Googlenomics
Secret of Googlenomics: Data-Fueled Recipe Brews Profitability. And Hal Varian is their chief economist! Loved his book Microeconomic Analysis, a very good introduction for the rigourous Microeconomic Theory by Andreu Mas-Colell.
What Was I Thinking?
Books review of two books on irrationalism and behavioral economics. The writer describes ordering a book on Amazon and adding money to her order in order to qualify for free shipping. She cost herself an extra $12.91. Why do people do things like this? Actual economic life is full of miscalculations. By Elizabeth Kolbert in the New Yorker.
Some extracts:
Dan Ariely says in his book Predictably Irrational: The Hidden Forces That Shape Our Decisions: “Our irrational behaviors are neither random nor senseless—they are systematic.” Anchoring seems to be in play, or a cognitive bias that describes the common human tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions. But there is also the Endowment effect, or people place a higher value on objects they own relative to objects they do not, and several other strange behaviour.
The second book, Nudge: Improving Decisions About Health, Wealth, and Happiness, agrees that faced with certain options, people will consistently make the wrong choice. Therefore, they argue, people should be offered options that work with, rather than against, their unreasoning tendencies. These foolish-proof choices they label “nudges.”
So what to do with this information ? We can try to become more aware of the patterns governing our blunders, as “Predictably Irrational” urges. Or we can try to prod people toward more rational choices, as “Nudge” suggests.
Just good business
Corporate social responsibility, once a do-gooding sideshow, is now seen as mainstream. But as yet too few companies are doing it well, says Daniel Franklin.
Links for further reading on CSR.
The fuel of the internet
While bloggers and print journalists lock horns over media hierarchies and journalistic standards, Web 2.0 is making Google a noiseless fortune. Full text (German – English)
Some quotes…
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…the web is a hotbed of journalistic haste, impassiveness, and superficiality. Its “iconographic extremism” threatens the culture of writing. From the depths of decentrality rises the “infection” of poor content. (according to Frank Schirrmacher from the Frankfurter Allgemeine Zeitung)
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In traditional media, content is first filtered and then published. On the Internet, things are often the other way around.
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Google’s business model for its end consumers is “noiseless,” to formulate it carefully. (Google earns money from their Internet searches without the user realizing this)
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The economic ideal to which Web 2.0 aspires is a “market for one.” This means dealing in highly personalized goods, which possess the great economic advantage of having their prices individually determined by the readiness of the consumer to pay. This allows for the optimal exploitation of a market. This is what actually lies behind personalization and mass customization. (see paper by Hal Varian*)
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Google has an equally strong interest in freely available content on the net as the auto industry has in reasonably priced petrol. (a complementary goods theory)
* Hal Varian, although (?) now chief economist of Google, is a highly respected Professor of Economics, who I have encountered for the first time while studying microeconomics at the university (remember this book ?). He is also a central academic in the economics of information technology and the information economy.
Ponzi Economics
Tom Flynn discusses the addictive dependence of human economies and political systems upon growth. You should read this. Yes, you there.
Adage
The only function of economic forecasting is
to make astrology look respectable.
Minibar economics
Why you should stay at hotels that overcharge for drinks and Wi-Fi access.
By Tim Harford
The Prisoner’s Dilemma
Nigel and Amanda have been arrested for a joint crime of serious fraud. Each is interviewed separately and given the following alternatives:
- First, if they say nothing, the court has enough evidence to sentence them both to a year’s imprisonment.
- Secondly, if either Nigel or Amanda alone confesses, he or she is likely to get only a three-month sentence but the partner could get up to ten years.
- Thirdly, if both confess, they are likely to get three years each.
What should Nigel and Amanda do ?
Let us look at Nigel’s dilemma. Should he confess in order to get the short sentence ? This is better than the year he would get for not confessing. There is however an even better reason for confessing. Suppose Nigel doesn’t confess but, unknown to him, Amanda does confess. Then Nigel ends up with the long sentence (10 years). Better than this is to confess and to get no more than three years: this is the safest strategy.
Amanda is in the same dilemma. The result is simple. When both prisoners act selfishly by confessing, they both end up getting three years. Only when they collude they end up getting each one year.
Of course the police knows this and will do their best to prevent any collusion. They will keep Nigel and Amanda in separate cells and try to persuade each of them that the other is bound to confess.
Conclusion: by attempting independently to choose the best strategy for whatever the other is likely to do, each party ends up in a worse position than if they had co-operated. By eliminating the co-operation possibility, the police gets the bad guys…
