Record Labels Will Never Die

Posted on by David Wright

Hit songs, books, and movies are many times more successful than average, suggesting that ‘‘the best’’ alternatives are qualitatively different from ‘‘the rest’’; yet experts routinely fail to predict which products will succeed. We investigated this paradox experimentally, by creating an artificial ‘‘music market’’ in which 14,341 participants downloaded previously unknown songs either with or without knowledge of previous participants’ choices. Increasing the strength of social influence increased both inequality and unpredictability of success. Success was also only partly determined by quality: The best songs rarely did poorly, and the worst rarely did well, but any other result was possible.

More here (via Barker).

A few quick thoughts:

  • A quick proxy for status is how many people talk about you when you’re not there. Record labels (and movie studios) create this real value.
  • There can be only one #1 song at any given moment so, all things equal, the biggest baddest promotion machine gets the slot. This is an arms race. Also, timing your release to avoid the Lady Gaga/Pitbull/whatever Gorillas matters.
  • One can imagine an equilibrium with lower overall promotional costs and similar music quality. It’s called the no-trademark equilibrium. There is no incentive problem in high-status businesses so higher returns just flow back into marketing budgets. And the arms race heats up.
  • So killing music trademarks will hobble marketing budgets. What effect does this have on eyeball businesses like the Internet? Might trademarks be key to the bubble so many feel but cannot prick? A transfer of measured GDP to more ‘real’ sectors would look pretty awesome to rocking chair economists.

Incompetence = Ignorance

Posted on by David Wright

poor performers grossly overestimate their performances because their incompetence deprives them of the skills needed to recognize their deficits.

That’s from this paper (via).

The great question about Steve Jobs and other accomplished leaders is what on earth they do that’s so valuable. More and more I’m thinking they are simply unsatisfied with results others find acceptable. And they have the power to demand more of people.

Society has developed ways of policing us. Gossip is such a device and people who are more sensitive to social pressure are better off.

But unlike simple morality games psychologists study, knowledge of how to make great smartphones or Initial Public Offerings or open field tackles is concentrated among very few. If your friends can’t do it, you won’t either:

The groups you associate with often determine the type of person you become. For people who want improved health, association with other healthy people is usually the strongest and most direct path of change.

‘Smart’ is a Study Toxin

Posted on by David Wright

Forget about intelligence/natural ability, it literally doesn’t exist.

And I don’t even care if that’s a “true” statement. It’s a useful statement. The concept of intelligence wastes a lot of your time. Consider its toxic effect on your study habits.

Scenario 1: you’re really struggling with a problem. You feel stupid. You get depressed. Ugh, you groan, I’ll never get this and everyone else seems to get it so they’re smarter than me. Your ego-rescue mechanism kicks in and you go do something else.

Scenario 2: you solve a tough problem for the first time. Wow, you think: I’m effing smart, look what I did! Your brain floods with all-natural, homegrown narcotics. Studying sucks, it makes you feel stupid and you’re actually smart so you can stop and go do something else.

No matter what you think of yourself, framing learning in terms of smarts encourages you to go do something else before you’re ready.

The most infuriating thing about school is that students compare their performance with each other then attribute the differences to something barely related and impossible to change.

Consider an extreme scenario: you’re studying calculus, a tricky bit of math. Here are two things you can do to get better at it:

1. Allocate 10x the amount of time you’re currently allocating from your life to figuring this out.

2. Spend that extra time on the concepts that calculus uses but have nothing to do with derivatives. Get better at algebra, get better at exponents. Get better at logarithms. Now go back to calculus. Guess what, it’s easier. You’re faster. Stronger on all the ‘hard’ topics. People suddenly think you’re smarter but you know that all you did was work your can off.

How to Study Without Notes

Posted on by David Wright

Notes are a little ridiculous. You spend all this time writing them and, for exam purposes, they’re useless.

Even if you’re writing an exam where you’re allowed to bring them in, mental recall is orders of magnitude faster than flipping through a pile of paper. If it’s a serious test, you don’t have any spare time.

So here’s the guide to your life without notes:

1. Shorten your study sessions. You can realistically put in about 90 minutes of studying at any given time. ONLY do this when your mind is fresh and clear and calm: mornings are best. This state of mind is a precious, precious resource, use it wisely.

2. Stop after 90 minutes, or as soon as you feel your energy flagging, and go do something else (don’t go drinking). For the next 10-20 minutes, while you’re doing whatever you’re doing, replay all of the topics in your head. If you’ve gone over too much material for this, you studied too much. The point is to see if what you’ve learned can be incorporated into your intuition.

Ok, time out.

Read this quote:

Numerous studies over the past thirty years have shown that when people of any age and any ability level are faced with mathematical challenges that arise naturally in a real-world context that has meaning for them, and where the outcome directly matters to them, they rapidly achieve a high level of competence.

I like to think there are two types of intuition: intuition about nature and intuition about humans.

Nature is the stuff we didn’t invent: physics, biology, chemistry, natural geography. These things are studied by walking around the world and asking questions about it: why is the sky blue? What is gravity? What are earthquakes? etc etc.

Everything else, we invented: history, politics, economics, computers, etc. For these, you must use your intuition for human behavior. Why did Hitler invade Poland? What was the 2008 financial crisis about? What is the difference between a conservative and progressive politician? You learn this by experiencing people and society.

Math isn’t in either list because math, by itself, isn’t knowledge: it’s a tool, a language. I don’t believe in abstract mathematical intuition.

Back to step 2 because this is so important: engage familiar situations with your new knowledge. Reread the quote above. With calculus, for example, you already know what acceleration is: just get into a car and floor it. If you work a calculus problem and your solution says a dropped bowling ball slows down before it hits the ground you know you don’t understand the mechanics of the tool well enough yet. But that’s different than understanding what it’s supposed to do.

If you can’t even get an answer, wind back the clock and study earlier math topics. Don’t be discouraged. You’re trying to run before you can walk.

How about history? Ask yourself: if I was in Republican Rome, what would I do? Would I join the military? Would I assassinate Caesar? Can I put myself there? If not then I don’t understand the history well enough yet.

3. You’re going to realize there are some things you only thought you learned. Write these down and go over them one more time. Spend the most time on the hardest stuff, but not longer study sessions.

4. You’ll have to come back over the whole material again later. And maybe one more time again. Don’t take notes, just read the material and think about every concept.

And always work problems designed to mimic test questions. These are how you’ll be evaluated so you might as well get good at them, even if they’re only incidentally related to learning.

What Google Did and Facebook Has Not Done

Posted on by David Wright

Made its customers rich:

The Internet solved our problem, but in an unexpected way. In 1999, I had made a large conference table for a Philadelphia client. We put a picture of it on our Web site. People started to call about the table in 2003. They told me that they found my site using something called Google. In 2002, zero percent of my sales were driven by Web searches. By 2004, it was 90 percent, and we passed $1 million in annual revenue for the first time. We canceled our print ads and used the money to buy Web searches aimed at dining furniture and conference tables. Most of the callers wanted conference tables, so we turned our attention to the business-to-business market.

Behind The Curtain At The Fedborg

Posted on by David Wright

JG: Chairman Bernanke would deny that political pressure influences his vote, and he even went out of his way to make a public appearance in Texas after Rick Perry made his threat. But FOMC members all read the papers. They see the virulent opposition to their policies on the right and the silence on the left. (Paul Krugman is a big exception, but he is not a politician.)

via Yglesias more here.

Forget the median economist theory of the fed. Its power is granted by congress, a club for politicians, not economists.  And so it makes sense to avoid the ugly mess of legislating change by stocking the fed board (fedborg) with people who are sensitive to political pressure:

They want to avoid any Congressional action that would reduce their independence in the future, in part because they think this might lead to even worse economic outcomes than we are currently experiencing.

And this is also relevant:

JG: I think the average economist outside the Fed thinks the Fed has less ammo than the average economist inside the Fed.

Addendum: here Krugman on on the fedborg idea and a summary here:

In a lengthy column to be published in this week’s New York Times Magazine, Paul Krugman compares the Federal Reserve to a Borg—a race of beings from Star Trek that act based on the wishes of a hive mind, and present major threats to the Starfleet and the Federation.

Krugman argues that Fed Chairman Ben Bernanke has succumbed to this Borg mentality, subduing the beliefs he espoused during his career as an academic.

Timing Is Everything – The Euro Crisis In One Short Paragraph

Posted on by David Wright

Krugman with an outstanding summary of the Euro history (this is why you never stop reading Krugman, regardless of how off-putting the tiresome political whining may be):

I’d put it this way: it so happened that the euro came into existence at a time when the German economy was in the doldrums. Then the euro made investors believe that southern Europe was safe, causing a huge fall in interest rates there:

This in turn led to vast inflows of capital; the flip side of these inflows was large trade deficits, and large counterpart German surpluses, which was just what the Germans needed. Everyone was happy! For a few years.

Hard to make it more succinct than that. If the Euro was born in another other era maybe it would never have worked in the first place!

Long Gold = Short Central Bank Efficacy

Posted on by David Wright

I once watched John Paulson pretend he knew why the Gold price was going up. Now consider this example of the conventional wisdom:

Gold is at highs – also thanks to Fed activity. This basically leaves foreign exchange – in other words, the Fed would print dollars and buy foreign currencies, driving up the value of foreign currencies and down the value of the dollar.

Yglesias thinks the Fed should do this to stimulate the economy. I think so too, as it would increase the value of my gold holdings a lot.

The price of gold has nothing to do with inflation expectations in this environment. I tried to put together a TIPS spread vs Gold price graph at FRED but it doesn’t look like they have one.

Consider this idea for the price of gold: it goes up when the market realizes the fed’s lost its way. Can mean deflation or inflation.

How Medicine Might Change

Posted on by David Wright

Last week’s Economist had a few articles on how costs will be controlled in medicine. I’d summarize the higher-profile 3-page briefings can be summarized in one word: specialization.

Physician assistants in America can do about 85% of the work of a general practitioner, according to James Cawley of George Washington University.

Great, but this has nothing to do with technology and all to do with simple economics and… politics:

But any change will first require swaying the doctors. The American Medical Association, the main doctors’ lobby, greeted the IOM’s report with a veiled snarl. “Nurses are critical to the health-care team, but there is no substitute for education and training,” the group said in a statement.

The doctors’ power rests on their professional prestige rather than managerial acumen, for which they are neither selected nor trained. But it is a power that they wish to keep. The Confederation of Medical Associations in Asia and Oceania, a regional group of doctors’ lobbies, wants “task-shifting” limited to emergencies.

The pace of productivity increase in medicine needs to keep up with the pace of technological innovation, which in medicine, unlike in most other industries, increases costs. The power of new toys to create their own demand is something Facebook wishes it could share with medical device makers.

I’m far more excited about the second article, from the Technology Quarterly, on ‘open-sourced’ medical technology. What’s that?

Two medical physicists, Rock Mackie and Surendra Prajapati, are designing a machine to combine radiotherapy with high resolution computed tomography (CT) and positron-emission tomography (PET) scanning. Their aim is to supply, at zero cost, everything necessary to build the device from scratch, including hardware specifications, source code, assembly instructions, suggested parts—and even recommendations on where to buy them and how much to pay.

You can see some specs here, which looks like a work in progress. Could DIY instructions combined with something like additive manufacturing be cost-killing future of medicine?

Here’s another awesome idea from the same article:

More intriguing still is the Medical Device Co-ordination Framework being developed by John Hatcliff at Kansas State University. Its aim is to build an open-source hardware platform including elements common to many medical devices, such as displays, buttons, processors and network interfaces, and the software to run them. By connecting different sensors or actuators, this generic core could then be made into dozens of different medical devices, with the relevant functions programmed as downloadable “apps”.

The problem? The FDA is not set up to monitor this kind of thing and (probably) fumbles the approval process.

“In the 1990s we developed an excellent radiation-therapy treatment-planning system and tried to give it away to other clinics,” says Dr Mackie. “But when we were told by the FDA that we should get our software approved, the hospital wasn’t willing to fund it.” He formed a spin-off firm specifically to get FDA approval. It took four years and cost millions of dollars.

The FDA’s power is in the ascendent. In a way, this is good because it will help protect us. But remember that stories like this have happened:

An especially absurd example of device delay occurred to the Sensor Pad. The Sensor Pad is so simple it hardly justifies the term device: it is two sheets of sealed plastic that sandwich a silicon lubricant. With the Sensor Pad, a woman can more easily detect unusual breast lumps in a self-examination. Although the product is simple, it is quite useful and can save lives through early detection of breast cancer. The Sensor Pad was invented in 1986 by Earl Wright of Inventive Products and was submitted to the FDA for approval. The FDA, however, could find no other substantially equivalent product on the market and thus automatically classified the Sensor Pad as a high-risk, Class III device. Before being allowed to sell the Sensor Pad, Inventive Products had to submit a premarket approval application to the FDA.

There’s a bottomless pit of demand for event the most modest improvements on existing devices and tests. And then there are the big scary problems that we barely understand for which there is also unlimited demand for innovation.

Combine this with an unparalleled expertise bias in medicine (as evidenced by the FDA when at its worst) and you get some truly toxic economics. There is very little wikipedia/crowd-source/open source innovation in medicine right now.

Doesn’t that have to change eventually?

Why Doesn’t RIM Buy Linkedin?

Posted on by David Wright

I really dislike the iphone for business use. The moment I need to type more than one sentence, I get really frustrated. It’s the editing iOS sucks at.

So I’m pretty much stuck with a blackberry for the foreseeable future. Yet I remain incredibly envious of my wife’s iphone for EVERYTHING other than business communication. The blackberry’s software just plain sucks.

That’s why RIM needs some help and Linkedin would be the perfect fit, non? The anti-Facebook.