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Tuesday, May 31, 2016

Adult Colouring Books Remind us that Innovation lies outside economics [feedly]

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Adult Colouring Books Remind us that Innovation lies outside economics
// Digitopoly

We don't speak of it very often but economists face a fundamental challenge with respect to innovation: if innovation is something no one has anticipated, then the (Savage) axoims upon which we base our rational choice decision-making cannot apply.

Let me explain. Decision-making is all about actions and their consequences. Leonard Savage created the framework by which economics deals with this by assuming that all agents 'look before they leap.' That is, an agent would choose amongst actions available taking into account all possible states of the world and the consequences in each state. This requires agents to have complete knowledge of the state-action space.

Savage himself thought this assumption was heroic and basically could not be justified by anything he had seen regarding human capabilities. Instead, he saw that people would more likely pursue a 'cross that bridge when you come to it' rule to examine what happens over a smaller set of states and then plan things out. Savage, however, did not know how to do it. He wrote:

I am unable to formulate criteria for selecting these small worlds and indeed believe that their selection may be a matter of judgment and experience about which it is impossible to enanciate complete and sharply defined general principles. Savage, The Foundations of Statistics, 1972, p.16)

Indeed, in a paper I published in 1996, I argued that Savage couldn't do this because it was, in fact, impossible.

Savage was emphasizing computational complexity and essentially making a point that rationality is bounded. But when it comes to innovation — which could be conceived of as coming up with an entirely new state of the world — it is fundamentally impossible to plan everything out. Everyone is forced to cross that bridge when they come to it.

In this situation, we can be surprised when something like the iPhone comes out or CRISPR or what have you. We change our outlook for the future. We recalibrate and that is it. To be sure, many would like to have planned out for the possibility earlier but the world seems to move on. These things represent the system working with epochal pockets to break up the monotony.

But the very same issue — that not all states can be conceived of and planned for — necessarily means that sometimes innovations come to the market at times that seem random. We can trace the set of innovations that needed to proceed the iPhone and rationalise why 2007 was its time. But there are other innovations for which it seems surprising they happened when they did. Why now and not years earlier.

And so we arrive at the adult colouring book. In 2015, three of the best selling books of the year were adult colouring books. In Canada it was 5 of the top 10 including the top 2. These sell for around $10.00 and have complex designs that would be challenging for a kid to colour between the lines. They are highly rated and sometimes seen as challenging and sometimes as relaxing.

Near as I can tell (and I'll admit my research methodology is weak on effort), the idea for adult colouring books came from an illustrator, Johanna Basford. She convinced a British publisher to commission her idea — a book called Secret Garden — and since then it has sold over 2 million copies. There were others that launched around the same time in different countries. It appears to be a situation following the theory of multiples where a few people have the same idea at the same time. That suggests a common cause but it is hard to identify it. The New Yorker speculated it was about adults returning to their youth. But again: why now?

A natural theory is that it may have been an accident. Ask any economist who heard about the adult colouring book idea before it was done and they would likely have said that it wouldn't work because it would be imitated and the art wouldn't be worth much. Basford has proven that incorrect and seems to be doing just fine. The same is true for initial pioneers but their run may be for a few years but that would be enough to justify any initial investment.

The idea of colouring books for adults was around earlier. Apparently, there were some subversively themed ones in the 1960s (when else). But these ones seem to be a sort of art phase. They are relaxing, easy to learn and can be done while doing other things. To be sure, they had to be designed which is why people weren't using children's colouring books for these things. But once they were, there was a compelling market. An immediate "I could use that" notion for some people.

And as with such things, they also become "X could use that" and they are a safe gift. They are marketed at adults, look pretty and for that reason are a very safe gift. They won't offend anyone and no one will be hurt if they come by a year later and see an uncoloured book on the shelf. In some sense, this is the 'Pet Rock' of our era except that they can be tailored, branded and customised to taste.

Finally, and I would be remiss as an economist not to mention this, as a physical book category they are likely to be robust to the two big challenges of that industry: second hand sales and digitization. Once coloured, they can't be resold. And we are yet at a point where an iPad version (and you should know they exist) is going to substitute for either the use-value or the gift-value of these things.

My point is this: the fact that prior to 2011, no one saw this business opportunity and after that point it was completely obvious, is basically the same innovation event as occurred with the iPhone. It could have happened a decade, two decades or more earlier. It did not simply because no one thought about it who had the confidence to design it and take it to market. And that tells us, as economists, that there can be $100 bills or $10 million dollar bills casually lying on the sidewalk in a state we have not conceived.

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