(Consider skimming Why trading with limits is preferred over typical auctions.~Less uncertainty, especially for the buyer. Supply AND demand is transparent and available.)
I want to set the stage first…
How do people know how to price things? Market research if you have money? Guessing if you are a small business? Castpoints makes pricing automatic, simple, and automatic — just like trading stocks. Both buyers and sellers indicate:
- The number of things that can be sold within a timeframe.
- The minimum and maximum transaction prices. For a seller, this can be the price they need to break even with a little profit.
Say transaction are happening at about 50.
A buyer in a hurry: buy limit 49 up to 52 good for 30 mins. This ensures the trade will very likely happen.
A buyer who can wait: buy limit 45 up to 47 good for 5 days. The buyer is waiting for a dip.
A seller in a hurry: sell limit 51 down to 48 good for 30 mins.
A seller who can wait: sell limit 55 up to 52 good for 5 days. The seller is waiting for a spike.
Now CP iterates every 6 seconds or so (the comfortable amount of time it takes for people to make a decision, and makes 10 data points per minute for pretty charts) and steps the prices away from the start price toward the ending price. If price overlaps, a transaction is executed.
This is awesome for a number of reasons.
- Even if the market is illiquid, everyone has at least a basic idea of supply and demand.
- Uncertainty is at the barest minimum.
- Things are automatic. People don’t have to waste time being at the computer all day.
Lets add something even better. Say an excellent Chinese Medicine Dr. charges 150 but has a waiting list going out 3 months. That’s terrible for people who might have an emergency, and terrible for the Dr’s profitability. Obviously she is in high demand because she is excellent, but its tacky to charge high prices to sick people.
Capital flows to where its treated best, and this is not happening here which creates problems. Problem: This Dr is great. More capital should be flowing to her so that she can do more research or teach more people. She is not being properly valued, and so she can’t allocate value properly.
Solution: Default pricing in Castpoints splits goods and services in half. Half is a flat minimum fee, half is dynamic pricing. (Sellers can manually indicate the ratio of flat to dynamic.) Now, those with more time than money can get in line at an affordable price. And those with more money than time can be seen sooner. Also, the Dr will be making a lot more money, which she should.
This can add to reputation too. The difference between the flat fee and free market price is significant. The flat fee will float around the price of an average Dr in this field and in this location. A great Dr will have a high dynamic price. A great philanthropist Dr will have a low flat fee and a high dynamic price. This gives a lot of information on the depth of demand.
This works for anything tangible. Like hotels and restaurants. People can get tables at fancy resultants because if they reserve off peak, the menu price is +0%. At peak times, the menu price could be +100% (or whatever). Now that good restaurant gets to serve more people, make more money, support their servers and cooks better, and overall monetize their resources higher and more consistently.
Here is where emergence kicks in: This is how a free market provides charity. Currently, a gov robs Peter at gun point to pay Paul. Ramifications:
- The more Paul is a victim, or plays victim, the more money he gets. Rewarding victimhood is stupid, unless you want a lot of dependent people milling around doing nothing outwitting to vote themselves more of Peter’s money.
- Peter gets money stolen from him at gun point. The whole system is then predicated on the initial condition of theft at gun point. It will never run well.
- Peter has no say in how its used. Limiting options is limiting the intelligence of the whole system.
- There will be a bureaucracy created for how much money “should” be stolen, who it gets doled out too, who can decide who gets it, and mismanaging all the problems and fraud created by an initial condition of theft.
- Very roughly, bureaucracies waste 75% of money they collect. Groups are supposed to “add value”!
- Obviously a group that subtracts value can’t compete with a group that actually adds value, so the losers force compliance. That necessitates a lot of laws, so they can be broken enough to justify lots of force. Laws work ok at a medium scale: in a mostly homogenous culture where the rate of change is not fast because they provide a some transparency and friction. But small groups don’t need them, and at a big groups have too much non linearity to be managed by linear laws.
The reason bureaucracies are dumb, is because they limit options at many steps. They are branded “soul killing” because as options dwindle, eventually, the only option left is death.
In Castpoints, sellers of tangible things can offer lower prices for a number of reasons. A sale, a grand opening, or just because they feel like it. In this example the Dr could have a flat fee of 10 because she wants to be able to help everyone. And everyone knows that the clients paying the high fees are subsidizing these low fee people. But the high fee payers pay are happy. They get a good service fast. Its worth it. If not, they can get in the flat fee line, or use a different Dr. Actually, they might place an order to be seen now for the acute condition and also the flat fee line for a 3 month tune up. This helps not create a class system.
In other words Peter decides to offer stuff to Paul when it works for Peter. Paul has less resources in that area, but can still participate in a win-win transaction.
- Paul does not have to play victim. Paul can just make a request. Dignity is intact.
- A subclass does not need to form. People are all participating on the same level playing field. (For all those well meaning people who keep trying, and of course failing, at legislating “equality”, here you go.)
- Because bureaucracy is not parasitizing, about 4 times the amount of “charity” is available.
- Although this “charity” is peer 2 peer, its not gross and low energy. All transactions are win-win.
The Next Phase in Financial Services: What Low-income Americans Tell Us “…They jerry rig their own social safety nets.” People have transactions no matter what. Money is only one resource. Castpoints provides a framework so that people with little money can still transact safely, effectively, and build reputation.
Emergent dynamic commerce is antifragile. The more an economy is blowing up, the better Castpoints works to keep it working. In a natural disaster, expert allocation of resources can begin immediately. People are often traumatized, and can’t think. That’s okay. Trusted people away from the disaster can manage things. Locals can just do tasks without worry about making bad decisions, nor being exploited. That is powerful.
Typically in a disaster, there is a demand that prices for say propane don’t rise. People don’t want to be “gouged”. Ignorant: Immediately, even though demand for propane is high, supply is zero because existing local supply is very valuable and people are not going to part with it for yesterday’s price. And the gov spends resources passing a law, enforcing it, and prosecuting it. Gov makes a black market. Now the price is much higher because it includes the risk of being caught. Way to go gov!
Instead, if prices just float, people can arbitrate the high local cost with the normal non local cost. You don’t need to coordinate 10’s of people and trucks. It will just happen. The market, even though very stressed, will still function and provide propane. So people won’t like the prices. They have options. Either wait a few days, or have a errata can of propane on hand if you live in a natural disaster area or its winter. We don’t need continuity of gov, we want continuity of commerce. In this case so that even if propane costs 10 times normal, we can at least buy some to keep our 90 year old mom warm.
Also, in Castpoints, if I see that my friends got caught short in a disaster, I can place an order to get resources to them. My money won’t be going to some misnamed “non profit” that really launders 90% of donations. My money goes directly into that local economy, putting people to work doing stuff that is actually valuable. I can see an order for clearing rubble from a specific place and pay someone to do it. In fact, a non expert can easily see accurate ETA’s and costs, and cost associated with the whole clean up in real time. Not because some bureaucracy interviews people and publicness guesses 3 weeks later. But from real time aggregations of what needs to be done.
Compare that system to fait debt based currency system. When banks get in trouble, they call in loans. Well, the loan holders are probably stressed too and can’t pay. So a small problem can implode a whole bank or worse. Idiotic, unless drama is highly valued. Oh, and it costs 392 quadrillion to illegally bail out a 10 million bank.
So, by correctly structuring a market with a few extremely simple rules, this is what emerges:
- Resources are allocated much more efficiently, without fancy algorithms requiring PhD’s to understand.
- All participants can tell they are treated fairly, and there is no class system.
- The market itself is antifragile. It doesn’t break under stress, it actually becomes better. Costly and unjust overhead is not needed. Since its not based on debt (leverage), price swings don’t wreck things. Since all orders are limit orders, there are really no flash crashes.
Updated Feb 7 2015
How much do you give to charity? Probably about 2% of your income. Do you think you would give more if you could direct and see you money being put to good use? You could easily double or triple your giving.
National Philanthropic Trust says in 2013, the largest source of charitable giving came from individuals at $241 billion, or 72% of total giving; followed by foundations ($50 billion/15%), bequests ($27 billion/8%), and corporations ($17 billion/5%).
Imagine the impact it could have not being parasitized by bureaucracy. Imagine how many little nooks and crannies that are constantly overlooked would be filled.
Related: Dynamic pricing: The death of big data for marketing and decisions