Pirates are awesome. Economics: also awesome. The combination?
Check out this report: The Economics of Piracy. It uses data from 1500 Somalian pirates to look at the future of international piracy. An excerpt:
Pirates would appear to be the very essence of rational profit maximizing entrepreneurs described in neo-classical economics. Expected profits determine decisions based on the information available. The supply of pirates, therefore, is closely related to the expected benefits of being a pirate and the associated risk adjusted costs.
Yep. You read that right. Pirates are economics bad-asses.
The paper, which looks primarily at Somalian pirates, explores piracy in several arenas, and concludes that incidents of piracy will substantially expand in the coming years, primarily due to the rising income disparity betwen pirates and non-pirates.
How big a problem is piracy? In 2010, the cost of piracy to the international community was between $4.9 and $8.3 billion. Off the coast of Somalia, the total income to pirates, from piracy, was between $75 and $238 million in 2010.
Thinking about hitting the high seas as a Somalian pirate? You can expect to earn between $168,630 and $394,200 over a five year career. If you choose the next best legal alternative, you’ll probably make $14,500 – over your entire working life. At those prices, piracy doesn’t look so bad.
To combat piracy, the paper recommends the formation of a Global Contract Group, as well as new developments to asymmetric law and law enforcement.
Check it out. Worth a read.
Remember my less-than-epic, although very entertaining, quest to confirm or deny the famous Six Degrees of Separation experiment, originally conducted by Stanley Milgrim? My goal was to send out letters, as in the original experiment, and have those recipients do their best to get those letters to a named someone in Boston. Each link in the chain would write down their name on the letter, and, by the end, we’d have a list of how many people the letter went through to get to that final person.
You might remember that not one letter made it to my contact in Boston.
Many other groups have turned to Facebook to answer the question. Several failed, fake, or ineffective “Six Degrees” Facebook groups have popped up.
However, just a few months ago, the University of Milan partnered with Facebook to report that the average number of acquaintances separating any two people in the world was not six, but 4.74.
The new research used data from 721 million Facebook users, more than one-tenth of the world’s population. Facebook posted the results on their data facebook page.
From the New York Times article:
The experiment took one month. The researchers used a set of algorithms developed at the University of Milan to calculate the average distance between any two people by computing a vast number of sample paths among Facebook users. They found that the average number of links from one arbitrarily selected person to another was 4.74. In the United States, where more than half of people over 13 are on Facebook, it was just 4.37.
That being said, Facebook users are probably a self-selected bunch. In this case, the people who use Facebook are those who have online access and choose to use Facebook. They might be better connected individuals than those who do not use Facebook.
Importantly, this study raises questions about definitions like “friend,” “acquaintance,” or “guy you met one time on the bus.” Which of those actually counts as a connection?
Either way, it’s pretty exciting to know that we’re only a few introductions away from people like Hugh Laurie and David Cameron.*
*If anyone here is Facebook friends with them, let me know.
Have you ever wondered if you were getting ripped off on eBay? Have you tried to sell something on Craigslist, but weren’t sure how to price it?
Pricenomics, a new Y Combinator Startup, can help. Pricenomics crawls the web to compile a holistic price guide for a broad range of products, from bicycles to iPads.
Here’s how it works. Santa gave you an iPad 2 3G for Christmas. But you already have one, so you turn to Craigslist. How much should you ask for?
Visit the site and search for “iPad 2 3G.” Priceonomics gives you an estimate for how much you should sell it for, along with a range of prices it’s found on the internet. It then displays listings of other people selling that product.
Check it out:
Obviously, it works the other way as well; maybe you asked for a MacBook Air, but Santa didn’t deliver. Pricenomics has browse-able guides for a range of products. If you’re looking to buy a Macbook Air, Pricenomics provides you with a comprehensive report of price estimates and sale listings.
There’s nothing fancy going on here – the website’s just quickly providing you with a lot of data, most of which you could have found on your own.
TechCrunch asked Pricenomics CEO Michael Flaxman why Pricenomics is different from other price guides. He said,
“First, in almost all our verticals we’re the first price guide to exist. Want to know what a five-year old bicycle is worth? Good luck finding that! Second, our guides are generated by the collective knowledge of literally millions of people. All the data is transparently available for everyone to see. This gives us a credibility that doesn’t exist for the big car pricing sites. This means that all of our guides are constantly updated automatically as we continue to index the web, so there’s no risk of our prices becoming stale.”
Pricenomics launched on December 21st. They may have missed the holiday blitz, but re-gift and resell season will soon be upon us.
Ever wanted to dip your toes into the ocean of Game Theory? Want to do it for free?
Now you can! Stanford’s offering several free courses online, starting in February. A few of my esteemed Google colleagues pointed me towards this Game Theory class. It’s being taught by the inestimable Matthew O. Jackson and Yoav Shoham.
Here’s a description of the class:
Popularized by movies such as “A Beautiful Mind”, game theory is the mathematical modeling of strategic interaction among rational (and irrational) agents. Beyond what we call ‘games’ in common language, such as chess, poker, soccer, etc., it includes the modeling of conflict among nations, political campaigns, competition among firms, and trading behavior in markets such as the NYSE. How could you begin to model eBay, Google keyword auctions, and peer to peer file-sharing networks, without accounting for the incentives of the people using them? The course will provide the basics: representing games and strategies, the extensive form (which computer scientists call game trees), Bayesian games (modeling things like auctions), repeated and stochastic games, and more. We’ll include a variety of examples including classic games and a few applications.
There won’t be a lot of heavy math, and the lecture videos will broken into small chunks, usually between eight and twelve minutes each.
I signed up! Let me know if you did, too, and we can work on this together.
Confirmation bias is one of the most interesting biases in behavioral economics. Confirmation bias suggests that most people only consider evidence if it supports a belief they already have. Check it out:
Confirmation bias (also called confirmatory bias or myside bias) is a tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true. As a result, people gather evidence and recall information from memory selectively, and interpret it in a biased way. The biases appear in particular for emotionally significant issues and for established beliefs.
For example, in reading about gun control, people usually prefer sources that affirm their existing attitudes. They also tend to interpret ambiguous evidence as supporting their existing position. Biased search, interpretation and/or recall have been invoked to explain attitude polarization, belief perseverance, the irrational primacy effect, and illusory correlation. (via the illustrious Wikipedia)
From the fantastic webcomic Saturday Morning Breakfast Cereal comes this comic:
Want to learn more about cognitive biases? Check out this sweet song about them.
