Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

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Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

Hot take on economics 

@freakazoid Back to coercion:

I've adopted the BATNA test.

Who's got the best alternative to a negotiated agreement?

If one party just picks up the next prospect from a stack, and aother faces a life- or business-disrupting event, then it's the latter who's subject to coercive pressure.

Capability to pursue disputes, invoke assistance, etc., are other parts of this.

@woozle @o

Hot take on economics 

Hot take on economics 

Hot take on economics 

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Hot take on economics 

Hot take on economics 

Hot take on economics 

@freakazoid So, dynamics can turn up in various forms. I've tried (unsuccessfully) to catalogue the in the past.

There's fiat or imposed value, as with coin. Also with transjurisdictional standards, such as divorce law and shipping registries ("flags of convenience"). Whatever the *minimum* acceptable *somewhere* is, is acceptable *everywhere*.

There's effective perceived value -- Mencken's "Brayard", or consumer technologies, or bicycles.

@o @woozle

1/

@freakazoid The limit there isn't one that's externally imposed, it's what the *minimum viable consumer* can effectively sense. It's why, generally, mass-market anything is crap, from a power or elite user standpoint.

That's my "Tyranny of the Minimum Viable User":
old.reddit.com/r/dredmorbius/c

There are a few closely related cases: highly variablel goods, and highly tailored goods.

Variable goods, especially skilled labour / high-skill jobs create problems on both sides of ...

@o @woozle

2/

@freakazoid ... the transaction. Employers / clients have difficulty in assessing the quality of applicants / vendors. And applicants have difficulty in assessing the suitability or acceptability of employers or clients. This in a nutshell is why tech hiring sucks, why there's so much value signalling (high-prestige degrees, Big N employment history, personal recommendations). And everyone's unhappy.

Incidentally, *writing detailed technical content* is a signalling tool.

@o @woozle

3/

@freakazoid The "variable quality" issue is largely the "Market for Lemons" instance. Akerloff solves that by providing more information. That works *if you can meaningfully assess that information*, which for highly complex goods becomes a highly questionable proposition.

Overly-tailored goods are "gadgets". Things that do only one thing, or fit only one circumstance. They're like close-fitting clothing. Change any constraint, and they no longer apply.

@o @woozle

4/

@freakazoid The problem here applies if the tailoring is expensive, *or* results in a high price. Either the good isn't sold (because it's perceived as having limited utility) or it's bought but value isn't delivered. Something of a debatable inclusion in the dynamic, but at least similar.

There are a whole set of signalling mechanisms -- shibboleths, cultural myths, and fads, which emerge from a Gresham's dynamic.

@o @woozle

5/

@freakazoid Underlying quality is difficult to communicate, so some *quality indicator* is substituted. Accent. Vocabulary. Cultural myths. Clothing. Food. Table manners. Branding. Musical tastes. Books read. Schools attended. Management fads.

These signal *both* quality *and* group alignment -- and the wrong set can easily get you killed in many cases.

*Changing* signifiers is highly traumatic: culture wars and value shifts.

This also leads to cargo culting.

@o @woozle

6/

@dredmorbius @woozle @o These fall into a few different possibly overlapping categories: implicit bias, laziness or ignorance (because the information is available but people don't bother to look or don't know it's there), and places where it's genuinely hard to know, like interviewing and managing (though there's a lot we do know about management and interviewing so laziness and ignorance applies there).

...

@o @woozle @dredmorbius Volume also contributes to this a lot: for cheap things, the cost of research can be a significant fraction of the cost of actually buying it. This is probably why for many things there's not much of a "middle ground", just super cheap and super expensive things.

You can also get seemingly paradoxical effects where the brand with the better reputation has lower quality at a higher price point. I've noticed in general an inverse correlation between marketing and quality.

@freakazoid Totally agreed on the cost-of-research factor.

The fact that this is very frequently *excluded* from economic analyses is one huge source of the fallacy of the sunk cost fallacy. That is: the *putative* sunk cost excludes a tremendous number of actual, but non-apparent costs. Which provide benefit, and must be re-invested when switching to another option.

Another case of the problem: information that's not manifestly evident.

@woozle @o

@dredmorbius @o @woozle Can you give an example of where it's excluded to the detriment of the conclusion? Since the sunk costs fallacy is widely known in econ circles, I would be surprised if it's being excluded in places where there's a significant effect.

One thing I don't generally hear when people are talking about human cognitive biases w.r.t. markets is how government avoids being affected by the same bias. The sunk costs fallacy, for example, is manifest in every large project.

@woozle @o @dredmorbius That's pretty interesting. It seems like the sunk costs fallacy might make more sense as part of public choice theory than behavioral economics. Speaking of which, I wonder to what extent public choice theory explains decisionmaking inside corporations and other organizations where there aren't prices?

@freakazoid @dredmorbius @woozle @o

Mature markets tend to end up with two market leaders and a bunch of also-rans. In that kind of market, the #1 is often complacent and of poor quality, but the #2 tends to be better because it wants to knock the leader off the top spot.

e.g. VHS vs Betamax, Windows vs macOS, VW vs Toyota for cars, etc.

(Obviously there are counterexamples, and I think the trend is becoming less clear as markets fragment.)

@mathew @o @woozle @dredmorbius Two of the three examples you cite have strong network effects, where that's certainly true. But car manufacturers don't have this problem. Globally, in 2014 (the year I can easily find data for), the number 8 automaker by number of cars (Honda) sold almost 43% of the number of cars of the number one (Toyota). In the US, the number 7 manufacturer, Kia, sold 43% as many passenger cars as the top manufacturer, GM. And number 3, Toyota, has almost 83% of GM's sales.

@dredmorbius @woozle @o @mathew Actually, now that I think about it, VHS vs Betamax happened in a market that wasn't remotely mature, and it was a competition among standards, not companies. There were plenty of manufacturers of both tapes and players.

I'm having difficulty coming up with an example in any situation where there aren't strong network effects, at least in the US.

@mathew @o @woozle @dredmorbius During my orientation at Google, when they were talking about the datacenters, someone asked if they ever planned to open source the designs like Facebook had. The speaker replied, "Open source is what the company in second place does." That wasn't the only thing in orientation that made me think about just walking out.

@dredmorbius @woozle @o @mathew Maybe commercial airline manufacture is a good example? Boeing and Airbus are definitely the top two, and Bombardier is the only other manufacturer I can even think of, but they only do regional jets AFAIK. But I'm not sure either Boeing or Airbus ever really acts like they're either especially comfortable or hungry; the competition seems to keep both companies on their toes pretty well.

@freakazoid China and Russia both have indigenous aircraft industries, and there's Embrar of Brasil, though theirs are also largely regional / corporate jets.

There are more small- and mid-sized aircraft manufacturers.

The industry as a whole is *extremely* conservative, almost wholly governed by engineering and aeronautical constraints (there are only so many arrangements of sausages, engines, and lifting surfaces).

Plus insurance risks and regulation.

@mathew @o @woozle

@freakazoid An interesting parallel is actually cargo ship design and use in the 13th / 14th centuries, about the time the lateen rig was adopted by Europeans, a millennium or more after its appearance on the Indian Ocean and Arabia.

The problem was insurers.

Shipping is high-risk, and voyages were insured individually, as separate ventures. Insuring syndicates wouldn't take risks on new-fangled tech like lateen rigs.

As a consequence, European ships could ...

@mathew @o @woozle

@freakazoid ... not sail close to the wind *at all*, often had to wait *weeks* before entering port (for favourable winds), and were limited to sailing between May and October. November through April nothing moved by ship, which is to say: nothing moved.

@mathew @o @woozle

@dredmorbius @woozle @o @mathew Yup, sounds like the aircraft industry. Interesting to see the same conservatism develop without (much?) government regulation. Was there much competition among insurers? Were *they* regulated or otherwise privileged?

commercial airliners 

@freakazoid There are some interesting exceptions, yes, but most of them show strong evidence of forces encouraging regionalisation.

The film industry is a key case in point. Reels of film, or now, digitial streams or recordings, can be transmitted virtually effortlessly worldwide. The *fixed* infrastructure of film development is largely the support industry: carpenters, casting agencies, caterers, coaches, costume & set designers, electricians.

@woozle @o @mathew

1/

@freakazoid So centres of specialisation appear.

But you also have *globalised* centres, especially in India, China, Japan, and multiple European countries.

Most of that is language, though culture also plays a major role, and government programmes specifically encouraging and suporting an indigenous film industry -- a powerful propaganda and cultural tool, kept under local control.

The auto industry is similar, in respects. Not because it's projectable...

@woozle @o @mathew

2/

@freakazoid ... though cars ship easily, factories don't, so it centralises, at least within countries.

(JIT and improved transport networks are changing that somewhat. Factories are more distributed in the US than they were in Detroit's heyday, but still cluster somewhat.)

But: there are both regional taste differences and economics, as well as national interests involved.

Building cars and military vehicles shares much in common, and military manufacture is ...

@woozle @o @mathew

3/

@dredmorbius @mathew @o @woozle Is physical colocation a problem? It's generally centralization of control or coordination that somehow discourages defection (cartels have tended to disintegrate rapidly historically) that is the problem, right? And often when a company does manage to dominate that's because new entrants have to face regulatory barriers to entry it didn't, like Amazon with sales taxes.

@freakazoid Colocation used to be highly important because there was a lot of interplay between the automanufacturers themselves and supplier pipelines. Sometimes meeting F2F and getting your mitts on metal is the best way to resolve stuff.

That's either not so much the case, or other factors matter more, but you still have forms of clustering which matter, ranging from support industries to education and infrastructure.

Early colo was driven by bulk materials.

@woozle @o @mathew

@freakazoid Detroit was where raw iron ore and steel could be directly offloaded via ship and cars shipped by rail to mostly Eastern markets.

Interestingly, Los Angeles once featured pretty much the largest of every factory plant *outside* the primary core group, within the US. Which is to say: at LA's distance from the Rust Belt, 2ndary localisation made sense.

@woozle @o @mathew

@freakazoid ... of strategic interest. So countries otherwise not particularly vested in car manufacturing sustain it.

Local tastes and regulations vary, so cars get built for specific regulatory and cultural markets, as well as price points -- both inputs and consumers. Hence: much more variance *between* national markets, but typically little *within* them.

Aircraft are somewhat similar, though more constrained.

@woozle @o @mathewi

4/

@freakazoid @dredmorbius @woozle @o Cars may not be a two-player market, but I still maintain that VW has gotten lazy (and indeed downright criminal), lets its quality slip and failed to invest in new tech, while Toyota has focused on making better cars, even if they did make a disastrously bad move betting on hydrogen rather than battery storage. (There's probably an interesting case study there on why they went the way they did.)

@mathew @o @woozle @dredmorbius No case study needed: they did it because hydrogen is heavily subsidized in Japan.

VW's failure to invest in new tech is the case with car makers across the board. Their cheating was to try to avoid losing a bunch of car sales as diesel was essentially getting regulated out of business. Which IMO was a stupid move on the government's part since diesel has lower CO2 emissions than gasoline.

@dredmorbius @woozle @o @mathew Actually I should qualify that - it has lower emission not because its specific CO2 is lower but because diesel engines have higher compression ratios so tend to be more efficient. You can also get more of it from oil without having to resort to cracking. But hybrids are better, so probably not stupid to regulate its emissions, really.

@freakazoid @mathew @o @woozle @dredmorbius You can also decouple compression ratio (which actually increases thermal losses the higher you go) from expansion ratio (what actually improves efficiency) through either crankshaft linkages (true Atkinson-cycle engines) or valve timing ("Atkinson"/Miller-cycle engines with late intake valve closing or an extra valve, Budack-cycle engines with early intake valve closing).

And the compression losses actually mean that, in an engine that has a full compression stroke, optimum compression ratio is about 16:1 - anything more than that, and you start losing more to heat than you get back in expansion, as I understand. (Diesels ran significantly more than that in the past because they needed the excess heat to reliably ignite fuel, but in the 2010s they got down to 16.5:1 for most engines.) There's gasoline engines that run 13:1 on American regular fuel in full Otto cycle operation, though, and 14:1 on American premium/European regular.
@freakazoid @dredmorbius @mathew @o @woozle And, yeah, as much as TDIClubbers like to go on about "but diesels beat their EPA mileage and hybrids don't!"... they only do that if they're cheating and/or you're driving slower on the freeway than the current EPA freeway cycle. And hybrids can beat it too if driven like that.

My pre-Dieselgate 1999 New Golf TDI (which was fairly heavily modified, but one of those mods cheated constantly, improving thermal efficiency) pretty reliably got 47-51 miles per US gallon on the highway - original EPA highway was 49, 2007 re-rated EPA highway is 44.

By comparison, on road trips, my 2016 Prius gets about 54 MPG, versus a rating of 50 highway. And, that's on a lower carbon per gallon fuel. (Better aero does help.)

And then, in the city it does decently, I typically get 40-60 on my commute (if it's spring/fall, 60, summer, 50-55, winter, 40). The TDI would be more like 30-35 MPG on that commute.

@freakazoid Deisel fuel itself has a slightly higher energy content than petrol/gasoline, the engines run at higher compression ratios, and at higher temperatures (Carnot efficiency), all of which net more mileage and lower CO2 emissions.

Emissions of *particulates* (especially PM2.5, v. bad for lungs and health), and of NOx (nitrogen oxidising at high temps and pressures) are *worse* for deisel than petrol engines.

Also possibly sulfer and other sour crude contaminants.

@mathew @o @woozle

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