Corin Faife wrote a long story about Cent… For Social Network Cent, Cash Rewards Come at a Price. My reply…
It’s great that you cited the day-care experiment!
All of which prompted us to wonder: what would happen if these day care centers stopped relying on generosity and started relying on a financial incentive — like a fine — to discourage parents from showing up late? Few would have predicted what we found: introducing a financial penalty for showing up late actually caused parents to do just that. Parents stopped showing up on time entirely. — John List and Uri Gneezy, What Makes People Do What They Do?
Before the fine was introduced, the parents guessed that being late was quite harmful. When a small fine was introduced the parents learned that they had been greatly overestimating the harm of being late.
We all instinctively guess how much our behavior helps or hurts others. The question is whether it’s beneficial to actually know how our behavior truly affects others.
In the experiment people were asked to help change a tire. One group wasn’t offered any rewards, a second group was offered a non-cash reward (a candy), and a third group was offered the cash value of the candy… 50 cents. In the first group, 65% of the people agreed to help. Around the same percent agreed to help in the second group. But in the third group, only 48% of people agreed to help.
What happened? If people were willing to help for free, why would an offer of 50 cents make them less inclined to help?
Again, it has to do with guesses. If I ask you to help change my tire, you naturally guess how much benefit I will derive from your time and labor. Let’s say that your guess is in the ballpark of $10 dollars. When I offer you 50 cents, you learn that my valuation of your time/labor is a lot lower than yours is.
Think about the simple fact that our stomachs grumble when they are empty…
Years afterward, when I’d be sitting on a log, observing somebody else, Benjamin was always the most likely baboon in the troop to come over and sit down, not quite next to me, maybe four or five feet away. Being close enough to hear a baboon’s stomach rumbling is an amazing experience, but he was the only one that would do that consistently. — Robert Sapolsky, A Bozo Of A Baboon
Stomachs honestly signal when they are empty. How convenient?
Consider a couple of cavemen…
Bob: Hey man, I’m so hungry. Can I have some food?
Frank: No, I told you to conserve your food.
Bob: But I’m dying of hunger!
Frank: Oh really? Are you truly that hungry?
Bob: Yeah, I’m supersuper hungry!!!!
Frank: So why don’t I hear your stomach growling?
Bob: I just drank a lot of water.
Frank: Hmmm… that’s a plausible story. Here’s a deal. I’ll give you some food if you give me your bear claw necklace.
Bob: No way!!!
Frank: I guess you’re not that hungry.
It’s advantageous for Bob to use deception in order to freely gain a precious resource. In order for Frank to avoid misallocating a precious resource, it’s advantageous for him to effectively gauge/test/measure Bob’s actual level of interest, which is the point of trade.
How much time and effort did it take to write your story about Cent? How much blood, sweat and tears went into your product? The size of your sacrifice influences your valuation of your story.
After you finished your story you were perfectly free to guess that it was very valuable to others, but then you shared it on Cent, where you learned that its actual value to others is $3 dollars.
"If I had asked people what they wanted, they would have said faster horses.” - Henry Ford
Scrolled down and saw this reply, which linked to this article…
In 1921, the Ford Motor Company sold about 2/3 of all the cars built in the U.S. By 1926, this share had fallen to approximately 1/3. And in 1927, when Ford belatedly responded (at tremendous financial cost and internal strife) to changes in the market’s tastes and competitive innovation by shutting down production temporarily to re-tool his factories and bring the Model A to the market, that percentage fell to about 15%.
It was clear what people wanted, and it wasn’t faster horses. It was better cars, with better financing options. I attribute Ford’s failure to respond in a timely and effective manner to competitive innovation in the marketplace to an attitude summed up in a quote he never uttered. — Patrick Vlaskovits, Henry Ford, Innovation, and That “Faster Horse” Quote
The real lesson learned was not that that Ford’s failure was one of not listening to his customers, but of his refusal to continuously test his vision against reality, which led to the Ford Motor Company’s failure of continuous innovation, resulting in a catastrophic loss of market share from which it never recovered. — Patrick Vlaskovits, Henry Ford, Innovation, and That “Faster Horse” Quote
The market is the best way to test our guesses against reality.
Entrepreneurship is the optimal medium for empirically demonstrating the value of an idea. If you really want to know what an idea is worth, if you really want to know how useful it is, take that idea and engage reality with it. Attempt to create value for others, attempt to solve problems within the context of an accountability structure rooted in profit and loss… When you ask people for money in exchange for something you do, you’re going to get more honest feedback than ever before. — T.K. Coleman
I got that good quote from Austin Pace.
What’s important to appreciate is that people can benefit from your story even if they don’t pay for it. Technically speaking, your story is a public good.
Personally I spent…uh… 40 cents (?) on your story.
Some problems. My payment…
- isn’t shown in my followers’ feeds - doesn’t elevate your story in the #cent channel - isn’t displayed on my profile page
As a result of these problems, your story isn’t as visible as it could, and should, be. If Cent solved these problems, then I’d have more incentive to spend money on your story.
Honest Cash doesn’t have the first two problems. The biggest problem with both sites is that we can’t spend money on our own content. Your valuation of your story is just as important as my valuation of it.
Figuring out the social value of things is just as necessary for public goods as it is for private goods. The market is the best way to educate each other about the value of things.
The video game World of Warcraft (WOW) is in a market, but the company that produces this game, Blizzard, is not a market. As a result?
I played World of Warcraft during 2007–2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services could bring. I soon decided to quit. — Vitalik Buterin
The tweet has been hearted by 801 people. If this feedback accurately reveals the tweet’s social value, then markets would be a big waste of everybody’s time and mental energy. But the fact is that value is a function of sacrifice.
How much would Buterin have been willing to sacrifice to protect his beloved warlock? Obviously Blizzard incorrectly guessed the answer. Losing a customer is a reality check, but neither Blizzard or Buterin truly benefited from his exit. It would have been far better for both if he had been given the freedom to use his money to try and protect his warlock.
Eh, while I’m at it, I’ll go ahead and share some of my own WOW preferences. David Friedman, who plays, or played, WOW, blogged about Economists and Virtual Worlds in 2012. My reply…
Enchants in the pants!
The other day my gf and I were discussing whether people should be able to buy WoW gold with real money (For those who haven’t played before…selling WoW gold for real money is strictly prohibited…but it happens anyways.)
Her initial reaction was that it wouldn’t be fair. Then I asked her if it was fair that some people had more time to collect herbs, fish, mine, etc in order to earn gold (there are plenty of “legal” ways to earn gold on WoW but those are just a few examples).
Our discussion kinda reminded me about this discussion I recently had with a Ron Paul supporter who wants to get rid of our fake money system…
Xero: This is probably my all time favorite quote from you…”The invisible hand ONLY works with real money.” Is the invisible hand working right now?
Travlyr: Not correctly. The invisible hand only works correctly with real money. That’s the whole point. Since we are using monopoly money, then all markets are distorted. Your entire theory is based on allocation of fiat money that can be created out of nothing which has zero to do with production of goods or services.
Xero: If your money isn’t real…then can I have all of it?
Travlyr: Actually most of my money is real. You can’t have my real money, but you are welcome to all my fake money. However, I’m not going to deliver it to you.
Xero: Can you send it to me via paypal?
Travlyr: Indeed I can. Shipping and handling must, however, be paid in real money. I don’t have very much fake money at the moment but I can get more. How much do you want?
Xero: Shipping and handling? It doesn’t cost anything to send money via paypal.
Travlyr: True enough. Shipping is virtually free through PayPal. However, handling charges will be paid, up front, in real money or else you don’t get my fake money. How much fake money do you want and I will calculate the handling charges.
Xero: Hmmm…how much would it cost me for you to send me $1000 via paypal?
Here’s the context of the discussion… Xero and Douglas: The Invisible Hand.
Henry David Thoreau put it best when he said, “The price of anything is the amount of life you exchange for it.” Which ties into Bastiat’s bottom line, “treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” We all want more for less…which is why allowing taxpayers to choose which public goods are worth their taxes (= time, blood, sweat, labor, effort, tears, life) most certainly would solve the fundamental problems of government.
Would WoW be…
A. less fun
B. equally fun
C. more fun
…if WoW gold was replaced with real money?
“You’re going to give me 100 gold to teleport you to Dalaran? Sweet!!!”
“You’re going to give me $1 to teleport you to Dalaran? Eh…ok”
Here’s my reply to David Friedman’s blog entry… Humans are Better Than Computers at …
Power Child, regarding WoW, personally, I think arenas are the funnest thing to do. Basically it’s where you pick a team (up to 4 other people) and have a battle against a team on the other side. You win by killing all your opponents.
It’s an adrenalin packed free for all in a relatively small space.
Two on two arenas are my favorite. It’s fun to find random people to do them with because if you’re lucky, you might find somebody who really complements your skill set and style. Then you add them to your friends list and do arenas together if you two happen to be online at the same time. If they aren’t online, then you just ask random people.
It’s usually really easy and quick to find random people to do arenas with. Oh yeah, and winning arenas earns you points which you can use to purchase better gear.
David Friedman, Vitalik Buterin and I don’t exist to serve Blizzard, it exists to serve us, and its ability to do so is a function of our preferences, which can only be accurately revealed by the sacrifices that we are willing to make.
I included Friedman and Buterin in my list of people who should really join Cent. While I’d certainly be happy if they did join Cent, I’d actually be happier if they joined Honest Cash (HC). From my perspective HC would do a better job of illuminating their preferences. And it would do an even better job if it gave us the opportunity to spend our money on our own content.
If our preferences matter between organizations, then they must also matter within organizations.
- our preferences matter - they are best revealed by spending
I’m kinda tripping out about how Friedman, Buterin and I all played WOW. If Blizzard had been a market, then it would have effectively used our brains and knowledge to improve WOW. Unfortunately for all of us, Blizzard was not, and is not, a market. Here I am trying to persuade Friedman, Buterin, you and everyone else, that markets are just as necessary for governance as they are for goods.
Here’s an excellent article…
Tan Lixia, Haier’s chief financial officer, sums up the company’s mindset toward open innovation this way: “The border of the company is not important. If you can help create value for users, it shouldn’t matter whether you’re an employee or not.” — Gary Hamel and Michele Zanini, The End of Bureaucracy
And another excellent article…
Amazon has replaced useless, time-intensive bureaucracy like internal surveys and audits with a feedback loop that generates cash when it works — and quickly identifies problems when it doesn’t. They say that money earned is a reasonable approximation of the value you’re creating for the world, and Amazon has figured out a way to measure its own value in dozens of previously invisible areas. — Zack Kanter, Why Amazon is eating the world
In evolution it seems obvious that the development of eyes is inevitable. In economics it seems obvious that the marketization of governance is equally inevitable. Except, it sure doesn’t seem obvious enough to people like Friedman and Buterin, which means that it is super unobvious to the average person.
I’m hopeful that Cent and HC will help make the market’s incredible usefulness more and more obvious.
Let me know if you have any questions/objections.