Friendship and The Supply of Ideas, cont.

Again, I feel the need to do some clarifying.

In the original post, I said:

For many ideas, which are carried in books, on CDs, in movies, and the like, the supply works just as it does with any other material good. As the market price goes up, so does the amount supplied. The everyday upward-sloping supply curve for material goods applies equally to these ideas — because they are material goods.

This is partially true. I failed to address intellectual property laws, which in some cases invalidates this model.

To make a long story short, the amount of information supplied will not necessarily respond to supply and demand. In general, information subject to IP laws (patents, for example), will be supplied suboptimally. That's about all I can say without getting deep into the details of specific industries, as well as monopoly and monopolistic competition theory, and I don't want to do that. Suffice it to say my supply-and-demand model can break down in these cases.


So moving on:

Friendship-

I feel like my analysis of friendship was pretty weak, so I'm going to try to go through it more thoroughly here. Consequently, I'm about to get fairly meticulous and technical. Feel free to skip this, I reach the same conclusion at the end.

Let's take the simplest possible example: one homogenous group of people, who are able to provide what they want on their own. Naturally, no relationships are formed. Everyone is a happy hermit. Supply equals demand, because everyone gets as much of what he wants at the price of providing it.

Now let's say there are two separate homogeneous groups of equal sizes, each of which can provide what the other group wants, and the wants of each group are homogeneous. Naturally, they pair up randomly. Supply and demand again are equal, and the two services are traded. The amount of each service provided depends on the cost of the service.

Two homogeneous groups of different sizes, each of which can provide what the other group wants: scarcer groups attract more friends. Friendship groups are formed with ratios of group 1 to group 2 that are equal to the ratio of group 1 to group 2 of the entire group. So if there are 3 times as many people in group 1, friendship groups will be formed with 3 of group 1 and 1 of group 2. Supply again equals demand.

Now 3 homogeneous groups. Let's say group 1 likes group 2, group 2 likes group 3, and group 3 likes group 1. In this case, the friendship bartering market breaks down, and no trade occurs. Supply doesn't equal demand.

Same as the above case, but introduce a currency to the situation. Let's call the basic unit of currency a "joke". Using jokes, the 3 groups can now purchase the services they like, and supply again equals demand. (Yes, I am proposing that jokes operate as a currency of sorts, but no, I'm not prepared to defend this. Just an example.)

Multiple groups with a variety of services they can provide and services they like: depending on how well friends match up, social currencies may or may not become widespread. In any case, the variety of wants and the variety of abilities allow social currencies to come into play if needed. In the friendship market, supply equals demand (though the process may be relatively crude). This case seems realistic, so I'm feeling confident of this aspect of my model. My conclusion from the last post should hold true.


Also, I keep saying "friendship", but this should apply to all human social interaction, where coercion is not present. People try to avoid those who they dislike and be around those they like. For example, coworkers may be hard to choose, but if the difference between potential coworkers is large enough, it may lead one to change jobs. A person will be willing to accept losses less than the gains from better coworkers. Supply should practically always equal demand in social situations.


I don't like writing these kinds of posts.


[edit- the social currency idea is no good. I should instead argue that as people are able to provide a larger variety of services, there will be a greater likelihood of avoiding the scenario where no trade occurs, so in everyday life the friendship market should be crude but still amenable to economic analysis.]

Friendship and The Supply of Ideas

I've discussed the demand for ideas. What about the supply? (I'm ignoring beliefs for now.)

For many ideas, which are carried in books, on CDs, in movies, and the like, the supply works just as it does with any other material good. As the market price goes up, so does the amount supplied. The everyday upward-sloping supply curve for material goods applies equally to these ideas — because they are material goods. (Some advertising also works in this manner, with advertisers targeting those who are interested in the information they supply, and then adding the advertising cost onto the price of the good when a person buys it. In effect, the supply increases in response to the "price", that is, the value consumers are willing to pay for it.)

Ideas supplied outside of traditional markets are more problematic. What determines the information brought up in, say, everyday discussions?

The key to understanding the supply of these ideas in these situations is the realization that many social processes, though money is not explicitly involved, operate as markets.

There are 6 billion people on Earth, and you can only be in close relationships with a handful of them. The upper limit to the number of people a person can keep in touch with is probably a few hundred. Somehow, individuals must decide who to befriend and who to ignore. Thus friendship involves the allocation of scarce resources. Whether the reasoning behind the relationship is described best by social exchange theory, Gary Becker's rotten kid theorem, or something entirely different, the result is a market.

Let's say each person is looking for the most rewarding friendship he can get, without searching for too long. Since the value of a friendship is subjective, each individual is going to be looking for somewhat different qualities in a friend.

But there's not enough of each person to satisfy the friendship desires of everyone who wants to be his friend (well, maybe for some people— but wannabe friends still have to compete with other activities, like jobs and television). So a sorting process occurs, each person looking for the best friends he can get that will take him.

One of the things a person looks for in a friend is pleasing ideas. For example, a person who talks constantly about his cat probably won't get many friends outside of cat enthusiasts. People might avoid this person like the plague. A person with an unending supply of hilarious jokes, or who can give profitable stock market advice, will be more successful on the friendship market, other things being equal.

This gives friend-seekers an important incentive, which is the entire reason for jumping into this subject: the incentive to tailor their conversation to their friend's (or potential friend's) interests. By doing this, they can extend the range of possible friendships open to them. In other words, there is a sort of implicit price for information in the friendship market, and, by providing more valuable information, you can ask for a higher price. Presumably, people are aware of this, at some level, and respond accordingly. This means the supply curve looks something like this:



As the benefits of supplying information go up, so does the amount supplied.

Combine this with the demand curve from earlier, and the information market looks like this:




Economics and sociology: 1
Memetics: 0


More

Gary Becker, Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology (from The Economic Approach to Human Behavior) -- the rotten kid version of friendship

Sergio Currarini, Matt O. Jackson, Paolo Pin, An Economic Model of Friendship: Homophily, Minorities and Segregation -- a market-oriented model of friendship

George Homans, Social Behavior: Its Elementary Forms -- the social exchange version of friendshp