Made to break

An example of the dynamic inconsistency of consumer choises from knowledge@wharton.

By 2002, more than 130 million still-working cell phones had been "retired" in the U.S. Today, about 250,000 tons of discarded but still usable cell phones sit in stockpiles in America, awaiting disposal....

Is there a solution? Slade touches on design alternatives outlined in another book, The Green Imperative, which suggests that manufacturers simply charge a bit more for durable goods that are more easily taken apart and reused. He adds that such green design measures are beginning to fill the agendas of electronics institute meetings -- a hopeful sign of a sea change. But in spite of this, Slade says in one interview about Made to Break, "A lot of really sophisticated people devoted a lot of time and thought to developing this system" of constant consumption. "We need to look at the problem creatively and rethink it. Our whole economy is based on buying, trashing and buying again. We need to rethink industrial design."

You want something. You buy it. You use it for a time. And then the externality kicks in.
Always remember that disposal is also a part of the product.
You can also check out my earlier post on the topic.

Markets in everything

bodyparts... from Knowledge@wharton

As the cultured host of PBS' long-running "Masterpiece Theater," Alistair Cooke was an emblem of American taste and refinement. Since his death in 2004, Cooke has also become emblematic of a macabre and little-known market: America's distinctly shady traffic in human remains. Unbeknownst to his family, Cooke's bones were cut out before he was cremated and sold for $7,000 to two companies that prepare human tissue for transplant. Cooke's fate was ghoulish in the extreme -- but what is even more disturbing is that it was not at all unusual.
...

The government regulates the procurement of organs and transplantable tissue, but it does not regulate human remains used for research and education. According to the 1968 Uniform Anatomical Gift Act, Cheney notes, it is illegal to buy and sell the dead. But according to this same law, it's legal to recuperate costs involved in securing, transporting, storing and processing cadavers. "Costs," Cheney notes, is an enormously expansive, exploitable term. It can and does mean whatever suppliers and brokers want it to mean.

In practice, the loophole in the Uniform Anatomical Gift Act means that bones, tissue, organs, joints, limbs, heads, and even entire torsos are hot commodities in a marketplace where the demands of researchers, product developers, and doctors far exceed the supply. Heads currently sell for upwards of $900, legs for close to $1,000, hands and feet and arms for several hundred dollars apiece. Fully dismembered and eviscerated, a human corpse can generate close to $10,000 on the open market

Mission statement bashing

from Guy Kawasakis blog:

Who among us has not had the horrible experience of an corporate offsite to build teamwork and to craft a mission statement? The offsite usually went like this:

Day 1: Teambuilding. Selection of cross-functional teams so that, God help us, engineering has to work with sales. A day of exercises such as, “Each of you will come up to the front of the group, turn your back to the group, close your eyes, and fall backwards into the arms of your colleagues. This will teach you to trust your fellow employees.”

Day 2: Crafting the mission statement. A hot, crowded room with easels of white paper and a facilitator who knows nothing about your business. Everyone who is a director level and above in the company is there—that’s sixty people. You each figure you get one word, so at the end of the day, you have a sixty word mission statement like this:

“The mission of Wendy’s is to deliver superior quality products and services for our customers and communities through leadership, innovation, and partnerships.”

Don’t get me wrong. I love Wendy’s, but I’ve never thought I was participating in “leadership, innovation, and partnerships” when I ordered a hamburger there. The root cause of mission statement-itis is that most organizations are run by people who have either gotten an MBA or worked for McKinsey—or both.

give up trying to get people to create short, different, and meaningful mission statements, so go ahead and spend the $25,000 for the offsite, facilitator, and consultants to create one. However, you should also create a mantra for your organization. A mantra is three or four words long. Tops. Its purpose is to help employees truly understand why the organization exists.

If I were the CEO of Wendy’s, I would establish a corporate mantra of “healthy fast food.” End of story. Here are more examples of corporate mantras to inspire you:

Federal Express: “Peace of mind”
Nike: “Authentic athletic performance”
Target: “Democratize design”
Mary Kay “Enriching women’s lives”

The ultimate test for a mantra (or mission statement) is if your telephone operators (Trixie and Biff) can tell you what it is. If they can, then you’re onto something meaningful and memorable. If they can't, then, well, it sucks.

If you still insist on doing a mission statement, then at least let me help you save a lot of time and money. Just go to the Dilbert Mission Statement Generator. There, without a consultant, facilitator, and offsite, you can get the mission statement of your dreams.

Crowdsourcing... Another name for User-generated content

From BusinessWeek

Every business has customers who are sure they could design the products better themselves. So why not let them? Crowdsourcing is the unofficial (but catchy) name of an IT-enabled business trend in which companies get unpaid or low-paid amateurs to design products, create content, even tackle corporate R&D problems in their spare time.

Also check out the Lego story

Prediction markets in companies

From BusinessWeek

But can groups working in a system like that really make better decisions than a few well-informed individuals? It's a radical notion for many in the corporate world, where CEOs and a handful of other executives are paid top dollar for presumed expertise.

And yet the idea is commonly accepted in the stock market. "Firms are comfortable with markets; it's a bit puzzling why they don't use them more often internally," says Todd Henderson, a professor of law at the University of Chicago.

Experts say prediction markets can work well for companies because they give a voice to employees who might not otherwise speak up. The markets are particularly useful in areas such as consumer goods or technology, where change is rapid and companies need to adapt quickly or get left behind.

The importance of names ... Now also for IPOs

Seen at Mahalanobis

The ease of pronouncing the name of a company and its stock ticker symbol influences how well that stock performs in the days immediately after its initial public offering, two Princeton University psychologists have found.

A new study of initial public offerings (IPOs) on two major American stock exchanges shows that people are more likely to purchase newly offered stocks that have easily pronounced names than those that do not, according to Princeton's Adam Alter and Danny Oppenheimer. The effect extends to the ease with which the stock's ticker code, generally a few letters long, can be pronounced -- indicating that, all else being equal, a stock with the symbol BAL should outperform one with the symbol BDL in the first few days of trading.

Here's the abstract from news@princeton:

Three studies investigated the impact of the psychological principle of fluency — that people tend to prefer easily processed information — on short term share price movements. In both a laboratory study and an analysis of naturalistic real world stock market data, fluently named stocks robustly outperformed stocks with disfluent names in the short term. For example, in one study, an initial investment of $1000 yielded a profit of $112 more after one day of trading for a basket of fluently named shares than for a basket of disfluently named shares. These results imply that simple, cognitive approaches to modeling human behavior sometimes outperform more typical, complex alternatives.

Nobody makes you shop at Wal-Mart...

In the book No one makes you shop at Wal-Mart by Tom Slee some of the dynamics of choise is presented...

First of the classical view:

It is now conventional wisdom that individual choice tames the wild tigers of private industry, and that free markets provide the mechanism for it to do so. Our ability to walk away, to choose not to buy what they are trying to sell, is the ultimate source of power in a free-enterprise society. The economy is a great democracy in which we cast our votes not once every few years, but each and every time we make a purchase. In the face of our choices, business has no choice but to respond to our demands, or even to our whims. Adam Smith's "invisible hand" of the market guides them to carry out our bidding. Brand-name companies, for example, are powerless in the face of individual choice. The British business magazine The Economist points out that "Brands do not rule consumers; consumers rule brands." According to one corporate consultant the magazine quoted, "When we like a brand we manifest our loyalty in cash. If we don't like it, we walk away. Customers are in charge."
...choice is useful only if it helps you to get what you want. And the thing is, it often doesn't.

The book presents a good example of the dynamic inconsistency that may arise with regards to choises:

Jack lives in Whimsley. Some time ago Jack used to do most of his shopping in the downtown area--of course, he no longer does--and he also used to walk through the downtown before crossing Whimsley Park on his way to work.

Jack shares an eccentric trait with the other inhabitants of Whimsley: he has an odd way of making choices. As he goes about his daily life, when faced with a decision he assigns numerical points to the benefits and costs of the available options, and he chooses the option that gives the most points.

Let's follow Jack's reasoning as he thinks about what life was like when he shopped in the downtown area.

Value. I did much of my shopping at the two downtown department stores. They provided reasonable selection and price. They were worth two satisfaction points per week.

Variety. I liked the variety of the two stores. Sometimes I went to one store, sometimes the other, depending on what I needed, how much time I had, what other errands I had, and so on. The variety of having two stores was worth an additional two points.

Atmosphere. I assigned myself another two points each week from my enjoyment of the thriving downtown as I walked through it on the way to work.

Jack was happy to the tune of six points per week: two for selection and price, two for the variety of shopping options he had available, and two for the atmosphere of the thriving downtown.

A few years ago Wal-Mart opened a new store on the outer edge of Whimsley. Wal-Mart has huge economies of scale and tremendous bargaining power with its suppliers, and thus is able to offer the lowest prices. Like any consumer, Jack likes low prices. So Jack started shopping mainly at Wal-Mart.

For a while things were pretty good. Jack was happier because of Wal-Mart's arrival in town. Here is his reasoning.

Value. By shopping mainly at Wal-Mart I not only continue to have a reasonable selection but I also get lower prices. So I give myself three points per week for price and selection, instead of the two I used to get by shopping at the downtown stores.

Variety. What's more, Wal-Mart has extended my range of options: I assign myself an additional satisfaction point for the extra variety that Wal-Mart introduces, because on the days I don't feel like trekking out to Wal-Mart I can still visit one of the other stores and get what I need.

Atmosphere. There is no change to the atmosphere of the city, so I still get my two points for atmosphere.

Soon after Wal-Mart arrived, then, Jack was getting eight points per week: three from Wal-Mart's selection and everyday low prices, three from the expanded variety he has available, and, as before, two from walking through the lively downtown to work. Jack was happier than before Wal-Mart built its store.

* * *

Of course, Jack was not the only person in Whimsley to be making choices, and that is where his problems started. Like him, many other people started to shop at Wal-Mart. The smaller department stores downtown started to have troubles, and gradually they went out of business.

Wal-Mart became the only department store in Whimsley. Jack had to shop at Wal-Mart all the time, like it or not. As a result, Jack's points for variety moved down to just a single point. Jack wanted more variety, but instead he got less. With the closing of the downtown department stores, Jack was down to six points per week again. He was as happy as before Wal-Mart came, but no happier. That's not too bad. At least Jack was no worse off than he was before.

But Jack's problems did not stop there. Once the downtown department stores closed, the slower customer traffic in the area meant that other stores closed too. Now downtown is not so interesting anymore: a number of shops are boarded up, others have been replaced by dollar stores, and the buildings are shoddy. Jack does not enjoy walking past the rundown area on the way to work. It gives him no pleasure. No points.

Now Jack has only four points per week. He is less happy than he was before Wal-Mart came.

In the beginning Jack made a choice that he believed would make him happier, but now he finds that he is less happy.

Stock market dynamics vs. counterterrorism

First seen at mahalanobis...
Zussman and Zussman (2005) Assassinations: Evaluating the Effectiveness of a Counterterrorism Policy Using Stock Market Data:

Abstract: Assassinating members of Palestinian terrorist organizations was a major element in Israel’s counterterrorism effort during the Palestinian uprising which started in 2000. We evaluate the effectiveness of this policy indirectly by examining Israeli stock market reactions to assassinations. Our approach relies on the assumption that the market should react positively to news of effective counterterrorism measures but negatively to news of counterproductive ones. The main result of the analysis is that the market reacts strongly to assassinations of senior members in Palestinian terrorist organizations: it declines following attempts to assassinate political leaders but rises following ttempts to assassinate military ones.

Beaty vs. Supply and Demand

From the freakonomics blog

Why Do Beautiful Women Sometimes Marry Unattractive Men?
It may be that the unattractive man has a lot of money, or some other compelling attribute.
But a new study by Satoshi Kanazawa, an evolutionary psychologist at the London School of Economics, suggests it may be a simple supply-and-demand issue: there are more beautiful women in the world than there are handsome men.
...

According to this news article, “Selection pressure means when parents have traits they can pass on that are better for boys than for girls, they are more likely to have boys. Such traits include large size, strength and aggression, which might help a man compete for mates. On the other hand, parents with heritable traits that are more advantageous to girls are more likely to have daughters.”

Beauty is apparently just one “female” trait. Kanazawa has done previous research suggesting that nurses, social workers and kindergarten teachers—those with “empathic” traits—also had more daughters than sons. Meanwhile, he found that scientists, mathematicians and engineers are more likely to have sons than daughters.

Another reason why wars are inefficient...

Alex Tabarrok at marginal revolution:

In Fiasco Thomas Ricks' says the war on Iraq and subsequent occupation was ill-conceived, incompetently planned and poorly executed. I have no quarrel with that. What dismays me is that anyone expected any different. All wars are full of incompetence, mendacity, fear, and lies. War is big government, authoritarianism, central planning, command and control, and bureaucracy in its most naked form and on the largest scale. The Pentagon is the Post Office with nuclear weapons.

The question is then...
- What if wars were fought by private contractors?
- If they were, would they be more efficient?

Is the music industry finally pursuing the long tail?

Lower fixed costs reduce the breakeven level of sales. So isn’t the long tail really just a hedging strategy that seeks to reduce the risk of the cash flows?

from knowledge@wharton

EMI Music announced on July 6 that it would back a yet-to-be-named record label, started by a management company called The Firm, that abandons the recording industry's traditional royalty payment system for what EMI terms a more "artist-friendly" profit sharing scheme. Instead of paying artists upfront and taking the bulk of the profits later, The Firm will split profits with artists signed to the venture. In theory, this arrangement should lower the risk and upfront costs of finding new talent and encourage more innovative promotion. "You have to give the recording industry credit for realizing that the barriers to entry are lower," says Kendall Whitehouse, senior director of information technology at Wharton. "The industry no longer has a chokehold on distribution. Indie bands promoting their music on [websites like] MySpace are changing the rules."