Governments, Private Organizations, and Sunk Costs

Over the last few days, I have become embroiled in a controversy within the Society for Creative Anachronism, a historical recreation group of which I have been a reasonably active part for about forty years; an earlier post mentioned it. The people running the SCA's largest event, a two week camping event with about ten thousand participants, announced without prior discussion a new rule for the event that many active participants, myself among them, saw as catastrophically bad. In response to an extensive online outcry they somewhat modified the rule, while making it clear that they were not willing either to explain and discuss their reasons or to suspend the rule for this year—the event starts in a few weeks—and discuss it for next. The controversy is still ongoing, and what the final outcome will be is as yet unclear.

Reading the news today, I noticed a story on the outcome of a similar case in a different context—one I am also involved in. Blizzard, which runs (among other things) World of Warcraft, had announced that in the future people posting to its online forums would have to provide their real names. That too set off a firestorm of negative reaction. In that case, it worked—Blizzard has just announced that it is canceling the change.

In each of these cases, one group of people—Pennsic staff or Blizzard—is making a decision which will have a large effect, arguably negative, on a very large number of other people. In each case, those affected have no formal right to a say in the decision. But in each case, the people affected have informal ways of both expressing their views and putting some pressure on those making the decision. Blizzard does not want to lose customers, and the people running Pennsic are long term SCA members who, if nothing else, do not want to be viewed by their fellow hobbyists as arrogant and incompetent. As one person in the discussion put it:

... in the Society, real wealth is the ability to say "I have an idea" and have people agree to work to support it. The rarest coin of the realm is when other people give you chunks of their leisure time.

...

Losing the confidence that others have in you, that you can make things fun for them, is SCA Bankruptcy.

The obvious analogy is to governments, which make decisions for other people on a much larger scale. In theory, democracy lets the people affected control things, but it is a very imperfect form of control for familiar reasons. Governments are in that position because they can use force to make people obey them. Blizzard and the Pennsic staff are in that position because the affected people have spent a lot of time and effort doing things within the framework of the game or the Society, and so cannot vote with their feet without, in effect, throwing away much of what that time and effort has bought them. In the jargon of economics, they have large sunk costs.

The analogy raises an obvious question. Would it be better if Blizzard and the SCA followed the democratic model, with participants voting to decide who was in a position to make decisions? It is an option that some people have proposed, and argued for, in both contexts.

On the whole, it does not strike me as a good idea. For a polity with a substantial population—tens of thousands for the SCA, millions for Blizzard—democracy works poorly, for reasons familiar in public choice theory. The alternative, a mix of social pressure and market pressure, is probably a less bad solution, even though the market pressure is seriously weakened by the sunk cost problem. One piece of evidence that it is a better solution in the view of those directly affected is that Blizzard does not have a successful competitor that attracts customers by giving them a vote over how the game is run.

In both cases there is a third alternative—moving the relevant parts of what people are doing out of the control of those who, in many people's view, are controlling them badly. Players of World of Warcraft can, and do, set up their own web sites with their own forums. If Blizzard had maintained its policy, more, perhaps in time most, of the online discussions would have moved to such forums. The Pennsic staff controls the classes they run. But if my objection to the new rule is sufficiently strong, I have the option of cancelling the classes I had planned to teach within the Pennsic University and reconstituting them elsewhere, ideally in a private encampment near the places where they were originally scheduled. It is an option that, at this point, I am seriously considering.

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P.S. The Pennsic staff, under pressure, withdrew the controversial rule, explaining that other SCA people had volunteered solutions to the problems that had required to it. The statement contained no suggestion that the rule had been a mistake. The policies that were supposed to substitute for it included one that had been effect for years, another targeted at a problem that had little to do with the original rule, and a third dealing with a rare problem for which there were easier solutions.

The classic definition of chutzpah is the man who, after killing his mother and father, asks the court for mercy on the grounds that he is an orphan. Publicly thanking people for offering solutions to a problem after publicly announcing your unwillingness to tell them what the problem is comes close.