"Nobody Knows Anything" Part XXV

David Card | July 02, 2006, 05:46 PM

An amusing if completely unconvincing long article in the LA Times buries Hollywood in chaos theory. The author, a science writer, seems to ignores at least two examples of consistent success: the US studio system of the first half of the 20th century (even though he makes a casual reference to it, attaching its success to vertical integration) and Disney during Eisner's first decade.

Oddly enough, the information cascade bit might be actionable, and Harvard MBA Frank Biondi's failures at Universal (betting only on big-budget "impact movies") are enlightening.

The leading advocate of the second, more radical school of thought is Arthur De Vany, recently retired professor of economics and a member of the Institute for Mathematical Behavioral Sciences at UC Irvine. De Vany likes to illustrate the oddities of the film business by comparing films to breakfast cereal. If breakfast cereals were like films, he says, each time we visited the store we would find a large selection of new cereals, and only a few brands that survived from our last trip. Most of these cereals would languish unnoticed, but crowds would gather at certain parts of the aisle, scooping up the popular brands. And yet, within a few weeks, or at most months, even those popular brands would vanish from the shelves. And so our typical cereal breakfast would consist of a product we had never before tried, and very well might not like, but bought because we heard about it from friends or read of it in the newspaper cereal section.

That's precisely how films behave in the marketplace. If we hear good things, we go and perhaps tell others; if we hear bad things, we stay away. It's that process—the way consumers learn from others about the expected quality of the product—that De Vany found is the key to the odd behavior of the film business today. Economists call it an "information cascade."

"People's behavior is simple," De Vany.

But it's about nourishing the cascade, not trying to game it.