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Tuesday, March 16, 2010

Understanding Economics (for photographers)

Of the emails I got from people in response to my article on the Prisoner's Dilemma (explaining how human behavior affects economics), two warrant public comment. One person said:

Photographers that take $200 assignments hurt themselves, disproving your thesis that people act in their own self-interest.

Ummm... How is it that we've established that they are hurting themselves? I personally have done assignments for $200 that involved spending 15 minutes photographing an individual for some personal use of their images. That's $800/hr., much better than most high-profile lawyers get. I've also done assignments for $200/day, but allowed me to get images that I was able to license for tens of thousands of dollars.

The truth is, such vague and open-ended propositions are, frankly, silly. Even entertaining the proposition of such singular and simplistic truisms about economics hardly warrants serious discussion. Therefore, those who do engage in these discussions are usually those who have the dual tendency of (1) believing the premise, and (2) of using it for political motivations. This creates a feedback mechanism where you do more of it... repeatedly and more passionately. The most immediate dividend is bolstering one's own image among the faithful. (See my article, The Economics of Controversy.)

It's not that people who dispel inaccurate economic theories are always intentionally deceptive. But there is a point where their own mental model of how things work becomes the filter by which all actions and statements are interpreted. If their basic premise is faulty, then this skews their perception of reality. Most importantly, it affects their ability to extrapolate simpler ideas into more complex ones, which would otherwise allow them to come up with effective economic forecasting tools. Is it really true that accepting $200 hurts yourself and the rest of the photo industry? Or does your intuition tell you that this is probably a bit simplistic? How does it strike you that most pro photographers believe this statement to be true?

And this leads to the other email I referred to:

Are there any important essays or textbooks that you think is worthwhile which distills a lot of what you have learned [about economics]?

I'd ruminated about this continually since I got it, and I'd even started (and discarded) several lists. Every time I come up with a list of great resources that help establish fundamentals, I then put myself into the mindset of an average reader (esp in the photo community), and I realize that it's not quite right.

For example, one of the items on the lits that I keep adding (and then removing) is PBS Newshour's Paul Solman. He is a "behavioral economist", and his continuing series on the Newshour program ("Making Sense" [of Financial News]) is must-see TV for anyone that wants to digest complex subjects down to the basics. To me, this is the easiest and most effective way to learn the fundamentals of economics, whether of a financial nature, or a personal nature. Yet, every time I send someone a clip from the show to explain things they don't understand, I usually get a response that their eyes glazed-over.

So, how do you teach economics to people who are predisposed not to understand it?

And that's when it finally dawned on me: There are two barriers to understanding economics. The first is to dispense with preconceived conclusions. Yet, this is often a paradox in itself. If your livelihood and financial future is at stake, there's a huge emotional hurdle that needs to be overcome to make sound decisions. It's like trying to teach good farming techniques to someone about to die of hunger: they don't have time or patience to wait a whole season or more for the next crop. They need to act now. They'll run towards the mirage on the horizon simply because it appears there's water there, despite the objective rational observation that mirages are well-known illusions.

The need for immediate results doesn't change the reality of economics. This is why I've always taught that photographers should never, ever enter into the business as their sole source of income. They should evolve into it gradually, until the income is more stable, reliable, and predictable. Anyone that complains that they aren't making enough money in photography has only themselves to blame for having dived into it before they were ready. There is no economic truism that others' actions or behaviors (such as taking $200 assignments) have hurt their careers.

The second reason people have these faulty notions about economics is more due to a primal human emotion: you're more powerful as part of a group than as an individual.

Since most photographers work for themselves, it's natural to assume that the best way to fight common adversaries is to unify: "all for one, and one for all". Once this mental model is in place, it becomes the sole and primary paradigm by which all observations are interpreted. Whenever anything comes up for discussion, it's no longer a question of whether the action itself makes sense, but whether it serves the larger goal of "unification." If someone accepts the $200 assignment, it's not whether or not it's a good idea, it's whether it supports the notion of unification.

Another common example is the question of "free." Studies continually show that "free" is the most effective marketing term ever. If you want to attract new business, use free somewhere in your marketing materials. Yet, most everyone in the photo community froths at the mouth whenever they see or hear about photographers taking assignments (or doing anything) for free. Naturally! As it runs counter to both the premise of "I'm hungry!", and "unification." Nowhere is the concept of "free" ever thoughtfully examined as a single element in a broader marketing campaign--an element used by literally every other business in the entire world.

Learning economic principles is one of the keys to developing good business techniques, including negotiating contracts, pricing products, marketing yourself, and other career-building practices. The good news is that the basic concepts of economics is really very simple -- almost intuitive. Indeed, the whole Prisoner's Dilemma experiment illustrates a truism about human behavior that should in itself not have to be explained--the lessons it illustrates should not only be self-evident, but one should be able to naturally extrapolate them to other models, such as the question about whether expecting photographers to stop accepting $200 assignments is actually achievable. One should not have to have an education in economics to intuitively realize that such a premise is impossible. Expecting masses of people to voluntarily resist accepting paid assignments is an unrealistic expectation of human nature. (The "genius" of the experiment is not so much the facts that were revealed, but that it could be explained so quickly and succinctly.)

For photographers to improve their own careers, and by extension, the health of the industry at large, they need to shift away from the notion that photography is governed by the same economic rules that apply to unions. Photographers cannot be expected to act in unison, and anyone that builds their business models on that expectation will be the first to fail. Secondly, understanding economics, requires an understanding human nature. The better you are at that, the easier and more intuitive economics naturally becomes.

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