The beauty of economics...

Every once in a while, I feel a need to get all misty eyed for the field I studied for five years.

I was listening to NPR's Planet Money, a fantastic show everyone should listen to by the way, and was enthralled by their episodes discussing their t-shirt. I was so enthralled I signed up for Kickstarter just to back them, and have since sunk 200$ into other projects like a god-damn junkie. What stuck out to me, aside from the super interesting story of the t-shirt, was their mention of John Maynard Keynes and his description of "animal spirits."

A quick rundown for those who haven't done history of economic thought: For most of time, the dominant way of thinking about economics was the "rational actor model." It carries with it the assumption that all people are blessed with perfect information and perfect rationality, and that all decisions they make are done so in the interest of minimizing costs and maximizing utility. Generally speaking, it worked out pretty well. This sort of thinking isn't 100% accurate, but it does a damn good job of aggregating millions of personal decisions into an understandable form. Keynes wrote in the 40/50's about this idea of "wild animal spirits," this idea that people are far from rational. They are impulsive and impassioned, and make decisions based on things that cannot be quantified by numbers. Recent years, and in fact the 2012 nobel prize in economics, have started to centre around attempts to rehabilitate the rational actor model or at the very least improve it to more accurately simulate real people. One of the topics we discussed in game theory was this concept of asymmetrical or inaccurate information, the idea being that everyone wants to use perfect information but something stops them. This is a line of thought I've always really enjoyed, because it offers some solid explanations for why people make bad choices.

So I look around my house right now. The TV furniture is from Italy, the dvd towers are from poland, my water bottle is from china, my t-shirt is from Vietnam. And these are just the final stages of production. The dvd towers had to be bought from a store, which had them shipped to calgary from a port which received them from poland. In poland, the lumber had to come from somewhere. The tools had to be made elsewhere, and the machines built from parts built somewhere else. In turn, those parts are constructed from metal which had to be mined. All in all, for me to sit where I am at this moment, looking at what I am looking at now, there had to be hundreds of people working in concert.

For the most part, each one of these people played their part because it was the best decision available to them. Somehow the insane, roundabout, varied path necessary to get from metal in the ground to water bottle in my hand made every single turn because it was the least expensive. Dozens of steps, all across the world, all the cheapest available, to put this water bottle into my hand. We live in a world where that is easier than building a water bottle factory in Canada to sell water bottles to Canadians. And still, somehow, this entire process can be totally mocked by me making the decision that I am willing to pay $2 more for a green bottle than a black one.

That is crazy. This entire complex chain of events still relies on my impulse being the correct impulse, manipulated via advertising or otherwise, in order to justify everything that has happened.

Pick an item nearby. Ask yourself "why did I buy it," and "how many people touched this for it to be here?"

Economics. Surprisingly inspiring sometimes.

Another brief tangent

Y'know what game is vastly underappreciated?

HINT

F.3.A.R. The absolutely ridiculous title notwithstanding, F.3.A.R. was in many ways a very good game. So the campaign was kinda' dry the first time through, the co-op was undercooked, and there were a handful of buggy moments. Surely to god we're all grown up enough that we can let a couple cracks slide as long as they're on a cheesecake, right?




Okay, so the analogy isn't strong. Bear with me.

This game will always stick out in my mind for the two weeks I played two things: 1) The multiplayer. Not the team deathmatch, not posession, but "Fucking Run." Hot damn was that a fantastic game mode. Your team is forced to constantly advance from a wall of death, and you have to murder your way through progressively more deadly waves of enemies in randomly generated terrain. It was the kind of frantic, unplanned chaos that results in truly memorable multiplayer moments. You're all like "We got heavy guys on the left, start shooting!" "CRAWLERS FROM ABOVE!" *BANG BANG BOOM* "What was that!?" "A rocket launcher!" "Where did you get a rocket launcher!?" "I DON'T KNOW!" It's the kind of unbridled twitchy madness that you just don't get once you stop being eight years old and playing with action figures. 2) Replaying as Vettel. Seriously fun. It was like a first person Psi-Ops (another wonderful game everyone should play) and that's pretty cool.

Can you get nostalgia for a two year old game? Hm. I guess I can...

Kickstarter is amazing

I would like to take a moment to note how Kickstarter and the internet have completely changed the game of "product planning." Through the magic of instantaneous electronic transmission of information and funds, crowd-sourcing has provided an opportunity for good ideas to receive immediate support.

Let's take a step back and examine the traditional two processes of how a new good or service comes to life.

In the case of a large company with sufficient capital to finance their own projects it goes something like...
1) Idea
2) Preliminary business case for idea
3) Review of preliminary business case
4) New team builds statistical business case based on market data
5) Modify business case for data
6) Present business case
7) Modify business case based on reaction to review
8) Review statistics of business case
9) Present business case again.
10) Receive preliminary budget
11) Build project plan for budget
12) Revise project plan for real budget
13) Present project plan
14) Revise project plan for real real budget
15) Present new project plan
16) Enact plan.

This is somewhat exaggerated, but it imparts the point I'm trying to make. Lot of steps. Lot of revision. There's no guarantee that the idea gets from step 1 to step 16 in any kind of recognizable form. Every single step of the way is there to polish and sharpen and hone every element of the idea into some kind of perfect business model that has minimal chance of failure. At any step where there is a good indicator that the project might fail, it can be canned. There is an overwhelming process focused around ensuring that only successful prospects see the light of day, regardless of how good the initial steps were.

Now, smaller companies, start-ups and entrepreneurs have two ways to go about it.

1) Idea
2) Test out idea
3) Create sales pitch
4) Beg, solicit, acquire investors
5) Enact project
6) Succeed/Fail

OR

1) Idea
2) Test out idea
3) Acquire financing through personal assets (mortgage, etc)
4) Enact project
5) Succeed/Fail

Whereas the large processes focus on overseeing elements to guarantee success, ironically unmaking the original idea, this smaller case is much more similar to "winging it." You go almost straight from the initial plan right to hoping you get your money back.

So why is kickstarter amazing?

You look at a page and decide whether or not it is something you want to see happen. If you want it to happen, if the idea is something you want in reality, you allocate funds to it that are proportional to how strongly you feel. If it looks like something doable and something you want, then you allocate as much money as you want, if it looks like something poorly planned, then you just don't. At the end, if enough people feel the same as you, AND if the project is successful, you get the thing you wanted. If it isn't, you get your money back.

All the guess work disappears. When a community really wants something to exist, they can make it exist. Instead of a handful of people trying to decipher what the masses want, the masses just tell you what they want. How simple is that? You can pay a product into existence. If it isn't wanted, it just doesn't happen. While there are still failures, this slants the entire process to favour actual successes as opposed to anticipated successes.

Kickstarter, man, it is remarkable in both its effectiveness and its simplicity.