8 ms·

Utility is a well-known concept in economics. It's strange at first to the outsider, but it's easy to understand with a little reading.

by brc 11y ago

danharaj 11y ago
I know what utility is in economics, my problem is that you can always just say that the reason why people do X is because they are rational and X maximizes their utility. It doesn't tell you why that is their preference and why X satisfies their preference. It is not like the action or hamiltonian in physics which come with equations of motions that can be checked against experiment. Why is open source good for everyone? You didn't explain it, you just cast it in certain terms, which is useful for distilling the problem, but certainly not for solving it. You gave your guess why it improves the contributors' utility, but you haven't really proved it. It's just a guess. I can guess, too. My guess is that open source software reduces the transaction costs of acquiring and fixing software for corporations, but I could not explain to you with neoclassical economics why developers work on it without being compensated. It should be a tragedy of the commons, but it isn't. Open source software is developed at the fraction of the cost of closed source software and either competes or completely dominates it. I don't believe in Liberal organizations of economy though, so it's not a big deal for me.
- mikekchar 11y ago
  Open source software is cheaper to produce. In fact it is so cheap to produce that you can use it as a loss leader for advertising job positions. Why is this? Your average software company runs their R&D department on about 10% of their earnings. Yes, I pulled that number out of my nether regions, but in my experience that's about right. If you do a google search for R&D as a percentage of earnings, you will see lists for large companies that range anywhere from 2%-30%, but they tend to be on the lower side in my experience. This means that for a software company to produce, package, market and sell a software product, they have to charge about 9x what it cost to produce it. If we factor in profit, then we're pretty close to an order of magnitude difference. With open source software virtually all of that overhead disappears. If you are writing software that you already needed anyway, then the cost is very low -- even if nobody contributes to the project from the outside. With a traditional software sales model, you divide the cost over many customers. So it might cost you $10 million to create and sell, but if you have 100,000 customers, you can charge $100 each and break even. With an open source model, each actor builds pieces that they want and care about and uses other pieces for free. The advantage to working with the open source model is that the overall cost is an order of magnitude lower because you cut out all the sales, marketing, support and associated management. Not only that, but the pieces you pay for, you get to dictate exactly what they look like (within reason ;-) ). So essentially, you are getting your software at a tenth the price and the bits you care about, you are getting custom made. Of course, you usually have to spend time packaging and documenting, but this cost is quite low. The reputation you get for doing it is often more than worth it (especially if you look at the cost of hiring recruiters). It would be interesting to see a study to see if sponsoring popular open source projects leads to lower attrition for companies. I suspect this is true, but have no data. Of course, this sucks if you are in the business of selling software. If you are in the business of selling services enabled by software, then open source is absolutely king. Individuals still contribute quite a bit to open source projects and have their own internal drivers for doing so. More and more I've seen advice that in order to show your worth to an employer it is best to work on open source projects and to have a portfolio (I admit to giving this advice myself, from time to time). Lately, though, I have found that the majority of important open source projects are funded through commercial entities. The last time I looked, the Linux kernel was about 75% funded through commercial entities. On the web side of things, it's actually getting difficult to find popular projects that aren't mostly funded by one or more organizations. I think the era of running large software projects as a hobby is coming to an end.
  - digi_owl 11y ago
    I wonder if it helps to liken OSS to infrastructure, and roads in particular. This because of how anyone can start a company that provides some kind of service using roads.
- erikpukinskis 11y ago
  I think feelings of fun and agency are core human needs, and engineers sometimes take debts in those things during the day to earn money and open source software is a way to pay that back to themselves. My recent open source work is partly a response to a frustratingly anti-refactoring employer. The money was worth it, but I needed to recharge my "you can actually make progress as a good pace on a project that is well maintained" batteries after work.
- rz2k 11y ago
  I think of utility as the first principle of economics. Is your criticism that it can be used to explain a person chooses to overdose on heroin as much as why someone donates their time to charity? But couldn't the same be said of biology, and how natural selection explains both intraspecies predation and altruism? I mean, it can sound like a circular argument, but on the other hand if it happens there was something that made it possible to happen, too. I don't at all agree that classical economics as a specific school is particularly focused on utility compared to others. Wouldn't that be a little like saying high school algebra is closer to set theory than say abstract algebra? To establish a correspondence between utility and the real world, I think it is worthwhile to acknowledge that an understanding of what predated currency has shifted away from barter economies and toward economies that traded influence and status. Or, similarly, take a look at this story from a few weeks ago[1], where the consistent theme to me seems that people's behavior occurs within a context, and that anthropology might be as good a way to explain things as a highly simplified reward and punishment framework. That is, utility is maximized by acting consistent with your perceived identity as much as through projections of rewards from various choices. So, while I don't think the concept of utility by itself says that status and identity play the primary role, I also don't think it is implausible. And yet, you're right that open source isn't just hobbyists, and I doubt contributions from corporations contribute to prestige in any way that is valuable, so as you said: >My guess is that open source software reduces the transaction costs of acquiring and fixing software for corporations [...] It should be a tragedy of the commons, but it isn't. — leaving us with a poorly understood phenomenon. Is this just a moment in time specific to the age of a current generation of programmers, that won't last, or is there a dynamic that is more sustainable? [1] https://news.ycombinator.com/item?id=10057285 https://news.ycombinator.com/item?id=10057285
- brc 11y ago
  I don't think you understand utility properly, and sounds like you have a hard sciences bent. The point of utility is that everyone is different. They will all behave in chaotic and unpredictable ways. The only way to make sense of why people exchange is to make the assumption that each participant in the exchange gains something greater than what they give up. Since the thing they gain and the thing they give up are always going to be different, it has to be distilled down to something. That's utility. You say that I haven't solved 'the problem'. I say there is no problem to be solved. All we can do is observe the actions underway because there is nothing to fix. We can't say why the contributors utility is increased, because by very definition, each persons utility is different. You can only infer or measure the subset of those, and make observations. Utility is the abstract class of individual preference implementations. There is no more point in trying to determine the cause of each individuals utility than there is trying to work out the purpose of each class implementation form the point of view of the abstract class. What does it matter? It doesn't. Open source software doesn't suffer the tragedy of the commons precisely because the utility contributors gain can only be upwardly increased by people using it, and overconsumption of the software has very little effect on the utility of the producers. In the original case of the commons, overconsumption of grazing lands decreases the utility of each individual grazer, but if anything the opposite effect happens in OSS. Assuming one can brush off idiotic bug reports and I'll-advised pull requests, that is. But because contribution is not binding when the cost of contribution exceeds the utility gained, the person switches their time preferences to differnt things. Incidentally, the evils of central planning are precisely because people try and 'solve' the problem of marketplaces, when there is no problem to solve, only exchanges to observe.
  - arethuza 11y ago
    "sounds like you have a hard sciences bent" As someone who does come from a hard science/engineering background I tend to find that every time someone tries to explain economics to me the more alarming it sounds.
    - brc 11y ago
      Understanding the behaviour of individuals choice with limited resources is the key to understanding economics. The tools of economics provide a dim light through the fog of chaotic crowd interactions. It's not suppose to be a blueprint.
crdoconnor 11y ago
>Utility is a well-known concept in economics. It's well known but it still has a circular definition. Why do people spend $X on goods? Because it provides $X worth of utility. Why does it provide $X worth of utility? Because they spent $X on it. Ultimately it therefore ends up being rather meaningless. It's also non-disprovable which makes it non-scientific.
- digi_owl 11y ago
  Interestingly ol' Marx tried to differentiate between use and exchange. He called it value, but i suspect it could easily translate into the utility of modern economics. Sadly he seemed to have managed to talk himself into circles trying to argue that labor was the source of value, and therefore capitalists were labor exploiters. Because of this he ended up mixing use and exchange value when talking about production machines, to try to show that said machines didn't provide any more value output than was initially put into making it. I suspect that once one correct for that, by for example making machines into labor amplifiers, Marx's writings have, given the circumstances and time it was written, some serious insights into the workings, and pitfalls, of capitalism (most people barely touch volume 1, but volume 3, published by Engels after Marx death, holds a stern warning about the effects of finance capital). Using that as a springboard to bootstrap some other kind of society may well be futile however.
  - crdoconnor 11y ago
    >Interestingly ol' Marx tried to differentiate between use and exchange. Well, of course they're different. It does seem that Neoclassical economics is fundamentally structured upon a series of misdirections that benefit capitalists: * Blurring use and exchange value. * The non-existence of money in neoclassical models. * The non-existence of banks or other credit intermediaries in neoclassical models. * Even the non-existence of profit in neoclassical models ("perfect competition") Pretty much any kind of element of an economic model that could be used to analyze the source of profit, in fact, is just handwaved away under the heading "assumptions".
    - 11y ago

Utility is a well-known concept in economics. It's strange at first to the outsider, but it's easy to understand with a little reading.

by brc 11y ago

Utility is a well-known concept in economics. It's strange at first to the outsider, but it's easy to understand with a little reading.

danharaj 11y ago

I know what utility is in economics, my problem is that you can always just say that the reason why people do X is because they are rational and X maximizes their utility. It doesn't tell you why that is their preference and why X satisfies their preference. It is not like the action or hamiltonian in physics which come with equations of motions that can be checked against experiment. Why is open source good for everyone? You didn't explain it, you just cast it in certain terms, which is useful for distilling the problem, but certainly not for solving it. You gave your guess why it improves the contributors' utility, but you haven't really proved it. It's just a guess. I can guess, too. My guess is that open source software reduces the transaction costs of acquiring and fixing software for corporations, but I could not explain to you with neoclassical economics why developers work on it without being compensated. It should be a tragedy of the commons, but it isn't. Open source software is developed at the fraction of the cost of closed source software and either competes or completely dominates it. I don't believe in Liberal organizations of economy though, so it's not a big deal for me.

mikekchar 11y ago
Open source software is cheaper to produce. In fact it is so cheap to produce that you can use it as a loss leader for advertising job positions. Why is this? Your average software company runs their R&D department on about 10% of their earnings. Yes, I pulled that number out of my nether regions, but in my experience that's about right. If you do a google search for R&D as a percentage of earnings, you will see lists for large companies that range anywhere from 2%-30%, but they tend to be on the lower side in my experience. This means that for a software company to produce, package, market and sell a software product, they have to charge about 9x what it cost to produce it. If we factor in profit, then we're pretty close to an order of magnitude difference. With open source software virtually all of that overhead disappears. If you are writing software that you already needed anyway, then the cost is very low -- even if nobody contributes to the project from the outside. With a traditional software sales model, you divide the cost over many customers. So it might cost you $10 million to create and sell, but if you have 100,000 customers, you can charge $100 each and break even. With an open source model, each actor builds pieces that they want and care about and uses other pieces for free. The advantage to working with the open source model is that the overall cost is an order of magnitude lower because you cut out all the sales, marketing, support and associated management. Not only that, but the pieces you pay for, you get to dictate exactly what they look like (within reason ;-) ). So essentially, you are getting your software at a tenth the price and the bits you care about, you are getting custom made. Of course, you usually have to spend time packaging and documenting, but this cost is quite low. The reputation you get for doing it is often more than worth it (especially if you look at the cost of hiring recruiters). It would be interesting to see a study to see if sponsoring popular open source projects leads to lower attrition for companies. I suspect this is true, but have no data. Of course, this sucks if you are in the business of selling software. If you are in the business of selling services enabled by software, then open source is absolutely king. Individuals still contribute quite a bit to open source projects and have their own internal drivers for doing so. More and more I've seen advice that in order to show your worth to an employer it is best to work on open source projects and to have a portfolio (I admit to giving this advice myself, from time to time). Lately, though, I have found that the majority of important open source projects are funded through commercial entities. The last time I looked, the Linux kernel was about 75% funded through commercial entities. On the web side of things, it's actually getting difficult to find popular projects that aren't mostly funded by one or more organizations. I think the era of running large software projects as a hobby is coming to an end.
- digi_owl 11y ago
  I wonder if it helps to liken OSS to infrastructure, and roads in particular. This because of how anyone can start a company that provides some kind of service using roads.
erikpukinskis 11y ago
I think feelings of fun and agency are core human needs, and engineers sometimes take debts in those things during the day to earn money and open source software is a way to pay that back to themselves. My recent open source work is partly a response to a frustratingly anti-refactoring employer. The money was worth it, but I needed to recharge my "you can actually make progress as a good pace on a project that is well maintained" batteries after work.
rz2k 11y ago
I think of utility as the first principle of economics. Is your criticism that it can be used to explain a person chooses to overdose on heroin as much as why someone donates their time to charity? But couldn't the same be said of biology, and how natural selection explains both intraspecies predation and altruism? I mean, it can sound like a circular argument, but on the other hand if it happens there was something that made it possible to happen, too. I don't at all agree that classical economics as a specific school is particularly focused on utility compared to others. Wouldn't that be a little like saying high school algebra is closer to set theory than say abstract algebra? To establish a correspondence between utility and the real world, I think it is worthwhile to acknowledge that an understanding of what predated currency has shifted away from barter economies and toward economies that traded influence and status. Or, similarly, take a look at this story from a few weeks ago[1], where the consistent theme to me seems that people's behavior occurs within a context, and that anthropology might be as good a way to explain things as a highly simplified reward and punishment framework. That is, utility is maximized by acting consistent with your perceived identity as much as through projections of rewards from various choices. So, while I don't think the concept of utility by itself says that status and identity play the primary role, I also don't think it is implausible. And yet, you're right that open source isn't just hobbyists, and I doubt contributions from corporations contribute to prestige in any way that is valuable, so as you said: >My guess is that open source software reduces the transaction costs of acquiring and fixing software for corporations [...] It should be a tragedy of the commons, but it isn't. — leaving us with a poorly understood phenomenon. Is this just a moment in time specific to the age of a current generation of programmers, that won't last, or is there a dynamic that is more sustainable? [1] https://news.ycombinator.com/item?id=10057285 https://news.ycombinator.com/item?id=10057285
brc 11y ago
I don't think you understand utility properly, and sounds like you have a hard sciences bent. The point of utility is that everyone is different. They will all behave in chaotic and unpredictable ways. The only way to make sense of why people exchange is to make the assumption that each participant in the exchange gains something greater than what they give up. Since the thing they gain and the thing they give up are always going to be different, it has to be distilled down to something. That's utility. You say that I haven't solved 'the problem'. I say there is no problem to be solved. All we can do is observe the actions underway because there is nothing to fix. We can't say why the contributors utility is increased, because by very definition, each persons utility is different. You can only infer or measure the subset of those, and make observations. Utility is the abstract class of individual preference implementations. There is no more point in trying to determine the cause of each individuals utility than there is trying to work out the purpose of each class implementation form the point of view of the abstract class. What does it matter? It doesn't. Open source software doesn't suffer the tragedy of the commons precisely because the utility contributors gain can only be upwardly increased by people using it, and overconsumption of the software has very little effect on the utility of the producers. In the original case of the commons, overconsumption of grazing lands decreases the utility of each individual grazer, but if anything the opposite effect happens in OSS. Assuming one can brush off idiotic bug reports and I'll-advised pull requests, that is. But because contribution is not binding when the cost of contribution exceeds the utility gained, the person switches their time preferences to differnt things. Incidentally, the evils of central planning are precisely because people try and 'solve' the problem of marketplaces, when there is no problem to solve, only exchanges to observe.
- arethuza 11y ago
  "sounds like you have a hard sciences bent" As someone who does come from a hard science/engineering background I tend to find that every time someone tries to explain economics to me the more alarming it sounds.
  - brc 11y ago
    Understanding the behaviour of individuals choice with limited resources is the key to understanding economics. The tools of economics provide a dim light through the fog of chaotic crowd interactions. It's not suppose to be a blueprint.

crdoconnor 11y ago

>Utility is a well-known concept in economics. It's well known but it still has a circular definition. Why do people spend $X on goods? Because it provides $X worth of utility. Why does it provide $X worth of utility? Because they spent $X on it. Ultimately it therefore ends up being rather meaningless. It's also non-disprovable which makes it non-scientific.

digi_owl 11y ago
Interestingly ol' Marx tried to differentiate between use and exchange. He called it value, but i suspect it could easily translate into the utility of modern economics. Sadly he seemed to have managed to talk himself into circles trying to argue that labor was the source of value, and therefore capitalists were labor exploiters. Because of this he ended up mixing use and exchange value when talking about production machines, to try to show that said machines didn't provide any more value output than was initially put into making it. I suspect that once one correct for that, by for example making machines into labor amplifiers, Marx's writings have, given the circumstances and time it was written, some serious insights into the workings, and pitfalls, of capitalism (most people barely touch volume 1, but volume 3, published by Engels after Marx death, holds a stern warning about the effects of finance capital). Using that as a springboard to bootstrap some other kind of society may well be futile however.
- crdoconnor 11y ago
  >Interestingly ol' Marx tried to differentiate between use and exchange. Well, of course they're different. It does seem that Neoclassical economics is fundamentally structured upon a series of misdirections that benefit capitalists: * Blurring use and exchange value. * The non-existence of money in neoclassical models. * The non-existence of banks or other credit intermediaries in neoclassical models. * Even the non-existence of profit in neoclassical models ("perfect competition") Pretty much any kind of element of an economic model that could be used to analyze the source of profit, in fact, is just handwaved away under the heading "assumptions".
  - 11y ago