An economist walks into a bar | Robert Litan | TEDxKC

Summary

This engaging talk explores the significant impact of economics on the Internet economy, highlighting how artificial scarcity and economic principles have shaped online dating, travel, advertising, and even sports. The speaker illustrates how economists' ideas have revolutionized industries, from Cupid.com's success with limited date offers to Priceline's conditional price model, Google's ad auction system, and the deregulation that enabled Amazon's efficient delivery. The talk concludes by emphasizing the crucial yet often overlooked role of economists in our digital age.

Takeaways

• 😄 The concept of artificial scarcity is introduced using a bar scenario where a man's unsuccessful attempts to buy drinks lead to a similar pattern on an online dating site, Cupid.com.
• 💡 Economists Muriel Niederle and Dan Ariely suggest a solution for Cupid.com by implementing a limit on the number of date offers men can make, creating artificial scarcity and improving the site's success.
• 🚀 The 'Name-Your-Price' model of Priceline was not its key to success; instead, it was the conditional price offer that made customers take their bids seriously.
• 🧠 Jay Walker, who studied economics, is credited with the idea behind Priceline's conditional price offer, which revolutionized the travel industry.
• 🔍 Google's ad revenue, primarily from the right-hand side ads, was not initially successful until they adopted an auction system designed by engineers Eric Veach and Salar Kamangar.
• 🏆 The second-price auction model, which Google uses for ad placement, was proven by economist William Vickrey to be the best solution to the winner's curse and earned him a Nobel Prize.
• 🛍️ The success of web retailing, particularly Amazon, is attributed not only to efficient warehousing but also to the flexible transportation system made possible by deregulation advocated by economists.
• 🏋️‍♂️ The story of Moneyball highlights the impact of economic thinking in sports, with Billy Beane using sabermetrics, a field invented by Bill James, to build a competitive baseball team on a budget.
• 🎯 Economists have played a pivotal role in shaping various industries, from online dating and travel to retail and sports, often behind the scenes and deserving more recognition.
• 🤝 The talk concludes with a call for economists to be respected for their contributions to the Internet economy and beyond, influencing areas from online advertising to efficient delivery systems.

Q & A

What is the concept of artificial scarcity introduced in the script?

Artificial scarcity is the concept of artificially constraining what appears to be an abundant resource, such as limiting the number of date offers on Cupid.com, to make them more valuable and taken more seriously.

How did Cupid.com address the issue of too many date offers leading to user dissatisfaction?

Cupid.com addressed the issue by implementing a sharp limit on the number of date offers that men could make to women each month, creating artificial scarcity and improving the quality of interactions.

What is the significance of the 'Name-Your-Price' model in the context of Priceline's success?

The 'Name-Your-Price' model was not the key to Priceline's success; instead, it was the conditional price offer that made users take their bids seriously, knowing they would be bound to pay the price they bid if accepted.

Who is Jay Walker and what is his contribution to the travel industry?

Jay Walker is the inventor of the conditional price offer model, which revolutionized the travel industry and led to the creation of Priceline.

How did Google's ad auction system evolve from its initial door-to-door sales approach?

Google's ad auction system evolved from a manual sales approach to an automated one, where they auctioned off ad placements and used a second-price auction model to prevent the winner's curse and streamline the process.

What is the 'winner's curse' in the context of auctions, and how did Google's auction system address it?

The 'winner's curse' is a phenomenon where the winner of an auction ends up paying more than the item is worth. Google's auction system addressed this by using a second-price auction model, where the winner pays the second-highest bid plus one penny.

Who is Hal Varian and what role did he play in Google's development?

Hal Varian is a world-leading expert on auctions and the Internet. He was persuaded by Eric Schmidt to leave his position at Berkeley and join Google as its first chief economist, where he helped refine the online ad auction process.

How did deregulation of the airline and trucking industries impact the success of web retailers like Amazon?

Deregulation of the airline and trucking industries led to increased competition and the development of a highly flexible and efficient transportation system, which was crucial for the success of web retailers like Amazon in delivering goods promptly and efficiently.

What is sabermetrics and how did it influence professional sports?

Sabermetrics is a field that applies economic and statistical analysis to baseball data to evaluate players' performances. It was invented by Bill James and used by Billy Beane to build a competitive baseball team on a budget, and it has since influenced the management of various professional sports teams.

Why does the speaker argue that economists deserve more respect in the business world?

The speaker argues that economists deserve more respect because they have played a significant role in building the Internet economy, shaping online advertising and auctions, making it possible for efficient delivery of goods, and even contributing to the success of online dating and sports management.