Posts tagged with value

It’s much easier to destroy than to build. I can destroy not just one £20,000 car, but all the £20,000 cars in a car park, with a little planning and maybe a few hundred expenditure (accelerants and matches). And I could do a decent job of destroying a car with only £10 (crowbar).

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Nothing in his pockets but knives and lint.

Same with houses—fire for example is a very effective tool per-effort for ruining lives. Four skinny pirates with a modicum of guns & ammo can hijack a vessel that cost $10 million or $100 million to build.

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File:Somali Pirates.jpg

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Despite it being so easy to destroy, where I live things are quite peaceful. Nobody slashes all the tyres in a car park, for example. Why? Economic theory says that when the cost of something goes down we’ll see more of it. Shouldn’t this be true as well for the destruction of other peoples’ lives & property?

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You know what I notice when I watch street performers?

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Besides the feats of superb human achievement, I mean.

I notice the way they handle crowds. The way they maximise their take for the same performance.

  1. The first principle it seems like they’ve learned is that a crowd attracts a crowd. If you can tell jokes or tease audience members or otherwise keep people drawn in and interested long enough to stand around and see what’s about to happen (see Ramit Sethi’s “dark secrets of long text” or “weight loss — just one more tip”) then more people will want to see “What’s everybody looking at? That must be interesting.”

  2. Of course, the larger the crowd, the larger the payoff—regardless of the skill or entertainment value of the performance per se.
    Fringe street performer
  3. The second principle it seems they do is to make the audience value the trick. If you’re going to ride a 10-foot unicycle and juggle torches at the same time,
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    you don’t just hop up and do it. You first pretend like it’s really hard for you to do some smaller trick, like riding a 4-foot unicycle.
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    After the audience has seen you struggle to get on and ride about, then they’ve realised how difficult it would be for them to do even the easiest version of unicyclery. Then you let on that you were just kidding and start doing some fancy tricks on the 4-foot unicycle, showing how smooth you are at it. A slow build until the final big trick—probably related to Kahneman’s findings on pain rememberance—will leave the audience with a better rememberance of the act and greater willingness to pay.
  4. Draw attention to yourself.
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    Obviously. No one’s going to pay you any heed if you’re just being normal.
  5. Ask for the money. 
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    Actually demand that people give you money. Make them admit this was pretty f***ing fantastic and they should, in fact, give you a few quid each. Don’t let people sneak off or if they do then publicly shame them. If you can make a “chute” where people exit in single file through just one way-out and it passes by the donation hat—or if you can put donation hats or smiling collection agents at every one of the finite exits—again you’ll increase your take, for the exact same performance.
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    The economics of this part aren’t hard to understand: people have just received something for free and they may be able to excuse themselves for getting an eyeful without reaching into the pocket.
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Not only do these successful street performers really have their economics down, they undermine the frequently repeated business advice or economic viewpoints “Work hard and you will succeed”.
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According to this professional you need to be wily to survive in the real world (3:30), to keep your head above water (5:50):

We can measure the success of these street performers by their paycheques and we can measure their hard work by the fact that they perform impossibly hard feats.

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Talent doesn’t sell itself. Skill doesn’t sell itself. Value doesn’t sell itself. Beauty sometimes sells it self, but not for the maximum profit that could be achieved by branding it well or tying it to something else that’s being sold.

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That’s why when people equate hard work with money, I don’t see it.

You could easily do all of the training to

  • ride a 10-foot unicycle
  • swallow fire
  • contort yourself into a pretzel
  • trick people with legerdemain and psychological distraction
  • prove the twin primes conjecture

and never make any money from it.

Some people create a lot of value without receiving a reward.

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And some people receive a lot of reward without creating value.

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Some people realise that becoming the CEO of a $30B company doesn’t actually require a technical college degree; it requires doing a lot of other stuff, trust in background being necessary but the background itself not being necessary.

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We could argue philosophically about the definition of “value" and of "work”, but the street performers make it clear that you can do something really hard, be excellent at it, and make drastically more or less money—not based on your talent or skill, but based on your ability to extract dinero from a situation.




Perception is reality. Any beer drinker who is surprised that Guinness has a unique and excellent taste and PBR tastes exactly like Budweiser needs to switch to Guinness because your taste is objectively awful.
That’s why Guinness’ branding is a seal with a ball and Budweiser needs to use bikini babes.

There’s something much deeper going on here, though: a fundamental problem with utility theory and hence, with economic theory. Kahneman & Tversky pointed out that it’s wrong to think of preferences as being read off of a master list. But not only are they constructed in the elicitation process, they’re constructed before as well. You’re looking at experimental proof.

I tried to write about this before in the context of the famous Pepsi/Coke fMRI experiment, but it’s too hard. I want to tie in sardonic Don Draper quips, the invention of diamonds, and my own experiences of my desires and wants and dreams being formed by outside (and therefore, sinister?) forces rather than from truly “within me”  — whatever that might mean. Why do I want what I (think I) want? Even Doug Hofstadter treads tenderly around the topics of free will and one’s own true desires and self-determination and such.

I have no idea what my subconscious wants
— Cameron Guthire (@thiscameron)
June 27, 2013

Even though I feel that these things all belong together, I don’t understand it all well enough to put forward a thesis explaining the inchoatia. But even with just the few experimental examples we have, it’s clear that desires can be manufactured, and that there’s a lot of money to be made in doing so. So just with that basic knowledge the Lagrangian model of utility that underlies all of the Edgeworth boxes, welfare theorems, and so on is missing a crucial quality.  Namely, &sym;1% of the global economy is spent on making people want things. That doesn’t bear on “utilitarian” products like oil, shipping, … but it definitely bears on aspiration and retail. I’m talking about circularity in the definition of value. If you can logic that one out, let us know.

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Perception is reality. Any beer drinker who is surprised that Guinness has a unique and excellent taste and PBR tastes exactly like Budweiser needs to switch to Guinness because your taste is objectively awful.

That’s why Guinness’ branding is a seal with a ball and Budweiser needs to use bikini babes.

http://farm5.static.flickr.com/4050/4434090263_b8d52dcc74_o.jpg

There’s something much deeper going on here, though: a fundamental problem with utility theory and hence, with economic theory. Kahneman & Tversky pointed out that it’s wrong to think of preferences as being read off of a master list. But not only are they constructed in the elicitation process, they’re constructed before as well. You’re looking at experimental proof.

image

I tried to write about this before in the context of the famous Pepsi/Coke fMRI experiment, but it’s too hard. I want to tie in sardonic Don Draper quips, the invention of diamonds, and my own experiences of my desires and wants and dreams being formed by outside (and therefore, sinister?) forces rather than from truly “within me”  — whatever that might mean. Why do I want what I (think I) want? Even Doug Hofstadter treads tenderly around the topics of free will and one’s own true desires and self-determination and such.

Even though I feel that these things all belong together, I don’t understand it all well enough to put forward a thesis explaining the inchoatia. But even with just the few experimental examples we have, it’s clear that desires can be manufactured, and that there’s a lot of money to be made in doing so. So just with that basic knowledge the Lagrangian model of utility that underlies all of the Edgeworth boxes, welfare theorems, and so on is missing a crucial quality.  Namely, &sym;1% of the global economy is spent on making people want things. That doesn’t bear on “utilitarian” products like oil, shipping, … but it definitely bears on aspiration and retail. I’m talking about circularity in the definition of value. If you can logic that one out, let us know.

http://2.bp.blogspot.com/-grpfwNrz4dc/T_doHNKdxHI/AAAAAAAAFH8/QbIK0HTkiQU/s1600/Perception+is+Reality....jpg

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(Source: ocw.mit.edu)


hi-res




I might be exaggerating a little if I say things like

  • We’re taught to measure our personal worth against exam scores;
  • We’re taught that there is One Competition and those who win the tournament get the goodies;
  • We’re taught that the children of Tiger Moms go to Yale and then Harvard Law and then become McKinsey consultants and then go on to head large corporations or i-banking or essentially win at life and rule the world in myriad ways;
  • We’re taught that the rest of us suck.

But I wouldn’t be completely making sh_t up. Those messages, or something like them, ∃ in the culture I come from and maybe in the culture you come from as well. Peter Thiel described a tournament to get into an Ivy League school, followed by a harder tournament to get into Stanford Law, followed by a harder tournament on Wall Street, … and left out of his story the 99.99% of us who didn’t even make it to the first tournament.

What about the supermajority? I’m pretty sure a hundred weak people can lift more weight than the strongest man on Earth. And I’m even more sure that the 50 smartest people on the planet can’t run Wall Street by themselves—let alone all the shops, shipyards, data centres, and engineering the runways of the airstrips to a millimetre of precision, that make up the economy.

 

So what about the rest of us? How much sense does it make to see the world in Thiel’s terms—the best versus the rest?

Well basic economics 101 tells us that a modern economy is made up of many specialised actors. The people who bend the tubes to make neon lights don’t know much about sewing shoes or sourcing the material for shoes, and none of those people know—or should know—how to do Ruby on Rails or Haskell.

Some people who research expertise also have developed a theory of 10,000 hours. If you practise something for 10^4 hours—so five years of work experience or ten years as a very, very consistent hobby—then you become awesome at it. A related theory is that if I have been doing something for a year or two and Peter Thiel tries to compete with me on it, I will still win regardless that he’s a chess master and a Stanford Law graduate and handsome and so on.

In other words, ∃ an equally or more compelling narrative than the A Player narrative: about everybody being different and that being okay and in fact more efficient.

Viewing education as a signalling mechanism to rank a one-dimensional hierarchy of best to worst people is one possibility—and one that BCG possibly uses to its advantage in applying profitable friction to the large companies who for some reason decide that some A+++ 24-year-olds know how to run their business better than they do. (Ooh, I really wanted to work in ‘fiction’ and ‘friction’ somehow. Too bad I was never a good enough student or I could have worked it.) But the dominant messages I hear from people who went into highly-paid frictional professions—accounting, law, consulting, finance—are that they want their kids to “find their own path”—i.e., do something with a tangible contribution to the society. Not necessarily fundraising for Laotian villagers, but something profitable that measurably increases the wealth of their community.

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So the “everyone is a special individual” message doesn’t just come from warmhearted Kindergarten teachers wearing seashell necklaces. If specialisation, difference, and diversity are more important than uniformly learning

  • the same parts of history,
  • the same mathematics,
  • and being compared to each other on a fabricated 7-dimensional scale (grades)
  • to see if we can get to be included in the golden inner circle of whatever mysterious ritual the white-shoe white-collar firms perform to add an order of magnitude more value to their customers per employee,

— then the hard-nosed economists are also telling us the same message. Maybe it is not about me being better than you and worse than Peter Thiel, but rather a high-dimensional poset network of symplectic skills and attributes, mostly not substitutable by smart people over dumb people and yet all worth pursuing as they complementarily add size to the world GDP.




whatwoulddondraperdo:

First you have other things to consider—the principal being your father’s money. Does your partner love that? Or your youth, beauty and intelligence? All, some or just one of these reasons is enough for most people, but a true marriage is built on a greater (some say the greatest) thing: a mutual understanding. If you’d like to see a sham destroyed, wait until you see yourself—your true self—reflected in the eyes of another. You’ll see marriage is not an institution. It doesn’t need to answer to history or society. Each marriage is an institution unto itself.




Derivatives contracts allow you to make bets on an asset without owning it. Like a side bet. I don’t have to own, watch, or like the Dallas Cowboys to bet on their success / failure.

You can bet on a company by buying its stock, or you can bet someone that it will go up. The latter is a derivative contract. Today the $$$ value of side bets exceeds the trading in original securities by a factor of 40.

For example there is $800 million worth of wheat (3 million metric tonnes) in the world — or at least that’s this year’s production of hard red winter wheat #1, ordinary protein.

But on the Chicago Board of Trade alone there were 22 million bets this year, betting about those 3 million MT.

Supposedly there are $1 quadrillion worth of derivatives contracts being traded today.

People talk about it like it’s a bad thing — but it’s neither good nor bad, by itself. It’s scary for regulators because they can barely measure, much less control, what people are doing with their money. They worry about systemic collapse on the one hand, if people make correlated mistakes — but on the other hand, if they over-regulate then they will choke off freedom of property.