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We tend to think of intellectual property law as targeted mostly at big ideas with big market value.  But for every big idea there are zillions of little ideas whose value adds up to more.  Little ideas are little because they are either self-contained and make marginal contributions or they are small steppingstones, to be combined with other little ideas, which eventually are worth a lot.

It’s now cheap to spread little ideas.  Whereas before even very small communication costs made most of them prohibitively expensive to share.  In some cases this is good, but in some cases it can be bad.

When it comes to the nuts and bolts kinds of ideas, like say how to use perl to collect data on the most popular twitter clients, ease of dissemination is good and intellectual property is bad.  IP protection would mean that the suppliers of these ideas would withold lots of them in order to profit from the remainder.  Without IP protection there is no economic incentive to keep them to yourself and the infinitessimal cost of sharing them is swamped by even the tiniest pride/warm glow motives.

Now the usual argument in favor of IP protection is that it provides an economic incentive for generating these ideas.  But we are talking about ideas that don’t come from research in the active sense of that word.  They are the byproduct of doing work.  When its cheap to share these ideas, IP protection gets in the way.

The exact same argument applies to many medium-sized ideas as well.  And music.

But there are ideas that are pure ideas.  They have no value whatsoever except as ideas.  For example, a story.  Or basic research.  The value of a pure idea is that it can change minds.  Ideas are most effective at changing minds when they arrive with a splash and generate coordinated attention.  If some semblance of the idea existed in print already, then even a very good elaboration will not make a splash.  “That’s been said/done before.”

Its too easy now to spread 1/nth-baked little ideas.  Before, when communication costs were high it took investment in polishing and marketing to bring the idea to light.  So ideas arrived slowly enough for coordinated attention, and big enough to attract it.  Now, there will soon be no new ideas.

Blogs will interfere with basic research, especially in the social sciences.

When it comes to ideas, here’s one way to think about IP and incentives to innovate.  It’s true that any single individual needs extra incentive to spend his time actively trying to figure something out.  That’s hard and it takes time.  But, given the number of people in the world, 99.999% of the ideas that would be generated by active research would almost certainly just passively occur to at least one individual.

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  1. Because I am starved for attention.
  2. Because I am a showoff.
  3. Because now that I have invented so many reasons to justify why I am doing it, the cognitive dissonance by itself is a prohibitive exit barrier.
  1. Instant gratification:  writing papers takes too long.
  2. Because Tweets are capped at 140 characters.
  3. 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.

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.

  1. writing is exercise just like jogging is and yoga is
  2. 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.
  3. people live at different tempos.  mine is slow.
  4. its good practice at being imperfect.
  5. it sharpens my thinking all day long because i am always on the alert for interesting things to blog about
  6. procrastinating writing my novel (so far I have a title:  Banana Seeds)
  7. 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

  1. hodgepodge hedgehog
  2. platypus
  3. bacon is a vegetable
  4. release the gecko
  5. coordination failure
  6. reaction function

and he is too much of a philistine to appreciate my ideas for names:

  1. banana seeds
  2. vapor mill
  3. 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.

It’s been blog fodder the past week.

In other words, to pull off a successful boast, you need it to be appropriate to the conversation. If your friend, colleague, or date raises the topic, you can go ahead and pull a relevant boast in safety. Alternatively, if you’re forced to turn the conversation onto the required topic then you must succeed in provoking a question from your conversation partner. If there’s no question and you raised the topic then any boast you make will leave you looking like a big-head.

It makes perfect sense.  First of all, purely in terms of how much I impress you, an unprovoked boast is almost completely ineffective.  Because everybody in the world has something to boast about.  If I get to pick the topic then I will pick that one.  If you pick the topic or ask the question then the odds you serve me a boasting opportunity are long unless I am truly impressive on many dimensions.

And it follows from that why you think I am a jerk for blowing my own horn.  I reveal either that I don’t understand the logic and I am just trying to impress you or I think that you don’t understand it and I can fool you into being impressed by me.

Catch me on the public radio program Marketplace this evening. I will be talking about pinball.

I sat here in Northwestern’s high-tech studio and talked into that thing to Kai Ryssdal.

  1. More than modern equipment, what the studio needs is a few candles and some incense. Also someone to look at me and pretend that everything I am saying is really interesting. A person instantly gains about 10 IQ points whenever he believes somebody is into what they are talking about.
  2. I don’t think I did a very good job but that’s ok. Things like this tend to feel like impending doom to me. I congratulated myself that for the first time in my life I would try to be detached and take note of what impending doom feels like.
  3. Like standing in front of a big class for the first time, or the first job-market seminar, or a first date the overwhelming feeling is that it’s bizarre that anyone would actually care what I am talking about. My advice when you feel that way is to embrace it as an absurd commentary on life and use that thought to help yourself smile your way through it.

Thanks to Jeroen for being our first guest blogger.  His posts were as fun and insightful as we expected. What a surprise to find our shared admiration for all things Tito.  I am sure he regrets the association with us Palin-baiters and Asian-sweet-dissers, but if he is in the mood for some pinball, now he knows where to go.

We are officially big-time bloggers now because today we have our first guest blogger. This week Jeroen Swinkels will be shirking sharing his thoughts with us and you and we are really looking forward to it.

Jeroen is a Northwestern guy so we are keeping it in the family and he is forty-something too (albeit a tad more “something” than Sandeep and I.) In case you don’t already know, Jeroen is a game/auction/micro/evolution-theorist who teaches in the Management and Strategy department in Kellogg. I like all of his work but I am especially fond of a somewhat idiosyncratic paper he wrote with Larry Samuelson on evolution and behavioral biases and I blogged about it here before. He’s got lots of ideas on lots of subjects so he is going to be a blogging natural. So thanks Jeroen and welcome.

Thanks to Tyler and Alex for their good nature. They know that this was the sincerest form of flattery.

It is extremely easy to parody MR, especially Tyler because there is so much output and it is all part of his characteristic style. I think that being easy to parody is a great sign of success.

My favorite post was the one about Swedish meatballs because I think of the enumeration style of reasoning as being quintessential Tyler. Little known fact: Tyler Cowen is the reason I am an economist. 20 years ago as an undergraduate adrift I was inspired by his microeconomics course and he convinced me to go to grad school. In that course we learned the enumeration style via his “thought questions” and in fact, looking back, I think we were learning to be bloggers before the channel for that existed. Our final exam question was “Write down a thought question and answer it.” I owe Tyler Cowen a tremendous debt.

Tyler’s reading habits are obvious fodder for parody. I have no doubt that Tyler reads as much as he claims and, while easy to make fun of, his approach to books should be taught to children at an early age. (Start reading everything that might be interesting. Stop as soon as it isn’t. Skip over parts that are boring.) I never was much of a reader before, now I read quite a lot.

FYI, I copied MR’s look by switching to a generic wordpress theme (andreas09) and then modifying the css to get the colors, fonts, and look/feel right. I didnt know anything about css (and the normally helpful Kellogg support team didn’t see this as falling under their job description, not surprisingly) so I had to figure it out on the fly. If anyone is interested I can send you what I did.

And now back to our regular programming…

WordPress give statistics on keyword searches that led users to Cheap Talk.  I am amused and intrigued by many of the leaders:

#1 cheap talk

#2 tv

??  About 20 times a day somebody googles tv, they are offered up a link to our blog and they click through.  The clicking through part I can understand but why a search on tv hits us is beyond me (when I try it I go through several pages of google hits and do not find a cheap talk link.)  And who googles “tv” ?

#8 hefty smurf

That one is my favorite.  I get a daily chuckle out of that one.

#9 flatfish

~#20 Wynne Godley

~#30 talking robots

~#33 model men

nice!

~#50 men and their mothers

oops.

~#60 Guinness serving temperature

I am pleased to be the go-to authority on the proper serving temperature of this important beverage.

For the remainder of the week, I will be packing up and heading back to Chicago.  Summer is over.  Blogging will be light until I get back.  If you are new to the blog and want to catch up on what’s here, here is a rough guide.  The meat tofu and potatoes of the blog appear under the tags Economics, Game Theory, and Incentives.  Sandeep and I also write a lot on the subject of Food and Wine.

But, my favorite content is collected in the tags Banana Seeds and Vapor Mill.

Banana Seeds:  seeds are meant to suggest ideas (did you know that “seminal” has the root “sem” which is latin-or-something for seeds.)  But bananas don’t really have seeds, or at least the seeds they have are kinda pointless since that is not how bananas propogate.  So Banana Seeds suggests pointless ideas. (It also has a lewd connotation.)

Vapor Mill:  Academics are supposed to be “paper mills:” cranking out articles.  The posts with this tag are ideas that conceivably could lead to real papers, but either because we are too lazy or not expert enough in the field, will instead probably just remain “vapor.”  (There is another lewd connotation here too.)

Blame it on the binding constraint.

Let me explain.  Has it ever struck you how peculiar it is that the price of so much writing these days is zero?  No, I don’t mean that it is suprising that blogs don’t charge a price.  There is so much supply that competition drives the price down to zero.

What I mean is, why are so many blogs priced at exactly zero.  It would be a complete fluke for the optimal price of all of the blogs in the world to be at exactly the same number, zero.

And indeed the optimal price is not zero, in fact the optimal price is negative. Bloggers have such a strong incentive to have their writings read that they would really like to pay their readers.  But for various reasons they can’t and so the best they can do is set the price as low as possible.  That is, as it often happens, the explanation for the unlikely bunching of prices at the same point is that we are all banging up against a binding constraint.

(Why can’t we set negative prices?  First of all, we cannot verify that you actually read the article.  Instead we would have people clicking on links, pretending to read, and collecting money.  And even if we could verify that you read the article, most bloggers wouldn’t want to pay just anybody to read.  A blogger is usually interested in a certain type of audience.  A non-negative price helps to screen for readers who are really interested in the blog, usually a signal that the reader is the type that the blogger is after.)

Now, typically when incentives are blunted by a binding constraint, they find expression via other means, distortionary means.  And a binding price of zero is no different.  Since a blogger cannot lower his price to attract more readers, he looks for another instrument, in this case the quality of the writing.

Absent any constraint, the optimum would be normal-quality writing, negative price. (“Normal quality” of course is blogger-specific.)  When the constraint prevents price from going negative, the response is to rely more heavily on the quality variable to attract more readers.  Thus quality is increased above its unconstrained optimal point.

So, the next time you are about to complain that the blogs you read are too interesting (at the margin), remember this, grin and bear it.

There is strategy involved in giving and interpreting compliments.  Let’s say you hear someone play a difficult –but not too difficult– piece on the piano, and she plays it well.  Is it a compliment if you tell her she played it beautifully?

That depends.  You would not be impressed by the not-so-difficult piece if you knew that she was an outstanding pianist.  So if you tell her you are impressed, then you are telling her that you don’t think she is an outstanding pianist.  And if she is, or aspires to be, an outstanding pianist, then your attempted compliment is in fact an insult.

This means that, in most cases, the best way to compliment the highly accomplished is not to offer any compliment at all.  This conveys that all of her fine accomplishments are exactly what you expected of her.  But, do wait for when she really outdoes herself and then tell her so.  You don’t want her to think that you are someone who just never gives compliments.  Once that is taken care of, she will know how to properly interpret your usual silence.

In the world of blogs, when you comment on an article on another blog, it is usually a nice compliment to provide a link to the original post.  This is a compliment because it tells your readers that the other blog is worth visiting and reading.  But you may have noticed that discussions of the really well-known blogs don’t come with links.  For example, when I comment on an article posted at a blog like Marginal Revolution, I usually write merely “via MR, …” with no link.

That’s the best way to compliment a blog that is, or aspires to be, really well-known. It proves that you know that your readers already know the blog in question, know how to get there, and indeed have probably already read and pondered the article being discussed.

I will be traveling this week so my blogging will be unusually light sound.

The Kellogg Graduate School of Management at Northwestern has begun syndicating the various blogs published by Kellogg faculty, including Cheap Talk.  Its great to have the Kellogg endorsement.  And there are many excellent blogs, worth taking a look.

Naming a blog is like naming a baby. * Those of us who have gone thorugh the baby-naming process recognize some subtle strategic issues that arise.  Each spouse searches for names in books, online, in the garden, etc. and when a good idea comes up suggests it to the other spouse.  Then there is some discussion and possibly the name is put on the shortlist and the process continues.  At some point a name has to be chosen.

Here is where the strategy comes in.  Suppose there is a name you really like and you think your spouse might find acceptable, let’s say Hercules.  You put Hercules on the shortlist.  But now suppose you come up with another name that you know your spouse likes better than the first one but which boders on unacceptable for you.  Let’s say “Brad.”  Do you suggest Brad?

At first glance it seems obvious you should hide Brad in the drawer, lock it tight and throw away the key.  But its not always clear.  By suggesting Brad you might convince your spouse that you are playing ball and you might get points for that and it might even improve the chances of a baby Hercules.

In fact, I think something like this would be a property of an efficient mechanism.  In economics we think about situations like this and how to design the rules of the game to deliver an acceptable outcome, in this case a baby whose name will not scar him for life.  The unusual feature of this particular problem is that the alternatives, i.e. the possible names, are not given in advance but have to be suggested in order to be considered.  If I keep “Brad” a secret, chances are my spouse won’t think of it and I won’t have to worry about it.

So the key issue in designing the rules of this game is to give each spouse enough incentive to reveal the names that they might otherwise try to keep secret.  After all, taking into account both spouses preferences, Brad might actually be the best name if say my spouse really likes it much better than Hercules.  And in that event we want to give it a chance to be selected.

How would we design the rules to give that incentive?  The only way to do this is to “pay” a spouse who offers an additional name by increasing the chance of that spouse getting his preferred choice.  And in practice the goodwill your spouse feels when you suggested Brad has exactly this effect.

*In answer to your question, Sandeep is the Mommy.

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