prior probability

This semester, we are using the founding of Facebook, as depicted in the book “The Accidental Billionaires” and the film “The Social Network,” as an in-depth case study to learn about business law and ethics. Lesson 1 of the course will focus on Facemash. In brief, before he started Facebook, Harvard sophomore Mark Zuckerburg decided to start Facemash. For those of you who haven’t read the book or seen the movie yet, Facemash presented the user with two randomly selected pictures of Harvard students–Harvard I.D. photos that Zuckerberg had downloaded on his dorm room computer without formal authorization–and then let the user vote on which one was “hotter.” (You can read more about this infamous incident here.) So, here is the question we will address in Lesson 1: Did Mark Zuckerberg breach any legal or moral duties or violate any laws when he created Facemash?

Dear colleagues,

We are now in the process of writing up a short paper on the subject of “Law & Strategy,” but in the meantime, we would like to share some of our tentative thoughts about this subject. First, we want to lay our cards on the table (or our “priors,” if you prefer). Because of our background in game theory and formal mathematical modelling, we use the word “strategy” differently from the way you and your business law colleagues use the word. Nevertheless, though we generally detest buzzwords, we found the framework of the legal pathways you and your colleagues have developed to be very helpful and illuminating.

With that said, however, here is how we would look at the relation between law and strategy. To begin with, we see business competition as a “game”—i.e. a strategic situation involving two or more players in which the outcome of the game depends on the choices (i.e. “strategies” in the game-theory sense of the word) made by each of the players. Furthermore, one of the key aspects of this game (business competition) are the “rules of the game”—i.e. what moves are legally permissible or not? By focusing on business as a game with rules, we see “strategy” in a different light—as a way in which the game is played. Thus, from a legal perspective, there are at least three ways a firm can play the “business competition game”:

1. A firm can  play the game within the rules (cf. your compliance pathway).

2. It can try to manipulate those rules to its advantage (i.e. exploiting loopholes in the rules).

3. Or it can try to change the rules of the game (through lobbying or litigation or other means, such as bribery).

Of course, in reality, most firms will use some combination or mix of strategies, but here we are simplifying and working at a high level of generality in order to paint a picture of firm behavior.

Your colleague,

Prior Probability

Recently, we interrupted our summer vacation to attend a talk by the “critical” scholar Yves Gendron, who presented his 2013 paper “Rethinking the concept of the research contribution.” His paper is very thoughtful and well written, but his conclusions are banal and unoriginal. In brief, he concludes that what counts as a contribution in a given field is socially constructed, that “the concept of contribution is unstable, ambiguous, contradictory and relative” (p. 15). To this, however, we respond: so what? Even if all research in a given field is “social constructed,” who cares? What we really should be asking is whether a piece of socially-constructed research is good or bad. To this deeper question, Professor Gendron and his social constructivist colleagues still offer us no meaningful or “reflexive” answer …

We interrupt our regularly scheduled vacation because it has come to our attention that the University of Florida (UF) wants to chop down one of the oldest trees in the State (pictured above) in order to build a new engineering building. (You can read about this egregious plan here.) Why can’t the engineers at UF move their building somewhere else, or better yet, why can’t they design a new building around, above, or below this tree? Where is the Gator Nation?

In game theory, a strategy refers to a move in a well-defined game (i.e. an interactive situation with rules). In business law, however, “strategy” is a fuzzy term with no precise meaning … We attended a scholarly panel on “Law & Strategy” last Monday during the annual meeting of Academy of Legal Studies in Business (ALSB), a panel featuring the giants of this field, and frankly, we were not impressed. Unlike game theorists, business law professors have an imprecise and vague (and thus untestable) notion of legal strategy. They talk about “competitive advantage” and “proactive law” and other warm and fuzzy buzzwords when what they really mean is the use of law by business firms to exploit legal loopholes or extract economic rents. Moreover, we generally dislike such business law buzzwords and winced during most of the panel.

prior probability will be on “vacation-mode” during the month of August. We will thus be blogging sporadically during our summer vacation.

Check it out here. (Hat tip: kottke.)