I do like your knack to see evidence for your argument in everything! :-)

If I’m willing to spend 80% of my fees on your replies… there has to be a corresponding willingness to accept? The implication being that you might not be willing to accept 80% of my fees?

Not quite. I think we need to consider two different situations. In the situation you describe, I write my stories unconditionally — I don’t know upfront how many of your and others’ pennies will be allocated to me — and you pay Medium unconditionally — you don’t know yet which stories (if any) will be good enough to merit the allocation of the pennies you already paid.

But what if I’ve not written anything yet, and you’ve not yet paid anything? Then we’re in a situation where there is a negotiation to work out the conditions under which you will allocate your pennies to me, and under which I will write the kind of story you like to read. If your WTP is insufficient (i.e. less than my WTA) then you will keep your money (or allocate it to someone else) and I will not write my stories. If my WTP (expressed in the quantity and quality of my stories) is less than your WTA, again there will be no writing and no allocation of pennies.

The reason why a WTA might not be relevant is that the payment is post-hoc, for a service that has already been delivered unconditionally. In effect, I am willing to write my stories for free, and any pennies friendly Medium readers transfer to me are just a bonus.

Well… if I abhor your replies… then clearly I’m not going to perceive that there’s a shortage of them. Which means that I definitely wouldn’t voluntarily spend any of my fees on your replies. So if I do voluntarily spend my fees on your replies… then it’s only because I do perceive that there’s a shortage of them. In other words, I perceive that ERS is a problem.

This seems to me to be a problem. If I have the time to read one of your stories every week, and they provide me with much value, I might allocate my Mollar entirely to you, to signal that value. But I really have no time to read more than one story from you. So my Mollar does not signal scarcity, it signals appreciation.

Carlos has a much greater incentive to do his job than he does to take photos of his plants and share them on Flickr. The carrot for working is a lot larger than the carrot for sharing his photos.

That is, of course, assuming Carlos is only interested in money. But the way we make trade-offs between different uses of our time is influenced by other things than just money. I don’t get paid for writing this, or any other of the 40,000 or so words I’ve written on Medium so far, and I still do it. Even if I had spent the time I wrote all these words stacking shelves at the local supermarket instead, I’d be economically better off. And still I chose not to do this.

The only real proof is a willingness to pay/spend/sacrifice.

Absolutely — but let’s not be too rigid about it. Even sending someone an email to say you appreciate their plant photos is a sacrifice (and arguably it’s a bigger sacrifice than a couple of pennies).

But we bump into another issue here: the significance of the sacrifice to the sacrificer, and to the person in whose honour the sacrifice is made. If you want to know how important I find something, you’d need to know the significance of the sacrifice I am making to me. If my time is very scarce, and I spend 10 minutes of it reading your story and another 20 minutes responding to it, then that is different than if I am twiddling my thumbs all day, waiting for you to publish something new. If I pay you $1 to write a story, and as a result I will go hungry tonight, that is a different situation than if I am the heir of a multi-billion fortune, and I pay you $1,000 for your story. What will motivate you more? Imagine you knew that I am really not interested in your stories, because I actually pay every other contributor to Medium twice what I pay you — would that make a difference?

Do note that I am not questioning the value of Pragmatarianism, on the contrary. But I think there are limitations to how the allocation of the pennies should be interpreted.

In its pure form, the allocation should express relative scarcity as you have been arguing. But that means that if I am perfectly happy with the offer on Medium or on Flickr, I will not allocate anything. This fails to signal anything to the producers of content, because there is no distinction between those that give me great value, and those that I have no interest in.

Let’s say that both Flickr and Medium created pragmatarian markets.

At the very least, you’d need to calibrate the markets, not just in respect of the currency used, but also in respect of the ‘competition’: if there is only one person writing Economics stories on Medium, but multiple plantsnappers on Flickr or vice versa, this might distort matters somewhat.

(As an aside, this problem arises in real markets as well. You have probably read the argument, among others by Rutger Bregman, that bin men should be paid more than bankers. That kind of normative economics is bizarre, but it illustrates the limitations of money transfer to serve as an indicator for relative importance. Water is very important — we could not survive for more than 48 hours without it, yet it costs less than 0.1 cent to buy a day’s worth of water. Does that mean that I don’t value water? Of course not.)

Why would Carlos spend so many of his pennies on my photos if he didn’t truly want a lot more of them?

Why do I spend $20,000 on a car? Is it really because I truly want more than one car?

the only way I can know the crowd’s demand for my products is for Flickr and Medium to create pragmatarian markets.

I’m not sure it’s the only way, but it is certainly one way. But is it signalling demand, or differential demand, or simply appreciation?

I can transfer my money to you but I really can’t transfer my time to you.

As I mentioned before, we need to distinguish between the significance of the sacrifice to both parties. Imagine Medium didn’t provide any stats. I’d write my pieces and would have no idea whether nobody, a dozen people, or a million people read my stories. Maybe that would eventually make me stop writing — not knowing. But if I were equipped with psychic powers, and I could find out by rubbing my temples not only how many people read my stories, but also how much they appreciated them, I might well be greatly encouraged: all these people would be sacrificing their time, time they could be using for something else, indeed to earn extra money, to my stories.

Sending a signal is a matter of transferring information — there is no need to transfer anything of material value (such as pennies). (We also risk getting from the social to the material domain — Ariely and other behavioural economists have something to say about that: we are happy to do things for no material compensation, but not for a material compensation that we deem too small).

Oh, what happened here? You donated £100 to Comic Relief but Cancer Research UK is £100 richer?

Oops — my mistake. I should sacrifice even more time to this and properly proof responses before publishing. I changed Comic Relief to Cancer Research in case you didn’t recognize the former…

With the current “Recommendations” system… a “Recommendation” that I give to your story really doesn’t mean that I have one less “Recommendation” to give to other stories.

This is true, and while in practice there is ‘signal’ in the fact that not everybody recommends every story, it would be possible to game the system. Making recommendations a scarce resource is a good idea from a pragmatarian perspective.

Recently I recommended this story…

Yes, I read that story with interest — did he reply to you?

The value of a story is a function of people’s willingness to pay (the opportunity cost) for it.

But isn’t the amount of time they spend on it a good indicator of their willingness to pay the opportunity cost? (Just like I have been spending more than 30 minutes on this response so far, and counting :-))?

Well… the people are giving their money to one school rather than to the other schools.

Not really — the vouchers have no monetary value to the parents. They don’t even make a sacrifice: if they choose to home school their children they are no better off.

true value is a function of willingness to sacrifice.

After all this, we still agree though! :-)

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Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius

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