Cumulative Deal or No Deal!

Thank you Greg for linking me up yesterday with just the article I needed to read. The last few days have been a lost cause searching for something worth reading in the New York Times… until stumbling upon this lovely sight for sore eyes; an article on the flaws of predicting pop culture icons from April 15 by Duncan Watts.

In “Is Justin Timberlake a Product of Cumulative Advantage?” Watts discusses his recent study at Columbia, which owes much to the theory of (you guessed it) cumulative advantage, or the “rich get richer” effect. In this model, there are at first two nearly identical goods, with one being favored slightly more than the other by actors in the marketplace. Like the butterfly that flaps its wings on one side of the globe, this slight variation can have overwhelming “box office smash” effects, unforeseen by investors and producers everywhere, like the volcano erupting in the other hemisphere.

To test it, Watts & Co. created an artificial market that consumers could visit online, where they rated and downloaded songs by unknown bands. Some bands were part of isolated “social influence worlds” where you could see only the number of downloads of the one band, while others could be measured against each other. Because there was such a divergence between the most popular songs (downloads could be measured against those of other bands), and those that were slightly less popular (isolated “social influence” control groups), cumulative advantage supposedly reigns.

Sounds like basic Keynesian economics to me. Okay kids, whip out your trusty copy of The General Theory of Employment, Interest and Money and open to Chapter 12, which concerns the unpredictability of prices in equity markets:

… professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole … We have a reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth, and higher degrees. (156)

As Keynes would have it, the stock market is a constant guessing game of who thinks who thinks who thinks who will make a move and prompt change in price (and in what magnitude). It’s not about the beauty contest; it’s about who has the best handle on the public perception of beauty. How ironic that the evaluation of beauty is often what’s at the center of our pop culture consumption habits.

Keynes’ observations are great for explaining the complexity of stock markets, and via the beauty contest analogy, so too for explaining what has always been perplexing about cultural markets. But as Watts and the others show, it doesn’t solve the original problem: how do we predict the cultural icons of the future? Watts makes the false assumption that all actors in the market for a particular band are homogenous, looking for the same product, and moreover, that the band in question offers the same homogenous & culturally symbolic good for all actors:

… if people do not make decisions independently – if even in part they like things because other people like them – then predicting hits is not only difficult but actually impossible, no matter how much you know about individual tastes. 

There’s more to be done in this study, and it’s currently being done. Check out the work of Wilfred Dolfsma. In his not-quite-smash-hit Institutional Economics and the Framework of Preferences: The Advent of Pop Music, Dolfsma explicates the unpredictability of cultural markets, and attributes their follies to an ignorance on the part of economists of socio-cultural values, based on differing views on justice, beauty, love, freedom of will, rightful ways of government and governance, social standing and behavior, and personal identity (48). Here not all consumers are out to express the same thing. Some want to experience unity with the larger group while others want to demonstrate autonomy from it, or from an older order (maybe their parents).

Dolfsma creates a social value “nexus” which inserts an institutional setting between the forces of socio-cultural values and other mechanistic, price-determining values. In all cases, the consumer expresses identity through consumption patterns, institutions always moderate the two notions of value, but energy moves freely between them and in more than one direction.

Dolfsma’s work draws on other institutional economists as well as sociologists like Durkheim, Weber, and Parsons. Instead of ruling out the possibility of predicting future shocks to cultural markets altogether, as Watts does, maybe we’re experiencing a transition, a movement towards a new interdisciplinary study with more to say. And dare I say it, one that doesn’t rely so much on the quantifiable.

~ by gnarlybuttons on 23 May 2008.