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It has been noted that Kindle best sellers are often ebooks with a price of 0.00. See for example this New York Times article:
The argument in the article is that the publishers drum up interest in an unknown author and future sales by making the book available for free. It caught my interest that many of the publishers that follow this strategy are Christian booksellers with a mission that appears to go beyond maximizing profits.
Here are the top 10 Kindle Best Seller from February 10, 2010
The Apothecary’s Daughter, Julie Klassen, Bethany House Publishers, price 0.00
More Blood, More Sweat and Another Cup of Tea, Tom Reynolds, The Friday Project, price 0.00
The Equivoque Principle, Darren Craske, The Friday Project, price 0.00
Talk of the Town, Lisa Wingate, Bethany House, price 0.00
Daisy Chain: A Novel, Mary E. DeMuth, Zondervan, price 0.00
Icy Heat: A Heat series story, Leigh Wyndield, Samhain Publishing, price 0.00
Dear John, Nicholas Sparks, Grand Central Publishing, price 4.39
Kindle Shortcuts, Hidden Features, Kindle-Friendly Websites, Free eBooks & Email from Kindle: Concise User Guide for Kindle 2, MobileReference, price 0.25
The Help, Kathryn Stockett, Putnam Adult, price $8.55,
The Adventures of Sherlock Holmes, Sir Arthur Conan Doyle, Public Domain Books, price 0.00
Of the free (or nearly free) offerings, 3 out of 8, or 38% are published by either Bethany House or Zondervan, both Christian booksellers. The missions of these booksellers (from their web pages) seem to go beyond profit maximizing, which made me wonder if they are providing books for free on the Kindle to drum up future sales or if the availability of free books with a Christian message is a (somewhat) subtle form of evangelism. Judge for yourself — the books are free!
Bethany House
Mission
The purpose of Bethany House is to help Christians apply biblical truth in all areas of life—whether through a well-told story, a challenging devotional, or the message of an illustrated children’s book. We are diligently committed to offering the best in editing, design and marketing to make each book as inspiring, challenging, enjoyable and attractive as it can be
Zondervan (a division of Harper Collins):
Our Mission & Values
The Reason We’re Here
Zondervan is a mission-driven and value-based company. Our organizational culture is uniquely centered on biblical principles. All our employees—from entry-level to leadership—are focused on and passionate about upholding the mission and shared values of this company.
OUR MISSION
To be the leader in Christian communications meeting the needs of people with resources that glorify Jesus Christ and promote biblical principles.
- Instant gratification: writing papers takes too long.
- Because Tweets are capped at 140 characters.
- Its a great way to avoid getting distracted from my work. I write something at night and then the next morning I am forced to avoid email, twitter, and web surfing in order to shut out all the nasty things people are saying about me in response.
When you look for a digital camera or LCD TV on Amazon, often you can’t see the price till you add it to the shopping cart. This is a little bit on an inconvenience so why does Amazon do it?
It turns out the producers force Amazon to do it. Adding the extra step to shopping has two effects.
First, the prices do not turn up on comparison shopping sites like Pricegrabber.com so it is harder to search for a good deal. Second, every time you search you incur an extra cost to discover the price at another internet retailer. These small differences can make a huge difference.
The classic logic for how small search costs can have a dramatic impact on prices is offered by the Diamond search model. Suppose stores are selling a homogenous good but you do not know the price they set till you visit the store. Each visit costs you a few pennies in search cost.
If there is no search cost, the unique equilibrium has all stores setting price equal to cost and making no profits on sales. But this cannot be an equilibrium with positive search costs. Then, one store can raise its price secretly by a few cents. Once the customer has entered and sunk his cost of search, he will buy anyway knowing that taking the cost of search into account for his visit to another store, it is not worth it to search. It is easy to see what any equilibrium must be symmetric, otherwise all consumers will go to the store with the lowest prices and the store with the lowest prices has an incentive to raise them. So, what is the symmetric equilibrium? It is the monopoly price! Only at that price does no store have the incentive to raise the price as it will choke off too much demand.
So, a small search cost leads to a dramatic change in prices from zero profit to monopoly profit. This conclusion is too stark and it can be made less dramatic by adding product differentiation but the core idea remains the same. Search costs give firms some degree of market power and allow them to raise prices. This is the strategy being attempted on Amazon. It will be interesting to see how it plays out.
Emotions are Nature’s incentive schemes getting us to do what’s in our evolutionary interest. But unlike the textbook principal-agent relationship, there is no intrinsic conflict of interest. The principal gets to design the agent, essentially dictating the terms of the contract. However, in practice the contract is incomplete. Instead of being programmed with an exhaustive set of instructions for every contingency we are designed to respond to emotions.
This second-best solution has its costs. For example, fear can kill you. In fact, your enemies can scare you to death.
Job market interviewing entails a massive duplication of effort. You interview with each of your potential employers individually imposing costs on them and on you. Even in the economics PhD job market, a famously efficient matching process, we go through a ridiculous merry-go-round of interviews over an entire weekend. Each candidate gives essentially the same 30 minute spiel to 20 different recruiting committees.
What if we assigned a single committee to interview every candidate and webcast it to any potentially interested employer? Most recruiting chairs would applaud this but candidates would hate it. Both are forgetting some basic information economics.
Candidates hate this idea because with only one interview, a bad performance would ruin their job market. With many interviews there are certain to be at least a few that go smoothly. But of course there is a flip-side to both of these. If the one interview goes very well, they will have a great outcome. With many interviews there are certain to be a few that go badly. How do these add up?
Auction theory gives a clear answer. Let’s rate the quality of an interview in terms of the wage it leads your employer to be willing to pay. Suppose there are two employers and you give them separate interviews. Competitive bidding will drive the wage up until one of them drops out. That will be the lower of the two employer’s willingness to pay.
On the other hand, if both employers saw the outcome of the same interview, then both would have the same willingness to pay equal to the quality of that one interview. On average the quality of one draw from a distribution is strictly larger than the minimum of two draws from the same distribution. You get a higher wage on average with a single interview.
What’s going on here is that the private information generated by separate interviews gives each employer some market power, so-called information rents. By pooling the information you put the employers on equal footing and they compete away all of the gains from employment, to your benefit.
In fact, pooling interviews is even better than this argument suggests due to another basic principle of information economics: the winner’s curse. When interviews are separate, each employe
rs’ willingness to pay is based on the quality of the interview and whatever he believes was the quality of the other interview. Both interviews are informative signals of your talent. Without knowing the quality of the other interview, when bidding for your labor each employer worries that he might win the bidding only because you tanked the other interview. Since this would be bad news for the winner (hence the curse), each bidder bids conservatively in order to avoid overpaying in such a situation. Your wage suffers.
By pooling interviews you pool the information and take away any doubts of this form. Without the winner’s curse, employers can safely bid aggressively for you.
Going back to the original intuition, its true there are upsides and downsides of having separate interviews but the mechanics of competition magnify the downsides through both of these channels, so in the end separate interiews leads to a lower wage on average than if they were pooled.
Perhaps this explains why, despite their grumblings, economics department recruiters are still willing to spend 18 hours locked in a windowless hotel room conducting interviews.
Addendum: A commenter asked about competition by more than two employers. If six are bidding for you, then eventually the wage has been bid up until four have dropped out of the competition. The price at which they drop out reveals their information to the two remaining competitors. At that point the two-bidder argument applies.
You often hear that an incomplete course of antibiotics can promote the emergence of drug-resistant bacteria. Patients are told not to stop taking antibiotics just because you feel better but instead to always complete the full dosage. This is obviously partly for the health of the patient. But it is also said to guard against drug-resistance.
I have never been able to understand the logic. So I sat down to try to figure it out. I came up with one possible answer but it seems second-order to me so I am not sure if its the primary reason.
One thing that seems obvious is that every time you ingest antibiotics you create natural selection pressure within your body that favors any drug-resistant mutants that are there. This is why the headline cause of super-bugs is overuse of antibiotics. For example antibiotics are often prescribed and taken for non-bacterial illnesses like the common cold. Also, antibiotics are given to livestock that people eventually eat.
But this doesn’t get us to the recommendation to complete your course of antibiotics. Since the problem is the antibiotics, it tells us to use them as little as possible. How could it be that the first dose helps the super-bugs, but the last dose hurts them? They are drug-resistant after all, right?
I used to think that it must be that the selection pressure increases the rate of mutation. This may be true but I don’t think it’s enough to support the complete-course policy. Suppose I am halfway done with the recommended dosage and I stop. My usage so far has encouraged mutations and I may be infected now with a drug-resistant strain. Now the mutation-inducing effect is irrelevant because the superbugs are already there. Their natural growth rate is going to dwarf any additional growth due to mutations.
More generally, since every prescription of antibiotics is a public health cost, then every time I continue to take my doses I am creating the same externality.
I finally hit on one idea which has to do with competition within the body among bugs of differing levels of resistance. Start with this observation. If I have a super-bug in me and I continue to take anti-biotics, I kill off all the wimpy-bugs leaving the super-bugs to have free reign over my body. Presumably they grow faster without the competition. OK. But that seems again to suggest that, at least from a public health perspective, I should stop taking the drug so that the wimpy-bugs can outcompete the super-bugs.
So we add one twist to the model. Suppose that my body has a baseline system of defenses that can fight off any bad guy, super- or otherwise, as long as there are sufficiently few of them. Then, if I stop taking the drug too early, my defenses may still overwhelmed by the sheer numbers. All the bugs start growing again and if I started with just a few super-bugs in me, then when I start to show symptoms again I now have lots of them. However, had I continued to completion, all of the wimpy-bugs would be gone and my body’s natural defenses could have mopped up the few super-bugs that were left hanging around.
It’s a coherent theory. But I am not sure I believe that it is quantitatively important. So I still find the advice a little mysterious. Any of you know better?
Honestly I have no good theory. Here are some rejected ones:
- They are the only ones sufficiently lacking in self-respect.
- Since ads drive everything what matters is the audience still watching at halftime. By that time the geezers have already drunk enough to be glued to their sofas, but not enough yet to be asleep.
- Only Pete Townsend’s generation knows how to count to XLIV.
- It’s a kind of best-of the has-beens competition. A shadow rock-and-roll hall of fame.
- You can hide their spectacles and tell them its Carnegie Hall.
- Minimizes the, ehem, fallout from wardrobe malfunctions.
Eddie Dekel points out the following puzzling fact. At the gym most people wipe down the exercise machines and benches after they use them and not before. There are a few obvious social benefits of this policy. For one, you know better than your successor where the towel is most advantageously deployed. Also, the sooner that stuff is removed, the better.
But still it’s a puzzle from the point of view of dynamic efficiency. With this system everyone mops once. But there exists a welfare improving re-allocation where one guy doesn’t mop and after him everyone mops before using the machine. Nobody’s worse off and that one guy is better off. A Pareto improvement.
In fact the ex-post-mop regime is especially unstable because that one guy has a private incentive to trigger the re-allocation. He’s the one who saves effort. So from an abstract point of view this is indeed a puzzle. Moreover, there is this Seinfeldian insight that complicates things even further.
ELAINE: Never mind that, look at the signal I just got.
GEORGE: Signal? What signal?
ELAINE: Lookit. He knew I was gonna use the machine next, he didn’t wipe his sweat off. That’s a gesture of intimacy.
GEORGE: I’ll tell you what that is – that’s a violation of club rules. Now I got him! And you’re my witness!
ELAINE: Listen, George! Listen! He knew what he was doing, this was a signal.
GEORGE: A guy leaves a puddle of sweat, that’s a signal?
ELAINE: Yeah! It’s a social thing.
GEORGE: What if he left you a used Kleenex, what’s that, a valentine?
(conversations with Asher, Ron, Juuso and Eddie. I take all the blame.)
This is a really affordable, reliable and widely available red from Allegrini. It’s a blend of Corvina and Rondinella grapes – don’t ask me for any French analogs, I have no idea. And there’s a bit of Sangiovese chucked in. This makes for a complex, multidimensional wine. Blackberry and cherry notes but it’s still dry and not too sweet. They blend the wine with dried grapes just like an Amarone. This gives it a heft and a deep red color. Luckily, it does not have the road tar consistency of an Amarone. At under $20 it’s a great value for this level of quality.
One case in which dropping copy protection improved sales.
It’s been 18 months since O’Reilly, the world’s largest publisher of tech books, stopped using DRM on its ebooks. In the intervening time, O’Reilly’s ebook sales have increased by 104 percent. Now, when you talk about ebooks and DRM, there’s always someone who’ll say, “But what about [textbooks|technical books|RPG manuals]? Their target audience is so wired and online, why wouldn’t they just copy the books without paying? They’ve all got the technical know-how.”So much for that theory.
More here.
Addendum: see the comments below for good reason to dismiss this particular datum.
Here are some tips.
Computer Scoring – … Tax returns are “scored” using two systems – Discriminant Function System (DIF) and Unreported Income DIF (UIDIF). The Discriminant Information Function System (DIF) score gives the IRS an indication of the potential for change in tax due, based on past IRS experience. The Unreported Income DIF (UIDIF), as you can imagine, scores the return on the potential for unreported income. The higher the score, for either, the more likely the return will be reviewed.
Apparently these tips come from the IRS itself! When would it make sense for the IRS to teach us how to avoid an audit? It would make sense if the ways of cheating on your taxes were known and easy to describe. Then the IRS just announces it will audit anyone who does something that looks like that. But if there are always innovative ways to cheat on your taxes then an announcement like this, if truthful, probably only helps cheaters avoid audits.
On the other hand the IRS’s objective might be to maximize prosecutions. Then they want to lie about their audit policy and hope you believe them.
A former vice president at Microsoft writes how destructive competition within the company is destroying innovation:
“For example, early in my tenure, our group of very clever graphics experts invented a way to display text on screen called ClearType. It worked by using the color dots of liquid crystal displays to make type much more readable on the screen. Although we built it to help sell e-books, it gave Microsoft a huge potential advantage for every device with a screen. But it also annoyed other Microsoft groups that felt threatened by our success.
Engineers in the Windows group falsely claimed it made the display go haywire when certain colors were used. The head of Office products said it was fuzzy and gave him headaches. The vice president for pocket devices was blunter: he’d support ClearType and use it, but only if I transferred the program and the programmers to his control. As a result, even though it received much public praise, internal promotion and patents, a decade passed before a fully operational version of ClearType finally made it into Windows.”
He adds:
“Internal competition is common at great companies. It can be wisely encouraged to force ideas to compete. The problem comes when the competition becomes uncontrolled and destructive. At Microsoft, it has created a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence.”
This is a classic problem sometimes known as the “not invented here” syndrome: if you did not invent it, you denigrate it.
Tomas Sjöström and I have a published paper on this topic. There’s lots of stuff going on in it but here is one key idea: Suppose two players are competing for promotion and one is more senior than the other. Then, the senior guy has the incentive to denigrate the work of the junior guy because the only way the junior guy can leapfrog him in the career race is if he has a successful project. So, the senior guy tries to squash the junior guys ideas. But the junior guy has the reverse incentives, to exaggerate the quality of his own work. It turns out that this incentive is easier to deal with than the denigration incentive. This is because exaggeration carries a risk: if your idea is tried out and is a huge failure, your career is in ruins. This reduces your incentive to exaggerate bad ideas. But denigration kills ideas so you never find out if the denigrator was lying. So our conclusion is that well designed self-assessment is better than peer review.
If only Microsoft listened to us, they’d be more profitable. Call me Bill, Steve Ballmer, anybody….
There is still one question: Does Apple have a better system in place to manage innovation? If so, what is it?
Toyota is undertaking a massive recall of vehicles to fix accelerator pedals. Obviously, Toyota’s reputation has taken a huge hit. How are their incentives aligned with consumers in terms of fixing the problem?
At a fundamental level, Toyota has a huge incentive to make sure that they solve any problems in cars on the road and in dealerships and that there are no problems in cars they make in the future. If they put in a claimed fix to the problem and it’s not a real fix and there is an accident, their reputation takes another huge hit. The people who worked at AIG and caused the problems can find other jobs because they are still nameless to consumers. But Toyota’ brand name is its reputation and if that goes, suddenly G.M. has a future after all.
There are some conflicts of interest though between consumers and Toyota. Toyota have two fixes to the pedal problem. One is to just put in a new pedal. The second is to add a steel bar to the bottom of the pedal to stop it sticking to the spring.
To the average consumer, a new pedal sounds better than the patched up old one. And it also sounds more expensive suggesting that Toyota is following a quick and dirty path to a recall with the steel bar. In an NPR interview, the Toyota CEO said both fixes cost roughly the same amount. But this does not convince non-experts, especially when Toyota has been so slow to react to the problems. So, it seems Toyota should go with the new pedal solution for everyone. Why aren’t they doing that?
This is where some conflict of interest appears: the steel bars can be produced more quickly than the new pedals. Toyota would like to get the cars on the road fixed as soon as possible to avoid another crash. So, it has decided to go for a fix which is fast but looks suspicious. This is the problem.
It has to try to make the solution as “above-the-board” as possible. Perhaps announce that anyone who got the steel bar can get the new pedal later in the year if they are not happy. If Toyota really believes the steel bar fix is as good as a new pedal, it should give away something free and valuable to make the solution credible and to say “we are sorry”. People wanting the new pedal should not get the freebie.
Not sure what the freebie should be..how about a discount on your next Toyota purchase? It should explicitly say that it can be added to any other discounts offered in the future so people know they are definitely getting a good deal
Its obvious right? Ok but before you read on, say the answer to yourself.
Is it because he is the most able to make up any lost time by the earlier teammates? Because in the anchor leg you know exactly what needs to be done? Now what about this argument: The total time is just the sum of the individual times. So it doesn’t matter what order they swim in.
That would be true if everyone was swimming (running, potato-sacking, etc.) as fast as they could. But it is universally accepted strategy to put the fastest last. If you advocate this strategy you are assuming that not everyone is swimming as fast as they can.
For example, take the argument that in the anchor leg you know exactly what needs to be done. Inherent in this argument is the view that swimmers swim just fast enough to get the job done.
(That tends to sound wrong because we don’t think of competitive athletes as shirkers. But don’t get drawn in by the framing. If you like, say it this way: when the competition demands it, they “rise to the occasion.” Whichever way you say it, they put in more or less effort depending on the competition. And one does not have to interpret this as a cold calculation trading off performance versus effort. Call it race psychology, competitive spirit, whatever. It amounts to the same thing: you swim faster when you need to and therefore slower when you don’t.)
But even so its not obvious why this by itself is an argument for putting the fastest last. So let’s think it through. Suppose the relay has two legs. The guy who goes first knows how much of an advantage the opposing team has in the anchor leg and therefore doesn’t he know the amount by which he has to beat the opponent in the opening leg?
No, for two reasons. First, at best he can know the average gap he needs to finish with. But the anchor leg opponent might have an unusually good swim (or the anchor teammate might have a bad one.) Without knowing how that will turn out, the opening leg swimmer trades off additional effort in return for winning against better and better (correspondingly less and less likely) possible performance by the anchor opponent. He correctly discounts the unlikely event that the anchor opponent has a very good race, but if he knew that was going to happen he would swim faster.
The anchor swimmer gets to see when that happens. So the anchor swimmer knows when to swim faster. (Again this would be irrelevant if they were always swimming at top speed.)
The other reason is similar. You can’t see behind you (or at least your rear-ward view is severely limited.) The opening leg swimmer can only know that he is ahead of his opponent, but not by how much. If his goal is to beat the opening leg opponent by a certain distance, he can only hope to do this on average. He would like to swim faster when the opening leg opponent is behind but doing better than average. The anchor swimmer sees the gap when he takes over. Again he has more information.
There is still one step missing in the argument. Why is it the fastest swimmer who makes best use of the information? Because he can swim faster right? It’s not that simple and indeed we need an assumption about what is implied by being “the fastest.” Consider a couple more examples.
Suppose the team consists of one swimmer who has only one speed and it is very fast and another swimmer who has two speeds, both slower than his teammate. In this case you want the slower swimmer to swim with more information. Because in this case the faster swimmer can make no use of it.
For another example, suppose that the two teammates have the same two speeds but the first teammate finds it takes less effort to jump into the higher gear. Then here again you want the second swimmer to anchor. But this time it is because he gets the greater incentive boost. You just tell the first swimmer to swim at top speed and you rely on the “spirit of competition” to kick the second swimmer into high gear when he’s behind.
More generally, in order for it to be optimal to put the fastest swimmer in the anchor leg it must be that faster also means a greater range of speeds and correspondingly more effort to reach the upper end of that range. The anchor swimmer should be the team’s top under-achiever.
Exercises:
- What happens in a running-backwards relay race? Or a backstroke relay (which I don’t think exists.)
- In a swimming relay with 4 teammates why is it conventional strategy to put the slowest swimmer third?
Since I was never really sure myself, whenever I thought of a good reason to keep blogging I wrote it down. I have a pretty large collection now. Here’s a few.
- writing is exercise just like jogging is and yoga is
- i have a hard time coming up with topics of conversation. i am a total loser at parties. now i can slip away, break out my iPhone, go to the blog and remember what i blogged about last week. instant conversation topic. now i am even more of a loser at parties.
- people live at different tempos. mine is slow.
- its good practice at being imperfect.
- it sharpens my thinking all day long because i am always on the alert for interesting things to blog about
- procrastinating writing my novel (so far I have a title: Banana Seeds)
- To get gigs
There are lots more. I will post more later.
Happy Birthday to us! Here’s how it got started. About a year and a half ago I wrote an email to Sandeep saying we should start a blog. He ignored me and I forgot about it. Then a few months later he wrote back something like
Hey: I’m into the idea of starting a blog as long as I can blog about topics other than economics (and occasionally mention economics!). Interested? They’re hard to sustain on your own unless you have verbal diahorrea and are vain enough to think every stupid thought is worth writing down.
which to me read like a reply to an email I never sent (I forgot I ever sent the first one) so I thought he must have meant to send it to someone else and had sent it to me by mistake. But in fact I had already started “blogging” to myself as a sort of trial run for starting a real blog. I would write a few sentences in an email to myself every day to see if I had enough ideas and the stamina to keep it going. So I thought I would take advantage of Sandeep’s mistake and I wrote back
totally, i was going to ask you. in fact i ahve been planning for a while. i have been writing mini blog posts and saving them so as to have a stockpile before actually starting. i have a few thoughts about format too.
definitely not an economics blog (except when we feel like it.)
most of my stupid thoughts i think are worth writing down.i have even decided on a name for my blog but if you dont like it we could come up with one together.
And so we started thinking of a name. Sandeep had a lot of bad ideas for names
- hodgepodge hedgehog
- platypus
- bacon is a vegetable
- release the gecko
- coordination failure
- reaction function
and he is too much of a philistine to appreciate my ideas for names:
- banana seeds
- vapor mill
- el emenopi’
so we were at an impasse. Somehow we hit upon the name Cheap Talk. Sandeep ran it by some folks at a party and it seemed like a hit. (That name was taken by a then-defunct blog and wordpress does not recycle url’s so we had to morph it into cheeptalk.wordpress.com.)
The first post was February 2, 2009. We didnt publicize the blog widely at first because we wanted to make sure we could keep it up before making a big commitment. It seemed to have some momentum so we went public about a month later. It has been a ton of fun and I am really glad we took the plunge.
- 736 posts
- 2,090 comments
- Most popular post: The Economics of Pinball (47,000+ views)
- Least popular post: 1 view.
- We have 1,382 RSS subscribers via google reader.
Cheap Talk 