Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Wednesday, June 18, 2008

Free! + Roberts dismissing altruism (sigh)

Posted by Simon Halliday | Wednesday, June 18, 2008 | Category: |

If you haven't yet read it, I strongly advise having a look at Chris Anderson's article Free! Why $0.00 is the Future of Business, it is the lead-up to his new book on Free. I was listening to the PodCast from Russ Roberts at EconTalk where he interviews Anderson on the concept of 'free'. This is a fantastic concept and the rapport between the two of them is brilliant. Anderson is a superb interviewee. You can have a look at Anderson's blog on the interview. I've also tracked a couple of other points on the same topic, one blog (don't bother), an op-ed by Paul Krugman (do bother) and some other commentary here and there.

I Want Your Free Schwag

One of the areas that I think the economics of Free (sorry, hence the silly schwag image above) is going to have problems is the perception that people have the price = quality (summarized in some articles at Bad Science). Roberts also tries to promote, implicitly, the Chicago idea of '2 is enough for competition' (but he was thankfully knocked off that pedestal by Anderson). It's going to be interesting to see how Anderson overcomes this problem in his book as I think it is going to be a crucial element of the Free Revolution, i.e. getting people to get rid of their price prejudices. Something can still be a worthwhile product if you aren't paying for it. Linux is my favourite example of this (I'm an Ubuntu user), Wikipedia is another good example of value free of charge.

This reminds me of one important point, when Anderson talks about 'Free' he means that something has no price attached to it, he is not going on about the concept of opportunity costs as we can never really get rid of those and, as a consequence, nothing is free. But don't get all stupid on poor Chris Anderson because he can't overcome the opportunity cost problem.

Ernst FehrThe image “” cannot be displayed, because it contains errors.
Ok, so I am not going to talk about the economics of free now, I just wanted to include that as a little trick to get you to read this. I wanted to mention how Roberts dismisses the research into altruism in Economics. This wasn't a crucial point in the discussion, but this fact (coupled with the Chicago 2 = competition mantra) reminds me of the fact that I have to be continuously skeptical of some Professors understanding of Economics. Altruism is an incredibly well-researched topic in economics, going everywhere from the Henrich, Boyd, Bowles & Camerer (2004) in their Foundations of Human Sociality, to the modeling by Rabin, Levine, Falk-Fischbacher to that by Fehr (right) and Schimdt. Rabin has won the JBC Prize, so I don't see why one would dismiss his work, and Ernst Fehr is an absolute god of experimental econ. Moreover, for theory on strong reciprocity in the economic world a good starting point is the book by Gintis, Bowles, Boyd and Fehr (eds.) Moral Sentiments and Material Interests. Bowles also covers social preferences and other-regarding preferences in his Microeconomics: Behavior, Institutions and Evolution. Is being somewhat heterodox that anathema people?

The rest of the PodCast is pretty cool though.

Edit: Have a look at this post by Dave Spurret on the wine-value rating referred to above.

Currently have 4 comments:

  1. Good stuff...

    I read the article quite a while ago but wouldn't Google also count as a good (perfect?) example of free with quality? Ad-funded products count too. Oh, and Firefox (which is releasing version 3 today).

  2. I am clueless when it comes to economics... being the English student that I am. But I am here! And I have added you to my blogroll :)

  3. Hey - cheers for the link (although it's 'Doctor Spurt' in the blogosphere). I think you're right that a price=quality association is an issue, but I guess it's to some extent an open question what might happen to that association in a world where was undermined by abundant quality free stuff. I'm willing to be a subject in the experiment.

  4. Mike, I completely agree with you about both Google and Firefox. I think that there are a host of other really interesting things out there, Skype is one that I regularly use. My comment was meant to be more in terms of certain items which people have already experienced as non-free and then they transition to being free. This is, I think, where we are going to see some interesting developments.