A poster for the Lange Nacht der Wissenschaften (Long Night of Science), to take place next week in Jena. Paolo Crosetto and I will get people to play our experiment. Should be fun!

The English version of the poster is here, and was prepared for the Summer Institute on Bounded Rationality at the Max Planck Institute for Human Development in Berlin this summer.

We deal in this paper with the problem of how to handle firms that deliberately make their offerings too complex so as to make consumers’ choice more difficult. Paternalistic regulation would deal with this by either assisting consumers in their choices or limiting what firms can do.

We test an idea in Gaudeul and Sugden (2011)* according to which the problem can be solved if at least some consumers recognize that offers that are easy to compare with others are usually better deals.

If at least some consumers limit their choices to those offers that are easily comparable, firms will adopt common ways to present their offers and will have to compete based on the really important characteristics of their products.

Since we wished to test if consumers indeed behave as we predicted, we designed an original experiment whereby we invited people from the subject pool of the Max Planck Institute in Jena and asked them to buy paint. Each offer was represented by the surface the paint can cover for a given price.

The difficulty is that each surface area was presented in different shapes of different sizes. That made the offers’ unit prices per area covered difficult to assess. However, offers that were of the same shape and area were easy to compare. If we were correct, our participants would prefer those offers.

Here is an example below:

Which offer is best?

In the case above, the offer on the right is better than the one in the middle (it is the same size and shape and is cheaper). But it is difficult to compare with the one to the left. We show in the paper that a consumer that is not too good at comparing shapes and calculating unit prices should just ignore the offer on the left and go for the offer on the right. Some indeed did so, but others followed different choice rules.

We found that subjects were indeed bad at making accurate choices and that when some offers within a menu were expressed in terms of the same shape and the same area (i.e. they adhered to a common standard), then they tended, overall, to prefer the common standard offer that had the lowest price. Those who did so were better off than others, i.e. they spent less money on average.

Our results are interesting in so far as they are also not completely one-sided in favor of our hypotheses. For example, while participants did tend to prefer offers that were comparable with others, they still tended to be confused when the menu included too many offers (we had cases where there were 6 offers in a menu rather than the three in the graph above). So firms may just keep on confusing consumers by simply presenting more alternatives.

Our paper is a really good entry point into the debate over consumer protection and exploitative practices by firms. It makes use of insights from a number of areas of research in economics (behavioral economics, industrial organization, experimental economics, political economy).

Feedback and discussion from our presentations at different workshops and conferences has been really encouraging so far, so we will keep on exploring the issue from the firm’s side as well.

In our experiment, firms that made offers in terms of a common standard AND were low priced made higher profits than other firms, meaning that firms ought to have an incentive to present their products so they are comparable with others. Whether they would indeed do so is something we want to test in the laboratory.

For more, the paper is available at http://ssrn.com/abstract=1943603. See also Paolo Crosetto’s excellent blog post about our paper here.

* Spurious Complexity and Common Standards in Markets for Consumer Goods, Economica, 2011, available at http://ssrn.com/abstract=1489378.

We re-organized the whole of the first part by cutting off some of it to make room for more discussion of the literature. We added many references and the whole reads better overall. The theoretical model was not changed, but we expanded the econometric section to discuss the long-term impact of sustained changes in a blogger’s activity.

Sustained increases in a blogger’s level of activity translate in higher audience, but the process is front-loaded in terms of costs. In short, blogger A who becomes more active will not at first get many more readers. In fact, A will start reading more blogs before they read A back. A’s audience thus increases, but only after a while.

The total effects of changes in activity settle only slowly over time and differ from the short-term effects. That is, a blogger will have to go through a period where she adds more blogs to her reading list than add her before this translates into a more than commensurate increase in her own audience.

We summarize our findings as follows:

1. Writing more entries will not make your blog more popular, but writing more comments on others’ blogs will.
2. Getting more features for your blog, if necessary by paying for them (horror!), will boost your readership.
3. Sustained effort will increase your audience, but don’t expect payoffs to come soon. In fact, you might have to read more blogs than read you for a long while before this pays off. Things will even out over the long-term though.
4. Adding others to your reading list will get others to add you to theirs. But only about 10% will, according to our estimates. We did not go into what to do about those who do not add you back.
5. Joining communities of like-minded bloggers is a good way to find new blogs to read. Yes, this may sound obvious, but think that through reciprocation, they might read you back! Hint, hint!
6. Successful bloggers tend to reciprocate readership more freely (though whether they read back those who read them… we have no way to know…). This could be a reason they are more popular, but we cannot prove this with our data.
7. LiveJournal bloggers in Russia were supposed to be more media-oriented while those in the US are more into social networking, but this did not translate into differences in our results however. The differences in culture between those two types of bloggers may have been overstated…
8. There is very strong persistence in term of readership, that is, people tend not to tire from reading blogs they are subscribed to (or at least, your readership will not decrease much over time on its own).

So all in all, from my 10+ years experience of blogging, the results certainly sound quite intuitive, but I am sure that it would have been easy to argue for results going the other way.  It is nice to have some robust results and a clearer idea of the properties of blogging.

I was surprised by how similar our results for Russian and US blogs were. Those are really two different cultures on LJ, with US being mostly teenagers and grad students, while in Russia, they are more like the standard WordPress user of the US, i.e. thematic blogs. I would like, in a further iteration of this research, to classify blogs by type so as to examine further differences in their dynamics.

Second, the low apparent rate of reciprocation, around 10 to 15%, was lower than I expected. Bloggers reciprocate only about 10 to 15% of the time and this does not seem to vary much from stages to stages in the life of a blog (i.e. how long they have been established). I wonder if we would find the same if we gathered data on the establishment and breakdown of links at the individual level. This is possible, but much more data intensive and having access to company data would be helpful so we know who started the relation.

For more details, the paper is available at http://ssrn.com/abstract=1944314.

We measured how many of a blogger’s new readers were gained through reciprocation (they read me because I read them), vs. what was gained through other activities, such as posting blog entries, making comments, joining communities, etc. Our results confirmed that activity and reciprocation both helped in growing one’s social network. This means that for a blogger to be successful, it helps to make efforts in initiating relations with others.

The paper is one of the first to follow the activity of bloggers over time along with their audience. Our analysis also relies on an original theoretical model, an adaptation of a standard capital investment model along the lines of the work of Glaeser, Laibson and Sacerdote (2002).*  We contribute with our research to a better understanding of social network formation by exploiting fine-grained data collected online.

We expect our approach to be of use when comparing different kind of social networks; those that are primarily affinity-based, where reciprocity is important, vs. those that are primarily activity-based, where reciprocity would play less of a role. Our work provides a conceptual and analytical tool to better understand variety in social media and locate its different manifestations along the range between social networking, which is affinity-based, and media activities, which are oriented towards collecting and diffusing information.

Already, we were able to evidence differences between popular and less popular blogs in that respect, though not when comparing Russian and English-speaking blogs. We do not have references points for how important reciprocation turned out to be on LiveJournal. However, we think that LiveJournal is merely a point on a continuum that spans from Twitter to Facebook in terms of how important activity (media aspect) is compared to reciprocation (social networking aspect). We would indeed expect low levels of reciprocation among Twitterers, while links on Facebook would have a high probability to be reciprocated. Confirmation of our intuition awaits further study.

* Edward L. Glaeser, David Laibson and Bruce Sacerdote (2002), “An economic approach to social capital“, The Economic Journal, pp. 437-458.

The article is available at http://ssrn.com/abstract=1792497

Related Articles

• The Ed Techie: The reciprocity economy (nogoodreason.typepad.co.uk)
• Twitter account circumvents NYTimes paywall (freakonomics.com)
• LiveJournal bots drown out political discussion with spam and porn (nakedsecurity.sophos.com)
• Social networkers must reciprocate (theglobeandmail.com)
• LiveJournal (Finally) Gets Its Game On (escapistmagazine.com)
• Dimbler – Social Media Sharing on Steroids (searchenginejournal.com)
• A Eulogy for my LiveJournal (duckwriting.wordpress.com)

This is “almost” a good illustration of the paper Robert Sugden and I wrote (Spurious Complexity and Common Standards in Markets for Consumer Goods, http://ssrn.com/abstract=1489378, forthcoming Economica).

We go a step further by arguing that if some consumers limit their choice to firms with tariffs that are “simpler” (in terms of how easy they are to compare to others), then they will obtain lower prices than they would otherwise do since those firms are in close competition with their similarly packaged competitors. The “common standard” heuristics is thus validated. Its use ought to spread through learning, especially as it is applicable in a wide range of cases. At some point, firms with confusing contract terms would then have such a small share of the market (composed of those irremediable consumers who enjoy being confused!) that their strategy becomes unprofitable and they disappear.

We do however mention the possibility that firms may indeed collude to keep prices confusing (referred to as a “confusopoly” by Scott Adams). This calls for a degree of light touch regulation to get some firms to adopt a common standard, this common standard then spreading naturally through competitive forces in the market.

Related Articles

• Breaking Up the Retail-Price Confusopoly (blogs.hbr.org)
• Spurious Complexity and Common Standards in Markets for Consumer Goods (agaudeul.wordpress.com)

The group I was involved with had as its broad theme “innovation”. The first day was spent trying to agree on a “grid” (the “holy grid”, as it was jokingly referred to afterwards) to analyze innovation processes. Less work was spent trying to define “innovation”, as this was left as a matter of reflection when analyzing case studies, chosen by the PhD students, of what we suspected were instances of innovation.

The two chosen case studies were about “family constellations“, a method for spiritual healing propagated mainly by Bert Hellinger, and the Hulda project, an itinerant science and art festival that travelled by boat from Stockhom to Istanbul. Those were two really interesting and original cases I very much enjoyed hearing about. In the last day before presenting the results, we devoted some work to finding a consistent way to present both cases, compare them and find issues with the conceptual tools that we used in their analysis.

Particularly interesting was developing an input-process-output-outcome innovation cycle model, whereby the context of the innovation was first analyzed, then the way the innovation was developed, then how the innovation was embodied and put on the market, and finally the effect the innovation had on its environment, feeding back into a new cycle of innovation. Whether this model was too broad, that is, applicable to any development process, whether innovative or not, was a question left in the air after the end of the summer school.

While the time given for presentations (20 mn) was often tight for many participants, we managed to keep on schedule and even have some interesting discussions during the 10 remaining minutes for each papers. From some feedback I got, people enjoyed the diversity of the topics presented, and I certainly learned quite a lot myself, notably on the variety of types of data that are used to study the OS phenomenon.

The workshop had a clear empirical slant, as research seems to move from theory to testing. Among the topics I was most interested in were the patterns in the career of OS developers, how OS teams are able to effect radical changes in their software design, and how firms get involved in OS development. What I missed was more work on OS development networks, how OS developers build a reputation, and how OS projects manage to attract participants.

The programme is available here, with links to all papers that were presented. A press release was also distributed (read it here among other places).

I tried in my presentation to combine two papers on reciprocity in blogging networks. The first, published recently, relates unequal relations among bloggers with their productivity, and shows that those who are more productive tend also not to read back their readers’ blogs. The second, in progress, tries to compute how much of a blogger’s readership is gained through his activity vs. what is gained from establishing reciprocal reading relations with other bloggers. Presenting all this in 30 minutes turned out to be too ambitious, notably as my introduction to the topic was too lengthy. I will hopefully do better at the GSBC brown bag seminar on October 27th.

In the corners are the themes linking the different topics I have written on. I provide short summaries of findings for each different topics.

The presentation follows the arrows, but there is no special place to begin from, and one could also go in the other direction!

The background logo is that of the Friedrich Schiller University in Jena, Germany, where I work.

The call for papers is available at http://floss2010.pbworks.com, and can be downloaded at http://floss2010.pbworks.com/f/Call+for+Papers.pdf.

Two special guests will give introductory lectures about their research in that domain: Jürgen Bitzer will present his research on “Returns to Open Source Software Engagement: An Empirical Test of the Signaling Hypothesis”, and Rebeca Méndez-Durón will present her paper “Returns from Social Capital in Open Source Software Networks”.

Information about Jena is available on the workshop’s website (links at the top). Jena is a very pleasant and very old university town in what used to be East Germany. It is very well linked by high-speed trains from Berlin, Frankfurt and Munich.

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