Wednesday, May 20, 2015

The Connection Between Spending And Abundance

Omnilibrium article: Stars vs Spending


This forum should replace the star rating system with a monetary rating system. If you like a post... rather than giving it more stars... you'd spend more money on it.

I've shared this idea in other forums and so far the response has been... underwhelming. Unfortunately, most people who are nonplussed with the idea don't bother to explain their hesitation.

Here's what I recently posted in the Ron Paul Forums... Micropay, Vote Or Dance For Quality Content. You'd figure that if anybody is going to love the idea... it would be a bunch of capitalists. But if you look at the poll then you'd see that this is not the case. So far only one other member voted for micropayments.

People just don't see the connection between spending and abundance.

I like orchids. I spend money on orchids. Orchids are a lot more abundant than they used to be. Am I responsible for their abundance? Hah. The amount of money that I spend on orchids isn't even a drop in a bucket... or a drop in a pool... maybe it's a drop in a very large lake.

Do I benefit because I can spend money on orchids? Hardly. I benefit because other people can spend money on orchids.

Dahlen wrote this article... Bureaucracy in Public and Private Institutions. Beneath the article it says, "Would you like to read similar articles in the future?" Yes, I would like there to be an abundance of similar articles in the future... so I clicked "+2". Voila!?

If only that's how economics worked!!!!!!

"Would you like there to be an abundance of Laelia speciosa in the future? If so, just click "+2"". *click* Voila! Abundance!!! Laelia speciosas growing and blooming on every tree in the world!! Awesome!

But this really isn't how economics works. Economics requires sacrifice to work. It requires blood, sweat and tears.

If we want an abundance of articles from Dahlen... then we have to compete him away from the alternative uses of his valuable time and energy. And we can't effectively compete by giving him stars or votes or thumbs up or "likes". These worthless trinkets do not accurately communicate our valuation of his time and energy. As a result, we increase the chances of suffering from a scarcity of Dahlen's articles.

In order to effectively compete Dahlen away from the alternative uses of his valuable time and energy... we have to give him something valuable in return. We have to give him our blood, sweat and tears... aka money.

If I spent a penny on Dahlen's articles... would this be a drop in a large lake? No. Would it be a drop in a pool? No. Would it be a drop in a bucket? Maybe. Would it be a drop in a large cup? Maybe. Would it be a drop in a shot glass? Maybe.

Right now this is a pretty small group. Maybe I'd be the only one spending any money on Dahlen's articles. But for all I know one of you is really rich and you really love Dahlen's articles. This will benefit all of us who want an abundance of his articles in the future. But what are the chances that any of you really rich though? Pretty slim!

There's this guy named Sherwin Rosen who came up with Superstar Theory. Basically, larger markets make bigger superstars. Right now omnilibrium is a pretty small market.

Am I the only one interested in turning Dahlen into a small superstar? Probably. Small superstar? Heh.

Maybe this image by Alex Gregory will help?

It's a guy working and thinking about golf, then he's playing golf thinking about sex and then he's having sex thinking about work.

The moral of the story is that we're always comparing the value of our present activity against the value of the alternatives. We're always weighing our options. For Dahlen, one of his options is to write articles on this forum. At any given time he derives x amount of value from this activity. If he's deriving y amount of value from playing golf... then as soon as x > y... he'll stop playing golf and start writing articles on this forum. The important part to understand is that, if we don't communicate our valuation of his articles... then x will be smaller than it should be. And if x is smaller than it should be... then he'll spend less time writing articles... which means that there will be a shortage of his articles.

Let's make up some numbers to work with...

Playing golf = y = $12

At least initially... Dahlen gets around $12 dollars worth of value from playing golf. So if he told you, "hey, I'm off to play golf" you could persuade him not to do so by giving him $12.01.

Writing articles = x = $10

At least initially... Dahlen gets around $10 dollars worth of value from writing articles.

And I say "initially" because all activity is subject to diminishing returns. For every beautiful woman, there's a guy that's bored with having sex with her.

We can imagine Dahlen playing golf and rather than thinking of boobs... he's thinking of the $10 dollars worth of value that he'd derive from writing articles.

y > x = continue playing golf
y < x = start writing article

Personally, I don't derive any value from Dahlen playing golf. So I'm not going to give him any money to play golf. What I do derive value from is reading his articles. So my mission is to help Dahlen make an informed decision. I have to communicate to him the amount of value that I derive from his articles. Let's say that I derive on average... 5 cents from each of his articles. I communicate this to him by giving him 5 cents for each of his articles.

As a result of this information that I've shared with him... while he's playing golf the number in his head is no longer $10... now it's $10.05. This is how much value he'll expect to get from writing an article. My 5 cents has made writing an article a marginally more attractive alternative. Perhaps he'll spend just a little less time playing golf and a little more time writing articles.

The more of you that give Dahlen 5 cents for his articles... the more attractive an alternative writing becomes for Dahlen. If we get x up to $13... then we're doing a better job of competing him away from golf. If we get x up to $20... then this is an even better number for him to think about while he's playing golf. We want to make golf as costly as possible. We want the opportunity cost of golf to be very high.

This is the general idea. What we know for sure is that Dahlen can't possibly make a truly informed decision in the absence of our valuation of his articles. He's not a mind-reader. He can't reach into our brains and pull out our valuation of his articles. And he can't act on information that he does not have. So without our valuations... it's a given that he'll allocate inadequate time to writing. His misallocation will be to the detriment of everybody who positively values his articles.

To zoom out a bit... if this forum facilitated micropayments... then Dahlen wouldn't be the only one who knows our valuation of his articles. Everybody would know our valuation of his articles. Everybody would know everybody's valuation of everybody's articles. In other words, we'd know the demand for articles. Well...not perfectly. But perfectly when compared to our current knowledge of the demand for articles. And knowing the demand for articles would ensure a better supply. This is how and why markets work. We use our money to inform each other... and, as a result, we all make better informed decisions.

What I'm saying isn't economically novel. You should know this if you've read Hayek's Nobel Prize winning essay... The Use of Knowledge in Society. What's novel is applying this essay/economics to forums. Just like it was novel for Jimmy Wales to apply it to encyclopedias.

From Hayek's essay...

"Which of these systems is likely to be more efficient depends mainly on the question under which of them we can expect that fuller use will be made of the existing knowledge."

Wikipedia is more efficient than regular encyclopedias because it makes fuller use of the existing knowledge. This forum can be more efficient than regular forums because it makes fuller use of the existing knowledge...

"We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid."


"The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it."

This is why Wales hasn't created a forum that facilitates micropayments. It's a lot easier to grasp that information is dispersed than it is to grasp how payment is used to quickly communicate the most important information that we have.

Omnilibrium is like an island. How many of us are here? 30? 40? We can rely solely on words to communicate with each other... or we can also communicate with actions (spending). When has any group failed because of too much communication?

And besides, the available evidence supports the conclusion that stars or "likes" do not increase engagement...
A widespread assumption is that the more content is liked or shared, the more engaging it must be, the more willing people are to devote their attention to it. However, the data doesn’t back that up. We looked at 10,000 socially-shared articles and found that there is no relationship whatsoever between the amount a piece of content is shared and the amount of attention an average reader will give that content. - Tony Haile, What You Think You Know About the Web Is Wrong

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