Behavioral Finance, Product Design and Entrepreneurship

Now that I’m entering my fourth week maintaining this blog, I’ve decided to come back to the subject of why I really believe that these three topics are intertwined.   These three topics are the reason that I named this blog Psychohistory, and these three topics seem to completely dominate my education and professional career.

The reason for this belief is crystalizing, and it’s remarkably simple:
I truly believe that incredible opportunity lies at the intersection of the irrational (human emotion) with the rational (finance, technology, business).

Behavioral Finance offers us the opportunity to design financial systems based on the basic insight that the way that human beings relate to money involves far more emotion than intellect.  To understand economics, you must understand your very human economic actor.

Product Design is based on the premise that deeply understanding the ways that people interact with technology can lead to profoundly more useful (and desirable) designs and products.  To understand product design, you must understand your very human customer.

Entrepreneurship offers us the opportunity to build companies by figuring out how to replicate the economic miracle of creating billions of dollars in new value by unlocking the very human emotions of inspiration, motivation, cooperation, and self-determination.  To understand entrepreneurship, you must understand your very human entrepreneur.

Like all good elevator pitches, I probably need to reduce this in complexity by an order of magnitude before I’ll be happy with it.  But I’m excited about this insight, and more importantly, I’m already seeing incredible leverage from it in my industry, where everyone is talking about the intersection of technology, commerce, and community.

Behavioral Finance: The More We Make, the Better We Want

I actually got a chance this evening to read the New York Times Business section in careful detail, and I found this gem of a column by Robert H. Frank, economist at the Johnson School at Cornell University:

The More We Make, the Better We Want – New York Times

This is a wonderful piece, because it captures three things that I find equally fascinating in one, elegant piece:

  • Classical Economics can fail in prediction when it does not take into account the uniquely emotional relationship that people have with money. It’s funny in retrospect, but I remember reading about John Maynard Keynes prediction of productivity growth leading to a shorter and shorter work week, and an excess of leisure time. Like Lamarkian evolution, this type of economic thinking meets the initial “sniff test” for critical thinking, but because it gets the base mechanism wrong, fails in the critical scientific goal of not only explaining the past, but predicting the future. Outside of small enclaves in France and Marin, there are likely few who actually believe that increased productivity should lead to a shorter work week… but why? This is the first article that to me clearly articulated the concept that as productivity rises, so do incomes. And as incomes rise, an “insatiable demand” for increased quality follows. This is a behavioral finance insight in my book: an insight into the predictably emotional behavior of people and money.
  • Flaunting superiority is not the only reason people spend money on luxury goods. Living in the Silicon Valley, where people measure revenue per employee in the hundreds of thousands (and market capitalizations per employee in the millions), this insight is instantly recognizable. While it is of course true that people to some extent will spend money for status symbols and competition, this explanation does not really explain everything that people spend money on. This article ascribes this to pursuit of “increased quality”, which is a touch idealistic, but it still rings true. Do people spend thousands of dollars on computers and Plasma TVs just to have one “as good or better than others?” Possibly in some cases, but in many cases it is because people spend a lot of time with these goods, and they have the income to spend on making that time higher quality. What are the limits here? Are there any? If there really is no end to the consumption demands of individuals, that really validates some of the brightest and darkest theories about human happiness.
  • American vs. European Spending Patterns. When you look at the recent economic evolution of the major western economies, one of the striking divergences between Europe and the United States has been the balance between growth & productivity vs. stability & social welfare. After the malaise of the 1970s, the divergence becomes incredibly acute – the incredible growth of the United States, on top of an already incomparably large US economy has been astounding. I am personally skeptical of “purchasing power parity” methods for ranking international incomes for a large number of reasons. But leaving that topic aside, this article explains to me a lot of what I’ve personally experienced during my brief stay in France. You have many people, quite happy with a dorm-room sized refrigerator, a water heater the size of a waste basket, and a 19″ television. In the US, a similar person, in a similar economic decile (or lower), somehow has a 50 gallon water heater, a 25 cu. ft. refrigerator, and now probably a large, flat panel television. The easy answer is to say that all Americans are gross, disgusting over-consumers, who put all their value in material things. This article puts some basis behind an alternative explanation – higher productivity and incomes in the United States have allowed people increasing amounts of disposable income to spend on higher quality products & services. More importantly, that process is a never-ending cycle, leading to more productivity gains, and an ever-increasing standards bar for the quality of goods & services.

This seems like an incredible economic advantage, and it speaks to the recent incredible growth in the luxury goods market as a secular trend. Economies that continue to generate outsized productivity growth may in fact establish a powerful strategic moat based on their insight into the “next level” of quality in goods & services. That certainly seems to be part of what continues to happen on an ongoing basis in 21st century Silicon Valley.

One of the truly great aspects of economics is being able to read decades and centuries of theory – some of it incredibly insightful, some of it woefully wrong. The reason it is wonderful is because, unlike the hard sciences, economics is fundamentally a study of people – individuals, crowds, and their interactions. As a result, understanding the history of economics and the reasons why very intelligent economists ended up with the wrong predictions is incredibly edifying.

This is an article worth reading, and then letting it digest, and re-visiting again. I also find this line of thinking a portent of an upcoming golden age of economics, as ground-breaking for this area as Max Planck was for particle physics.

As a side note, I also learned that finding an article on the New York Times website is nearly impossible. I did a direct search for this title on Google, Yahoo, and on the NYT site itself, on the homepage and in the business section. No luck. It was only through some very intricate checkboxes and sub-filtering of the NYT search that I was able to find this article – I have the printed copy sitting right next to me!

You have to love the Internet – you can find everything that you didn’t know existed, and you can’t find the one thing you know exists and want.

Ning on GigaOM & SearchBlog

It looks like Ning has been picked up on some heavyweight blogs today:

Om Malik on Ning

John Battelle on Ning

I’ll save my comments on Ning for another post, another time. I certainly think that Ning shows just how tenuous, from a technology perspective, the Web 2.0 sites hold on users can be.

In any case, I’m going to take this opportunity to share instead one of life’s little pleasures – seeing a friend’s name in print. I first met Gina Bianchini in high school here in the Bay Area, and got to catch up with her a few years ago when she accompanied another Stanford friend to one of my birthday parties.  Growing up in Silicon Valley is fun that way.
I remember hearing the news when Gina took on the opportunity, and its great to see some positive press around Ning. Like all startups, it certainly seems to have evolved considerably from its early days.

Honestly, seeing Gina’s company called out on these major blogs is just a really nice way to start the day. Congratulations to Gina & the Ning team.

Randy Smythe & Glacier Bay DVD (former eBay Powerseller)

Two eBay-related posts in as many days?  There goes that promise…

However, it is newsworthy to note that Randy Smythe, a former eBay Powerseller who achieved over 200,000 positive feedback, has started a column outlining his views on eBay.

Randy decided to leave the world of online selling in February 2006, and the radio silence since then has created quite a bit of chatter in the eBay community.

The introductory article is here:

What is the E! True Hollywood Story About eBay’s Former Top Seller Glacier Bay DVD? 

Interestingly, Randy is quite reticent about his own successes and failures in business, which to me is refreshing.  Running a small business is one of the most difficult challenges professionally, and running one online is no exception.  If Randy chooses to share his insights from this experience, it could benefit a lot of people.

I’ve commented on this blog that people are rarely rational with money, and surprisingly, this can even impact people when they run multi-million dollar businesses.  Like personal finance, I believe that entrepreneurs have the most to learn from each other – the good, the bad and the ugly.

To give some insight into Randy’s perspective, he linked to this article from The E-Commerce Guide on the challenges facing eBay.  It’s an interesting piece as well.  You can find it here:

eBay: Down But Not Out 

I am, of course, extremely optimistic about the future for eBay and for e-commerce in general.

Shameless Plug: A Great Search on eBay Express

First and foremost, please remember, I am extremely biased.   As I have explained in previous posts, I run the Product Management team responsible for eBay’s newest specialty site:

eBay Express

But when you work harder than you ever have in your life on a new product, or in this case, a new website, it’s hard not to brag a little when you see something wonderful.

Last week, my wife was shopping for double strollers.  After researching the subject, she decided that she really like the “E3” brand of strollers.  She asks me, “Do you think there are E3 strollers on eBay Express?”

So she goes to the eBay Express homepage, and types “E3 Stroller” into the search box.  This is what she sees:

“E3 Stroller” on eBay Express

(10/22 Update: The liabilities of a dynamic marketplace… I’ve been alerted that there is no E3 Stroller inventory right now! I think you can see what I’m talking about just searching for Strollers in general).

Wow.  What a gorgeous page.  What a nice selection of colors and sizes.  Great prices and great brand-new products from great eBay sellers.

An amazing amount of incredible technology and innovation went into the new search engine for eBay Express.   But even though I know in detail how eBay Express managed to come up with that beautiful search result, it’s still wonderful to see it in action, on a query that I know we didn’t test specifically, and yet one that really mattered to my little family.

Just one anecdote, just one query out of millions.  But hey, here’s a quick shout out to the eBay Express search team – you are making magic happen every day.

Blogs I Read: My Open Wallet

This is a blog that I bet many of my friends don’t have on their regular reading list.

My Open Wallet | Madame X

This blog is one of a growing number of personal blogs where people display an unprecedented amount of openness about the most taboo of all subjects – their money. More specifically, their personal financial situation. These blogs, many times anonymous, provide detailed information about the author’s finances – salary, savings, goals, and ongoing progress.

I found this blog almost a year ago when it was featured briefly in the New York Times. I keep reading it, and commenting, because it’s incredibly useful to learn from the insights and foibles of other real people.

One of the tragedies of personal finance is that it is so hard to talk about. Personal finance is generally not covered in school at any level, and it’s shrouded in mystery and urban legend. Even close friends and family often have trouble talking about money in an honest and open way.

Blogs like My Open Wallet provide a forum where we can start to learn from each other. They allow people to gather and share information that is incredibly specific. Personally, I’m more fascinated by the common mistakes and misunderstandings that I see in these blogs. It reinforces my belief that we, as a society, do not do a good job of educating ourselves with regards to money.

This trend of Personal Finance Blogs is so large, there are even competing Web 2.0 companies, like NetWorthIQ, that provide a sophisticated toolset for people to measure and share their personal finances.

So, check it out. Let me know if you find these blogs as interesting as I do.

Economic Mythology & The Strength of the US Economy

Interesting article on on Friday:

Ahead of the Curve: Economic Mythology

I find this type of article interesting, even though I do not completely agree with the conclusion that there are no debt-related issues for the American consumer.  Right now, you could assign me to the camp that thinks the Federal Reserve has been playing this cycle fairly well.  However, it has been striking to me how the current economic cycle, which on paper has been unbelievably strong, has also been surrounded by an incredible amount of negativity.

The United States continues to deliver economic gains in gross domestic product (GDP), GDP per individual, productivity and wage gains that would be impressive for an economy one tenth the size.   In fact, the US went from a $9.76 trillion dollar economy in 2001 to a projected $13.23 trillion dollar economy in 2006.  That’s a 35.5% increase in just five years!  For all the fear and admiration of the growth of China, the US basically just added 133% of China’s 2006 economic output, in just the last five years!  (Actually, that number is bigger than the size of the GDP of even the #3 economy, Germany)

Don Dodge sometimes will remark about how hard it is for Microsoft to show the spectacular growth numbers that younger companies do.  When you have $40B in revenue, you have to grow a $4B business every year, just to deliver 10% growth.

Well, the United States has to basically grow in economic output the equivalent of the entire country of India every two years – just to deliver a 3% growth number.

All this, with almost negligible inflation. It’s almost unfair to say unprecedented, since an economy the size of the United States today is unprecedented itself.  But it was only three decades ago in the 1970s that a majority of sophisticated economists thought that it was impossible for an economy the size of the United States to show meaningful growth.

Given the struggles that Europe and Japan have had in the past 20 years to show meaningful growth, it’s obvious that there is something incredibly special about the US economy.  Something that is worth understanding thoroughly, before belittling it or complaining about it.

Given my respect for the US economy, I tend to enjoy articles like the one in SmartMoney.  The press tends to be sensationalist about economic trends, and the recent housing boom and resultant wealth effect is no exception.  There are so many interesting ways to look at the health of the economy, it’s always great to see an article like this one offer yet another.

Is there an Out of Office message for Blogs?


It’s hard for me to believe that it has been almost two weeks since my last post.
This is a new form of guilt for me – not unlike missing my regular workout at the gym, or not mowing the lawn over the weekend.

My apologies for those waiting for new posts.  Over the past two weeks, life has certainly been busy.  Ironically, there were so many times this week that I was inspired to write a post or two.   Unfortunately, somehow the timing never seemed to work out for sitting down and typing them out.

Well, the drought is over, at least for a little while.

Many thanks, by the way, to my good friend Igor Lotsvin.  I’m not sure how you found my blog, but your encouraging comment is the impetus for me taking a few extra minutes tonight to get blogging again.

It is amazing how positive the response has been to the few dozen posts on this new blog.  Some of the comments come from friends, some from co-workers, some from strangers.  I appreciate each one, and in a way, each one encourages me to not fall off the wagon.

Well, at least to get back on once I fall off.

It’s Showtime: iPod, iTV & Pretty Colors


Big day for Apple fans, as the much anticipated event happened today. Anticipated, because Steve pre-announced it with invitations that just said “It’s Showtime” a week ago.

Many people play the guessing game of “What is Apple going to launch this time?” As with all games, there are winners and losers. Well, grab your scorecards, because the winners today were people who guessed:

  • Upgraded iPod Video, with 80GB storage.
  • New iPod Nano, with more storage and colors are back!
  • New iPod Shuffle, even smaller, with clip-on form factor
  • iTunes 7, and support for cover art & movie titles, with pricing for DVD-quality movies. $14.99 new release, $12.99 pre-order, $9.99 for library titles.
  • iTV, the infamous Apple device to take digital video to the living room

All links are to the Apple Insider stories – I think they had great coverage today.

A lot to digest, but some of my initial thoughts:

  • Gorgeous. We all know Apple does great industrial design, but wow. I remember in the late 1990s when people really believed that Apple should give up hardware, and become a pure-software play. What a sad, bland, consumer electronics landscape would it be without them!
  • Ridiculous. OK, wasn’t there a Saturday Night Live skit a year or two ago about an iPod this small? There is a part of me that chuckles – all those 1990s dreams about “wearable computing” are alive and kicking somewhere in Infinite Loop.
  • Video support is better, but not quite right. This isn’t Apple’s fault, but the truth is a major part of the launch of iTunes was the idea of “Rip. Mix. Burn.” It wasn’t just about the iTunes Store – it included an ability to convert your old collection of CDs into digital music, and enjoy the ability to “carry it with you”. Given bandwidth constraints, we are missing (obviously for legal reasons) the real feature to drive digital video – the integrated ability to easily rip a library of DVDs to my computer (and stream to any iTV in the house)

I’ll have to think about the iTV vs. Mac Mini debate. I’ve been thinking about getting a Mac Mini for my wife’s new minivan. Don’t laugh – it has a set of RCA jacks, and the idea of ripping all of my son’s kiddie DVDs to a mini and having the video library available in the car without struggling over discs (and destroying them) is somewhat appealing.

Maybe someone will get an iPod dock for a car that actually connects to the DVD player? That seems like a pretty simple idea, actually.

Lastly, is it just me, or does everything seem better when Apple does it in colors?

New iPod Nanos

And yes, I am trying to forget the “Flower Power” and “Blue Dalmation” iMacs…

Tivo Series 3 is Here!

Those of you who are thinking about what to get me for my birthday need to look no further than here:

Hands-on with the TiVo Series3! (Engadget)

This box is dripping with high tech sex appeal.  Check out the new LED display on the front of the device:

Tivo Series 3 LED Display

Even the new Tivo remote control is sexier:

Tivo Series 3 Remote

Unfortunately, there are quite a few reasons to give pause before shelling out for this hot new item:

  • List price: $799 (ouch) + service (double ouch)
  • Service is $12.95/mo, $299 for 2 years.
  • Cable companies & standards still leave Tivo2Go, MultiRoom Viewing, external hard drive, and video on demand features unavailable.

Interesting deal, though, for those of you who are interested:

  • For $199 you can transfer the lifetime subscription from an existing Series 1 or Series 2 Tivo to your new Series 3.

Personally, I may have to wait to see what the “Tivo software on the Comcast boxes” looks like later this year to make a decision.

So, Tivo lovers, rejoice!  We can only dream of a world where Tivo wasn’t fighting the entire cable industry to bring us a great product.

Mozilla Firefox 2.0 Beta 2 is Great!

First of all, let me just say that I’m very biased here.

I’m biased because:

  • I’m a former Apple employee and Mac lover. So it’s not likely that you’d find me posting great things about Internet Explorer.
  • I’m a former developer, and so I’m predisposed to be a fan of open source projects in general, and Mozilla Firefox is a real champion of this movement.
  • Two of my close friends are part of the management team of Mozilla.

But, I just had one of those moments – those rare bad moments that distinguish a great product from the merely good enough.

Here I am, writing a post for my blog that requires dozens of links. I’ve carefully opened them all in tabs, so I can paste them in, one-by-one.

I’m using Mozilla Firefox 2.0 Beta 2. Using Beta software is always risky – things happen. In this case, things did happen.

The browser quit, unexpectedly. Not unlike other browsers, like IE & Safari, which seem to quit randomly on a weekly basis.

I fire Firefox back up, dreading the over 45 minutes of lost work… and then I see a dialog. Do you want to restore your session, or start a new one? Apparently, your last session closed unexpectedly.

AMAZING. All my tabs are there. And, with a nod to, an auto-save of my blog post to boot.

WHAM. No work lost. No time lost. Back in the saddle, without a minute to spare.

So, to Michael Schroepfer, John Lilly, and the rest of the Mozilla team, hats off to you. Mozilla Firefox 2.0 is a great product.

Key Links:

Search vs. Comments: What Posts do People Like?

It has been a little over two weeks since I began this blog, and I thought now might be a good time to reflect a bit on which posts people have liked the most, and what type of posts I should concentrate on going forward.

I have to admit, the first question is really,

“How can you tell what people like?”

Interestingly, I have already found two measures.

The first measure would be based on which posts have drawn the most comments and/or trackback links.

Based on this measure, the favorite posts to date have been:

  1. Pluto is a Planet (2)
  2. Scott Kleper & SpotDJ (2)
  3. Behavioral Finance, Anchoring & eBay Auction Starting Prices (1)
  4. Google, Apple & EBM (Everyone But Microsoft) (1)
  5. Apple Updates: Mac Mini & 24″ iMacs (1)

The second measure I’ve been examining has been page views, with insight added based on which Google search terms people have used to find my posts in the last 7 days.

  1. Dream Machine: Tivo Series 3 Available In September (27)
  2. Scott Kleper & SpotDJ (11)
  3. Behavioral Finance, Anchoring & eBay (9)
  4. eBay Express TV Campaign Launches (8)
  5. Pluto is a Planet (7)

This is fascinating to me. I can already see the dynamic that many bloggers have discussed, which is that over time, page views keep accumulating to old posts, even as you add new posts daily.

As a special tidbit, here are the top search terms that people have accessed before reaching my blog yesterday:

  1. tivo series 3
  2. jason steinhorn ebay guide
  3. ebay express tv ads
  4. series 3 tivo
  5. ebay express television ads
  6. best buy Tivo Series 3
  7. psychohistory asimov

As a Product Manager for one of the largest websites in the world, I am very used to looking at various forms of site measurement. But there is something very different and very personal about seeing this information about my own blog.

I’m not sure what it is, but it’s almost like seeing my own thoughts from the outside – the way that the rest of the world finds interest in what I’ve written.

Anyway, after just two weeks, here are my initial thoughts on the information provided above:

  1. Timely information is valuable. The Pluto post was hot the week that it was in the news. Tivo Series 3 is getting close, and is really spiking in traffic. Apple news is hot.  And what could be hotter than eBay Express?
  2. When your readers are your friends, mentioning your friends gets you hits and trackbacks. It’s cheating, but it’s nice to see that it works as predicted.
  3. What people comment on is not the same as what they read. Clearly, there is passion out there for topics, like Pluto, Apple, Google & eBay. However, no comments on the Tivo Series 3 posts, but lots of hits.  Alternatively, I’ve had quite a few people email me personally about the article on starting prices.  It’s really motivational to get that kind of feedback.

I continue to be excited about this blogging experiment.  I’ll continue to share more insights as I have them about this experience.

eBay Express TV Campaign Launches

This is my personal blog, so as a rule, I try to avoid posting too much about anything resembling work. However, it’s no secret that I currently work as a Director of Product Management at eBay.

One of the most significant achievements of my career has been the work over the past 18 months bringing to life a whole new e-commerce site and business for eBay – eBay Express. eBay Express is a new site from eBay which allows buyers to quickly and easily shop the incredibly large selection of brand new, fixed-price items for sale on eBay, exclusively from experienced merchants.

eBay Express

I may post at a later time about some of the great things that I learned from the process of launching site of the technical and business scale of eBay Express, but for now I just want to highlight a milestone for the site – our first TV advertising campaign.

eBay is releasing 22 commercials – all based on the same theme, but all unique. They are all available for viewing on a special website:

You will definitely see the spots on network television in the upcoming weeks. Look for it on popular season premieres and sports broadcasts.

It’s a funny feeling to see something that began as just a few people in a room with a whiteboard and laptops turn into something on national television. Amazing, really. I feel truly privileged to be a part of it, and to help bring this new site to the eBay Community and to the world of e-commerce.

So, check it out, and tell a friend. Buy something on eBay Express. Let me know what you think.

Apple Updates: Mac Mini & 24″ iMacs

I think I was somehow programmed to be an Apple fan. It starts somewhere in grade school, when I learned to use computers on Apple ][s, and suffered through the pain of explaining to my father that a Franklin 128 was not the same thing as an Apple ][e. In high school, I rediscovered Macs, and even borrowed a Mac Plus from my Uncle to write my college applications.

People who know me know that I could probably talk forever about the past, present & future of Apple – company, people, products. So, in general, I’m really working hard not to post too frequently about Apple on this blog.

However, I thought I’d note as a public service announcement of sorts that Apple has updated some of its key consumer machines. The Mac Mini, which is at fairly awesome price points of $599 and $799, has been upgraded with faster processors. This is still a bit of an under-appreciated machine. The resale value for them on eBay is amazing, even a year later, so it’s almost free to get one of these, buy a very nice monitor, and then upgrade it annually by selling the old on on eBay.

More importantly, the Mac Mini has a gorgeous & minimal industrial design, and many people are finding that with a wireless keyboard & mouse and a Plasma TV, this machine can just as easily live in your living room as your office.

Apple also has rolled out improvements to the iMac line, with a new 24″ model.

Apple iMacs

You have to hand it to Apple – a lot of doubters truly believed that the only reason Apple was able to ship gorgeous designs was because it was working off of an entirely proprietary platform. The amazingly rapid integration of standard components and Intel chipsets into the entire Mac line have really set the bar for what is possible for Intel-based PCs.

With the recent launch of the Mac Pro, I have had more pings in the last 3 months about people buying a Mac for the first time than I had in the entirety of the 1990s.

Great machines, great software, great prices. As a “product guy”, it’s hard not to be impressed.