The Cost of Making Judgements

Most people probably know this feeling: a movie makes hundreds of millions of dollars at the box office, even though you did not like it; a painting sells for a record amount at auction, but you cannot tell much of a difference between it and its contemporaries; radio stations keep playing the same five songs even though there are plenty of others that are just as good (if not better); something becomes popular and you just don’t get it.

It is easy to make this complicated, to assume that there must be something in the subtleties of the popular thing that make it better, to think that if you spent enough time analyzing the issue you could figure out what it is. In the absence of the motivation for that, it is also easy to make it simple, by assuming that it is really everyone else that just doesn’t get it. Although there is some merit to the idea that there is something different about popular things (of course the content of art matters a certain amount), there is also an economic component to popularity: transaction costs.

Making perfectly informed judgements is expensive. There can be a nearly infinite number of options, each of which must be thoroughly investigated and assessed in comparison with all the others. The time costs can quickly become extremely high, and in many cases there are monetary costs as well (if, for example, you have to travel to reach and investigate the various options).

Sometimes, these costs can be worth it. For example, when buying a car the benefit of researching options by visiting various dealerships or going for test drives may outweigh the costs (both monetary and time) of these activities.  

Other times, however, people may decide that the costs are not worth it. With media and art, for example, the benefits from an experience can vary wildly from person to person. How much does it really matter if you have investigated every possible song in order to determine that your favorite is the best there is? For some people it matters a lot, and those people may spend large amounts of time and money on music investigation and discovery. For other people it matters very little. Those people do not necessarily dislike music as a whole, but the cost of going looking for music is too high to justify the search; they prefer to let somebody else (probably the DJ at a radio station) decide what is good.

In this way, making judgements about media and art is like a bargaining process. There are defaults (whatever is popular), which can be accepted (if the utility gained from the default is greater than the utility from the next best alternative minus the search costs of finding it) or bargained around (if the opposite is true).

This is not to say, however, that popular things cannot be good or that good things cannot be popular (transaction costs are not the only component in determining popularity), only that it is not always the case that both of those are true. Working with all of the facts is costly.

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