Physical and virtual aren’t always substitutes

Lynne Kiesling

Whether the topic is retail sales or higher education (or some other application), the role of digital technology raises the question of how, if at all, online activity substitutes for physical, face-to-face activity. That relationship differs case-to-case; you wouldn’t expect the effects of online shopping on bricks-and-mortar shops to have the same patterns as the effects of digital technology on learning. But digital innovation is having effects on the relationships, outcome patterns, and models that we use regularly. I know, earth-shattering insight …

Analyzing the question of substitutability between online and physical is an important application of the economic way of thinking. One reason why digital technology has different effects in different cases is its varying degrees of substitutability for a face-to-face physical experience. Sometimes, actually a lot of the time, online shopping is a close substitute for going to the store, with that substitutability enhanced by online vendor offers of free returns (thank you Zappo’s for being the innovator on that front!). In education, though, the degree of and pattern of substitutability is different, and I would argue substantially lower in most cases than that in online shopping.

The next step in thinking analytically about the effects of digital innovation is complementarity — does the change prompted by the technological change enhance the product offering, the learning experience, etc.? Here’s my simple hypothesis/model: it’s the differing patterns of substitutability and complementarity of digital technology that leads to differing patterns of outcomes and models across industries and across different applications of digital technology.

If I wanted to add another dimension to that model, the next step I’d take is to acknowledge that many of our actions in these different cases take place within networks, and that digital technology can both extend and deepen the networks in which individuals act and make choices. Whether it’s sending a tweet of those cute boots while shopping (either online shopping or in a store) to get your friends’ reactions, or using discussion forums or video chats to enable collaborative learning and problem-solving, no one acts in isolation. In essence, I could analyze the effects on our social networks of digital technology using this same simple substitutability/complementarity model. But is there a deeper factor that can affect the extent of virtual substitutability and complementarity with an individual activity?

Two things I’m currently reading provoke these simple musings. The first is this insightful article from John Hagel and John Seely Brown arguing that virtual interactions have limits, and that stores and conferences won’t go away (I’d add books to that list). Their argument tackles this substitute/complement question head on, and identifies what I think is one of these deeper factors in determining substitutability and complementarity — trust:

Are we just stubborn creatures of habit who are slow to adopt a better solution? Or, is there a fundamental value to the brick-and-mortar, flesh-and-bone world that cannot be replaced?

There is nothing as compelling as direct human interaction. It strengthens trust, creates serendipity, and fosters community in an irreplaceable way. And although technology is progressing, there will always be a premium placed on meeting in person.

Face to face interactions provide us with a much richer context that helps to build deeper trust. There is a richness and depth of information that comes from physical cues, such as the firmness of a handshake or the sweatiness of someone’s palm, that are invaluable. Even subtle details, such as the state of someone’s office or how stressed their administrative assistant looks, provide context and clues that help us decide how to act, and are impossible to convey virtually.

Then there is also an authenticity that comes from the “off-camera moments” that accompany face-to-face interactions. Small talk before meetings start, coffee breaks, and running into people into the halls all provide a litany of unscripted, unorchestrated interactions that make it difficult for people to package themselves. The resulting mutual transparency inspires a confidence and trust that is much more difficult and time-consuming to develop through other means. Trust-based relationships are fundamental to effectively participating in the knowledge flows that accelerate learning and performance improvement, something that is becoming more and more essential in a world of mounting performance pressure.

They also identify the extent to which serendipity can lead to new value creation more in face-to-face interaction than in virtual interaction, and make a pointed observation that even those who start virtual communities around a shared interest usually strive to find ways to meet in person (this is my experience too).

The second thing I’ve been (re)reading is Clay Shirky’s Here Comes Everybody, which we’ve been discussing over the past two weeks in my freshman seminar. Shirky expands on many of the issues of generating trust and serendipity in physical and virtual networks, and how we use digital technology to broaden and deepen our networks and to organize and coordinate our actions without formal, hierarchical organizations. The fundamental economic question of the substitutability and/or complementarity of digital technology with other aims, goals, products, etc. is at the core of Shirky’s argument.

Disruptive innovation in education

Lynne Kiesling

The disruptive digital innovations that have transformed music, movies, and news are now changing business models in higher education. This month’s Cato Unbound features a set of essays on the possible effects of changes like universities offering MOOCs (massive online open courses) at zero price. In the lead essay, Alex Tabarrok argues that online courses offer the prospect of excellent learning opportunities while overcoming Baumol’s cost disease (i.e., the traditional education model is not particularly prone to productivity enhancements). Alex is walking the talk here, in the form of his Marginal Revolution University initiative with Tyler Cowen.

The three response essays make varying critiques of Alex’s claims for the benefits of online education — Alan Ryan contends that the traditional model’s benefits have been robust to other innovations, so we should be wary of claiming too much for online disruption; Siva Vaidhyanathan thinks Alex engages in hyperbole and doesn’t account for the diversity of classroom experience and its benefits; and Kevin Carey thinks that Alex doesn’t go far enough, and that online education technology may be truly disruptive and transformative.

The one area where I think all of the authors would agree (as do I) is with Kevin Carey’s statement that “… as with so many things, Neal Stephenson got there first” (if you haven’t read Stephenson’s The Diamond Age: Or, A Young Lady’s Illustrated Primer, you should; it’s my favorite book of one of my favorite authors, and he sure did get there first).

This collection of essays is a thoughtful set of analysis of some of the issues in online education. Clay Shirky also analyzed the potential implications of online technology for education recently, and thoughtfully. He analogizes higher education to the music industry in the 1990s, and how in the face of Napster the music industry members did not imagine that digital innovation would ever make the album format obsolete. And yet it did, with a mix of implications, good and bad, that are still playing out — advertising or subscription as a revenue model? Artists selling music, or giving it away and selling concerts and other merchandise to make a living? It’s an analogy worth considering, and it’s going to require faculty, administrators, and students to think more consciously and creatively about the benefits and values in education, the various ways to generate those benefits, and the relationship of cost and benefit in those various methods of generating value.

I don’t have a good answer for this, and I take Yogi Berra’s caution seriously that prediction is hard, especially about the future. Both individually and at the university level I am thinking about these changes and how best to use technology to improve my teaching and the value of what I contribute to the residential higher education model, and lots of other faculty are doing the same. There are ways that online resources are complements for classroom learning, and ways that they are substitutes. When they are substitutes for what we do in the classroom, that should push us to be creative and think differently about how to improve learning, thoughtfulness, habits of mind, and critical thinking in face-to-face learning.

IHS’s great summer workshop for college teachers

Michael Giberson

Last summer I had a lot of fun at the too-short IHS Liberty and the Art of Teaching workshop. Well, I say “too short,” but the truth is that they packed so much information into 2 days that I couldn’t absorb it all.

I did absorb a few bits, though, as related in my reflection on what I gained from the teaching workshop, which has been posted at Kosmos Online. The workshop was a great production on IHS’s part, filled with teaching advice backed by years of successful practice (and in many cases, also backed by systematic study of student progress and retention).

As reported in my Kosmos post, I used what I learned at the workshop to reorganize my U.S. Energy Policy and Regulation course as well as (less successfully) to tweak my Energy Economics course. In addition, I’ve made several more minor adjustments in classroom practice, partly due to presentations at the IHS workshop and partly as a consequence of reading Teaching With Your Mouth Shut prior to this Spring semester.

I continue to be amazed at how willing universities are to push graduate students into the classroom with little actual guidance on successful teaching, at how often PhD programs will send their students out into the academic workforce with little training in this key job skill, and at how little supervision universities provide to newly-hired teachers fresh from the graduate programs that provided little training in teaching well. Teaching well can be hard work, yet often it is treated as so obvious as to be beneath serious concern. The IHS workshop helps fill the gap.

They are taken applications for the Summer 2012 workshop up until April 15, 2012.

Economic understanding: “there’s a lot of confirmation bias out there”

Michael Giberson

Do liberals or conservatives of libertarians tend to have a better understanding of economics? It is a question that Daniel Klein and Zeljka Buturovic investigated in a pair of papers appearing in Econ Journal Watch (one and two). The first paper appeared to show that a college education didn’t lead to much improvement in economic understanding, but self-identified “very conservative” persons and libertarians seemed to have a better grasp of the issues than self-identified liberals and progressives.

As it turned out, however, the questions asked were ones in which the correct answer tended to be the answer a conservative or libertarian would favor on ideological grounds. When in the second study they asked more questions for which economic analysis tended to favor liberal rather than conservative views, the performance of liberals improved and the performance of conservatives dropped off.

As Matt Iglesias put it in commenting on the papers, “there’s a lot of confirmation bias out there.”

HT to Marginal Revolution.

Bainbridge’s broad brush criticisms on empirical legal studies slams all interdisciplinary legal work

Michael Giberson

Criticisms of the growing field of empirical legal studies by UCLA law professor  Stephen Bainbridge were issued in such broad brush strokes that he ended up blasting just about every law academic engaged in any sort of interdisciplinary work, especially so if the academic seeks to examine data of some sort. The main claims showed up recently in a National Law Journal article, which quoted Bainbridge:

“A lot of the people I see who are empiricists, often with doctorates in the social sciences, aren’t very good lawyers,” he said. “I’ve read numerous papers that just got the law wrong. The problem is that we’re hiring people with Ph.D.s in other fields, but their law credentials are middling at best. Someone who is a brilliant economist wants to be in a economics department, so we get second-rate lawyers who are second-rate in their academic field.”

Perhaps phrasing the criticism in that way touched a nerve with Josh Wright, a law professor at George Mason University who holds both a PhD in economics and a law degree from UCLA. Wright responds at Truth on the Market, noting among other things that Bainbridge is asserting many facts about the state of the world without actually pointing to any evidence (much less adequately testing the evidence once it is identified).

John List’s $10 million crazy idea field experiment in education

Michael Giberson

Bloomberg Markets Magazine has a feature on economist John List and his $10 million research project on education. Along the way we get an introduction to List’s work on field experiments in economics, a splash of lab-based economics back story, and the reaction of education specialists who think List’s project is wholly off target.

List, along with collaborators Steven Levitt and Roland Fryer, has obtained a $10 grant for a program which randomly assigned 3-5 year old students to one of three groups: (1) free all-day preschool, (2) “parenting academy” for the student’s parent or guardian, or (3) a control group with neither intervention. The program intends for follow the students into adulthood in order to assess the long-term effects of the intervention.

List says he doesn’t know much about education theory, so he enlisted specialists to consult on the preschool curriculum. One such consultant, Clancy Blair, a New York University professor of applied psychology, says he was astonished by the size of the project and by how it focuses on financial incentives without looking at such variables as how the parents interact with their children.

“That’s a crazy idea,” says Blair, who studies how young children learn. “It’s not based on any prior research. This isn’t the incremental process of science. It’s ‘I have a crazy idea and I convinced someone to give me $10 million.’”

List says too many decisions in fields from education to business to philanthropy are made without any scientific basis. Without experimenting, you can’t evaluate whether a program is effective, he says.

“We need hundreds of experiments going on at once all over the country,” he says. “Then we can understand what works and what doesn’t.” …

“What educators need to know are what are the best ways to educate kids, and this is trying to short-circuit that,” Blair says. “We have fundamental problems in education, and this is sort of a distraction.”

List says he understands the objections. “If I was in the field, I’d hate me, too,” List says in November while driving to his sons’ indoor baseball practice in one of Chicago’s south suburbs. “There should be skeptics.”

Haidt on political bias among social psychologists

Michael Giberson

Several days ago we discussed Jonathan Haidt’s research on libertarianism (see post). In his New York Times column, John Tierney discusses Haidt’s work on political bias among social psychologists:

Some of the world’s pre-eminent experts on bias discovered an unexpected form of it at their annual meeting. …

It was identified by Jonathan Haidt, a social psychologist at the University of Virginia who studies the intuitive foundations of morality and ideology. He polled his audience at the San Antonio Convention Center, starting by asking how many considered themselves politically liberal. A sea of hands appeared, and Dr. Haidt estimated that liberals made up 80 percent of the 1,000 psychologists in the ballroom. When he asked for centrists and libertarians, he spotted fewer than three dozen hands. And then, when he asked for conservatives, he counted a grand total of three.

“This is a statistically impossible lack of diversity,” Dr. Haidt concluded, noting polls showing that 40 percent of Americans are conservative and 20 percent are liberal. In his speech and in an interview, Dr. Haidt argued that social psychologists are a “tribal-moral community” united by “sacred values” that hinder research and damage their credibility — and blind them to the hostile climate they’ve created for non-liberals.

“Anywhere in the world that social psychologists see women or minorities underrepresented by a factor of two or three, our minds jump to discrimination as the explanation,” said Dr. Haidt, who called himself a longtime liberal turned centrist. “But when we find out that conservatives are underrepresented among us by a factor of more than 100, suddenly everyone finds it quite easy to generate alternate explanations.”

(Links in source.)

Could be special pleading on higher education

Michael Giberson

The Wall Street Journal reports on recent efforts to make sure that taxpayers are getting their money’s worth from state universities.  Acknowledging that his comments “could be taken as special pleading,” a blogger who is also a Texas state employee providing university students with advanced instruction in financial economics offers his insights about the “perils of high powered incentive systems in multi-task environments, something first analyzed rigorously by Holmstrom and Milgrom in JLEO in 1991.”

Our financial economist sums up the idea as: “In many ways, this multi-tasking problem is captured by Einstein’s aphorism that not everything that counts can be measured, and that not everything that can be measured counts.”

The challenge for administrators is that, in addition to all of the other wonderful things that universities are, they are also economic enterprises with revenue streams and cost streams and somehow these base considerations must impinge on operations. The challenge for administrators is that it is hard to impinge on operations in a coherent way.

Vehicle-to-grid income and analysis

Michael Giberson

If you are already a rock star and can’t imagine doing anything else, then “money for nothing and your chicks for free” may be a reasonable characterization of your situation.  On the other hand, if you’re a teenage boy picking up a guitar and hoping to attain wealth and women, you should consider the start-up costs involved.  Some discussions of “vehicle-to-grid” (V2G) revenue potential seem a bit like the “money for nothing and your chicks for free” kind of analysis.

Consider the Financial Times article, “Grids to Harness Power of Electric Cars,” a story that builds on recent V2G presentations at the American Association for the Advancement of Science meetings in San Diego.

The first experimental V2G system has just gone live at the University of Delaware, where three electric cars are connected to the grid whenever they are not being driven. “They are making five to ten dollars a day just by being plugged in,” said Kenneth Huber, technology manager for the PJM grid, which covers the mid-Atlantic states.

The two-way connection not only pulls in power to recharge the battery but also sends electricity back to the grid. V2G vehicles work like an electrical sponge, absorbing excess energy when demand for power is low, and returning some to the grid when demand is high, said Willett Kempton, project leader at the University of Delaware.

…  Prof Kempton says his project suggests that an investment in V2G technology could pay off very fast for an electric car owner. Once the technology is commercialised, the additional costs of fitting a V2G-enabled battery and charging system would be about $1,500 – and the owner could make $3,000 a year through a load-balancing contract with the grid.

V2G is economically viable because electric car owners are buying batteries anyway, so it makes sense to use them for communal energy storage. It would be much more costly for electric grids to install stationary battery banks or other storage systems dedicated to load balancing.

It is dangerous to leap to conclusions based on a newspaper summary of research, but the characterization above suggests that a few assumptions may be key.  The assumption that “electric car owners are buying batteries anyway” may mean that the V2G analysis treats the battery as a free resource, and so compares V2G revenue estimates just to the incremental costs of V2G capability and operations.

I suppose it is a perfectly reasonable assumption for anyone who is going to buy an electric car anyway, and then is considering adding V2G capability. If, on the other hand, the intention is to advocate V2G revenue possibilities as an inducement to buy the electric car in the first place, a more inclusive analysis seems reasonable.

(For more on Dire Straits, “Money for nothing”: YouTube, Songfacts.)

Local TV news coverage of the proposed end of 90+ years of electric competition in Lubbock

Michael Giberson

I was interested when one of the local news shows  ended their 6 o’clock news segment yesterday on the proposed purchase of Xcel’s Lubbock electric system by Lubbock Power & Light by saying, “Coming up tonight on NewsChannel 11 at ten we hear from an economist and teacher who tells us the other side of the issue and how citizens and taxpayers could be affected.”

“Good,” I thought to myself, so far we’ve heard what the city and the utility think, so let’s see “the other side of the issue.”  I anticipated they would talk to one of my colleagues across campus at the economics department, but there are a few other economists in town.

Here is what we saw on the 10 o’clock news:

“To have everything in one hand is scary to some,” says former stock broker and Lubbock High School AP economics teacher….  She says this deal is all about efficiency.

“But what we do know is this type of monopoly is present in almost every city in America. It is so expensive to build infrastructure of electric company that it’s best to put it one place,” adds Moore.

The efficiency of monopoly?  Huh?  The news segment then jumped to quoting from the president of the regional Xcel operating unit, who said the biggest change will be the elimination of the two sets of power lines.

Other side of the issue???  No, this is the city’s official story.  What happened to “how citizens and taxpayers could be affected”?

I guess I’ll go see what news the morning newspaper has to offer.