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February 01, 2010
Crowd-sourcing combats information asymmetry
Jonathan Zinman and Eric Zitzewitz studied ski resorts claims about snowfall. They found that, relative to government snow reports, ski resorts claim 23% more snowfall for weekend days than for weekdays. Seems a pretty clear case of deceptive advertising to draw in the business, with the risk (of being sued for deception, or of damaging reputation) taken more when the payoff is higher (weekends).
Deceptive advertising is a standard case of asymmetric information, hidden characteristics variety. The resort has better information, and chooses what to report.
What incentives to induce honesty? As I mentioned above, there are at least two obvious incentives: avoiding a lawsuit (by a government agency or perhaps a class action on behalf of disgruntled customers), and avoiding a loss of customer goodwill if they realize the resort is routinely lying.
How to increase those incentives (since apparently they have not been enough to prevent at least some deception)? One way is to raise the fine or other penalties if prosecuted. Another way, particularly for the reputation effect, is to reduce the cost of getting better information to the consumers.
And...Zinman and Zitzewitz found that the deception has decreased since the release of an iPhone app that aggregates skier reports of local conditions in real time (and that the reduction in exaggeration is much more notable at resorts that have good iPhone reception).
Crowdsourcing: reducing asymmetric information problems.
(Zinman must be pretty happy to have found a co-author with whom he gets first billing in co-authored papers...no mean feat.)
(Via Erin Krupka and the Marginal Revolution blog.)
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January 22, 2010
The problem isn't going away: who pays for open publishing?
This isn't so much a specialized incentive-centered design story as a good example of a central problem in information economics: information may "want to be free" (Barlow 1996) but it isn't free to maintain or distribute. Who is going to pay?
The arXiv project was started in the 90s as an e-print archive for rapid (pre-journal publication) of research papers in high-energy physics. Paul Ginsparg, a physicist at Los Alamos National Lab, started and maintained it for a number of years. It became a vital service for not just the original community, but for many other scholarly fields (including math, statistics and computer science). It currently houses about 600,000 articles, all freely available to anyone with an Internet connection.
Cornell University took responsibility for the project several years ago. The university librarian reports that Cornell spends about $400,000 a year to maintain and enhance this ever-growing resource, which benefits researchers across the world. It earns no direct revenue from the project. How long is that sustainable?
According to this posting in The Chronicle of Higher Education, Cornell is now asking the 200 institutions whose researchers account for about 75% of the downloads to voluntarily pay $4000 a year to support the project. Not a lot perhaps (the cost of a handful of subscriptions to journals in the related fields), but a request for an ongoing commitment to a charitable contribution. How likely is that to work? How sustainable? National Public Radio in the US receives some government funding, and fully 23% of its budget from corporate advertising. (It is called "sponsorship" because the corporations only get "announcements" and not "advertisements", but as someone whose father made his living in a Madison Avenue advertising firm doing "corporate image advertising", this is advertising. Corporations spend the money to enhance their brand image and reputation, on the belief that this increases their sales.)
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September 20, 2009
Carrot, stick or jawbone? Paperless billing
Carrot: Verizon was getting about 6100 customers a week to switch to paperless billing; then in August it entered all switchers into a contest to win a Toyota Prius hybrid; the rate increased to 17,000. But is sends out about 20.5 million paper bills per month. At that rate: about 23 years to full conversion (and presumably more than one giveaway Prius.
Stick: T-Mobile was getting about 7,000 customers weekly to go paperless. In August it added a $1.50 to every print-on-paper bill; the rate went up to about 231,000 per week. Years to full conversion: about 1.25.
Jawbone: T-Mobile's customers screamed. A class action suit was filed alleging this was a change of contract terms. About a month after adding the fee, T-Mobile reversed course and is back to encouraging customers to "go green".\
Via The New York Times.
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July 20, 2009
Fines: cosmetic incentives?
The State of New York announced settlement of a lawsuit it filed against LifeStyle Lift for "astroturfing" (paying its employees to "flood" the net with false positive reviews). The company will pay a $300,000 fine, plus an undisclosed amount of New York's legal costs.
Lifestyle Lift is a facial cosmetic surgery procedure that purports to be quicker and safer than traditional facelift procedures, with shorter recovery time and cost.
According to the NY State Attorney General's office, employees published anonymous reviews to the web to trick potential customers. They did this on legitimate review sites, and they also created standalone web sites that purported to be independent, where they created all of the "reviews" or edited reviews by third parties to skew the discussion.
See also this New York Times story.
Laws that impose possible fines or other punishments (such as jail time) are an incentives-based approach to shape behavior. A simplified version of the idea is that if the expected cost of the punishment, times the likelihood that the agent will be caught and punished (discounted to present value), is greater than the expected benefit from the improper behavior, it will not be in the agent's self-interest to engage in the behavior.
One concern about using legal punishment incentives is that they involve multiple sources of uncertainty (about punishment size and likelihood of being caught and punished), and that seemingly large ex post punishments may not be that much of an ex ante deterrent.
Lifestyle Lift was fined $300,000 plus legal costs. Suppose that it had known with certainty that it would have to pay this fine several years after earning money as a result of publishing false reviews. Would it have chosen to be honest? That depends, of course, on how many consumers it falsely induced to get the procedure, and the profit on the procedure. According to current customer comments on one review site that claims to have been abused (RealSelf.com), the procedure costs on the order of $5000, only some portion of which will be profit. Suppose that the profit rate is 10% (about $500): then of the "nearly 100,000" customers it claims to have served, Lifestyle Lift would have had to falsely induced at least 600 of them. If many more than 600 had been tricked, then even knowing the fine would occur may not have been sufficient deterrent. Multiply that by the uncertainty and the number of customers they had to successfully trick might have been less (there were also uncertainties about the benefits of lying that would have to be taken into account).
There is at least one reason the incentive might be greater: harm to Lifestyle Lift's reputation. For example, this settlement was reported in the New York Times, and the story is starting to circulate through blogs and other information sources.
On RealSelf.com, where presumably the false reviews have now been removed, 65% say that the procedure is not worth it. Meanwhile, Lifestyle Lift now posts a badge and promised "Internet Code of Conduct" on its own web site, stating that it "is proud to take a leadership role in establishing new standards of Internet conduct and communications." I don't know when that "code" first appeared, but it seems likely that this is an example of trying to turn lemons into lemonade.
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July 04, 2009
Free is the new paid
The idea is not news, but it's a charming example of for-profit enterprises seeking donated labor: LinkedIn asks translators if they want to translate LinkedIn pages for free. And gosh, some professional translators don't like the idea.
Actually, it's not clear that LinkedIn was asking the translators to work for nothing. Apparently it was planning to credit their work, thus offering some compensation in the form of marketing or advertising. And at least for some, this could be valuable compensation. It's not just "free advertising" in the sense of getting to post one's name and profession in a public place. Instead, it's a free demonstration of the professional's work: "Like this translation? It was done by Tom, and here's his LinkedIn page".
There seems to be a fair bit of consensus that a powerful motivator for many people who work on open-source software projects for "free" are doing it to get training (in working in a complex, team-based software engineering environment) and to get publicly documented evidence of their skills (the code checked in and permanently associated with your user account). I've speculated that a similar motivation might explain some who write book reviews (for "free", and which help a for-profit company) at Amazon.com: writing practice with grading by others (without paying nasty tuition), and a public record of one's skills (but how many paid jobs are there to which budding book reviewers can apply these days?).
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