When one is establishing whether a system is ‘good’, or better ‘optimum’ (or failing that, ‘better’ than some other system), one needs to set out the measures by which one evaluates the system(s) in question, and the principles in the surrounding framework.

The former could be the efficiency with which resources are allocated (for example, how productively are they being used? or how much aggregate welfare do they produce?); the latter might include for example the need for competition and the prevention of the formation of monopolies or cartels.

As I see it, markets serve two purposes (which kind of blend at the margin): they compensate suppliers for their efforts and expenditure (plus it may contain a profit element), and through price setting they signal the balance between supply and demand, thus informing the decisions of both consumers and producers.

In the PragMedium model, giving users a fixed number of possible recommendations each month would be superior to having no limit: it would lead to a better differentiation between different stories, and so lead to a better allocation of the writers’ time (assuming they would see many dots as a signal to write more of that kind of story, and few dots as a signal to stop writing that other kind of story).

Would making the dots transferable help with this? I don’t think so. In the base case, the dots indicate the appreciation of each PragMedium reader, and implies that the overall appreciation of each reader is the same — it’s only the distribution that differs. In the transferable case, someone receiving many dots could significantly alter the signals sent out. Imagine I write two kinds of stories: some about Economics, and some about Organization Design. I have an audience for the former and for the latter, and both are about equal — say I get on average 10 dots for each story of either category. So I continue to produce stories of both types, until some dude who posts funny pictures of cats and gets 450 dots each month discovers my Economics article, and starts to give me 90 dots for each such article. I now get 9 times as much appreciation for my Economics articles, and I decide to reflect that in my writing: instead of alternating, I now write 9 Econ stories for every OD story.

This is disappointing for my OD readers, but possibly good news for my Econ readers: some of them might have given me extra dots if they had them because they would consume more Econ stories if I wrote more of them (and others get just enough, and cannot cope with the glut). Above all, I am pleasing my new fan.

But is this overall an efficient use of my time as a result? This hangs off the interpretation of the 90 dots of the superfan, as opposed to the 10 dots from my other readers. Is his preference for my Econ stories a multiple of that of ordinary readers who do not write (and therefore cannot collect extra dots)?

There is no reason why this should be the case.

And I think this points at the the intrinsic issue with pragmatarianism: do we look at the relative sacrifice agents make in order to ‘buy’, implying that every agent has 100% to allocate as they see fit? Or do we allow agents to spend indeterminate amounts — thus effectively having a situation in which certain agents have more overall purchasing power than others?

Returning to my original point: we need to establish what we want to optimize or compare. If we want to maxize the overall utility from my writing, then we would need to add the utility my readers get from my stories in both cases.

The question is what the meaning is of the 90 dots. They represent 20% of the superfan’s allocation — the same as a single dot for a normal reader. Does that express a higher actual utility, or rather entirely the same?

We cannot determine this — whence the issue…

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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