Demand Satisfaction!

It keeps happening: high-profile online communities revolt after being “disrespected” by their host sites. There was the infamous Digg imbroglio, of course, and in the past few weeks there were flare-ups at Flickr and JPG Magazine. In Flickr’s case the deletion of a photo (and associated comment thread) led to escalating accusations of censorship. Simultaneous to this, 8020 Publishing, publisher of JPG Magazine, was publicly accused by its co-founder and ex-community manager, Derek Powazek, of mistreatment. The result was an escalating solidarity movement of JPG members who ditched the community alongside Derek. In each case, the company’s response was delayed, further inciting the anger of the crowd. Flickr’s Stewart Butterfield effectively defused their situation with his response full of humility, transparency and a policy change. 8020 had a harder time overcoming their backlash with this polite but terse response.

Why are communities so willing to attack their beloved host sites with such viciousness, even when the violations are unrelated to their own personal concerns? Do these rebellions have something in common with Detroit’s 12th Street Riot, where a community became so enraged by a late night raid by an overzealous police force that they burned down several thousand buildings in and around their own neighborhood? Though the insurrection is traced to the anger of black residents towards the mostly white police force (a symptom of the broader race issues of the time), “black-owned businesses were not spared. One of the first stores looted in Detroit was Hardy’s drug store, owned by blacks, and known for filling prescriptions on credit. Detroit’s leading black-owned clothing store was burned, as was one of the city’s best-loved black restaurants.” [Wikipedia]

These examples are worlds apart, of course, but they each beg the question of when it is rational or irrational for a community to attack–possibly even kill–their host environments. In The Wisdom of Crowds, author James Surowiecki describes the common phenomenon of people acting outside of their own immediate self-interest. He first mentions the mainstream public furor over Richard Grasso’s $139 million CEO payout by the New York Stock Exchange, a broadly expressed outrage that ultimately led to his firing by its board of directors. Why, Surowiecki wanted to know, would so many people care when they weren’t at all directly affected? Since most economists assume that humans are fundamentally self-interested and make rational decisions on that basis, this question is especially interesting.

To answer this question Surowiecki describes a well-known experiment called “the ultimatum game,” an exercise used in behavioral economics. The game, often played in university economics classes, divides people evenly into two groups. One group’s members (the “proposers”) are each given a monetary sum, say $10, and are paired with a member of the other group (the “responders”). Each proposer must make a monetary offer to their responder, any amount at their full discretion. If the responder accepts the offer then each side keeps the proposed money. If the responder rejects the offer then both sides get nothing.

The rational outcome is for proposers to offer $1 (keeping $9 for themselves), since proposers should want to maximize their take, and a responder should accept the offer because $1 is better than nothing. However, as Surowiecki explains:

In practice…this rarely happens. Instead, lowball offers–anything below $2–are routinely rejected. Think for a moment about what this means. People would rather have nothing than let their “partners” walk away with too much of the loot. They will give up free money to punish what they perceive as greedy or selfish behavior. And the interesting thing is that the proposers anticipate this–presumably because they know they would act the same way if they were in the responder’s shoes. As a result, the proposers don’t make many low offers in the first place. The most common offer in the ultimatum game, in fact, is $5.”

It turns out that this behavior is essentially universal, even exhibiting itself in monkeys. And there’s a term for this, “strong reciprocity,” which is the “willingness to punish bad behavior (and reward good behavior) even when you get no personal material benefit from doing so…individually irrational acts, in other words, can produce a collectively rational outcome.”

In my San Francisco neighborhood of Noe Valley we’ve experienced the power of strong reciprocity. A beloved local grocery store, Mikey Tom Market, famous for its organic food and fresh baked goods, was forced out of business by a landlord that jacked up the rent nearly 300% overnight. The community decided this was onerous and started a campaign to save the store, culminating in a six-month boycott of future tenants. “We want to take the profit motive out of closing Mikey Tom down,” said Daniel Mark Jackson, who organized the protest along with several other neighbors.

It worked. The store closed in 2003, but the retail space is still empty, an iconic statement against greed. The neighborhood’s discontent with the landlord made the building untouchable. While it may be more “rational” to get another vendor in that space as soon as possible, we’ve collectively made it less likely that evil business practices will rule in our neighborhood.

Chalk another one up for irrational behavior!