Subject: Re: near/medium future digital media economics
From: "Stephen J. Turnbull" <turnbull@sk.tsukuba.ac.jp>
Date: Mon, 22 May 2006 01:36:21 +0900

>>>>> "Ben" == Ben Tilly <btilly@gmail.com> writes:

    Ben> On 5/19/06, Stephen J. Turnbull <stephen@xemacs.org> wrote:

    >> I'm not talking about "talking", I'm talking about connection.
    >> You know, the kind of connection that associates you with the
    >> company that administers so-3-0-0.mpr2.iad5.us.above.net, or
    >> with the Tsuchiura office of Nomura Shoken.  Didn't know about
    >> those, did you?  So you obviously didn't "talk" to them
    >> personally, and those connections cost you no time, though you
    >> almost certainly connected to the former, and quite likely are
    >> fuzzily connected to the latter ("shoken" means "securities
    >> broker" in Japanese).

    Ben> Are you counting connections as a cost, or as a value?  Of
    Ben> course connections that I don't make don't cost me anything.
    Ben> But neither do I value them.  Nor do they generally value me.

Didn't I write that you *did* make connections to those nodes?  You
just didn't "talk" to them.  You talked *through* one, and received
option value aka network externality from the other.

As for the classification of "connection", I'm counting them as both
cost and value, of course.  In the paragraph above, they appear as a
"fact", and as a cost.

    Ben> People talk for more than social reasons.

I'm sorry.  Let me make it explicit: I'm defining any reason for
*talking* as "social."  (If that's not acceptable, I can use other
terminology.)  Communication in work is a social activity among the
humans in the organization.  Non-social connections are connections
that occur in the mechanism that do not necessarily connect two or
more humans.  Connections may exist but not be used.  You and I are
connected 24x7 by the email network.  Right now it may seem like we're
using it 24x7, but we also go months without seeing each other's
bylines, let alone communicating with each other.  On the other hand,
I can send you a question quite out of the blue, and have done so,
haven't I?  (n.b., yes, there was a personal connection, that was not
random; but spam is, more or less.  I'm not talking about cost or
value here, just connection.)

We *are* connected, and that connection has implicit value (option
value, network externality) whether or not we actually use it.

    Ben> That said, though, a brief business communication between
    Ben> CEOs has sharply different value than a lengthy
    Ben> correspondence between two rank-and-file employees.  (If the
    Ben> value of different communications follows a power law
    Ben> though, then the difference in value of different
    Ben> communications matters far less than one would expect.)

And if the value of communication has any relation to wage rates, the
difference in value is exponential in number of levels of
subordinates.

    >> So I conjecture we have several generations of "mere" economic
    >> growth to pass through before the kinds of consumption activity
    >> you focus on present a binding constraint on network valuation.

    Ben> The common result pops up in many different ways.

Mostly asymptotic.  As Edward Lasker said, "Before the endgame, the
gods have seen fit to place the middle game."  For the forseeable
future we need to talk about the middle game.

    Ben> What seems to matter here is not the type of consumption
    Ben> activity that is happening, but rather the pattern of how
    Ben> connections are formed.  When people are using the network to
    Ben> connect with random strangers with very different interests,
    Ben> then Metcalfe's Law will hold very well.  When people use the
    Ben> network to communicate with the same people day in and day
    Ben> out, then Metcalfe's Law doesn't appear to work so well.

    Ben> I submit that most kinds of networks fit the second
    Ben> description better than the first.

What-we-think-of-as-networks networks, maybe.  However, if you accept
my thesis that markets are trivial networks, then most formalized
existing networks are Metcalfian.  I'd also like to point out that
you've made a typo.  Metcalfian networks arise when there are lots of
random strangers with *closely aligned* interests (though the common
interest may be very limited, you know that they're more or less
aligned in advance).

    >>> What search technology *may* make possible is scaling up
    >>> search in a heterogeneous network to a billion participants or
    >>> so.

    Ben> It does.  However what do people search FOR?

    >> I'm not talking about people doing the searching.  Read what I
    >> wrote, I said that explicitly.

    Ben> I am very confused about what you meant here.

    Ben> If you mean that searches are conducted by computers, then
    Ben> we've just talked past each other.

No, that's not what I mean.  I'm distinguishing among whether the
searches are explicitly initiated by a human, or whether they are
implicit in a higher-level request.  Eg, suppose I asked a human
secretary who was handling my FSB correspondence to "get me Ben
Tilly's phone number."  He might search my emails; even if your public
FSB persona doesn't provide it, your personal email might.  Google.
Call the phone company.  Check the paper files.

There's no reason why a Sufficiently Smart Search Engine can't do the
equivalent of all of that.  Of course "social engineering" the phone
company into giving up your unlisted number would require more than
Google (maybe an overclocked HOLMES IV could do it :-).  That requires
*a lot* of connections over several conceptually different networks (I
did mention "multigraphs", didn't I?)

    Ben> If you meant that people are not determining the searches
    Ben> that need to happen, then you didn't say that explicitly.  At
    Ben> least not in the quoted section, and not in the original
    Ben> email that I was responding to (I went back and checked).

From the message you are quoting:

    sjt> I'm not talking about "talking", I'm talking about
    sjt> connection.  You know, the kind of connection that associates
    sjt> you with the company that administers
    sjt> so-3-0-0.mpr2.iad5.us.above.net, or with the Tsuchiura office
    sjt> of Nomura Shoken.

From the "original email that [you were] responding to":

    sjt> Can we get to the other extreme, constant marginal cost below
    sjt> average value?  If we're talking about communication networks
    sjt> among humans, no.  Social contact of positive value requires
    sjt> time bounded below on the order of a second or so (however
    sjt> long it takes to perceive your baby's smile), and there are
    sjt> only a finite number of seconds available to each of us.

    sjt> However, anonymous networks (eg, markets) or machine-mediated
    sjt> communication (sorry, no examples---that's Tom's job! ;-)
    sjt> might come pretty close, at least up to population levels
    sjt> feasible for humans on this planet.

Granted, the connection to Google search isn't explicit.  But I think
it should be clear that I'm not thinking about personal connections,
whether purely "social" in the sense you were thinking about, or as
role-based as arresting officer and suspect.

For that to make sense in this context, there has to be an emergent
effect based on "man Friday" software that "intelligently" generates
lots of queries across the network.

Whether I can justify that in the sense of making more than pure magic
designed to make Tom's dream come true is a different question.

    Ben> Tom's claim of an emergent effect is based on his estimates
    Ben> of potential value which is in turn based on Metcalfe's Law.
    Ben> However he's talking about a kind of interaction where I
    Ben> believe Metcalfe's Law fails, which is kind of an important
    Ben> wrench in his analysis.

Sure.  And I agree with your analysis given the assumptions I
understand you to be making.  But I've been doing this kind of
analysis for far too long to trust my intuitions and analysis when
we're talking about claims of "new" and "emergent."  I want to give
Tom a fair amount of rope; he might just invent bungee jumping.

Also, while Tom keeps saying "Metcalfe's Law," I think that n log n is
quite sufficient to make his thesis interesting.  My feeling is that
with current technology, we're talking something much lower than value
= O(n log n) for wikipedia, etc.  And there's also the problem that
there's actually growing content there, so it's not a pure matching
problem---there's decreasing returns to scale for wikipedia content.
And I think the frictions that make patents suck apply here, too.  But
I certainly hope for something superlinear.

    Ben> If it is an emergent effect that is dependent on search
    Ben> technology, then I'd bet that it will be Google who will
    Ben> succeed in delivering it.  :-)

I'll take $100 of that bet, please.  Small, unmarked bills---you can
just send it now.  If it's an "emergent effect", then no single
company *can* deliver by definition.

    Ben> it has only clarified for me exactly how much work it would
    Ben> take to try to make any kind of precise estimates.  All that
    Ben> I hope for now is useful generalizations, and an
    Ben> understanding of what you have to investigate to get more
    Ben> precision.

Uh, a statement of what you have to investigate to get more precise
estimates is what I mean by "precision".  Not the estimates themselves.

    Ben> I sometimes have trouble figuring out what you've said, and
    Ben> now you want me to try to figure out what you haven't said?
    Ben> You aren't asking for much, are you? :-/

I'm asking for one hell of a lot.  You can always say, no, I don't
care enough to do that much work.  But ... you've already done a lot
of it, and I can't ask much less because:

    Ben> I know from past conversations on this topic that sorting out
    Ben> thoughts on this is surprisingly tricky.

Me too.  Until we get sorted, we need to avoid assuming that the other
guy is using the same set of definitions we are.

    Ben> This is true, but people DON'T join networks at random.

    > The networks I'm talking about, people don't join at all.  They
    > *are* members; they participate as much as they please.  Thus
    > the focus on marginal cost of participation per unit compared to
    > value per unit.

    Ben> Then I'm a member of many bulletin boards that I've never
    Ben> heard of!  I am a member, I participate as much as I please
    Ben> (ie zero)!

Exactly!

But note, you may not be participating "zero".  Somebody may be
republishing your words posted here, over there.  Isn't that precisely
what free licenses are intended to enable?

    Ben> There is a technical sense in which that's true, but nobody would
    Ben> maintain that position in normal conversation.

This is not a normal conversation.  We have to invent a terminology.
I think "network member" is a lot easier to spell (not to mention
pronounce) than "5102461a337bdbcef49211244946586860248c64".

    Ben> First the trivial.  For something as fundamentally simple as
    Ben> buying and selling items, it is easy to automate it and have
    Ben> the network do the work.  For something complex like
    Ben> discussing network valuation, the work needs to be done by
    Ben> humans.

Discussing, yes.  Evaluating the value function, no.  Markets do that
kind of thing all the time.  Houses, cars, even PCs are not
commodities, yet markets do a tolerable job of assigning them values.
Stock shares are commodities in the sense of all shares of common
stock in a company being identical to each other, but humans don't do
a very good job of assigning values to them.

    Ben> My reaction?  My reaction is that when complex human
    Ben> interaction is inherent in participating in the network's
    Ben> operation, then the sum of the individual values that humans
    Ben> draw from being part of such a network is limited by human
    Ben> limitations on how we function.

I can't argue with reductionism as a postulate.  I think it will have
a hell of a time explaining the difference between the U.S. economy
and that of China.  I know which people I think has smarter members on
average.

    Ben> Who said [Usenet or the Web v1] has failed?  I did.  At this
    Ben> point in my life I participate in only a few online forums,
    Ben> and those have been chosen for density of interesting people
    Ben> rather than size.

Aside: Why do you call that a failure?  I'd call it "evolution".

    > Meaningful ! <=> valuable.  In fact, "meaningful" ! <=>
    > "meaningful connection".  Sometimes the medium is the message,
    > sometimes the message is valuable but otherwise not meaningful.

    Ben> Given that humans value meaning, there is a strong
    Ben> correlation between meaningfulness and value.

I haven't denied that, have I?  The whole point of "emergent
phenomenon" is that humans can't detect valuable meaning in the
individual pieces, but see it in the whole.

    Ben> Enter headhunters who, through talking with everyone, try to
    Ben> find some what potentially valuable connections that are not
    Ben> being made and then try to make them.  Therefore the value of
    Ben> headhunters is that they make connections happen that
    Ben> otherwise would not.

That's what I meant by "order statistic."  It's well know that the
maximum (or second highest, which is important in economic
applications) of a sample drawn from a given distribution will
increase as sample size increases.

    Ben> About your "one match per person" comment, that ignores the
    Ben> fact that employees are not necessarily loyal to employers,

Yes.  That's the right thing to do in this context; look at the
matching possibilities at an instant of time.  Note that the employer
is automatically part of the employee's network, although not via the
headhunter.

    Ben> and further the fact that a given potential employee sees
    Ben> value in having multiple potential offers to compare.

No, the order statistic already accounts for that value, unless you're
talking about a society like Japan in 1990 where having multiple
offers gives bragging rights.

    Ben> I was saying "second order" when I merely meant "relatively
    Ben> small correction term".  In other words I'm saying, "Yes,
    Ben> Google makes people use the Internet more, but that's not the
    Ben> primary reason that it is so valuable."

Aren't you embarrassed to admit that? :-)  Cheap shots aside, note
that this is methodologically problematic when you're doing big O
arithmetic, which implicitly assumes asymptotics.  Ie, what you're
doing is saying "see all this cool math I can do?  Well, just forget
that, because my intuition says the world is way way far from where
that math matters.  Here's my best guess at what is true."  I value
your best guess, but I'd rather have it supported by math, too. :-)

    Ben> I'm saying that I don't understand how the assumption that a
    Ben> fixed fraction of minds are great and everyone else is worth
    Ben> zero should lead to Reed's Law.

    Ben> I *very* strongly suspect that it doesn't, and I'm suggesting
    Ben> that you re-evaluate your reasoning for that point.

No, you explicitly referred to the naive form and said that Reed's Law
explicitly says every person adds that much value.  I pointed out that
that's not true; as long as the distribution of those who add such
value as a fraction of the population is constant as population
increases, you can get Reed's Law.  You replied that this makes no
sense because it means that the genius needs to connect with 2^(n-1)
groups.  Sure, but Reed's Law works just as well as long as every
subset has a resident genius, it doesn't need to be the same person
for each subgroup.  At this point, you can reply that even with
resident geniusness distributed evenly through the population you
still need each genius to actively participate in an exponential
number of groups, and I agree.  However, we're far enough away from
ordinary intuition (at least mine!) at this point that I'll let you do
the math; I'm not going to make another embarrassing off-the-cuff
estimate.  :-)

My point is that it's very difficult to tell from your wording whether
you're saying something based on a naive intuition, or whether you've
done the math, at least roughly.  You don't need to show the math, I
trust you to do it right (at least as often as I could, myself) and
not to fudge the results.  But I do need some indication that it's
been done, or I'm going to question it.  In many cases I'll want to
see your assumptions and approximations anyway, because I've done my
own math and gotten different answers.

    > Yeah, well at least I was off in the direction such that
    > correcting the math made the argument work better.  :-)

    Ben> Kind of like how you hope to make 2 sign errors if you make
    Ben> one? :-)

In this case, yes; I just mistook the estimate badly.  But several
fundamental ideas of economics depend on inherently biased estimates
of that kind.  Eg, we know for sure that the average value of
purchased goods is greater than the market price, but we (at least "we
economists", but not necessarily limited to them) go ahead and call
market price "value", anyway.


-- 
Graduate School of Systems and Information Engineering   University of Tsukuba
http://turnbull.sk.tsukuba.ac.jp/        Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
        Economics of Information Communication and Computation Systems
          Experimental Economics, Microeconomic Theory, Game Theory