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Index Wallets Research Progress

May

Reminder: our goal is to show that index wallets don’t work — we’ve documented our assumptions and the ways we could find out that we’re wrong
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We’re trying to invalidate this because if index wallets really do what they say on the tin then we are making an audacious claim: that there are ways to fund public goods through market dynamics.
There are three ways we could find out that we’re wrong:
A) it could be that Connor is just bad at math, and he has somehow tricked himself. To address this we’re bringing in real knowledgable economists to think about the mechanism in their own way and find their own answers using simple mathematical models; this is what we mean by theory work.
B) Ok, maybe the math works, but maybe the math is insufficient to understand a full economy and the team’s mental models of index wallets in an economy are wrong. Maybe even a simple simulation of an economy with index wallets players would show that things break in all the ways we don’t want them to. Let’s try running a simplified economy on a computer where everyone pays with index wallets. This is what we mean by simulation work.
C) Ok fine, the math works and when we simulate simple economies with rational actors it seems to behave properly. But humans are not rational actors and index wallets are a complex concept, no one is going to be able to use these, and they’re certainly not going to behave in the ways you predict they would. If you want to know how humans will behave, at least get this in front of humans in a game and see how they respond. This is what we mean by experiment work.
If we’ve tried A, B, and C and we’re still left with a sense of optimism that it’s worth pursuing, then we can go ahead with taking the steps to build it. Some people have asked why we’re taking this approach instead of just building the thing and getting people to adopt it. This is a good question. The answer is twofold: 1) you should try to minimize risk and ambiguity at the lowest possible cost. This is the lowest cost way to find out we’re wrong. Just building a simple real world implementation, not to mention user research and user interface design could easily require the attention of three ftes for 6 months. This way with just a fraction of the attention of some really talented people we can potentially avoid all that expenditure entirely. 2) In order for us to get adoption we’ll have to tell a story about why people should use it, that’s hard to do if we’re just saying, “We think it might have interesting results.” It’s much easier to do by saying, “Here’s why we think this is likely to work..” and we can only do that if we have first studied the protocol in as unbiased a way as possible.

Summary of results:
Theory work
on the Colton-Philip team we aligned on a competition model called delta-Bertrand, key idea is that customers switch if the price gap between two vendors is large enough, otherwise if they have close enough prices they split the profit (avoids weirdness often found with infinitesimal customer switching)
both Colton and Philip, and Joel independently find that, yes, if vendors and customers receive some value from a public good and there’s competition then with index wallets those public goods get funded more than they would without index wallets.
We find that the model might not work if it’s only customers that benefit from the public good. It seems to be required that the vendor also benefits from the public good in order to push the valuation (q) of that token above 0 (this is assuming there’s not already a market price for the token. This could be an invalidation ​
image.png
In our work so far, we’re comparing these mechanisms to the base case of people paying with traditional scalar money. But Raf Kaufmann makes a great point that this is a poor base case to compare to. Instead, we should compare with a rebate / community currencies model, where vendors are able to accept tokens as a way of giving players a discount, you can read more about this at the bottom of the page.
It seems that both vendors and customers have an incentive to maintain independent wallets, this is what we call “wallet segregation”. Wallet segregation is a problem because it means that in order to play optimally, a player has to maintain multiple wallets and strategically pay out of them so as to avoid the costs of e.g. paying with a currency someone doesn’t like.

Simulation work
Brendan comes on starting on Wednesday to pick up the simulation work

Experiment work
Julian has finalized an experiment game design
And a simple deck to explain the rules
This means Volky can start building the game (we’ll have a version of the wallet interface ready by June 15th), and Will and Lauren will provide suggestions on human centered design testing.


Docs:

Last month we said this:
Colton and Philip showed that even under assumptions of monopolistic vendors and selfish actors, where dollars are the only thing that vendors want to receive (three fairly stringent assumptions), there was still a way for the vendor to set a valuation > 0 for a donation token (thereby causing people to effectively donate to it) without taking a loss
Almost immediately after the email went out Colton showed that with a more realistic definition of “valuation > 0” it wasn’t reasonable to say that there were > 0 valuations.

Duopoly



Colton shows that compared to traditional money, index wallets do seem to show that more people donate
Colton shows that compared to traditional money, index wallets don’t show that people donate when only customers have a benefit

Colton shows donation and valuations are positive under competition

Wallet segregation

Joel




Our agenda:
monopoly player ✓
duopoly (delta Bertrand) ✓
customer benefit from public good ✓
influence effects (vendor changing valuation causes contagion) (out of scope, we’ll do this as network dynamics)
wealth effects (out of scope)
token conversion vs index wallets ✓
wallet segregation ✓
customers benefiting independent from vendor and with some coordination ✓
percent starting tokens ×
how does this compare to, “if you donate you get a discount” model ✓
proposal for model for
multiple tokens (equilibrium valuation)
emission model
people pre-endowed with currencies
monopoly deterrence (stretch goal)
Open question:
yes, participants continue to transact in this model, but:
if we increase the number of new tokens, does that change anything?
if we have multiple locales with different tokens, do those locales transact?


Raf offered a really good criticism of index wallets: can’t you get the same public good funding behavior by just allowing businesses to set exchange rates for “rebate tokens”, which they could then pass off to other vendors, and that this could work without having to immutably bundle the tokens into an index wallets vector.
We’re putting together a model of this, but we bet at the moment that they’ll be identical in the math, but that in a full economy we’ll see that index wallets permit easier adoption (larger q) than the rebate model. The two active ingredients are assumed to be: 1) vendors have to worry less about getting paid in only the rebate token 2) customers with index wallets will have higher purchasing power than rebate model, because index wallets have easier pass off

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