Saturday, December 15, 2007

A Potentially Profitable Investment

Some thoughts from a couple of classes:

In Principles of Microeconomics, we have been discussing the concept of rational ignorance. Rational ignorance is the idea that at some point, it is not profitable for people to acquire more information when making a decision. This phenomenon often manifests itself among voters, who vote on economic policy without any formal economic training or nuclear policy without having studied nuclear physics.

In another class, which ended up being a sort of "history of economic thought," we spent a long period discussing personal and impersonal transactions in markets. As markets have grown and the economy has become more complex (as we have specialized and industrialized), more of our transactions have become impersonal. They are based not on trust or knowledge of a person, but on assumptions that they would not be in business if they were not qualified. An important aspect of markets, then, is feedback. Feedback allows consumers to determine how previous customers felt about a business and helped inform their decisions when embarking in these transactions.

So, to tie it all together: We are in a market of largely impersonal transactions. We base our decisions on who to conduct business with largely on feedback, because it is rational for us to be ignorant about different subjects. Consider, for example, hiring a mechanic to work on your car. You face the problem of lack of knowledge about your car, which is why you hired a mechanic in the first place. You therefore cannot know whether your car truly needs the $1,000 repair for a new catalytic converter or whether you are being ripped off. Which mechanic you hire, therefore, is very important. Feedback from others can be very important when hiring a mechanic - however, there is no collective database of information on various mechanics.

We have the means of creating such a database. Look no further than RateMyProfessors.Com, a website designed for college students to take advantage of other students' experiences with a professor and better inform their decisions of whose classes to take. I am curious as to why there are no similar sites for skilled labor. Do you think such a site would be useful? Have they not appeared because the people hiring mechanics, electricians and plumbers are not yet tech-savvy? If so, how long until they appear?

Assuming, as the Freakonomists do, that the Coase theorem holds for online domain names, maybe someone ought to buy up RateMyMechanic.Com now, to sell in a couple years at a profit when someone wants to start up this website.

4 comments:

George Goodling said...

Pure genius Pete! Personally, I think we should buy it, start it, and open it up to the public. Have a ratemymechanic/wikipeadia kind of site. We put in minimum work and can sell add space. Surely car part companies would love to buy our add space. How many college kids go off to school with their crappy cars, break their car, and do not know any near by mechanic. A simple series of fliers set up around different campuses and we are golden. These are also the most likely people to post their experiences. I think it is pure gold. As we know, the wisdom of crowds is often, if not always, better then any single expert. However, this does make me wonder. How many people would take a course simply because a friend recommended it regardless of the professors ratings? How many people go to a mechanic that a friend recommends, even knowing that the friend has never tried other mechanics? To take our start up straight to the top we will need a way to trump personal exchange. Thoughts?

Atlee

Pete Abbate said...

I know that in my first semester, I went off very little besides RateMyProfessors, because I was in Pittsburgh and had no Mason connections. For this semester, I incorporated the opinions of friends and advise I'd received from teachers, but I still looked up all my professors online. I feel like RateMyProfessors is used by many people, even if it's only in addition to a friend's ratings, and a "RateMyMechanic" site might work similarly. Also, friends give bad recommendations. If a person has a bad experience with a mechanic a friend recommended, I'd bet they will want to check any future recommendations, from any friends. I think the site would definitely be a success, especially as the tech-savvy generations grow up and need to hire mechanics, electricians, etc.

P. Knox said...

Genious indeed. I'm sure that's why John Swapceinski (the founder of ratemyprofessors.com) started mechanicratingz.com. I guess the question becomes how much more traffic would the mechanic rating site get if its url matched the more popular teacher rating site. Searching for a website is probably more common than typing in a url, and Mechanicratingz.com is the first hit for a “rate my mechanic” google search, so what is the marginal value of the other url? If you go to http://www.ratingz.net/press.html you will see mechanicratingz.com is one of numerous ratingz sites have already been established to create feedback databases in many different fields. They are probably not called ratemyblank.com because Swapceinski sold ratemyprofessors.com to Baltimore Solutions Inc. in 2005 (11/16/05 press release).

Pete Abbate said...

I doubt there's a substantial difference in the URL values - people who type in a URL first probably head to a search engine if they don't find what they're looking for. It's unfortunate that they can't make a "ratingz" website for professors/teachers, but I'm certain the sale of ratemyprofessors included a clause that he couldn't start up the same site under a different domain name.

Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty