this out? How come massive companies like Walmart and Target, whose very businesses are under immense pressure from Amazon, can’t get this stuff right despite having spent hundreds of millions on it? I’m not a financial analyst, but unless something changes drastically, Amazon is just going to continue to eat more and more of the US retail pie and at this point, with all these advantages they’ve accrued and their razor-sharp focus on low pricing, it’s difficult to see how anyone is going to compete.1

  1. After freezing my ass off wearing improper clothing the last few years (because, to be clear, I am an idiot), I made myself a promise this year that I was not going to be cold this winter. So in November and December, I spent a bunch of energy outfitting myself with the proper gear: sweaters, thermal layers, coats, mittens, boots, etc. I am both warm and happy now.

  2. I linked to the Office Space DVD on kottke.org in 1999 and the link still works. What’s the percentage of URLs from 1999 that still work? 5%? 2%? 0.1%?

  3. Just for fun, let’s take a quick stab. Stripe and Shopify are arguably better than Amazon in some ways and when the one-click patent expires this year, those payment flows will get even easier. And anyone can use them to sell anything. So the problem becomes stocking and shipping. Who’s going to build/provide the third-party fulfillment infrastructure so that shipping and returns are cheap and reliable…like Amazon’s fulfillment warehouses but for anyone to use? UPS? FedEx? The USPS? (Hahaha.) Uber? Can that company offer a Prime-like or Costco-like shipping membership? What is the rationale for everyone involved (the retailers, the payment company, the online store service, the fulfillment company) to keep prices as relentlessly low as Amazon does? There are a lot of different reasons why a collection of interchangeable third-party services could succeed against a fully integrated solution, but price does not seem like one of them…there’s just too much margin lost because of the friction between services.

    (And we haven’t even talked about AWS here. It’s profitable by itself but is also turning out to be a massive competitive advantage. The likes of Walmart and Target can’t use it even if it would be better than their home-grown infrastructure because that’s like the Trojans paying the Greeks to invade. AWS also potentially insulates Amazon against competitors like Shopify and Stripe. Imagine if Amazon got serious about integrating AWS with their payment and fulfillment systems…a low-cost, bulletproof, integrated system that almost anyone could use to sell almost anything would put an enormous amount of pressure on every other retail experience, particularly if they continue to ramp up their real-world retail offerings.)

Bill Gates starts new $1 billion clean energy fund

posted by Jason Kottke   Dec 13, 2016

Bill Gates and a number of other investors are starting a billion venture fund focused on “cheap, clean, reliable energy”.

Bill Gates is leading a more than $1 billion fund focused on fighting climate change by investing in clean energy innovation.

The Microsoft co-founder and his all-star line-up of fellow investors plan to announce tomorrow the Breakthrough Energy Ventures fund, which will begin making investments next year. The BEV fund, which has a 20-year duration, aims to invest in the commercialization of new technologies that reduce greenhouse-gas emissions in areas including electricity generation and storage, transportation, industrial processes, agriculture, and energy-system efficiency.

The company’s tagline is “Investing in a Carbonless Future” and their investment criteria are:

  1. CLIMATE IMPACT. We will invest in technologies that have the potential to reduce greenhouse gas emissions by at least half a gigaton.
  2. OTHER INVESTMENTS. We will invest in companies with real potential to attract capital from sources outside of BEV and the broader Breakthrough Energy Coalition.
  3. SCIENTIFIC POSSIBILITY. We will invest in technologies with an existing scientific proof of concept that can be meaningfully advanced.
  4. FILLING THE GAPS. We will invest in companies that need the unique attributes of BEV capital, including patience, judgment by scientific milestones, flexible investment capabilities, and a significant global network.

Jeff Bezos, Mike Bloomberg, Richard Branson, Reid Hoffman, and Jack Ma are also participating in the fund.

In related-yet-unrelated news, a recent report says investment funds controlling more than $5 trillion in assets have dropped some or even all of their fossil fuel stocks.

The report, released Monday, said the new total was twice the amount measured 15 months ago — a remarkable rise for a movement that began on American college campuses in 2011. Since then, divestment has expanded to the business world and institutional world, and includes large pension funds, insurers, financial institutions and religious organizations. It has also spread around the world, with 688 institutions and nearly 60,000 individuals in 76 countries divesting themselves of shares in at least some kinds of oil, gas and coal companies, according to the report.

“It’s a stunning number,” said Ellen Dorsey, the executive director of the Wallace Global Fund, which has promoted fossil fuel divestment and clean energy investment as part of its philanthropy.

Like it or not, economics has to be a significant driver for combatting climate change. Driving public opinion against fossil fuel companies, falling prices for solar and battery energy, and clean energy investment funds: it all helps support the decisions made by the world’s forward-thinking leaders. And maybe, just maybe, if you can get the world’s leaders, the public, and the economy all pointed in the right direction, we’ve got a chance.

Urged to eat less meat, Americans are actually eating more

posted by Jason Kottke   Nov 17, 2016

For most of the past decade, consumption of meat in the United States remained flat or declined.

For environmental, health, and animal welfare advocates, this was great news. Surely it meant that efforts to raise awareness about the disturbing impacts of meat production were inspiring people to cut back on hamburgers and bacon. As Paul Shapiro, vice president of Farm Animal Protection for the Humane Society of the United States, wrote in 2012, “The pressure is being felt all over, and for the first time in decades, our overconsumption of meat is beginning to get reined in.”

But according to research by a Dutch bank, US meat consumption jumped in 2015.

Not only was last year noteworthy for the near 5% increase in per capita consumption, but also due to the fact that the growth was achieved without the help of beef, consumption of which was flat. We expect US protein production growth of 2.5% per annum through 2018 — down from 3% in 2015 — with beef being the largest contributor relative to pork and poultry.

What drove the decline in the first place? Price. It always comes back to supply and demand.

Ranchers and farmers trimmed their herds because of the recession, historically high feed costs, and drought in the Great Plains. Meanwhile, domestic disease outbreaks like porcine epidemic diarrhea virus, or PEDv, meant that tens of thousands of hogs never made it to market. So Americans cut back on meat.

But by 2015, many of these issues driving higher prices were resolved. The retail price of beef has dropped by 22 percent, pork by 7 percent, and chicken by 5 percent. So Americans are eating more meat again.

“Consumers are responding to falling prices. That’s a big part of the story,” says Sawyer. The chicken industry, in particular, has also gotten more efficient and more capable of raising chickens fast.

I was at the grocery store last night and was shocked by the prices in the meat aisle. Lots of cuts on sale for just a few dollars a pound. (via the latest and particularly excellent issue of Susan MacMillan’s newsletter)

Obama’s letter to his successor about the economy

posted by Jason Kottke   Oct 07, 2016

In the latest issue of The Economist, President Obama wrote a letter about the “four crucial areas of unfinished business in economic policy” that his successor will have to deal with.

Wherever I go these days, at home or abroad, people ask me the same question: what is happening in the American political system? How has a country that has benefited-perhaps more than any other-from immigration, trade and technological innovation suddenly developed a strain of anti-immigrant, anti-innovation protectionism? Why have some on the far left and even more on the far right embraced a crude populism that promises a return to a past that is not possible to restore — and that, for most Americans, never existed at all?

It’s true that a certain anxiety over the forces of globalisation, immigration, technology, even change itself, has taken hold in America. It’s not new, nor is it dissimilar to a discontent spreading throughout the world, often manifested in scepticism towards international institutions, trade agreements and immigration. It can be seen in Britain’s recent vote to leave the European Union and the rise of populist parties around the world.

Much of this discontent is driven by fears that are not fundamentally economic. The anti-immigrant, anti-Mexican, anti-Muslim and anti-refugee sentiment expressed by some Americans today echoes nativist lurches of the past — the Alien and Sedition Acts of 1798, the Know-Nothings of the mid-1800s, the anti-Asian sentiment in the late 19th and early 20th centuries, and any number of eras in which Americans were told they could restore past glory if they just got some group or idea that was threatening America under control. We overcame those fears and we will again.

Look at Obama, busting out the Know-Nothings like it ain’t nothing.

Optimizing the dining experience for couples

posted by Jason Kottke   Oct 03, 2016

This is entertaining: Megan McArdle considers four possible economic approaches to how couples should order food in restaurants.

3. Individual property rights, with option trading. Now we’re moving toward a more centrally planned economy. The menu is individually consulted, and then the two parties state their preferences. If these preferences are strong, then matters proceed much as in the above strategy. However, if indecision is expressed, the trading is opened: “If you get the clam chowder, I’ll get the mushroom crostini, and we can split.” Option trading is usually, but not always, confined to the appetizer course. Any offer can be refused, and a substitute offered — “What if I got the clam chowder, and you got the ham timbales?” — or both parties may reluctantly conclude that no trade is possible, and revert to their original choices.

Well done, Team Restaurant! You are now beginning to realize the magnificent benefits of trade. Coordination and cooperation have permitted you to agree on choices that jointly improve utility.

However, I must tell you that you are still probably not at the highest valued use of your food dollar. You are almost certainly investing most of your effort in appetizers or shared desserts, which are the minority of your spending, time and consumption. If you want not merely to improve your utility, but to maximize it, then you are going to have to invest more effort in coordination.

Her conclusion is spot on; it’s the best way to dine out.

On the shifting role of racism in American slavery

posted by Jason Kottke   Sep 20, 2016

In a recent episode of his EconTalk podcast, host Russ Roberts talks with Michael Munger about a paper Munger co-authored about how white Southern attitudes toward slavery shifted from around 1815 to 1835. The episode is interesting throughout,1 but I want to highlight this attitude shift Munger writes about in the paper, something I was previously unaware of.

Sifting through documents from the era between the American Revolution and the Civil War, Munger and his co-author Jeffrey Grynaviski found that Southern whites believed, in the first decade or two of the 19th century, that owning slaves was evil but necessary. There was this system in place and it was bad but we’re gonna go with it because, whaddya gonna do? But in a period of about 20 years, due to a variety of factors, mostly economic, the justification for slavery shifted primarily to a racist one: that black people were inferior and needed to be cared for by whites. Southern whites came to believe, like really believe, that they were doing their slaves a favor by enslaving them and that the slaves were better off than they would be in Africa.

The way we defined it in this paper was that racism became a substitute justification for slavery. And the reason was, the original justification for slavery, which was the Roman one of wasn’t good enough. And so Southerners cast about and found basically an alternative, which was the Greek justification for slavery. And let me just say very briefly what those two are. The one justification for slavery, and it was pretty common in Rome, was that if you lost a battle and were captured, then you might either be killed or kept as a slave. And there is a mutually beneficial exchange, if you will, in the sense that you’ve already lost. So, me saying, ‘I tell you what: I won’t kill you if you will agree to act as my slave for the rest of your life. And I may free you; I may not; but that’s up to me.’ And you say, ‘Killed/be a slave: I’m going to go with the slave thing.’ But, it meant that some slaves were very excellent. And in Roman society some slaves occupied very high positions, positions of respect. It’s just that they made this promise. It was an economic institution. And that was the way that slavery had existed in Africa: if you lost a battle, then you would be captured by the other side. It was almost like indentured servitude: you could work it off.

Well, that didn’t work in the American South because they wanted to maintain slaves, to be able to identify slaves and to have a justification that would allow them to enslave the children — which the old Roman justification would never have allowed. You are not going to be a slave if you are born to a slave, because you didn’t lose in battle: you would have been free.

So, the Southerners needed a different way, so they were looking for the Aristotelian notion of slavery, which is that slaves are people who are either morally inferior or lack the judgment to make independent choices. They are like children or like horses. That means that you actually have a positive-good justification for enslaving them: if I have a thoroughbred horse or a fancy dog, it would be cruel of me to set it loose to let it run around, because it’s not capable of taking care of itself. I have obligations to take care of it. My ownership actually gives me obligations. And what’s interesting and what this paper is about is how Southerners worked that out between about 1815 and 1835, and started to understand the implications for how they had to change the economic institutions of slavery to match this new ideology that they were creating.

Yet another example of how powerful economic self-interest is in shifting moral beliefs.

  1. Although it was uncomfortable at times listening to two privileged pro-market white guys talking about slavery, particularly in the moments where they discuss matters from the slaves’ perspectives. But in fairness, they do a good job in admitting their privilege and the awareness that their economic beliefs may not square with things like human rights and justice forms the basis of a fascinating conversation.

Tracking Homer Simpson’s jobs and salary

posted by Jason Kottke   Sep 19, 2016

Vox recently took a look at every single job that Homer has ever had on The Simpsons in an attempt to see where his average salary falls on the economic spectrum in America.

Over the show’s 596-episode run, Homer has had at least 191 jobs. They’ve ranged from executive positions to service jobs, and have dotted the entire economic spectrum, from ultra-rich to the poverty line.

In the list below, we’ve compiled the real-life salaries for 100 of these jobs. Seasonal jobs (like “mall Santa”), and jobs that were virtually impossible to find salary data for (“beer smuggler”) were excluded, as were any repeats (he was an Army private twice, for instance). His full-time gig as a safety inspector is highlighted in yellow, for reference.

He gets a lot of flack, but Homer is actually the most interesting person in America by a wide margin, even though he’s not well compensated for it.

See also Homer Economicus: The Simpsons and Economics.

Intermediaries and the financial crisis of 2008

posted by Jason Kottke   Aug 11, 2016

In the most recent video from Marginal Revolution University, Tyler Cowen explains how the role of financial intermediaries contributed to the financial crisis of 2008. He highlights homeowners and banks taking on too much leverage, poorly planned incentive systems, securitization of mortgages, and banks making loans that are over-reliant on investor confidence.

By 2008, the economy was in a very fragile state, with both homeowners and banks taking on greater leverage, many ending up “underwater.” Why did managers at financial institutions take on greater and greater risk? We’ll discuss a couple of key reasons, including the role of excess confidence and incentives.

In addition to homeowners’ leverage and bank leverage, a third factor played a major role in tipping the scale toward crisis: securitization. Mortgage securities during this time were very hard to value, riskier than advertised, and filled to the brim with high risk loans. Cowen discusses several reasons this happened, including downright fraud, failure of credit rating agencies, and overconfidence in the American housing market.

Finally, a fourth factor joins homeowners’ leverage, bank leverage, and securitization to inch the economy closer to the edge: the shadow banking system. On the whole, the shadow banking system is made up of investment banks and various other complex financial intermediaries, highly dependent on short term loans.

When housing prices started to fall in 2007, it was the final nudge that pushed the economy over the cliff. There was a run on the shadow banking system. Financial intermediaries came crashing down. We faced a credit crunch, and many businesses stopped growing. Layoffs ensued, increasing unemployment.

The Complacent Class

posted by Jason Kottke   Jul 25, 2016

Complacent Class

The Complacent Class is a forthcoming book by Tyler Cowen.

Since Alexis de Tocqueville, restlessness has been accepted as a signature American trait. Our willingness to move, take risks, and adapt to change have produced a dynamic economy and a tradition of innovation from Ben Franklin to Steve Jobs.

The problem, according to legendary blogger, economist and bestselling author Tyler Cowen, is that Americans today have broken from this tradition — we’re working harder than ever to avoid change. We’re moving residences less, marrying people more like ourselves and choosing our music and our mates based on algorithms that wall us off from anything that might be too new or too different. Match.com matches us in love. Spotify and Pandora match us in music. Facebook matches us to just about everything else.

Of course, this “matching culture” brings tremendous positives: music we like, partners who make us happy, neighbors who want the same things. We’re more comfortable. But, according to Cowen, there are significant collateral downsides attending this comfort, among them heightened inequality and segregation and decreased incentives to innovate and create.

Cowen is also releasing another book called Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals.

In that work, I outline a true and objectively valid case for a free and prosperous society, and consider the importance of economic growth for political philosophy, how and why the political spectrum should be reconfigured, how we should think about existential risk, what is right and wrong in Parfit and Nozick and Singer and effective altruism, how to get around the Arrow Impossibility Theorem, to what extent individual rights can be absolute, how much to discount the future, when redistribution is justified, whether we must be agnostic about the distant future, and most of all why we need to “think big.”

It is only available by emailing him that you’ve pre-ordered The Complacent Class. Oh, and a reminder about how I (try to) read books.

The behavioral psychology behind freemium mobile games

posted by Jason Kottke   Jul 22, 2016

In a short video, Joss Fong and Dion Lee of Vox explore how free mobile games are engineered to make money using behavioral psychology.

By collecting troves of data on how users play their games, developers have mastered the science of applied addiction. And with the rise of “freemium” games that rely on micro-transactions, they have good reason to deploy the tools of behavioral psychology to inspire purchases.

Back in 2013, Ramin Shokrizade explained The Top F2P Monetization Tricks:

To maximize the efficacy of a coercive monetization model, you must use a premium currency, ideally with the ability to purchase said currency in-app. Making the consumer exit the game to make a purchase gives the target’s brain more time to figure out what you are up to, lowering your chances of a sale. If you can set up your game to allow “one button conversion”, such as in many iOS games, then obviously this is ideal. The same effect is seen in real world retail stores where people buying goods with cash tend to spend less than those buying with credit cards, due to the layering effect.

Purchasing in-app premium currency also allows the use of discounting, such that premium currency can be sold for less per unit if it is purchased in bulk. Thus a user that is capable of doing basic math (handled in a different part of the brain that develops earlier) can feel the urge to “save money” by buying more. The younger the consumer, the more effective this technique is, assuming they are able to do the math. Thus you want to make the numbers on the purchase options very simple, and you can also put banners on bigger purchases telling the user how much more they will “save” on big purchases to assist very young or otherwise math-impaired customers.

Having the user see their amount of premium currency in the interface is also much less anxiety generating, compared to seeing a real money balance. If real money was used (no successful game developer does this) then the consumer would see their money going down as they play and become apprehensive. This gives the consumer more opportunities to think and will reduce revenues.

Mike Rose also discussed the psychological aspect of freemium games in Chasing the Whale: Examining the ethics of free-to-play games:

On the topic of in-app purchases, Griffiths says, “The introduction of in-game virtual goods and accessories (that people pay real money for) was a psychological masterstroke.”

“It becomes more akin to gambling, as social gamers know that they are spending money as they play with little or no financial return,” he continues. “The one question I am constantly asked is why people pay real money for virtual items in games like FarmVille. As someone who has studied slot machine players for over 25 years, the similarities are striking.”

Griffiths argues that the real difference between pure gambling games and some free-to-play games is the fact that gambling games allow you to win your money back, adding an extra dimension that can potentially drive revenues even further.

Update: In 2009, Chris Anderson wrote a book called Free: The Future of a Radical Price in which he argued that freemium was going to be an important business model.

The online economy offers challenges to traditional businesses as well as incredible opportunities. Chris Anderson makes the compelling case that in many instances businesses can succeed best by giving away more than they charge for. Known as “Freemium,” this combination of free and paid is emerging as one of the most powerful digital business models. In Free, Chris Anderson explores this radical idea for the new global economy and demonstrates how it can be harnessed for the benefit of consumers and businesses alike. In the twenty-first century, Free is more than just a promotional gimmick: It’s a business strategy that is essential to a company’s successful future.

Michael Lewis on irrationality in human decision-making

posted by Jason Kottke   Jun 06, 2016

Michael Lewis Undoing

Michael Lewis (c’mon, you know, Moneyball, The Big Short) is coming out with a new book in December called The Undoing Project: A Friendship that Changed Our Minds about the flaws that crop up in human decision-making.

Forty years ago, Israeli psychologists Daniel Kahneman and Amos Tversky wrote a series of breathtakingly original studies undoing our assumptions about the decision-making process. Their papers showed the ways in which the human mind erred, systematically, when forced to make judgments about uncertain situations. Their work created the field of behavioral economics, revolutionized Big Data studies, advanced evidence-based medicine, led to a new approach to government regulation, and made much of Michael Lewis’s own work possible. Kahneman and Tversky are more responsible than anybody for the powerful trend to mistrust human intuition and defer to algorithms.

Kahneman won the Nobel Prize in economics in 2002 and is the author of the well-regarded Thinking, Fast and Slow. (via nytimes)

Rival Chinese construction firms battle with bulldozers

posted by Jason Kottke   Apr 19, 2016

Worries over the slowing Chinese economy spilled out into the streets of Hebei province last weekend as two construction firms battled with bulldozers while competing for the same business. That is some end-times shit right there.

The link between health and wealth

posted by Jason Kottke   Apr 12, 2016

If you’re poor, you might want to consider moving to a place where your life expectancy will be reasonably high. In many parts of America, there is only a minor gap between the life expectancies of the wealthy and the poor.

But in some other parts of the country, adults with the lowest incomes die on average as young as people in much poorer nations like Rwanda, and their life spans are getting shorter.

If you’re rich, you’re probably OK right where you are (regardless of where that happens to be). Here are some remarkable numbers from the NYT Upshot: The rich live longer everywhere. For the poor, geography matters.

How to win at Monopoly and piss off your friends

posted by Jason Kottke   Feb 08, 2016

Monopoly Win

If you’re forced into playing Monopoly by friends, you can employ this simple strategy to ensure they will never ever ask you to play again.

With a second monopoly completed, your next task is to improve those properties to three houses each, then all of your properties to four houses each. Six properties with three houses will give you more than half of the houses in the game, and four houses each will give you 75% of the total supply. This will make it nearly impossible for your opponents to improve their own property in a meaningful way. Keep the rulebook nearby once the supply gets low, as you will undoubtedly be questioned on it. At this point, you will be asked repeatedly to build some friggin’ hotels already so that other people can build houses. Don’t.

At this point, you more or less have the game sewn up. If losing a normal game of monopoly is frustrating, losing to this strategy is excruciating, as a losing opponent essentially has no path to victory, even with lucky rolls. Your goal is to play conservatively, lock up more resources, and let the other players lose by attrition. If you want to see these people again, I recommend not gloating, but simply state that you’re playing to win, and that it wasn’t your idea to play Monopoly in the first place.

It is difficult to read this without thinking about income inequality in the real world.