Another imagination paper.

Hey gang. Probably the last of the short papers for a couple weeks at least - writing group is done for now and we'll see what I come up with over the summer. As opposed to the last paper, I'm actually reasonably happy with this one.

Imagination Required

Atop a slight ridge overlooking a large field a young officer sit on his charger. Briefly surveying the two armies locked in mortal combat, he couches his lance and leads his unstoppable cavalry in a charge to rupture the enemy’s lines. Suddenly he is brought up with a jerk as his horse goes down with a broken leg. As the charge sweeps around him an attendant brings up another horse. The young officer quickly remounts and leads his cavalry into the fray at the crucial time to turn possible defeat into decisive victory. After receiving the commendation of his general for his contribution to the victory, the young officer returns home to his loved ones.

Later that same evening the young officer’s mother is dismayed to find that the chain on his bicycle has ruined the cuffs of yet another pair of his pants.

What is imagination?

Nearly everyone is familiar with imagination in the context of childhood. In the role enabling and enhancing play it is truly important, it is the ability to create realities far beyond the merely physical, yet imagination does not lose its usefulness after one’s 18^th birthday, or even after the 98^th. Imagination remains incredibly important for any adult who hopes to solve the unexpected or create the unprecedented. It is seeing things where they are not. Imagination is that intangible ability that allows an individual to create something ‘new’ – a solution, product, or theorem that has never before existed. In particular, it is this last quality that prompts us to assume the other benefits of imagination as proven to be of value to the “grown up” world and focus on the value of imagination to economics.

Why is imagination important to economics and economists?

The economist who lacks imagination may be successful, able to analyze data and perform all the tasks normally expected of an economist. They may even be able to write papers that other people consider being helpful and contributory to the literature, but they will never make a truly revolutionary advancement of theory or ideas. The individual’s facility of imagination is what allows an answer to the query “what if…?” Though individual economists may be able to function without imagination, economics as a whole will wither if imagination ever fails. Lacking the spurs to analysis and research provided by imaginative innovations in economic theory, the discipline would quickly become stale, irrelevant, merely a method of analyzing the problems of the day with the methods of yesterday. Whereas, with imagination assisting theorists, economics as a whole drives ahead, seeking to analyze and understand the issues of today with the best methods of yesterday AND the new methods of tomorrow. For imagination to be available as a tool for the economists of tomorrow, it must be something they are accustomed to calling on throughout their lives. In today’s culture of provided entertainment, electronic and visual mediums that remove all necessity for imagination in entertainment and play, will there be a dearth of “imaginationists” in the future?

Is there a threat to imagination?

Cursory observation seems to reveal that every generation, every major shift in entertainment technology, has brought distraught cries that the children’s imaginations will atrophy. Robert E. Lee is known to have written home admonishing his wife to not allow their son access to many novels. It was Lee’s strong opinion that his son’s perspective on the world and his imagination would be weakened by reading accounts of another’s perspective of the world and life in a fictional book. Parents and elders have railed against television and more recent forms of childhood entertainment, decrying the lack of exercise and claiming a detrimental effect on young imaginations. Cave paintings probably met with similar criticism because they showed boys and girls images about certain aspects of life (hunting, skinning, etc) before the children experienced it themselves. Despite the concerns, from all appearances it would seem that the imagination of society has not suffered, with patents, inventions, and theories continuing to increase at an incredible rate. Economics in particular continues to develop new theories of markets and behavior, new ways to gather and analyze information, and new concepts of how mankind interacts with itself.

As economists, let us not distance ourselves from that little boy, riding his bicycle and waving a stick, who turns the tide of battle and wins the gratitude of a nation. We should all be so lucky.

slightly tardy

Ok, here's last weeks paper. I don't really like this one - it seems rather choppy and poorly written, but I don't have time to fix it right now. Yesterday's paper, the last for the semester, will follow later this week - prolly Friday.

The Role of the Selfish, Single, Working, Man

Who was the first person to purchase a DVD player? What brave soul paid hundreds of dollars for a device that could only play a very limited selection of movies? Were the first owners of DVD players willing to gamble that more movies would become available, despite witnessing the debacle of the videodisk player just a few years earlier? It seems rather amazing that people would make such a purchase. It is even more amazing that businesses would develop new technology and products that depart from previously established markets. There is risk. The company must start producing the new good before it can be purchased, cost must be incurred before the profit (maybe) arrives. The initial consumers must be willing to tolerate poor film selection, poor support, and an expensive piece of equipment that become obsolete very rapidly. Yet once enough people have purchased the good the benefits can be significant. Though this example specifically refers to DVD players, it can easily be seen how the same pattern has applied to many other goods.

A ‘networks effect’ is the term economists use to describe a good or process that experiences an increase in value as its use becomes more and more widespread. This also means that it is relatively less valuable to use/produce the good earlier rather than later. Companies would rather produce a good after it is seen to have market potential. Discerning consumers would rather wait to spend their hard-earned money until prices drop and use is sufficiently common to have raised consumer value to near its maximum level.

Companies can choose to develop new products or improve old. Each choice has its own risks and rewards. An old product has the advantage of an established market, but the risk that maybe something new will come along and supplant it. A new product has the advantage of perhaps developing a new market, replacing an old good, or gaining market share, but also has the risk of being, well, risky. Any new product carries uncertainty about whether it is a viable product.

So what gives a company the confidence to introduce a new good opening a new market such as some new gadget, equipment, or electronics device? Likewise, what possesses a consumer to purchase something so new no one really know how readily it will become a part of society? Why be the first to own a good that is expected to benefit from significant network effects, when at first the usage and network benefits will be rather small?

The answers to these questions are very intricate and require careful thought on the many factors involved, but I believe there is one element that has often been overlooked. This element can be summed up in two words. Boys. Toys.

Men, often relatively young and single but not necessarily either, seem to have a proclivity toward owning things that are “new” or “high tech” simply because they are. There is a strong flavor of competition in this – a man wanting either to have something before any of his friends does or wanting something because all of his friends already have it. Not all of this (generally) male behavior can be explained by competition though; a fair amount must be caused by just general male-nature. Gadgets, new “stuff, “toys” typically interest guys. All guys like new stuff that is high tech and interesting, but it is the single man, earning a decent wage, who can afford to indulge his taste for the latest new idea. Narrow selfishness causes him to purchase for his own enjoyment and to show off his new stuff for his friends, but in doing so he starts the ball rolling on network effects for the rest of us. It is the known existence of such consumers that give companies the confidence to delve into new products and new markets.

Back to the DVD player example. Starting from a small number of initial buyers, DVD makers have continued to develop and improve their products, numerous films have now been released on DVD, and we are well on our way to seeing the DVD burner become a normal method of recording data and video. Not bad for selfish young men with money to burn.