The Alchian-Allen Theorem • Hacker News Board

Re: The Alchian-Allen Theorem

#21

Post by jamesoswald » Wed, Feb 20, 2013, 7:45 PM UTC

boomlinde wrote: post #18

csense wrote: post #6

Earlier quoted context omitted.

My guess is that it's a "theorem" in the sense that you could come up with some mathematical model of economics in which some translation of Alchain-Allen into a mathematical statement would be a provable mathematical theorem. Alchain-Allen being true in most or every model of economics (as the Church-Turing thesis [1] is true in most models of computation), or being always true in reality, is a much more debatable q…

Regarding [2], forgiving my ignorance in economics, how is that convention insane?

Typically, the independent variable is on the x axis and the dependent is on the y. Most modern economists consider price independent, hence the axes are reversed. The convention was created by Alfred Marshall and everyone has stuck to it ever since. I don't think it matters, since neither variable is causal. The "inputs" of the function are actually the supply and demand curves themselves and the output is both price and quantity.

Re: The Alchian-Allen Theorem

#22

Post by csense » Wed, Feb 20, 2013, 9:10 PM UTC

boomlinde wrote: post #18

csense wrote: post #6

Earlier quoted context omitted.

My guess is that it's a "theorem" in the sense that you could come up with some mathematical model of economics in which some translation of Alchain-Allen into a mathematical statement would be a provable mathematical theorem. Alchain-Allen being true in most or every model of economics (as the Church-Turing thesis [1] is true in most models of computation), or being always true in reality, is a much more debatable q…

Regarding [2], forgiving my ignorance in economics, how is that convention insane?

It's more of a science-in-general thing: The near-universal [1] convention used in drawing graphs is to put the independent variable on the x axis.

If the independent variable is price, then your thought process will be: "If the price is $100, then there will be 1000 buyers. If the price is $150, then there will be 700 customers." It's easy to think about things that way.

If the independent variable is demand, then your thought process will be: "If there are 1000 people buying the product, it must cost $100. If there are 700 buyers, then it must cost $150." It seems counterintuitive to think in this way.

[1] Except in economics, of course!

Re: The Alchian-Allen Theorem

#23

Post by jamesoswald » Wed, Feb 20, 2013, 9:57 PM UTC

hcarvalhoalves wrote: post #16

pfedor wrote: post #14

Earlier quoted context omitted.

The way I understood it, the "cost" of watching an opera on YouTube is the time and mental effort it takes, which is many times greater than the time and mental effort it takes to watch a cat video. Like, say you may derive more enjoyment from reading novels than Hacker News comments, but when you sit down to quickly eat breakfast you peruse Hacker News, even though great many high quality novels are also one click a…

> The way I understood it, the "cost" of watching an opera on YouTube is the time and mental effort it takes, which is many times greater than the time and mental effort it takes to watch a cat video. The original analogy compared with the cost of watching an opera on the middle ages , but I get your point: people perceive the value of consuming copious amounts of mundane content to be greater than the reward to be g…

The implication is actually that cat videos are more enjoyable per instant than opera. If that were not the case, people would always watch opera. But if there were a high fixed cost, such as a ticket price, or the mental energy required to pay attention, the opera becomes relatively attractive. Imagine driving to a movie theater and paying $10 to watch a 2 minute cat video. It would be absurd.

My point about the middle ages was that at that time, the fixed cost for all media consumption was high, so no one even considered short videos (preformances?). Now, when fixed costs are lower, you see a dramatically different pattern of consumption.

High cost/high benefit media is still around - just think about a long running tv show like Lost or Game of Thrones, where the audience is expected to put a ton of mental effort into the show. So I don't worry about a race to the bottom.