[IP] Economics vs. spam

-----Original Message-----
From: "David Farber" <dave@farber.net>
Date: Tuesday, May 17, 2005 6:18 pm
Subject: [IP] Economics vs. spam

_______________ Forward Header _______________
Subject: Re: [IP] Economics vs. spam
Author: "James H. Morris" <james.morris@cmu.edu>
Date: 17th May 2005 5:12:24 pm

Advertising is Flirtation

I liked the van Alstyn and Loder paper on how to fight spam. It is actually being used by a start-up, Vanquish.com. I've sampled their software and it works as a challenge response system, at least.

Based on the premise that a message can have value to both the sender and receiver, they present an elegant argument to show that even a perfect filter is not a good idea. Economists say that these unilateral solutions are bad because they decrease net social welfare, and they look for mechanisms that promote the transmission and reading of those messages where the sum of the value to sender and receiver is positive. To do so, they recommend the obvious: exchange money to pay the partner who is reluctant to communicate. This works fine when you're paying the sender, but paying the receiver is more dubious.

Alladvantage.com tried this scheme in the 90's and failed miserably.

Apparently economists don't frequent singles bars -- notwithstanding the bar scene in "A Beautiful Mind" in which John Nash discovers Nash equilibriums. Paying someone to read an ad doesn't work anymore than offering a woman $5 to talk with you does. You can pay for her drink, but don't offer to pay her. Either she is offended; or, worse, she takes the money and blows you off. Van Alstyn embellishes this scheme by suggesting you escrow the $5 and she take it only if she doesn't like your line. This seems unproductive, too.

The point is: advertisements are not one-time "information transactions"; they are inducements to learn more and eventually pay for something far more expensive than the ad. They are flirtations; and, as any frequenter of singles scenes knows, where and how you flirt is very important because you are signaling about the kind of relationship you seek. Thus, it is much better to simply buy her a drink, include a quarter in a junk mailing, or throw money away in some other visible way. It makes you look generous, encouraging interest.

Advertisers don't want to force their material on unwilling readers. Nobody wants to show ads the reader no interest in. So if he know that an item was ultimately not interesting, he wouldn't send it.

The essence of communication is that A tells B something B didn't know. Thus the sender/receiver relationship is very non-symmetric. First, the sender knows precisely what the information is and why he would like someone to read it. He also is economically motivated, either to take money for information or pay for advertising. The receiver, of course, doesn't know what the information is. She might pay for it if she expects it to be valuable, but is reluctant to read information for payment. More precisely, if she does read it simply for payment; the sender is unlikely to receive what he ultimately wants. Economists called this adverse selection.

But let's not ignore the economists' main point: the arms race between spammers and browsers is wasteful because it leaves social welfare on the table. We need to find ways to get more of those messages through. Bundling is a better approach than direct payments.

Magazines are a way of bundling information in a way that accomplishes this. The magazine pays authors for content that might interest the readers and it charges advertisers. The reader pays the magazine, presumably for the content; but maybe also for the ads that come along.

What is the the value of an item in a magazine to the writer and reader? The crucial measure is reading time, how long the reader spends looking at the item. It reflects the cost to the reader, her time, but also the value to the sender, how much attention he's getting. Of course, the ultimate value to an advertiser is the profit on something the reader buys; but reading time should be correlate

The new idea here is that the value to both the sender and receiver increases with reading time.

Whether something is content, advertising, editorial, op-ed, or a letter to the editor, is really just a question of labelling the author properly so that the reader can judge the content. The value of an article to the sender rises with the level of rhetoric; i.e. the degree to which the reader is persuaded to do something. But it is not a zero-sum game. Maybe I'd be happier with a penis enlargement. :-)
James H. Morris
Professor of Computer Science
Dean, Carnegie Mellon West
412 609-5000 http://www.cs.cmu.edu/~jhm -------------------------------------

Archives at: http://www.interesting-people.org/archives/interesting-people/