At a dog show a small handful of expert judges determine how to sort the dogs. This is sorting by committee. Sorting by democracy would involve everybody having the opportunity to vote for their favorite dogs. A third system of sorting is by demand. Everybody would have the opportunity to spend as much money as they wanted for their favorite dogs. All the money would be given to the Humane Society, for example.
Last year the Libertarian Party (LP) used demand to sort potential convention themes…
$6,327.00 — I’m That Libertarian!
$5,200.00 — Building Bridges, Not Walls
$1,620.00 — Pro Choice on Everything
$1,377.77 — Empowering the Individual
$395.00 — The Power of Principle
$150.00 — Future of Freedom
$135.00 — Life, Liberty and the Pursuit of Happiness
$105.00 — Rise of the Libertarians
$75.00 — Free Lives Matter
$42.00 — Be Me, Be Free
$17.76 — Make Taxation Theft Again
$15.42 — Taxation is Theft
$15.00 — Jazzed About Liberty
$15.00 — All of Your Freedoms, All of the Time
$5.00 — Am I Being Detained!
$5.00 — Liberty Here and Now
The LP essentially turned a decision into a fundraiser. They could have, and should have, used the same system to choose the convention location, date and speakers. Of course the LP first should have used the system to decide whether or not to even have a convention.
Does sorting by demand seem strange? It really shouldn’t. Every time you go to the grocery store you spend your money to help sort the products. How the products are sorted determines how society’s limited resources are divided between them. If more and more people become vegetarians, then meat will be ranked lower and lower, and less and less of society’s limited resources will be used to supply it. More and more resources will be available to supply more important things.
Humans aren’t the only species to use demand for sorting. Bees sort flower patches by demand. Each and every forager has the opportunity to spend their precious calories dancing in order reveal their demand for their favorite flower patches. How the foragers divide their limited calories between the patches determines how the hive’s limited supply of labor is divided between them.
In all cases what is being allocated is attention. Attention is allocated by market (demand), or democracy (voting), or socialism (committee). These three sorting systems are fundamentally different, which means that they really can’t be equally effective at allocating attention. One system must be far better than the others at allocating attention.
My best guess is that sorting by demand is by far the best system at allocating attention. How people divide their limited dollars provides the most accurate reflection of their priorities. There is an important caveat though.
People can benefit from a certain type of good whether or not they reveal their demand for it. This type of good is referred to as a public good. Wikipedia, for example, is a public good. Everybody can use it, and benefit from it, even if they don’t donate to it. Why buy the cow when you can get the milk for free? The problem is that, if the amount of money that Wikipedia receives is less than the true demand for it, then it will be ranked lower than it should be, and it won’t receive enough of society’s limited attention… which naturally means that some other goods will receive too much of society’s limited attention.
In your story you wrote…
How much quality does a Rolls-Royce have? I don’t know what that means. But which is higher in quality — a Rolls-Royce or a Kia? That I know.
It’s fine to compare Wikipedia and Linux, given that both are public goods. How they are sorted by demand will be relatively correct. But it’s a problem to compare Wikipedia and McDonald’s. Wikipedia will be ranked lower than it should be while McDonald’s will be ranked higher than it should be. Society will have too much food for its stomach and not enough food for its brain.
The free-rider problem is why taxation is compulsory. People are forced to contribute a minimum amount of money to public goods. The issue is that congress, a committee, uses everybody’s money to sort public goods. Since congress is a committee, it incorrectly sorts public goods, such as public education, which is why I have to spend so much time and energy explaining elementary economics to everyone.
If taxpayers were given the freedom to use their own taxes to sort public goods, they wouldn’t be comparing the EPA and Microsoft… they would be comparing the EPA and the DoD. This means that the goods supplied by the government would be sorted relatively correctly.
The same logic applies to Netflix. Over 100 million people currently subscribe to Netflix. With its current sorting system, a committee uses everybody’s money to sort the content. It would be far better if each subscriber was given the opportunity to use their own subscription dollars to help sort the content. Subscribers would not be comparing nature shows and running shoes… they would be comparing nature shows and horror movies. How subscribers divided their limited dollars among the content would accurately reflect how they want society’s limited attention divided among it.
Why does Netflix currently sort its content by committee rather than by demand? It certainly isn’t because of the free-rider problem. It’s simply because Netflix doesn’t perceive the benefit of seeing and knowing the relative demand for its content. Ignorance of demand guarantees a very suboptimal supply.
Sadly, cryptocurrencies on their own do not guarantee economic enlightenment. But what they do guarantee is more experimentation, which facilitates enlightenment. I’ve read about a few different crypto experiments. So far it seems like your experiment is the closest to the economic truth. Well, economic truth as I personally perceive it.
Perhaps it will help if I cite some sources?
Adam Smith described sorting by demand…
It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations
Paul Samuelson pointed out the problem with people comparing private goods and public goods…
But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. — Paul Samuelson, The Pure Theory of Public Expenditure
James Buchanan responded that people don’t have any incentive to give false signals when they are only comparing public goods…
Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James M. Buchanan, The Economics of Earmarked Taxes
In other words, if Netflix subscribers were given the freedom to earmark their subscription dollars it’s not like they’d be able to earmark them to makeup, tennis rackets or potato chips. They’d only be able to earmark them to goods supplied by Netflix. Therefore, how subscribers earmarked their money would accurately reflect their relative demand for the content.
You wrote…
Our ICA leverages these benefits by progressively judging the best answers against the best answers (identifying the great) and the worst answers against the worst (identifying the terrible). This shift evolves curation on Cent bounties from a voting mindset, to a sorting mindset.
On Quora the answers are sorted by voting. If voting was replaced with spending, then people would only spend their money on the best answers. The answers with the greatest demand would be at the top while the answers with the least demand would be at the bottom.
From my perspective, a voting mindset is the belief that voting is an adequately effective way to sort things. If this belief is correct then we could use voting to decide how to divide society’s limited land between farms, factories and forests. I’m guessing that this wouldn’t work out so well.
To be honest I don’t perfectly grasp your current system of sorting, but I do know that it doesn’t reveal the relative demand for answers. Hopefully this story will help you understand why that might be a problem.
