A. Leff, Swindling and Selling (continued)

• So what are the functional parts of the Spanish Prisoner?
  • Spanish prisoner con is simple and has only a few working parts.
  • On the con side, there is the prison. In some instances, the conman can be the jailer: the classic 419 scam. (You receive an email from a jailer from XYZ who has legal custody of sum of money because somebody recently died, and the jailer is faithless and therefore is willing to share it with you if you send him your bank account details.) Prisoner con works because jailer is faithless, he is prepared to let prisoner out if you share with him.
  • Secrecy. There has to be a restricted set of donors/marks. Because there has to be a way to explain why, when the prisoner is free, you're going to get more than a mere pro rata share of the distribution of the population's goodness.
  • There has to be inflation of the value of the mark's contribution. He is in a specially valued position with respect to the prisoner.
• Econodwarf thinks that the purpose of whole maneuver is to cause an evaluation problem in the mark. It is to overwhelm his pricing model. Mark thinks he is making rational decision to participate; a decision which but for the well argued/well reasoned contributions to his pricing model made by conman, he would not do. Econodwarf says that you have to incentivize the mark. Eben says this theory of econodwarf is wrong, just BS.
  • This has nothing to do with incentives. It is not because mark is rational human being whose pricing model is altered.
  • Evidence: The whole need for cooling out is proof. Conman plays the game on mark, takes his money, yet 9 times out of 10, mark wants to come back and play again. Econodwarf's theory doesn't explain this behavior.
  • Leff's theory: the mark has invested; he has identity management in game; he became somebody. Mark doesn't just go in with money, he goes in with who he is.
• Q: It appears that elderly are particularly susceptible to email scams. . . it might be because the prospect of death that causes them to reflect back on their lives.
  • Eben: it might be loneliness. This is what conman will tell you. It is not because they are crazy, decrepit, or near death. No one talks to them, they don't get much dignity. The conman is attending to their dignity. When someone acts as if they are interested in them, the elderly invest identity in it. The elderly are trading money for attention.
  • This is not a defect in the elderly. This results from all the ordinary frailties of being human. We all have an identity to manage. Unlike the econodwarf, we have a complex unconscious.
• If we look at spot where supply and demand cross, it is almost like an economic free zone. It is not so simple to explain in terms of incentives.
• People have many reasons for why it is more efficient to shop at Walmart, to pay a set price, rather than bargain. But this is not so if your identity management practices rely on how you buy instead of what you have. Americans do identity management through consumption.
• The poor bargain because they know the value of money. The rich would rather pay the price because they claim to know the value of time. But Leff would say that everybody is always engaging in a play. Sometimes it is a sale, sometimes a con; but it is the manipulation of the same basic parts.
• How does the seller (as opposed to the swindler) inflate the values of the buyer? How does it happen in the bazaar?
  • He pretends to lose the game of bargaining, thus inflating the identity management of the buyer. This is confetti. In the end, the seller makes a profit.
• Why were there so many stories about Abraham Lincoln being a good horse trader in 19th century?
  • part of the identity management system of candidates in the 19th century 'West' was to be a good haggler.
• So, if in the marketplace bargaining area, the identity management needs of the buyer are met by the seller offering a win in bargaining. How in the one price, mass consumption world is the buyer offered identity management by the seller?
  • Syms stores: advertising is "At Syms, an educated consumer is our best customer." Because the more knowledgeable you are, the more you will appreciate the discounts on men's suiting.
  • This is identity management. You're an informed consumer if you shop at Syms. A smart person buys their suits at Syms because they get a good deal.
• Q: How do you explain situation where the more expensive the good is, the more demand goes up for that good?
  • These are goods with an upward-sloping demand curve. These are special goods, an exception. Is Eben referring to Giffen good? Luxury goods like perfume may depict this property. People can chemically signal to the world how rich they are via expensive perfume. This is valuable and rich people pay alot for this, it is necessary because all economics is about race.
• Psst Buddy is better played with what type of goods?
  • Goods are that highly marked up and goods that you give to someone else.
  • The thing is suppose to declare its value, and any risk of deception will be at the risk of the recipient.
• If law school offered a class on Deals, you assume that means well groomed white boys in suits selling one another companies they don't actually own using hand gestures instead of money, and backing it with long meaningless documents just in case. A class called Deals should be about how toasters are sold. This would be an interesting question.
• Why is contracts course about something other than Psst Buddy? Is that not contracting? How do you tell the difference between con games and contracts?
  • If Yahoo shareholders sold Yahoo to Microsoft for $31 billion, no one would say Steve Ballmer was conned by Jerry Yang. So why is this a contract and not a con?
  • If there is an illusion of perfect information, it is a contract and not a con? Any risks were disclosed and the parties were knowledgeable?
  • Even if there was imperfect information and Jerry Yang was hiding something, Microsoft should not have bought given what they already knew. Is it necessary to prove that Bush didn't think there were weapons of mass destruction in Iraq to say that it was a bad idea to go and start a war over there?
  • Even if you regarded contract and con as exclusive categories, you will watch as ordinary human activity crosses back and forth, from moment to moment, person to person, and transaction to transaction, being sometimes one and sometimes the other.
• "Spanish Prisoner is Billy Budd of bunco." What does Leff mean?
  • Billy Budd is a story about a very clear left-right, black-white, opposition of Billy and Captain Vere. There is a nice clean classical structure; it is stripped down to the simplest.
  • Likewise, the Spanish Prisoner is the simplest, most elegant, fewest moving parts version of what can be made very complicated.
  • The problem is, organizationally, as you add more elements, more people and more backstory, as you stop playing against the wall, it is less easy to define brightly the elements which cause concern.
• What would Leff say is the archetype of the sale (as opposed to the con)? The Squaresville Pitch.
• What are the elements of Squaresville Pitch?
  • It is just an ordinary sale. How does it work? If the prisoner says I have a source of wealth from coercion, and you have the key to open the lock, wealth will be shared with you, what does Squaresville say? It works by saying: I have a simple market advantage, there is consumer surplus if you trade with me at the equilibrium price. Because of 'something', I can offer you a slightly better deal than the other guy. There will be consumer surplus and I will have some economic profit.
• What are the variants of the Squaresville Pitch?
  • Seller's Misfortune version.
    • The clearance sale: I bought too many, I have to clear out my inventory, I had a misfortune, you benefit. Other misfortunes include 'loss my lease' sale.
    • At a clearance sale, the buyer gets identity management. He is an informed, smart consumer who got a good deal.
    • If you want to find a 'going out of business' sale that's been going on for 20 years, where do you look? On Manhattan; Electronics retailers on 5th avenue, north of 42nd street. Why? Because of tourists. Maximize the traffic of people who don't know that the 'going out of business' sale has been going on for 20 years. The commercial beggar is a con, but the 20 year 'going out of business' sale is not.
  • Geographical good fortune: bottled water. Seller says "we have clean water here, we have special geographic access to good water." The purpose is to con people into thinking that it is better to buy bottled water than to drink out of the tap. This is legal; as long as they don't label it organic. Labeling law is very bright line oriented.
  • Unique geographical disadvantage: Fair Trade goods. Does it matter how much money actually makes it back to artisan peasants? If, only 1% makes it back to peasant artisans, we would all agree this is a con. If 100% makes it back to peasants, it would be a great international story of globalization, increasing human capital and lifting people out of poverty. At 50%, what is it? All these bright line rules is just hopefulness, whistling in a graveyard.
• Online shopping:
  • The internet retailer can know exactly what type of buyer you are, your purchasing behavior, and what you are willing to pay by buying your information from Doubleclick. If you walk into a B&M store and clerks race in front of you down the aisle re-pricing merchandise, you would say it is a con. If an internet retailer does the same thing, you won't even know it. Is it a con?
  • If imperfect information is what generates the con, can you be conned because somebody has information about you that they don't disclose to you? Is it a con that they know you better than you know yourself?
  • It would be a con because it is a fraud. But, it is not a con because it is a service. They sold at the equilibrium price and maximized everyone's value, you got the good and they got the best price which is the price you would have paid anyway.