Outside the Box

How much is your time worth? How much are you (and your life) worth? These questions are sometimes very much avoided – afterall, its rather hard to discuss the fact that American babies are only valued at $90 (pdf, opens in new window). Many a times, economists and actuarists have been accused of being ‘inhuman’, by boiling down human life to mere numbers, and that you cannot attach a number to the value of a person.

Thankfully though, we at Pressyo do not deal with these issues (economists call these repugnant transactions, where a value is attached but it is generally considered untasteful – i.e. a ‘yuck’ factor). We do however deal with another kind of repugnant transaction that will be discussed in future blog posts. At Pressyo, we deal with valuating information, which in itself, presents a different challenge than say, evaluating how much insurers should pay for a lost thumb on a construction worker (about 10% of your health insurance, depending on which country you’re in).

There are several problems with trying to evaluate information. In attempt to be brief, I shall list a few down and not cite any academic sources (also, the dearth of popular academic articles with regards to this topic means that I’m too lazy to find the more obscure ones).

1. Different information holds different value to different people.
   You, for example, might derive value by reading about something about say, the Large Hadron Collider. Perez Hilton, on the other hand, might derive value by reading a paparazi piece on Paris Hilton (I mean, that’s why you’re reading this blog, and Perez Hilton isn’t). On a 1-5 scale of value, you might list a LHC piece on 5, while news of Paris Hilton’s newfound levels of sluttiness gets a 1 on your scale; likewise for Perez Hilton – 5 for Paris Hilton news, and 1 for the LHC news (unless of course, if the LHC threatens to put homo sapiens into extinction by virtue of a blackhole created, then he might actually derive value from news of the LHC).

   The problem then, is to cater to different people, with different evaluations of the same information. And the general value of information in its aggregate.

2. Information is (mostly) a public good.
   Public goods are non-rivalrous, non-excludable goods. It is non-rival because you accessing a piece of information does not prevent another person from doing the same. Back in the dark old days before the Internet, information is mostly on dead-tree books, and to some extent, it was rivalrous, but nowadays on the Internet, information is non-rival (mostly anyways). Information on the Internet is also non-excludable. It means you cannot exclude people from accessing it. Yes, you can try, as the New York Times did try, but for the most part, information online is non-excludable.

   What’s the problem with information being a public good? A few, actually – most notably, the free-rider problem. Free-riders are people who can be considered to be like parasites. Applied to the case of information goods, its those people who access information, but do not contribute back. Wikipedia faces a problem like this, where 90% of Wikipedia’s users are only readers and only 1% contribute (cf. Horowitz).

   In Pressyo’s case, this free-rider problem can be thought of as a black box with no leads out. Users who access stories in Pressyo, but doesn’t provide feedback to the system on how they value the information provided.

3. Information is (mostly) abundant.
   Information online has in recent years, became more abundant. Traditional economics work on the assumption of scarcity – in that things (goods) are finite, and there ain’t no free lunch in the world. But the Internet (or any new technology, actually) is turning that around. What used to be scarce and finite is now abundant and infinite. Spreading information online has a marginal cost of close to zero – it doesn’t cost much to spread information. This, of course has lead to spam and the like, but also poses a problem with valuation. In basic economics, when supply outstrips demand (and in the case of information, supply will always outstrip demand due to its public good nature), the price (which is a proxy for value) approaches zero.

   One could theoretically include and take into account network effects – an example would be to see how popular a piece of information by checking how far it is spread (a simple way is to inverse a supply schedule, and inverse the demand schedule) – but such are impractical methods, and also, not to mention, spam would probably be the highest valuated informations on the internet due to its overabundance.

These are amongst the few problems with evaluating information’s value on the Internet. Other concerns also include the psychological point of view – how does one value something? – and the very basic building blocks of values and valuation.

Some people have come up with responses (conversion rates, number of pageviews, etc) but we found those seriously lacking. The few innovative responses are sadly copyrights and trademarks of giant corporation (think Google PageRank).

Of course, we at Pressyo have come up with some surprisingly nifty techniques to evaluate information (hah, we’d be going into the realms of heavy mathematics like markov chains and hidden markov models – and at which point economics crosses with computer science). But also, we have uncovered some deceptively simple methods that could work – some are really out of the box. They will be left to future blog posts for discussion as this blog entry is already very lengthy.

Till then, how much do you think you’re worth?

Tags: value

This entry was posted on Tuesday, November 11th, 2008 at 7:29 am and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.