MIT. Photo: M. Scott Brauer

Essentially, the idea is a (perhaps limited) alternative mode of 3D-printing: simply place a small, model object into the “sandbox,” and the “sand” replicates a life-size version of the model.  And all this occurs in a distributed, sporder-like fashion.  

A heap of smart sand would be analogous to the rough block of stone that a sculptor begins with. The individual grains would pass messages back and forth and selectively attach to each other to form a three-dimensional object; the grains not necessary to build that object would simply fall away.

Assuming that I understand the computer science behind this, the key to this system (and what makes it a sporder), is an algorithm that distributes the intelligence and the processing power among millions of grains of “smart sand,” rather than establishing a central processing unit to micromanages each grain from above.  This is the only way to achieve this complex wonder efficiently – otherwise it would require a gargantuan amount of resources to run.

The ruleset and mechanism that places the spontaneous construction in the hands of the “agents” is as follows:

According to Gilpin-author on the new paper, the grains first pass messages to each other to determine which have missing neighbors. (In the grid model, each square could have eight neighbors.) Grains with missing neighbors are in one of two places: the perimeter of the heap or the perimeter of the embedded shape.

Once the grains surrounding the embedded shape identify themselves, they simply pass messages to other grains a fixed distance away, which in turn identify themselves as defining the perimeter of the duplicate. If the duplicate is supposed to be 10 times the size of the original, each square surrounding the embedded shape will map to 10 squares of the duplicate’s perimeter. Once the perimeter of the duplicate is established, the grains outside it can disconnect from their neighbors.

The beauty of this approach is that it is bottom-up and “consumer”-driven.  People pay for the projects that they are most passionate in, and contribute an amount they are actually willing and able to pay.  In this way, it actually is a very good proxy for actual demand for scientific research.  Standards also have emerged to solve adverse selection and moral hazard problems to ensure that people aren’t wasting their money on some second-rate scientists or con-men who will simply take the money and run.  Petridish vets scientific researchers and their projects are made as transparent to the public as possible when people choose to donate.

Contrast this to the current, largely State-funded science program.  Most research is financed by grants, whereby institutions and scientists petition an agency of the federal government (e.g. The National Science Foundation) for use of taxpayer funds based on some criteria that could be subject to political abuse.  It is not calibrated to the actual demands of society and has no ability to calculate the net benefit (or costs) to society for lack of a feedback mechanism: if it were a business, this would be earning a profit or a loss; if it were a non-profit it would be how much donors are willing to pay to continue financing it.  Grant-writing has also become more of a profession than the actual research.  But I won’t steal Toban’s thunder – read his paper.

Petridish is an innovative, entrepreneurial workaround the stagnating State-science system. It will be interesting to see what scientific research comes out of it.

These army ants are blind, and they each follow pheromone scents of other ants to navigate around the environment.  Since all ants follow this same simple ruleset, it seems that if there’s no ant that knows where it’s going independent of the scent of other ants, there is an unfortunate vicious circle effect: each ant follows every other ant, which in turn is following every other ant, tragically spiralling around until they all die.

Perhaps related, it seems that when displaced from their colony, ants search for the path home in a spiral pattern, navigating in ever-wider circles and occasionally doubling back to their start location.  Perhaps that is what happened here, and there was a critical mass of ants such that all the ants navigational ruleset was overwhelmed by the presence of other local ants (and their pheromones).

It goes to show that not all sporders can yield benefits, and some can be downright detrimental.  We must always fear the naturalistic fallacy that “because it exists naturally, it is good.”  I guess army ants should always stick close to the colony, or at least venture off to far distances only in small numbers.

For inquiring minds, I stumbled across this random-yet-interesting topic from a reddit askscience thread, which are always good.

Language, of course, is a sporder like many others – where we can conceive of individual words as the “agents” that collectively cultivate a vocabulary that emerges among speakers.  Roughly, individual words compete against other words for describing precise ideas, and certain words are collectively selected over time based on their characteristics (length, spelling, economy, phonetics, aesthetics, dialects, etc).

The authors classify their findings under the new empirical science of culture, or “culturomics” as they call it.

Unfortunately, I was unable to find the original journal article with the published findings in Science.

Since then, I came across a mind-blowing paper by Robin Hanson that makes a powerful case for using prediction markets on scientific hypotheses to sharply reduce bias and systemic error from science: Could Gambling Save Science. I highly recommend looking at Hanson’s paper, it’s a very interesting and exciting idea. In light of this, I updated my paper with a section on prediction markets as the best solution we are likely to get.

Read it here: Spontaneous Order, Interventionism, and the Integrity of Science.

A quick overview of AI War stolen from the wiki for the game:

• Cooperative RTS (real time strategy)  game (1-8 players) with numerous unique ship types.
• Challenging AI in 26 styles, 20 additional with the first two expansions; many with unique superweapons.
• Insanely high unit counts: 30,000+ ships in most games.
• Lengthy campaigns featuring up to 120 simultaneous planetary battlefields.
• Different Every Time: 16 billion procedural maps, each with specific units.
• A focus on deep strategy that you don’t get in most RTS games.

This year I have the privilege of helping to run ICES’ High School Economics Workshops.  In doing so, I get to introduce interested students to the economic way of thinking, and take them on a romp through all the various sub-fields, and analyze all the classic economic & policy problems from minimum wages to rule of law.  But the most important and most difficult (at least in my view) lecture is the first one – a cold introduction economics.

I’ve always thought that Principles courses are the most important in undergraduate economics departments – they’re the classes that most students will take (by requirement) and it will be their only exposure to [good] economics, quite possibly in their lives.  Don’t worry about the actual Econ majors – sure they’re important too, but there’s several courses in Micro, Macro, and 3 or 4 field courses for them to hone their skills and beliefs.  I’ve learned from some of my mentors and professors that Econ 101 is really the chance to correct all of the fallacious beliefs that today’s youth have about the world, and replace them with solid, economic thinking.

If we’re being honest, in Econ 101 we’re spreading “good” propaganda to counter all the “bad” propaganda that students have been exposed to their whole lives (and will continue to be overwhelmingly exposed to).  It’s Econ 101 that correctly teaches that protectionism, tariffs, minimum wages, & government regulation tend to be bad, decentralized markets & voluntary cooperation tend to be good, and that we need to restrain ourselves from our overconfidence in forseeing unintended consequences.  It is often the first course (maybe the only course, other than those in philosophy) that actually teaches people to critically analyze their sincerely-held beliefs.

So how do you teach it?  What do you focus on?  What’s the style?  

It’s these questions that have preoccupied me with perfecting the first class.  Sure the successive classes on comparative advantage, supply & demand, the business cycle, money, etc are interesting, fun, and also important, but I’m most worried about the first impression.

I’ve taken at least two attempts at outlining a different style of first class.  There’s three quotes that motivate me:

Economics is primarily useful, both to the student and to the political leader, as a prophylactic against popular fallacies.

-Henry Calvert Simons

 

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

-Friedrich A. Hayek

 

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

-John Maynard Keynes

Several years ago, when I was a hardcore Austrian and somewhat naive, I made some powerpoint lectures on economics, and also wrote my first serious post on my blog called ”In Defense of [Austrian] Economics.” My intentions with both of these were to introduce economics to people unfamiliar and skeptical about the complexity, technicality, and dullness of the subject by vilifying mainstream neoclassical economics and praising an Austrian conception of economics as something interesting, practical, and intelligible enough to the average person that it was common sense.  I’ve changed quite a bit since then intellectually, and I like to think I have a munch more nuanced opinion – I shudder as I think back to some of the things I said those outlets.

This time, I wanted to do it differently – a blended and easy-going approach that doesn’t play on any ideology.  I was far too quick to do that last time.   But the question is – what’s the most important topics to introduce first?  And how do you answer the question that must be answered right off the bat – what is economics?

• Methodology – how we economists view and analyze the world in the framework of rational actors pursuing their own goals?
• Public policy analysis – how we can analyze the consequences of public policies and recommend what is good and what is bad for a free and prosperous society?
• Spontaneous order – the beauty of how individual people, only seeking their own interest, and without governments, are able to fulfill their goals and have everyone gain through market exchange?
• Coordination problems – the wonder of how people are selfish and yet we have solved the massive logistics problem and “the cities get fed”?
• Social Philosophy – how and why it is that human beings cooperate in a stable society instead of exploiting each other in a Hobbesian jungle
• Social Science – how we can describe the way the world works, and why it does better than any other way

So I have a lesson that distinguishes economics from all of the popular misconceptions people have about it, launch into a few sketches at a definition of economics, roughly create a model of human action, describe subjective value, the value of using economics in policy, distinguishing positive & normative economics, and exploring incentives (I have roughly a 30 minute window).

So, to my economist friends, especially those in Grad School with me here, what would you do?

And by the way, anyone (who knows someone) in High School in the Fairfax, Arlington, Northern Virginia/DC-Metro area better (get them to) sign up for our workshops!

 For the most part, the wealthy bust their tail, work 60-80 hour weeks building some game-changing product for the mass market, but at the end of the day they can’t enjoy much that the middle class doesn’t also enjoy. Where’s the fairness? What does Google founder Larry Page have that you don’t have?

Sure there’s a lot wrong with the world, but we should be celebrating our achievements over the past few centuries.  Even those that Occupy Wall Street sport iPhones and sip Starbucks lattes.  That’s not a a jab at their cause, but a recognition that most Americans can enjoy a standard of living with roughly equal access to satisfy both basic human needs and the desire for technological goodies.

The secret, of course, is, and has been markets.  To get rich, one must create a product that people are willing and able to buy – that is, to serve other people and make them better off.  The more people one serves, the more income one gains.  [And income is a result of an action, not a cause.  The rich must earn income by first serving others.]  Businesses do not sell only to rich people, but to the masses, at prices that they can afford.  Otherwise, businesses would rarely reach the size they are today.

While there’s much to be said about the maladies of big business, nobody would have a smartphone if Google and Apple weren’t so massive.  And they could only get massive due to the fact that so many people are happy enough to buy their products.  [Of course, all too often these days fortunes can also be made by using the government to gain legal privileges and extract taxpayer money.]  But only markets and an open social order allowing people to serve each other for their own gain could supply food to the cities (a mind-boggling logistical question), employ billions of people, and accomplish other complex social tasks.

The Model-T, cheap oil, and televisions were made not for the elite’s luxury, but for the average man’s salary; and of course there are a million unintended consequences, new products, and companies that would not have existed if it weren’t for those original innovations.  Kessler echoes this sentiment with his comment that:

 Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve. It’s the Pages and Bransons and Zuckerbergs who have made the unequal equal…

Even the worst off in America still enjoys a higher standard of living than 19th Century kings.  Certainly there are a host of problems, tragedies, and other reasons to help the poor, by and large, “poverty” in America still means access to “air conditioning, cable TV, and a host of other modern amenities.”  And they also seem to enjoy more leisure time than the rich.

Across the world and the span of human history, anyone currently living in America is surely in the 1%.

Earlier this fall, an article came out on Geekwire’s website featuring an interview with Gabe Newell, the man in charge of one of the most successful PC game developers and distributors – Valve Corporation.  This interview highlights a lot of strange, interesting, and puzzling phenomena found in the online PC market that puts a lot of economic principles to test.

Valve is in a unique position to collect data and analyze economic theories, being the largest distributor of online PC games through their Steam distribution service.  Through Steam, Valve can observe consumer behavior, purchases, and game activity in real time and base policies on data trends.

I want to highlight three interesting insights that emerge from the interview, and provide some brief commentary on what makes them so strange, and how we might go about exploring their consequences.  Some of the language of the interview is a bit unclear, so below is my attempt to glean the basic results of it.  

Piracy and Service 

On the subject of internet piracy where it is so easy for players to simply download proprietary software without paying, Newell surprisingly describes:

One thing that we have learned is that piracy is not a pricing issue. It’s a service issue. The easiest way to stop piracy is not by putting antipiracy technology to work. It’s by giving those people a service that’s better than what they’re receiving from the pirates.

 

On a personal note, I find it extremely refreshing to hear comments like this when many developers and trade associations would rather spend millions of dollars on rent-seeking for government-backed intellectual monopolies and litigation against violators.  That’s money that could have been spent innovating and improving games as opposed to simply enforcing the status quo of already-produced games.

Newell and Valve would rather focus on the serving the customer.  And Newell’s statement is true, to boot – that people will buy games if they expect a better quality experience from the product than if they were to illegally download them and risk a lower quality experience.    Downloading software increases the risk that one will be exposed to a virus, a poorly-modded version of the game, an incorrect keygen, or other unwanted discomforts.  Pirate software also may void the possibility of getting custom support or add-ons to games.  By focusing on customer service and feedback, Valve can sidestep much of the issue by out-competing pirate software which has crap service.

How Do Consumers React to Price Changes?

Now we did something where we decided to look at price elasticity. Without making announcements, we varied the price of one of our products. We have Steam so we can watch user behavior in real time. That gives us a useful tool for making experiments which you can’t really do through a lot of other distribution mechanisms. What we saw was that pricing was perfectly elastic. In other words, our gross revenue would remain constant. We thought, hooray, we understand this really well. There’s no way to use price to increase or decrease the size of your business.

 

Assuming Newell’s data is correct, this is a very intriguing conclusion to make.

For noneconomists, price elasticity (of demand) is the responsiveness of consumers to change how much of a good they demand when the price of that good changes.   Technically, it’s the ratio of percentage change in quantity demanded to the percentage change in price.  It’s usually a proxy to measure how “flexible” consumers are, and businesses judge how much revenue they can raise by altering the price.  A business’ revenue is simply the multiplication of the price (per unit) times the amount of units sold.

Perfect elasticity means that the (percentage) change in quantity demanded is infinitely larger than the (percentage) change in price.  Intuitively, this means that any attempt to raise (or lower) the price will result in demand dropping to zero, and nobody will buy the product, period.  This is usually the case (in a less extreme form) where there are many substitutes for a good (e.g. cola-drinkers will switch from Coke to Pepsi when Coke gets too expensive).

If demand for Valve games truly is perfectly elastic, that means that players have a certain price in mind that they will buy games if, and only if, the games are sold at that price.

Valve continued testing the elasticity of their customers’ demand to find falsify this theory:

But then we did this different experiment where we did a sale. The sale is a highly promoted event that has ancillary media like comic books and movies associated with it. We do a 75 percent price reduction, our Counter-Strike experience tells us that our gross revenue would remain constant. Instead what we saw was our gross revenue increased by a factor of 40. Not 40 percent, but a factor of 40. Which is completely not predicted by our previous experience with silent price variation.

This would imply a very elastic demand, but not a perfectly (or infinitely) one.  That implies that the (percentage) change in quantity demanded still overpowers the (percentage) change in price, but customers are still willing to purchase the good at different prices.  This means that total revenue (remember, it’s price times quantity sold) skyrocketed since a slightly lower price is overpowered by a much greater quantity.

As for accounting for the variance among these experiments, several explanations might be possible.  Different games might face different demands by consumers, so an experiment in one game might not be perfectly replicable on another.  Newell’s team accounts for the variance in the data with a different explanation:

Then we decided that all we were really doing was time-shifting revenue. We were moving sales forward from the future.

This means that more people who were probably going to purchase the game in the future (when they had saved enough money perhaps) purchased it immediately upon noticing the drastic reduction in price.  This also risks something called “cannibalization” – a phenomenon where two products from the same company (in this case, present and future purchases of the same game) compete with each other and the success of one product may destroy the other (buying the game now prevents one from buying it in the future).  But again, Valve’s research falsified this hypothesis:

Then when we analyzed that we saw two things that were very surprising. Promotions on the digital channel increased sales at retail at the same time, and increased sales after the sale was finished, which falsified the temporal shifting and channel cannibalization arguments. Essentially, your audience, the people who bought the game, were more effective than traditional promotional tools. So we tried a third-party product to see if we had some artificial home-field advantage. We saw the same pricing phenomenon. Twenty-five percent, 50 percent and 75 percent very reliably generate different increases in gross revenue.

It’s difficult for met to interpret what the final results were, but it seems to be that the price is fairly elastic, and this effect is amplified by word of mouth: a few people realize that a game (maybe their favorite game they already own, or one they had always wanted to buy but it was previously too expensive) is now vastly cheaper, and tell their friends to buy the game.  The amplification may also be due to the fact that many of these games are multiplayer, so someone who already has the game benefits from their friends buying the game and joining the fun.  This, in turn, creates a greater incentive for the game-owner to tell their friends about the sale.

“Free to Play” is More Attractive than Simply “Free”

Valve also experimented by advertising some of its games as not only “free” in the ordinary sense of the term (a price signal), but “free to play.”  They discovered a surprising surge in demand when something was “free to play” but not necessarily when it was simply “free.”

Why is free and free to play so different? Well then you have to start thinking about how value creation actually occurs, and what it is that people are valuing, and what the statement that something is free to play implies about the future value of the experience that they’re going to have.

I think this difference highlights two interesting facts:

First, language is extraordinarily meaningful and we construe all of our actions within the web of language.  A single word, and all of its connotations, can dramatically alter our actions.

Second, Newell seems to imply here that  players are making an intertemporal choice (comparing the value of something now compared to the same object’s value in the future) – expecting that something that is “free” means that the developer is no longer interested in maintaining the quality of the product, whereas something that is “free to play” implies that the developer will continue to maintain and marginally improve the product in response to customer feedback.  Something that is “free” simply means instant gratification with high diminishing marginal returns, but something that is “free to play” may imply a longer stream of benefits extending into the future, thus making its present value much higher.  Again, this boils down to the players interpreting the semantical difference of “free” versus “free to play.”

In Sum

I can’t say it any better than Newell’s own summary of the odd economics of modern gaming:

“We don’t understand what’s going on. All we know is we’re going to keep running these experiments to try and understand better what it is that our customers are telling us. And there are clearly things that we don’t understand because a simple analysis of these statistics implies very contradictory yet reproducible results. So clearly there are things that we don’t understand, and we’re trying to develop theories for them.”

How to go about getting better government is an age old problem. But economics has some profound insights to offer. In free markets, competition serves to create market prices, which enable economic efficiency and cooperation on a global scale; competition creates strong incentives for firms to be accountable to their customers; competition from other firms limits the power of any one firm.

Competition between governments can bring these benefits to politics. But governments are large territorial monopolies, and citizens are basically captive given the costs of switching countries. Enter Patri Friedman (grandson of the famous economist Milton Friedman), a visionary who wants to build floating self-governing cities on the ocean. Patri analyzes governance as an industry, and points out that there has been practically no innovation at all since the advent of representative democracy. There are no start-ups experimenting with new ideas in governance. This is because the costs of entering the industry are enormous: since all land has been claimed by governments, you would need to win a war or a revolution.

Patri’s solution is to build on the ocean and open up a new frontier for startup governments to innovate and compete for customers. He founded the Seasteading Institute to make it happen. A similar land-based vision is promoted by the fellow-traveler Free Cities Institute. A related project is the Charter Cities initiative, which is essentially to replicate the Hong Kong model by creating special economic zones governed by market friendly rules.

Provided that international legal challenges can be overcome, these projects to create start-up governments and increase competition between governments could very likely radically transform the world. The benefits are too many to count, but I’ll list a few important ones. There would be much more choice of what type of society you could live in. More importantly, people in countries with bad governance (i.e., the third world) would have new opportunities to escape, especially since start-up countries would be seeking new residents. Competition would foster innovation and discovery of better rules and institutions that every other government could adopt. And emigration from bad countries to good countries would put competitive pressure on bad countries to shape up or lose its residents.

This decentralized, bottom up approach to revolutionizing politics is a great example of the power of spontaneous order. In fact, this was the central motivation for the whole Sporder project. Our long term goal is to create a virtual frontier—in a massively multi-player video game—to allow for the emergence of social order from within the game. Let a thousand nations bloom!

Here’s a short video of Patri Friedman explaining why seasteading is such an amazing idea: