(Part II)

But in a world where writers all have exactly the same priority, it’s not like Rowling would be able to give him lots of money.

I think one issue popping up here is to with the relativity of the sacrifices.

We can make some uncontentious assumptions here:

  1. well-edited books provide more utility to the readers than poorly-edited ones
  2. writers with a large audience produce more utility than writers with a small audience
  3. JK Rowling has a larger audience than you

So, on this basis, we can assume that, if Mr Levine can only edit one of you, aggregate utility will be larger is he works for Ms Rowling.

One way of organizing this is to construct things such that JK’s request to Arthur is more attractive than yours. Both of you are getting ‘tokens’ from your readers, and she has more than you, therefore writers reusing tokens to claim editor capacity serves our purpose.

This requires a further assumption:

4. tokens that writers can use to claim editor capacity are obtained from their readers in return for the utility their books provide.

If dedicated tokens are used, this is a trivial assumption. If money is used, it is not, and in practice this will not be the case. If the UK government holds a new referendum for Scottish Independence, and people can buy additional votes, then it is quite possible that Ms Rowling, were she deeply concerned with the outcome to the point that she’d be willing to sacrifice her entire fortune, could sway the outcome on her own. Even if many other people also would be prepared to do that — only their fortune is considerably smaller than Ms Rowling’s.

What this illustrates is that we want, as you say, the utility of the end product (in this case the books) to be maximum in aggregate. If, for the sake of argument, you somehow found yourself the sole heir of the Koch Brothers’ fortune, and they suddenly came to a tragic end,you could easily outbid JK Rowling for the services of Arthur Levine, if money was to play the role of tokens. Yet this would lead to an inferior outcome, as the millions of copies of Ms Rowling’s next work would be poorly edited, and the half a dozen or so books from you (no offence! :-)) would be very well edited, instead of the other way round.

But it’s for sure the case that the desire for more, rather than less, revenue will maximize Frank’s motivation to figure out how to better spend his money to improve his product.

Nothing for sure about that. In contrast with his self-belief, Frank may be a lousy cat video maker, and no good editor will be able to turn them into good videos. But because he is more pecunious, he can claim the services of the best editor, and thus deny Bob of his services. As a result, the world is a worse place.

Alternatively, Frank may not really be interested in more viewers of his videos — he’s a vanity video maker, who is not adding value to the world, but simply stroking his own ego. The result is the same.

The market provides a marvelous motivation to minimize mistakes… more money!

This is true in general terms, but there is a problem of relativity. People with deep pockets can make bigger mistakes than people with shallow pockets. And if the depth of their pockets is nothing to do (and hence not a proxy for their significance in the domain under consideration) we really do have a problem.

This can be summarized thusly. The ‘buyers’ in a market express their sacrifice (a proxy for the amount of utility their purchase represents) in relative terms — it is a fraction of their free resources (FR). For example, if A offers 75% of their FR for X, and B offers 45% of their FR for X, then A would consider X more important than B. (Note, this is not the only way of considering this — we could also look at the how much absolute FR remains: if B’s 55% is smaller than A’s 25%, then we might say that X is more important to B than to A.)

The ‘seller’, however, is not interested (and doesn’t even know) the relative nature of the sacrifice. If in the previous calculation, A has 100 units and B 200 units of FR, A is offering 75 units, and B is offering 90 — B has the upper hand in the eyes of the seller. Unless the absolute higher offer of B is representative of higher overall utility, it would be against our intent to actually grant B the upper hand.

The people with the most power will have made the least mistakes.

Disagree. The same argument holds: the cost of the mistakes relative to their overall power can be small, but in absolute terms for others (the externalities, if you like) can be large — larger than a relatively larger mistake by someone with less power.

Again, with one very important exception… the free-rider problem. The solution to this problem is a pragmatarian market.

Let’s go back to your original idea: every Medium user pays $10 per month, and decides how this $10 is allocated. You give all of it to stories about Adam Smith and/or the Invisible Hand; other people give it to stories about cats, or about the Ice Road Truckers, or about whatever.

I think that would be an excellent idea, and I have no doubt that it would lead to (even) better stories on Medium, than if it were just symbolic tokens. The tokens would give an important signal (or not), and thus influence writers. If writers got, say, 80 cents in every dollar they were allocated, they’d be even more motivated.

But. If we allow writers not only to withdraw their dollars and buy coffee, donuts or Netflix subscriptions with it, but also to reuse their $10 in addition to the $10 subscription fee we start to distort the pragmatarian market.

Hooking back to what I was saying earlier, if everyone gets $10 to allocate, the dollar amounts are the same for everyone, and represent a very accurate picture of readers’ relative preferences.

The system works because it takes into account the relative preferences of every reader, giving everyone the same weight. If some people get more weight, without their having any legitimate larger claim on the public good that Medium is, we are undermining the effectiveness of the pragmatarian market, I think.

This would be made even worse if we allowed everyone to spend more than $10 a month on Medium.

Written by

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

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