A reader writes,

If the price-insensitive people are at home avoiding the crowds then it would seem the online stores would be getting shopped by a higher than average percentage of price-insensitive people.

It appears to me the ‘price discrimination’ theory doesn’t work for explaining sales at online stores.

The essence of the price-discrimination story is not that price-insensitive people avoid crowds. That is more of an add-on.

The basic theory is that occasional discounts are a tool of price discrimination. You keep prices high most of the time to take advantage of people who want it now and are less sensitive to price, and you hold occasional sales where you offer discounts to get business from the people who time their purchases to take advantage of low prices.

This theory predicts that discounts will appear at more or less random times. The question is, why do discounts all get bunched on a certain day? I imagine that once most stores pick a particular day to hold a sale, it behooves you to pick that same day. If everybody knows that Black Friday is a sale day, then nobody will be willing to pay full price on that day, so if you don’t hold a sale you will get no business.

The next question is, why is the sale day Black Friday? There is where my story about crowds comes in. If you figure that crowds drive away price-insensitive shoppers, you pick that day for a sale.

But the bunching of sales may be an example of a Schelling point. Nobel Laureate Thomas Schelling said that when people can benefit from co-ordination, they gravitate toward an obvious point. Black Friday may make as much sense as Schelling point for online sales as offline sales, even though crowds are not the issue.

Once we start using the word “privilege” where what we really mean is “wealth,” we start applying this term to those who came by their wealth without special privilege-the Bill Gateses of the world, sure, but also the more-common successful businessmen or professionals who are earning a few million dollars a year down to a few hundred thousand dollars a year and who don’t show up on any “richest people” lists. The vast majority of people who get rich in even a semifree economy such as ours do so by producing goods and services that others value. But because the word “privilege” carries a negative connotation, when we call someone “privileged,” we are communicating, even if unintentionally, that this person came by his money dishonestly. And if you think that this is not a major issue, consider what President Obama’s first budget book, an official U.S. government publication, said about the highest-income people in the United States: “While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not.”

This is from my “The Real Meaning of Privilege.”

!–paging_filter–pfont style=background-color: #f7f7f7Philip Tetlock has a href=http://www.nationalinterest.org/Article.aspx?id=22040a must-read review essay on political forecasting/a in the latest issue of emThe National Interest/em.  Tetlock is the author of ema href=http://www.amazon.com/gp/product/0691128715?ie=UTF8amp;tag=daniewdrezn-20amp;linkCode=as2amp;camp=1789amp;creative=9325amp;creativeASIN=0691128715Expert Political Judgment/a/em, one of my a href=http://www.danieldrezner.com/archives/002441.htmlall-time favorite books in political science/a.  /font/ppfont style=background-color: #f7f7f7Tetlock reviews books by three political prognosticators: Stratfor’s George Friedman (who has been a href=/posts/2008/08/19/fred_savage_and_international_relationsmocked just a bit/a by your humble blogger), FP and Eurasia’s Ian Bremmer (who has been a href=http://www.danieldrezner.com/archives/002885.htmlpanned just a bit/a by your humble blogger) and Bruce Bueno de Mesquita (who was on your humble blogger’s dissertation committee and is therefore a href=/posts/2009/08/16/catching_up_on_my_weekend_readingthe source of much Good and Light/a in the world).  /font/ppfont style=background-color: #f7f7f7You’ll have to read a href=http://www.nationalinterest.org/Article.aspx?id=22040Tetlock’s essay/a to get his assessment of all three books — but I do like this one-paragraph summary:  /font/pblockquotepThe authors are all entrepreneurial futurists, but each offers a strikingly distinctive approach to prediction. I organize these approaches under three headings: the superpundit model in which readers take it, more or less on faith, that the forecaster has a pipeline into the future not available to ordinary mortals (a category into which I place George Friedman’s ia href=http://www.amazon.com/gp/product/038551705X?ie=UTF8amp;tag=daniewdrezn-20amp;linkCode=as2amp;camp=1789amp;creative=9325amp;creativeASIN=038551705XThe Next 100 Years/a/i); the technocratic-pluralism model in which the authors never get around to making falsifiable predictions of their own but do offer readers a pretty comprehensive survey of forecasting mistakes and an inventory of tools for avoiding them (a category into which I place Ian Bremmer and Preston Keat’s ia href=http://www.amazon.com/gp/product/0195328558?ie=UTF8amp;tag=daniewdrezn-20amp;linkCode=as2amp;camp=1789amp;creative=9325amp;creativeASIN=0195328558The Fat Tail/a/i); and the scientific-reductionist model in which the author embraces a particular theory from the social sciences and shows how, if you apply that theory thoughtfully to real-world contexts, you can derive surprisingly accurate forecasts (a category into which I place Bruce Bueno de Mesquita’s ia href=http://www.amazon.com/gp/product/1400067871?ie=UTF8amp;tag=daniewdrezn-20amp;linkCode=as2amp;camp=1789amp;creative=9325amp;creativeASIN=1400067871The Predictioneer’s Game/a/i)./p/blockquotepfont style=background-color: #f7f7f7What I found more intriguing was Tetlock’s formulation for how to use pundits:/font/pblockquotepThe best thing I can say for the superpundit model is likely to annoy virtually all of that ilk: they look a lot better when we blend them into a superpundit composite. Aggregation helps. As financial journalisti /iJames Surowiecki stressed in his insightful book iThe Wisdom of Crowds,/i if you average the predictions of many pundits, that average will typically outperform the individual predictions of the pundits from whom the averages were derived. This might sound magical, but averaging works when two fairly easily satisfied conditions are met: (1) the experts are mostly wrong, but they are wrong in different ways that tend to cancel out when you average; (2) the experts are right about some things, but they are right in partly overlapping ways that are amplified by averaging. Averaging improves the signal-to-noise ratio in a very noisy world…. From this perspective, if you want to improve your odds, you are better-off betting not on George Friedman but rather on a basket of averaged-out predictions from a broad ideological portfolio of George Friedman–style pundits. Diversification helps./p/blockquoteI wonder if such an exercise would actually work.  One of the accusations levied against the foreign policy community is that because they only talk to and read each other, they all generate the same blinkered analysis.  I’m not sure that’s true, but it would be worth conducting this experiment to see whether a Village of Pundits does a better job than a single pundit. 

!–paging_filter–pTwo interesting articles of note over the weekend.  The first is a href=http://www.nytimes.com/2009/08/16/magazine/16Bruce-t.html?_r=1amp;pagewanted=allClive Thompson’s essay on Bruce Bueno de Mesquita/a (otherwise known as BDM) and his strikeFabulous Foreign Policy Game Theory Contraption/strike forecasting model-for-hire.  Bruce is the leading proselytizer of using game theory as a predictive tool in political science — and he has quite the forecasting business to back him up.  /ppBruce seems to merit one of these a href=http://www.danieldrezner.com/archives/003540.htmlevery two years or so/a, and Thompson hits most of the same sources and critics of BDM’s approach.  He does add this nugget of information, however:  /pblockquotepThose who have watched Bueno de Mesquita in action call him an extremely astute observer of people. He needs to be: when conducting his fact-gathering interviews, he must detect when the experts know what they’re talking about and when they don’t. The computer’s advantage over humans is its ability to spy unseen coalitions, but this works only when the relative positions of each player are described accurately in the first place. “Garbage in, garbage out,” Bueno de Mesquita notes. Bueno de Mesquita begins each interview by sitting quietly — “in a slightly closed-up manner,” as [U.K. telecommunications company Cable and Wireless Richard] Lapthorne told me — but as soon as an interviewee expresses doubt or contradicts himself, Bueno de Mesquita instantly asks for clarification./pp“His ability to pick up on body language, to pick up on vocal intonation, to remember what people said and challenge them in nonthreatening ways — he’s a master at it,” says Rose McDermott, a political-science professor at Brown who has watched Bueno de Mesquita conduct interviews. She says she thinks his emotional intelligence, along with his ability to listen, is his true gift, not his mathematical smarts. “The thing is, he doesn’t think that’s his gift,” McDermott says. “He thinks it’s the model. I think the model is, I’m sure, brilliant. But lots of other people are good at math. His gift is in interviewing. I’ve said that flat out to him, and he’s said, ‘Well, anyone can do interviews.’ But they can’t.”/p/blockquotepa href=http://andrewsullivan.theatlantic.com/the_daily_dish/2009/08/will-iran-fail-to-build-a-bomb.htmlPatrick Appel/a links to this essay because of BDM’s Iran predictions (according to him, the student protestors will be more powerful than Khamenei by the fall).  He notes, quot;Let’s hope his model is right, but I’m skeptical that these questions can be predicted by equations alone.quot;  Except as the above quote suggests, it’s emnot/em just equations alone — it’s knowing what values to plug into those equations.  This requires a different set of skills — and rare is the person who excels at both.  /ppSpeaking of brain skills, I found a href=http://www.slate.com/id/2224932/pagenum/all/Emily Yoffe’s emSlate/em essay on brain chemistry/a to be kind of interesting.  The argument in a nutshell:/pblockquotepOur internal a target=_blank href=http://www.nytimes.com/1998/03/24/science/running-late-researchers-blame-aging-brain.html?pagewanted=allufont color=#0000ffsense of time/font/u/a is believed to be controlled by the dopamine system. People with hyperactivity disorder have a shortage of dopamine in their brains, which a recent a target=_blank href=http://www.newscientist.com/article/mg20227115.100-time-moves-too-slowly-for-hyperactive-boys.htmlufont color=#0000ffstudy/font/u/a suggests may be at the root of the problem. For them even small stretches of time seem to drag. An article by Nicholas Carr in a target=_blank href=http://www.theatlantic.com/doc/200807/googleufont color=#0000ffthe emAtlantic/em/font/u/a last year, quot;Is Google Making Us Stupid?quot; speculates that our constant Internet scrolling is remodeling our brains to make it nearly impossible for us to give sustained attention to a long piece of writing. Like the lab rats, we keep hitting quot;enterquot; to get our next fix…. /pp[O]ur brains are designed to more easily be stimulated than satisfied. quot;The brain seems to be more stingy with mechanisms for pleasure than for desire,quot; [University of Michigan professor of psychology Kent] Berridge a target=_blank href=http://www.ns.umich.edu/htdocs/releases/story.php?id=3165ufont color=#0000ffhas said/font/u/a. This makes evolutionary sense. Creatures that lack motivation, that find it easy to slip into oblivious rapture, are likely to lead short (if happy) lives. So nature imbued us with an unquenchable drive to discover, to explore. Stanford University neuroscientist Brian Knutson has been putting people in MRI scanners and looking inside their brains as they play an investing game. He has a target=_blank href=http://money.cnn.com/2007/08/14/pf/zweig.moneymag/index.htmufont color=#0000ffconsistently found/font/u/a that the pictures inside our skulls show that the possibilityem /emof a payoff is much more stimulating than actually getting one…./ppActually all our electronic communication devices—e-mail, Facebook feeds, texts, Twitter—are feeding the same drive as our searches. Since we’re restless, easily bored creatures, our gadgets give us in abundance qualities the seeking/wanting system finds particularly exciting. Novelty is one. [Washington State University neuroscientist Jaak] Panksepp says the dopamine system is activated by finding something unexpected or by the anticipation of something new. If the rewards come unpredictably—as e-mail, texts, updates do—we get even more carried away. No wonder we call it a quot;CrackBerry.quot;/p/blockquotepI fully recognize the biochemical reward system discussed in the essay, and I’ve certainly heard this argument applied to bloggers who allegedly lose the ability to engage in long-form writing.  But based on my own experience, I don’t buy it.  /ppTrue, blogging, updating, etc. brings excitement.  But I get the same thrill from perfecting a longer stretch of prose.  When I’m polishing up a case study or trying to refine a theoretical argument, I usually feel the desires for new information that I get when I’m blogging.  Indeed, the biggest mental rush I get from writing is tackling a completely new subject and then, 10,000 words later, retackling the first draft with renewed vigor and the promise of molding it into something better.  Once I think I have something of merit, oooh, does the dopamine kick in./ppBut that’s just me.  Tell me, dear readers — are your electronic gadgets hampering you ability to do long-form work?      /p