Joho the Blog
An Entry from the Archives

Oliver Goodenough, a fellow at the Berkman Center, is leading a lunchtime discussion on the topic "Modeling Cooperation for First and Second Lives: Suggesting a General Case." [As always, I'm live blogging, typing quickly, missing some points, paraphrasing throughout, getting some things wrong. Sorry. But you can always see the presentation itself at Media Berkman. (This talk was particularly over my head, as you'll see.)] [The paper is available here.]

Oliver says: Cooperation is "a key element of our existence." Economically, biologically, we are cooperative. But we haven't understood it well. And neoclassical economics assumes that cooperation is easy (e.g., contracts) and that it's impossible (the "rational actor" model). And biology's "selfish gene" assumes that we're selfish.

"Outcomes that vary from Nash equilibriums have not been well studied." "Many of the opportunities for cooperation come in defection-prone contributions." E.g., I can offer to pay you, get the goods, and then not pay you. "Cooperation is likely to occur in circumstances where it is the dominant game strategy." We're not stuck in bad games. "We can choose and shape the games we want to play in." The Mechanism Design approach (its creators just won the Nobel) lets us evolve the game. We can cooperate in the design of the mechanism we're building. We can have deals and create institutions.

The mechanism design toolkit for constructing institutions and mechanisms includes reciprocity, hierarchy, partnership, contract, property, fairness... And these mechanisms can be located in various institutions and mechanisms, e.g., dual key lock box, genes, psychological values, law, culture, code...

Examples of mechanism design: A Coke machine in a college dormitory is made reliable to the Coke company via physical armor. It is made reliable to the buyer via Coke's reputation, the big sign, the history of transactions. eBay has a different set of mechanisms. YouTube is making it possible for copyright owners to give permission for the posting of their material in return for advertising revenues from those postings. These are all mechanisms.

So, we are making progress in understand cooperation. Some of the progress is coming from outside of economics.

Q: How about non-monetized projects like Wikipedia?
A: There are lots of motivations other than money.
A: [andrew] There's a literature on why people contribute to open source software.

Q:(wendy) What about DRM? It is an institution written in code to keep us from "misusing" copyright works. But we are not free to refuse it.
A: Individuality rationality says that we don't accept the best deal we could design, but we take the deal that's the best we can get. Between the quicksand and Nirvana of cooperation is a continuum. We could even look at politics as the renegotiation of distribution rules.

Q: (doc) What about generosity? A: That would be in the realm of my psychology of values. One wants to avoid becoming mechanistic about human attributes. E.g., love plays a highly evolved biological role, but it's also splendid. Generosity is either a gift from above, or it is the result of material processes that we can understand. If the latter, we should try to understand it.

Q: (corinna) The more close knit the network, the more likely you are to cooperate. How do you transfer this to the digital world where you're unlikely to know the person directly, e.g., eBay.
A: When you're designing digital mechanisms such as eBay, you're combining a reputation system, a repeat transaction history, network reputation, access to Paypal, a trusted intermediary, etc. These are mechanisms.

(gene) If you were doing the mechanism design for record companies, what might be a mechanism that would work?
A: The record company was a mechanism. The technology is destroying their role as middle broker. They're desperately hanging onto a IP position to maintain what was a market position?
Q: So, would your model suggest that Radiohead will succeed?
A: That asks what mechanisms a band can use...

Q: (me) What domain is this theory in? What do we have to stop believing to start believing this?
A: Economists will tell you they explore behavior. Biology and psychology also explore behavior. The most serious formalizations in economics and biology don't get how this works. Now institutional and game theoretical economists have advanced this. People like Martin Nowack (sp?) are undoing the blockages in biology. My one contribution is perhaps to turn it around to mechanism design and see that there's a general case there.

Q: How does your theory view law? Is it something that can bring about good outcomes for everyone? Or does it always involve hard political questions?
A: In a mechanism structure, there are people who getter better or worse deals. Is being part of that mechanism individually rational is a different question than "Would I redesign the game if given the opportunity."

Q: You sound a bit like early Douglas North: Institutions fix the problem. I think the really new stuff in what you say has to do with the technology piece. Tech can constrain where you put the mechanism.
A: I have taken a bunch of ideas from North, but he doesn't take the next step to mechanism design. The most I'm doing is putting the pieces together...

Q: (gene) Is it the monetization that undermines cooperative systems or the rational counting of it. E.g., at eBay, you can look beyond the numbers to see what kind of seller you are.
A: There's a literature on impersonal vs. personal exchange. One of the problems in designing big markets is whether you want to strip away all the personal signals.