Featured Thought Merchant: Hernando de Soto

". . . Hernando de Soto is a Peruvian economist known for his work on the informal economy, or economic activity that is neither taxed nor monitored by a government. De Soto argues that an important characteristic of capitalism is the functioning state protection of property rights in a formal property system where ownership and transactions are clearly recorded. . . "

Interview with Hernando de Soto:

“. . . Capitalism is essentially the economic system of poor people. That's what allowed the people that came from humble origins of the world to have economic rights the way only nobility and the high bourgeoisie had it before. So capitalism is essentially a tool for poor people to prosper. . . The constituency of capitalism has always been poor people that are outside the system. That's the way it worked in the United States. That was the basis of the libertarian or liberal democratic revolution that occurred in Western Europe. I don't know why it is that everybody expects that when you go and you talk to rich people throughout Latin America or Asia or the Middle East you are in touch with people who have the same libertarian principles that you do. You don't. The real constituency is below, and until the people who consider themselves real capitalists realize that they're not real capitalists, they're talking about the systems of privilege that existed way before popular capitalism was in place. . . .”

Featured Thought Merchant: David Pearce

". . . David Pearce promotes the abolition of suffering in all sentient life. He argues that the abolition of suffering can be accomplished through paradise engineering (The Hedonistic Imperative )

From Utopian Neuroscience:

I predict that superintelligent posthumans will be animated by gradients of bliss that are literally billions of times richer than anything biologically accessible today; but whether or not such civilisations exist beyond extremely low density branches of the universal wave function is pure conjecture. Instead, I want to raise ten objections to the indefinite amplification of well-being - and sketch out ten possible replies.

From Why Does Anything Exist?:

The quantum-mechanical wave-function of the Universe, the allegedly exhaustive formal description of the world, encodes how everything that physically can occur/exist does occur/exist with some density or other. Taken literally, this increasingly popular and deceptively "anything-goes"-sounding interpretation of the quantum formalism actually rules out all of the world's traditional cosmologies. This is because of their varying degrees of disguised internal inconsistency. At least to my negative utilitarian mind, [Universal Quantum Mechanics’s] entailment of googolplexes of hell-branches means it is horrifically more prolific in others.

Gnarles Barkley's Crazy on the Theremin

". . . The theremin is one of the earliest fully electronic musical instruments. It was invented by Russian inventor Léon Theremin in 1919, and it is unique in that it was the first musical instrument designed to be played without being touched. It consists of two radio frequency oscillators and two metal antennae. The electric signals from the theremin are amplified and sent to a loudspeaker.

The theremin is unique among musical instruments in that it is performed without being physically manipulated by the operator. The musician stands in front of the instrument and moves his or her hands in the proximity of two metal antennae. The distance from one antenna determines frequency (pitch), and the distance from the other controls amplitude (volume). Typically the right hand controls the pitch and the left controls the volume, although some performers reverse this arrangement. Additionally, some newer theremin use a volume dial and have only one antenna. . . "

Organic Economics: Regulatory Environmentalism or Market Loving Hippies?

“. . . It appears that the titans of the food industry are having their way with the USDA and the feds may soon approve a list of 38 non-organic items that may be included in foods marked "organic." All of this interesting regulatory play is inidicative of the fact that organic foods finally hit the big time, and thus became worth of Big Food's attention. We see a several different things happening here.

1. The public is becoming more concerned about the contents of its foodstuffs.
2. With more interest in organic food, Big Food decides to buy into to the industry.
3. Once bought in to the industry, making money off of the public's (perhaps legitimate) fear of the current foodsupply (that Big Food created and aggressively markets), industry immediately sought to make organic foods cheaper, more attractive, or tastier (or perhaps all three) by adding non-organic ingredients.
4. With its meaning diluted (and I'm not taking a position on whether this dilution is meaningful - whether these 38 ingredients make items more or less healthy), the term organic may slowly lose its value as an indicator that a food product is distinctively more natural.
5. This will open new opportunities for creative small food marketers to create new language signifying the concept that "organic" once conveyed. . . .” From Appropriating "Organic"
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“. . . But not everyone agrees that organic farming is better for the environment. Perhaps the most eminent critic of organic farming is Norman Borlaug, the father of the “green revolution”, winner of the Nobel peace prize and an outspoken advocate of the use of synthetic fertilisers to increase crop yields. He claims the idea that organic farming is better for the environment is “ridiculous” because organic farming produces lower yields and therefore requires more land under cultivation to produce the same amount of food. Thanks to synthetic fertilisers, Mr Borlaug points out, global cereal production tripled between 1950 and 2000, but the amount of land used increased by only 10%. Using traditional techniques such as crop rotation, compost and manure to supply the soil with nitrogen and other minerals would have required a tripling of the area under cultivation. The more intensively you farm, Mr Borlaug contends, the more room you have left for rainforest.

What of the claim that organic farming is more energy-efficient? Lord Melchett points out for example that the artificial fertiliser used in conventional farming is made using natural gas, which is “completely unsustainable”. But Anthony Trewavas, a biochemist at the University of Edinburgh, counters that organic farming actually requires more energy per tonne of food produced, because yields are lower and weeds are kept at bay by ploughing. And Mr Pollan notes that only one-fifth of the energy associated with food production across the whole food chain is consumed on the farm: the rest goes on transport and processing. . . .” From Voting with your trolley
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“. . . It appears that the FTC is moving to stop the proposed Whole Foods/Wild Oats merger. [Geoffrey Mann] would think that the triumphant entry of Wal-Mart alone into the natural and organic foods market would save this merger. But notice something important. The FTC doesn’t claim that the relevant market is the market for natural and organic food. The market is for natural and organic supermarkets. The agencies have been down this road before, mistaking channels of distribution for relevant markets. Now, in some cases, it may be that the market is defined by the merging distributors (as many would say was true in the Staples case). But because economically-relevant market definition turns on demand elasticity among consumers who are often free to purchase products from multiple distribution channels, a myopic focus on a single channel of distribution to the exclusion of others is dangerous.

In other words, there is a serious risk of conflating a “market” for business purposes with an actual antitrust-relevant market. Whole Foods and Wild Oats may view themselves as operating in a different world than Wal-Mart. But their self-characterization is largely irrelevant. What matters is whether customers who shop at Whole Foods would shop elsewhere for substitute products if Whole Food’s prices rose too much. The implicit notion that the availability of organic foods at Wal-Mart (to say nothing of pretty much every other grocery store in the US today!) exerts little or no competitive pressure on prices at Whole Foods seems facially silly. . . ." From Premium natural and organic bulls**t

Real World Transactions Using Virtual Currency

“. . . The Virtual Goods Summit is a one day conference focused on the emerging market opportunity for virtual goods and economies. Once restricted to the world of online gaming, virtual goods and currencies are beginning to influence the development of social networks, community sites, and many other new and exciting markets. . . .” From Virtual Goods Summit 2007.
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“. . . Citizens within the virtual world of Second Life will be able to teleport to an in-world pizza restaurant and order their favorite pizza from their favorite national or local pizza chain. But the magic doesn’t stop there with the use of Dynamedia is releasing VirtuReal a revolutionary way for Second Life Citizens to use their Linden Dollars to purchase real world goods. They will be able to purchase real world pizza with their in world Linden Dollars. That’s right virtual world currencies used to purchase real world food. . . .” From Pizza enters the Virtual World of Second Life.
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“. . . A couple of weeks ago it was reported (via PlayNoEvil) that China aims to restrict the trading of virtual currencies that have become popular as a payment method even for third-party services. According to the joint announcement of 14 Chinese government agencies including the Ministry of Public Security and People's Bank of China, virtual currencies should not be used to buy real commodities and can only be traded back to real money for amounts not exceeding the original purchase price, eliminating any opportunity for profits. . . .” From Government rumbles, Chinese virtual money markets stable for now. More here.

Gaming the System: Nomic Rules

“. . . Nomic is a game [Peter Suber] invented in 1982. It's a game in which changing the rules is a move. The Initial Set of rules does little more than regulate the rule-changing process. While most of its initial rules are procedural in this sense, it does have one substantive rule (on how to earn points toward winning); but this rule is deliberately boring so that players will quickly amend it to please themselves. The Initial Set of rules, some commentary by [Peter Suber], and some reflections by Douglas Hofstadter, were published in Hofstadter's "Metamagical Themas" column in Scientific American in June of 1982. It was quickly translated into many European and Asian languages. Games were regularly played, and kicked off, the ARPANET, the Defense Department network which sired the Internet. Nomic has been used to stimulate artistic creativity, simulate the circulation of money, structure group therapy sessions, train managers, and to teach public speaking, legal reasoning, and legislative drafting. Nomic games have sent ambassadors to other Nomic games, formed federations, and played Meta-Nomic. Nomic games have experienced revolution, oppressive coups, and the restoration of popular sovereignty. Above all, Nomic has been fun for thousands of players around the world. For [Peter], it was intended to illustrate and embody the thesis of my book, The Paradox of Self-Amendment, that a legal "rule of change" such as a constitutional amendment clause may apply to itself and authorize its own amendment. . .” From Nomic: A Game of Self-Amendment.

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“. . . Nomic is a game in which changing the rules is a move. In that respect it differs from almost every other game. The primary activity of Nomic is proposing changes in the rules, debating the wisdom of changing them in that way, voting on the changes, deciding what can and cannot be done afterwards, and doing it. Even this core of the game, of course, can be changed. . . .” From The Paradox of Self-Amendment. Rules available here.
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“. . . Generally, nomic games tend to lead to evolving "dynasties" in which the rules remain relatively stable, and either someone wins, or the rules change drastically, preventing someone from winning, and in either case eginning a new dynasty. Sometimes nomic games can go on forever without anyone winning, and often continue seamlessly to a new dynasty when someone does win. There are even some nomic games played as blogs or by email. The general rules of a nomic game involve getting a "vote" to change the rules, players entering the game or dying (leaving), and the possibility to earn points towards winning the game, or ways to convert points into other substances. . . .” From Nomic Games.

Policy Considerations Against Taxing Second Life Wealth

Despite its prolific number of small dollar transactions, its technological origins in the video game industry, and the initial perception that the utility derived from the activities in Second Life are somehow distinguishable from those in the real world, an analysis indicates that taxation of the wealth generated inside Second Life is proper appropriate under current U.S. tax law. [see other discussion here] Nevertheless, this article concludes with a few comments about some of the policy reasons not to tax Second Life. It also raises the most pressing issues that this paper failed to explore.

First, note that “Second Life’s grant of property rights to participants seems to have encouraged far greater experimentation and innovation than other virtual worlds. For example, one participant created a video game within the Second Life virtual world and then sold it to a real-world media company, a transaction that would be impossible in most virtual worlds.” Additional interesting and bizarre issues concerning Second Life come to light everyday. Just to list a few: John Edwards’s Second Life presidential campaign headquarters was vandalized with feces and a picture of him in blackface; a virtual riot broke out between members of the French extremist party National Front and Second Life Left Unity, a socialist and anti-capitalist user-group; reports have arisen that certain users have designed a way to override the mobility of other users and virtually rape unconsenting avatars; hundreds of companies from H&R Block and Colwell Banker to Coco-Cola and Mercedes Benz have an active business presence in Second Life; Reuters has a dedicated Second Life News center; gambling activities have become so wide-spread that the FBI is investigating the criminal activities by U.S. citizens. In essence, Second Life is allowing the public to explore the practical boundaries of a three-dimensional version on the Internet.

Perhaps most importantly is that this innovation is developing something as yet unseen in the real world or on the Internet: a viable system for micro-transfers of wealth with transaction costs approaching zero. The importance of this point cannot be overstated. The Linden Dollar has remained steadily at about L$270 per $1, so real people are activity engaging in millions of transactions that are valued as low around $0.0037. Thus far, these transactions have been secure and easy to administrate through electronic accounts where people can, in essence, deposit U.S. Dollars. From YouTube, which has announced that users will receive revenue according to the popularity of the video they post, to Google AdSense, which derives revenue on a per-click basis, the micro-commodification of the Internet is progressing to the point where society can efficiently and profitably trade in fractions of pennies. As a policy matter, the tax law should recognize the economic reality of these micro-transactions while avoiding spoiling the efficiencies created through plummeting transaction costs.

Leanda Lederman, the author of the article Stranger Then Fiction: Taxing Virtual Worlds discussed above, has suggested elsewhere that rather than including Second Life activity in the income tax, “the better result is to tax sales within Second Life (for Lindens).” While this may eventually be the best solution, it also implicates complicated issues as to whether requiring Linden Lab—a company that makes a point to take a hands-off approach—to withhold taxes from or to issue transaction records to millions of users will stunt the growth that Second Life is currently witnessing. This is an important question that merits further analysis.

Finally, and most unfortunately, this paper failed to provide a detailed analysis of how one measures basis in Second Life. Beyond the key operational limitations analyzed above, this is the next most important issue that could drastically affect how to think about the taxation of Second Life. Whether in the context of everyday users claiming hobby losses, active businesses claiming expense deduction, division of profits among in-world partnerships, or taxation of foreign businesses effectively connected to the U.S., the ability to account for basis will dictate what methods of taxation are plausible.

Regardless of these uncertainties and despite the assertions by Congress’s Joint Economic Committee that “taxing transactions that occur within virtual economies . . . would be a mistake,” it clear that it is only a matter of time before the wealth generated in Second Life (or its technological progeny) will be sufficiently great that Congress is passing virtual-world tax legislation and tax lawyers are specializing in the virtual world sections of the Internal Revenue Code. The implications this could have on currently untaxed income like frequent flyer miles and casino chip will have to be left for another paper. From The Taxation of Virtual Worlds: Understanding Theories of Taxation Through an Analysis of the Second Life Economy by Tim Miano.

Recollection Refreshed: Déjà Vu, False Memories, Witness Testimony

"The term "déjà vu" describes the experience of feeling that one has witnessed or experienced a new situation previously. The experience of déjà vu is usually accompanied by a compelling sense of familiarity, and also a sense of “eeriness,” “strangeness,” or “weirdness.” The “previous” experience is most frequently attributed to a dream, although in some cases there is a firm sense that the experience “genuinely happened” in the past."
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". . . U.S. researchers have identified the part of the brain responsible for this [déjà vu], and they think it may lead to new treatments for memory-related problems. They said neurons in a memory center of the brain called the hippocampus make a mental map of new places and experiences, then store them away for future use. But when two experiences begin to seem very much alike, these mental maps overlap and start to blur. “Deja vu occurs when this ability is challenged,” said Susumu Tonegawa, a professor of biology and neuroscience at the Massachusetts Institute of Technology in Cambridge. It is really just a malfunction in the brain’s ability to sort through new information, something called episodic memory. . . ." From Brain mechanism explains sense of déjà vu.
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"Episodic memory refers to the memory of events, times, places, associated emotions, and other conception-based knowledge in relation to an experience. Semantic and episodic memory together make up the category of declarative memory, which is one of the two major divisions in memory."
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". . . For many years researchers in cognitive neurscience have known that episodic memory does not work like a tape recorder or a computer hard drive. Recollection of events is not a simple replay from a fixed store. Rather, episodic memory (and memory in general) is today seen as a dynamic - even fragile - reconstruction process. As a consequence, errors can happen, and they do. One of these kinds of recall errors are false memories. The mere existence of false memories are serious news for the use of eye witness testimonies, even for victims of violent acts such. If memories cannot be treated as true, but are unstable, influenced by the context in which it is recalled, how can we make use of it at all. . . . "From The making of false memories.
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". . . University of Portsmouth scientists in the UK have developed a powerful new tool that ‘freezes’ the memory of crime scenes in the minds of witnesses. The tool—a self-administered interview applied by witnesses at crime scenes—combats natural memory decay by using the latest research in cognitive psychology techniques. It ‘freezes’ images and details of crime scenes and perpetrators in the minds of witnesses, particularly small and seemingly insignificant details that provide major leads for detectives that turn out to be crucial in solving cases.

Tests at simulated crimes scenes were remarkable with witnesses using the tool recalling forensically relevant information 42 percent more accurate than other witnesses who were simply asked to ‘report as much as you can remember.’ The tests also revealed the witnesses using the self-administered interview (SAI) were 44 percent more correct with details about people - therefore, possible suspects - who had been involved in the event. . . ." From Scientists Develop New Tool To 'Freeze' Crime Scene Memories.

Babble-On

Yo Hoof Caught Twas Cures Elf Wonk West Shunned Who You’ve Hillocky. Way All Dew Yup Hunk? Cleaned Eased Woo Din Door Tiara He

What is ~Efficient Happiness?

~Efficient Happiness is an approximation of a website that I have wanted to create for some time. As an avid reader, watcher, viewer of Internet media, I am constantly coming across content that I would like to share with others. Some services like Del.icio.us and Digg allow web surfers to tag and share content. Unfortunately, these services are not as expansive as I would like in two ways. First, frequently I only want to share some small part of someone’s work. Second, I want to string ideas together with a common theme using text, pictures, and video. After two years of testing other methods, I decided to just make my own website so that it would be closer to my vision.

Because "blog" connotes that I primarily intend to publish my own content, it seems inappropriate to label ~Efficient Happiness as a blog. For now, I think of it as data sets.

I try to attribute all material on this site to its original source using both title and hyperlink. In addition, I personally ping the links to all the material that I excerpt so that the host of that material will know I am using it and can contact me if they are dissatisfied with my use. At this time I receive no monetary benefit from anyone for the content herein, and despite any arguments I might have supporting fair-use under copyright law, I have a blanket policy to remove any content to which any original author/creator objects.

A few points on style. I readily admit that some of these conventions run counter to some custom that the blogosphere has adopted. But because I am trying to do something novel in form, and not just substance, some of this custom does not lend itself. I hope this explanation will help to create adequate transparency such that viewers do not assume that I am the original author. First, I have begun to use block quotes for all excerpted material. Unfortunately, this merely creates a uniform indentation in the post, which visually defeats the purpose. As such, I also include introductory and conclusory ellipses with quotation marks. Second, given the fluctuating nature of Wikipedia as a tool and its novelty as a resource, I don’t “cite” to Wikipedia by name. Instead, I hyperlink to the page from which material came. Third, because one of my primary goals is to string together content from various sources to confer common ideas, I use “---” between excerpts. Fourth, I do lightly edit and rearrange some material without using internal brackets or ellipsis as a proper editor would. I feel that this is reasonable since I use hyperlinks to the original source and not footnotes. That is, any third party who wants to formally cite any content they find on my webpage is directed to the original and, if following proper citation guidelines, would use that original material to quote the author. Thus, the risk of formally misquoting an author is minimal, while the post preserves readability for the normal user. Finally, although I rarely post my own written material, when I do, I try to cite myself as the author.

I hope you enjoy the content on this site. I am always open to comments and suggestions. By ~Tim Miano

The Spin Zone: Possible Applications of Quantum Entanglement

". . . A team of physicists has teleported data over a distance of 89 miles from the Canary Island of La Palma to the neighbouring island of Tenerife, which is 10 times further than the previous attempt at teleportation through free space. The scientists did it by exploiting the "spooky" and virtually unfathomable field of quantum entanglement - when the state of matter rather than matter itself is sent from one place to another. Tiny packets or particles of light, photons, were used to teleport information between telescopes on the two islands. The photons did it by quantum entanglement and scientists hope it will form the basis of a way of sending encrypted data.

Robert Ursin of the University of Vienna said the latest experiment in quantum entanglement shows its potential as a means of communicating sensitive information via satellites using quantum cryptography, that could effectively deploy an uncrackable security code. "We really wanted to show that this can be done in the real world and our dream is to go into space and try it there. This was a feasibility study funded by the European Space Agency," Dr Ursin said yesterday. "In principle, such experiments may in future be used for teleporting information between places, but our system is not capable of transporting matter," he said. . . ." From Breakthrough brings 'Star Trek' teleport a step closer.
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". . . Quantum entanglement is a quantum mechanical phenomenon in which the quantum states of two or more objects have to be described with reference to each other, even though the individual objects may be spatially separated. This leads to correlations between observable physical properties of the systems. For example, it is possible to prepare two particles in a single quantum state such that when one is observed to be spin-up, the other one will always be observed to be spin-down and vice versa, this despite the fact that it is impossible to predict, according to quantum mechanics, which set of measurements will be observed. As a result, measurements performed on one system seem to be instantaneously influencing other systems entangled with it. . . ."
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". . . In a proposed effort to concoct the ultimate omniscient radar, Lockheed Martin is suggesting that it can break the boundaries of theoretical physics and create a "quantum entanglement" scanner that can "penetrate any type of defense to identify hidden weapons and roadside bombs from hundreds of miles away." The theory -- which hasn't been realized in a product just yet -- suggests that two particles can be joined so that whatever happens to one must also happen to its partner, however far apart they are, which could be used to detect contraband from faraway locales (or peek through suspicious garb). . . ." From Lockheed Martin eyes quantum entanglement radar.

Jeff Hawkings on Theories of Neuroscience

". . . In 2004, Jeff Hawkins published On Intelligence, laying out his "memory-prediction framework" of how the brain works. His unified theory of the brain argues that the key to the brain and intelligence is the ability to make predictions about the world by seeing patterns. He argues that attempts to create an artificial intelligence by simply programming a computer to do what a brain does are flawed and that to actually make an intelligent computer, we simply need to teach it to find and use patterns, not to attempt any specific tasks. Through this method, he thinks we can build intelligent machines, helping us do all sorts of useful tasks that current computers can't achieve. He further argues that this memory-prediction system as implemented by the brain's cortex is the basis of human intelligence. . . ."
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". . . In his book, Hawkins explains that his theory proposes that the human brain is a pattern recognition machine that breaks complicated topics into smaller chunks of time related events and then compares it to known experiences. He portrays the brain as a series of stored patterns all existing in the neo cortex, a neuron packed organ about the size of a dinner napkin, all crumpled up inside our skulls. His simple analogies to dinner napkins, playing cards, hierarchies and feedback loops explain how we can recognize a song even though we are hearing it in a different key than the first time we heard it, and that we can recognize a friend’s face in a crowd despite changing angles, lighting conditions, apparent size, and distance. Hawkins explains that the human computer instantly recognizes the significant difference between a person standing at the front door with a wrapped birthday gift and another with a crowbar, and that no computer built would even have much of a chance of figuring out that the crowbar was not part of the person. The Real Intelligence that Hawkins seeks is not to be found be amplifying artificial intelligence. They are different approaches entirely.

Hawkins then concludes the book with brilliant chapters on consciousness, creativity, and the future of intelligence. Without becoming deeply philosophical, he discusses the intelligence of animals, the significant shifts of biological memory systems over millions of years and how design professionals can develop systems that integrate more smoothly with the way our brains work. He finishes with speculation on the future of real intelligence and how it might improve automotive safety, weather prediction, and medical research. . . ." From Thinking Ahead – Jeff Hawkins’ “On Intelligence”

Second Life's Counterfeit Brands Market

From Protecting real brand names in a virtual world:

". . . Counterfeit goods can be found even in the swankiest malls and department stores in Second Life. Benjamin Duranske, founder of the Second Life Bar Association and a real life lawyer, estimated there was trademark infringement in at least 1 percent of Second Life transactions – about 1.4 million per year. He noted on his blog, Virtually Blind, that a classifieds search for “Gucci” generates 106 hits, while “Vuitton” gets 39 and “Nike” gets the most at 186 hits. None of these companies have endorsed the virtual products.

Virtual stores that sell unauthorized Louis Vuitton purses or Ray-Ban sunglasses could sell shoddy products or otherwise misrepresent the company, which is one reason lawyers say trademark violations are an issue online as well as on the street. “If a guy in Oklahoma is making fake Gucci bags, it’s pretty clear that they infringe, even if they are digital,” Duranske said.

Trademark lawyer Martin Schwimmer said that it’s significant that economic transactions are real on Second Life, distinguishing it from a video game. Many of the same issues are at play as when a street vendor is selling bootleg products. In both cases, the seller is using a company’s brand name to market a product. “It is in to the realm of possibility that someone who buys a $50 Rolex will someday aspire to owning a true Rolex. But ordinarily, the ability to in effect free sample should be the right of the copyright owner.

The current Linden Labs policy is that if someone files an Abuse Report against trademark infringement, they investigate it and remove the products. Last week, the Police Blotter showed they gave an avatar a warning for it. So far, the company hasn’t actively tried to seek out trademark violators. Their official policy states that, “Linden staff generally removes content that uses trademarks without apparent authorization, with or without giving notice to the object owner. This generally includes all real life corporate logos and brand names.”

Duranske compared Linden Labs to an intermediary, like an Internet Service Provider, rather than an entity that should be responsible for policing trademark infringements. He argued that representatives from companies should be the ones logging in and reporting their complaints to Linden Labs. . . . "

The Relationship Between Price & Utility (For Beginners)

2. The Creation of Price Through Weighted Preferences

Previous analysis indicates that it is possible to maximize relative utility in certain circumstances with no information other than the disparately ranked preference sets of two individuals. Taking that conclusion as true, one can begin to understand the relationship between utility—measured in terms of wealth, consumption, and income­—and exchange. From a neoclassical perspective, exchange is possible when individuals recognize that they have disparate preference sets, each individual controls the means to satisfy the other’s need, and both recognize the other’s control. In the discussion of controlled and uncontrolled means above, control meant that an individual could realize utility from one half of a binary need, and which half depended entirely on which was higher ranked. In the context of exchange, control also is determined from the perspective of a second individual. That is, A controls the means to satisfy B’s preference if for some binary need, B will realize the utility from one half of the need according to some arrangement within A’s preference set.

For example, suppose that A can get apples from a tree but that B has no way to get apples other than through A’s consent. Suppose further that B has a preference set of getting an apple from A > not getting an apple from A. If A has a preference set of giving apples > not giving apples, then A will give B an apple and maximize B’s utility. However, if A prefers not giving apples > giving apples, then the lower half of B’s binary preference set will be met. In either case, B will realize one of the preferences from his binary need, and which one he realizes turns exclusively on A’s preference set. Thus, A controls the means to satisfy his own need (getting and giving v. not getting and giving) as well as B’s need (receiving v. not receiving). Notice that if A’s preference is entirely independent of anything that B can affect, then receiving an apple is an uncontrolled need with respect to B. However, if B can affect A’s preference set such that A’s preference to give an apple can turn on B’s effects, then receiving an apple is a controlled preference with respect to B. In that case, giving or not giving is a controlled need with respect to A, and receiving or not receiving is a controlled need with respect to B. In this situation exchange is possible.

Recall that, so long as fulfilling one individual’s preference set does not rearrange another’s preference set, then all thing being equal, no matter where those preferences lay in A and B’s larger preference set, if one must satisfy a need for both A and B, then it will always maximize utility to satisfy the higher ranked preference of both A and B for any pair of disparately ranked preferences (presuming no transaction costs). More clearly, when one has to satisfy some preference of both A and B, utility is always maximized by giving A one apple and B one banana with respective preference sets (1, 3) and (4, 1). This principle also holds when A controls the means to satisfy one of B’s needs and B controls the means to satisfy one of A’s needs. That is, so long as fulfilling one individual’s preference set does rearrange another’s preference set, then all thing being equal, no matter where those preferences lay in A and B’s larger preference set, it will always maximize utility for A to satisfy B’s preference and for B to satisfy A’s preference when those preferences are disparately ranked by A and B. Thus, when A controls one banana, B controls one apple, and A and B have respective preference sets of (1, 3) & (4, 1), ceteris paribus, utility is always maximized when A and B exchange their apple and banana. This is the abstracted version of what economic means when it refers to “gains from trade.”

Notice however, that if A controls one banana and B controls nothing, then once again, there is no way to tell if a transfer would be utility maximizing, even on a relative scale. Similarly, if A controls three bananas and B controls one apple, while both A and B would harvest utility when exchanging one for one, two for one, or three for one as compared to not exchanging at all, there is no way to tell which outcome is maximizes total utility because there is no common unit to measure A and B’s respective utility. Nevertheless, when A controls three bananas and B controls one apple, receiving one or two bananas for one apple increases utility for B, giving one banana for one apple increases utility for A, and giving two bananas for one apple decreases utility for A as compared to one trade. So if A and B cannot divide the apple or bananas into pieces, then one and only one exchange will take place. However, there is a point between A giving one banana and A giving two bananas where A continues to increase more utility than she loses when receiving an apple (i.e. she maintains positive diminishing returns). If A and B were able to divide their fruit into pieces, then given A and B’s preference sets, B could successfully insistent he receive up to 1.2 bananas in exchange for his apple, leaving A with one apple and 1.8 bananas. This outcome allows both A and B to realize the greatest amount of utility given each other’s preference sets, and is referred to as a Nash Equilibrium.

These principals give rise to a theory of price. In this case, A has bananas but prefers apples, making her a banana seller and an apple buyer. Because A prefers apples to bananas at a ratio of 1/3, the price of one of A’s bananas is anything greater than 1/3 of an apple. Thus, for any individual, the minimum offering price is the ratio of any two weighted preferences within a preference cluster where the numerator is the need that the individual wants satisfied through another’s control and the denominator is the controlled need the individual is offering to satisfy another’s need. Conversely, the price of B’s apple is anything greater than 1/4 of a banana, or to leave things in terms of A, B is a banana buyer and an apple seller, which means than B is willing to pay anything less than an apple for a 1/4 of a banana. Therefore, there is a price range in the banana market of 1/4 – 1 apples, and both A and B will harvest utility from any sale in this price range. As noted, given A and B’s preferences, a sale of 1 apple for 1.2 bananas maximizes utility for both A and B, so the final market price of banana will be 5/6 apples, which properly falls within the price range. From The Taxation of Virtual Worlds: Understanding Theories of Taxation Through an Analysis of the Second Life Economy by Tim Miano.

Incompletely Understanding the Unknowable

". . . According to Gödel's first incompleteness theorem any effectively generated theory capable of expressing elementary arithmetic cannot be both consistent and complete. Gödel's second incompleteness theorem implies that a theory T1 can't prove the consistency of any theory T2 which proves the consistency of T1. This is because if T1 can prove that if T2 proves the consistency of T1, then T1 is in fact consistent.

In formal logic, one can mechanically check the validity of proofs so that there can be no doubt that a theorem follows from a starting list of axioms. In theory, such a proof can be checked by a computer. To be able to perform this process, we need to know what our axioms are. We could start with a finite set of axioms, or more generally we could allow an infinite list of axioms, with the requirement that we can mechanically check for any given statement if it is an axiom from that set or not (an axiom schema). While an infinite list of axioms may sound strange, this is exactly what's used in the usual axioms for the natural numbers.

Gödel's first incompleteness theorem shows that any such system that allows you to define the natural numbers is necessarily incomplete: it contains statements that are neither provably true nor provably false. That is, no formal system which aims to define the natural numbers can actually do so, as there will be true number-theoretical statements which that system cannot prove. . . ."
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". . . What is the relation between Gödel's theorem, and whether we can formulate the theory of the universe, in terms of a finite number of principles? One connection is obvious. According to the positivist philosophy of science, a physical theory is a mathematical model. So if there are mathematical results that can not be proved, there are physical problems that can not be predicted. One example might be the Goldbach conjecture. Given an even number of wood blocks, can you always divide them into two piles, each of which can not be arranged in a rectangle. That is, it contains a prime number of blocks.

Although this is incompleteness of sort, it is not the kind of unpredictability I mean. Given a specific number of blocks, one can determine with a finite number of trials, whether they can be divided into two primes. But I think that quantum theory and gravity together, introduces a new element into the discussion, that wasn't present with classical Newtonian theory. In the standard positivist approach to the philosophy of science, physical theories live rent free in a Platonic heaven of ideal mathematical models. That is, a model can be arbitrarily detailed, and can contain an arbitrary amount of information, without affecting the universes they describe. But we are not angels, who view the universe from the outside. Instead, we and our models, are both part of the universe we are describing. Thus a physical theory, is self referencing, like in Gödel's theorem. One might therefore expect it to be either inconsistent, or incomplete. The theories we have so far, are both inconsistent, and incomplete.

Quantum gravity is essential to the argument. The information in the model, can be represented by an arrangement of particles. According to quantum theory, a particle in a region of a given size, has a certain minimum amount of energy. Thus, as I said earlier, models don't live rent free. They cost energy. By Einstein’s famous equation, E = mc squared, energy is equivalent to mass and mass causes systems to collapse under gravity. It is like getting too many books together in a library. The floor would give way, and create a black hole that would swallow the information.

Some people will be very disappointed if there is not an ultimate theory, that can be formulated as a finite number of principles. I used to belong to that camp, but I have changed my mind. I'm now glad that our search for understanding will never come to an end, and that we will always have the challenge of new discovery. Without it, we would stagnate. Gödel's theorem ensured there would always be a job for mathematicians. I think M theory will do the same for physicists. . . ." From Gödel and the End of Physics, a lecture by Stephen Hawking.

Multitasking Turing Test Technology

". . . CAPTCHAs—short for "completely automated public Turing tests to tell computers and humans apart"—are the simple distorted word puzzles commonly used to register at Web sites or buy things online. Computers can't decipher the twisted letters and numbers, ensuring that real people and not automated programs are using the Web sites. Researchers estimate that about 60 million of those nonsensical jumbles are solved everyday around the world, taking an average of about 10 seconds each to decipher and type in.

Instead of wasting time typing in random letters and numbers, Carnegie Mellon researchers have come up with a way for people to type in snippets of books to put their time to good use, confirm they're not machines and help speed up the process of getting searchable texts online. Many large projects are under way now to digitize books and put them online, and that's mostly being done by scanning pages of books so that people can "page through" the books online. In some cases, optical character recognition, or OCR, is being used to digitize books to make the texts.

Internet Archive scans 12,000 books a month but has hundreds of thousands of files that are images that the computer doesn't recognize. Those files are downloaded and split up into single words that can be used as CAPTCHAs at sites all over the Internet. If enough users decipher the CAPTCHAs in the same way, the computer will recognize that as the correct answer. . . ." From Researchers Turn Web Blather to Books.

Tracking Objects and Cognitive Ability

". . . How many moving objects can you keep track of at once? Clicking on the image to the left will take you to Lana M. Trick's web site, where she has a nifty demo of a multi-object tracking task. You're asked to keep track one to four of the smiley-faces as they move randomly around the screen. Then when the faces stop moving, you click on the ones you were supposed to follow. Go ahead, give it a try!

You'll notice there are four levels of difficulty. Most adults can, with a little practice, track four out of ten randomly moving objects for ten seconds -- they fall apart when there are more than four objects to track or more than ten total objects (the "most difficult" trial features four objects to track and twelve total). But when do kids develop the ability to track multiple objects? Very young infants can track a single object moving by itself quite easily, but what about several objects moving among others?

Trick's research team developed a task that could be followed by kids as young as five. Previous studies of multiple-object tracking used colored shapes, which were uninteresting to young kids, who became distracted during the task. Trick's team told kids they'd be looking for sinister "spies" among normal, happy people (just like the demo you just tried). They found that five-year-olds understood the task, and reliably completed it when the faces weren't moving. . . ." More at Keeping track of multiple objects: How and when is it learned?

Babble-On

Deux Yuan Tu Ardours Ohm Muppet Ties Sirs?

Phillip Rosedale's Talk on Second Life (via Fora.tv)

". . . What Do We Learn If We Digitize Everything? After a couple years in the flat part of exponential growth, the steep part is now arriving for the massive multi-player online world construction kit called "Second Life." With 1.7 million accounts, membership in "Second Life" is growing by 20,000 per day. The current doubling rate of "residents" is 7 months, still shortening, which means the growth is (for now) hyperexponential.

For this talk at the The Long Now Foundation the founder and CEO of "Second Life," Philip Rosedale, tried something new for him - a simultaneous demo and talk. His online avatar, "Philip Linden," was on the screen showing things while the in-theater Philip Rosedale was conjecturing about what it all means. "This is a game of 'Can I interest you more in what I'm saying than what's going on on the screen?'"

He showed how new arrivals go through the "gateway" experience of creating their own onscreen avatar, explaining that because intense creativity is so cheap, easy, and experimental, the online personas become strongly held. "You can have multiple avatars in 'Second Life,' but the overall average is 1.25 avatars per person." The median age of users is 31, and the oldest users spend the most time in the world (over 80 hours per week for 10 percent of the residents).

At about 19 mins in Philip talks about emergent behavior, and why the world of Second Life has to be connected, and why it must be a large scale “one world.” [PacificRim Exchange] suspects this concept will keep Linden Lab from breaking up the grid(s) until all other options have been exhausted to address the grid
issues. . . ."
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". . . FORA.tv delivers discourse, discussions and debates on the world's most interesting political, social and cultural issues, and enables viewers to join the conversation. It provides deep, unfiltered content, tools for self-expression and a place for the interactive community to gather online. . . ."

Phantom - A High Definition Short Film by Superfad

". . . This is a short narrative film created by Superfad for Vision Research/Phantom using their slow motion camera. The video is amazingly well put together. The narrative is just enough to keep you interested but doesn’t distract you from what is obviously the point of the video, to show off the amazingly cool Phantom cameras. Phantom, for those who are unfamiliar with them, have been producing cameras since the 1950’s and have produced some of the highest quality cameras in the business. Hopefully one day in the future I will be able to review one of them for you all. But until then we can look at this amazing video and drool. . . ." From Stunning slow motion HD video from Superfad using a PhantomHD.

Phantom

". . . This is a high-speed video of a water balloon that doesn't pop. Visit http://www.lucidmovement.com for a complete blog post with more information and a higher resolution video. . . ."

A Transient Quandry: Game Theory and Kaushik Basu's Traveler's Dilemma

". . . Some decisions are often irrational in game theory terms, but can still be more beneficial than the supposed rational choice. Game theory tries to understand choices when individuals are working independently and each choice affects the other person's gains or losses. This Scientific American article discusses the Traveler’s Dilemma and looks at situations where game theory predicts the most rational outcome, but which may actually lead to much less gains for everyone than if people make an irrational response:

Lucy and Pete, returning from a remote Pacific island, find that the airline has damaged the identical antiques that each had purchased. An airline manager says that he is happy to compensate them but is handicapped by being clueless about the value of these strange objects. Simply asking the travelers for the price is hopeless, he figures, for they will inflate it.

Instead he devises a more complicated scheme. He asks each of them to write down the price of the antique as any dollar integer between 2 and 100 without conferring together. If both write the same number, he will take that to be the true price, and he will pay each of them that amount. But if they write different numbers, he will assume that the lower one is the actual price and that the person writing the higher number is cheating. In that case, he will pay both of them the lower number along with a bonus and a penalty--the person who wrote the lower number will get $2 more as a reward for honesty and the one who wrote the higher number will get $2 less as a punishment. For instance, if Lucy writes 46 and Pete writes 100, Lucy will get $48 and Pete will get $44.

To see why 2 is the logical choice, consider a plausible line of thought that Lucy might pursue: her first idea is that she should write the largest possible number, 100, which will earn her $100 if Pete is similarly greedy. Soon, however, it strikes her that if she wrote 99 instead, she would make a little more money, because in that case she would get $101. But surely this insight will also occur to Pete, and if both wrote 99, Lucy would get $99. If Pete wrote 99, then she could do better by writing 98, in which case she would get $100. Yet the same logic would lead Pete to choose 98 as well. In that case, she could deviate to 97 and earn $99. And so on. Continuing with this line of reasoning would take the travelers spiraling down to the smallest permissible number, namely, 2.

The game's logic dictates that 2 is the best option, yet most people pick 100 or a number close to 100--both those who have not thought through the logic and those who fully understand that they are deviating markedly from the rational choice. Furthermore, players reap a greater reward by not adhering to reason in this way. Thus, there is something rational about choosing not to be rational when playing Traveler's Dilemma. . ." From The Traveler's Dilemma.
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". . . One possible response to this is that in the real world, market prices tend strongly toward uniformity. This tells Pete and Lucy that the “best” guess, the one which makes a penalty least likely while tending to maximize reward, is the very same price they have already paid. By happy coincidence, this also happens to be the honest answer. Even if I am not entirely certain that the other player is honest, I still have some idea that he might be, and this alone pushes me strongly toward honesty as well. Thinking further, I will realize that the same dynamic applies to him,— and if you’re going to be caught in some recursive logic—which will happen in any case if you try to undercut—then you might as well use it to your advantage. . . ."

Real World Outsourcing of Virtual Work: Gold Farming, Free Trade, and the Growing Pains of Capitalism in China

". . . A new documentary, Chinese Gold Farmer, travels into several different Chinese gold farms. Several gold farmers tell their own stories and see their everyday struggles to live at the border of the virtual and the real.

Multiplayer online games have given rise to a virtual economy, in which all kinds of virtual assets---from in-game currency to magic shields & whole characters---are traded against real world currency. In China, there are tens of thousands of gaming workshops that hire people to play games like World of Warcraft and Lineage. The gaming workers kill monsters and loot treasures for 10-12 hours a day to produce virtual assets that are exported all over the world. They are called Chinese gold farmers by western gamers and many myths about them are circulated in the game universe.

According to estimates, around 100,000 people in China are employed as gold farmers, as of December 2005. This represents about 0.4% of all online gamers in China. Chinese gold farmers typically work twelve hour shifts, and sometimes up to eighteen hour shifts. Wages depend heavily on location and the size of the gold farming company. One gold farming operation in Chongqing in central China with 23 gold farmers was reported to pay its employees the equivalent of about 120 U.S. dollars per month, while workers at a larger gold farm in Fuzhou earn the equivalent of about 250 U.S. dollars per month. The rising prevalence of gold farming has led to the creation of gold farm brokerages.

China is in fact dominant in this industry and Jin Ge—a 30-year-old Shanghai native—has done a documentary on "gold farms" in China as part of his doctoral research at the University of California, San Diego. You can read an interview with him here. He is one of the many researchers who has invested his time in investigating how farm owners manage their production and distribution of virtual commodities across the border between the virtual and the real as well as the border between nations. “I tried to find out what this job, combining work and play, means to Chinese gold farmers and how it feels like to live at this peculiar intersection of the virtual and the real.” . . ."

(Hat Tip Freakonomics)

Swimming in Genetics (A Shark and Human Production)

". . . A hammerhead shark that gave birth in a Nebraska aquarium reproduced without mating, a genetic analysis shows. This shark’s mother is said to have had no contact with male sharks. This form of asexual reproduction, called parthenogenesis, has been found in other vertebrate species, including some snakes and lizards. But this is the first time it has been documented in a shark.

The offspring of parthenogenesis will be all female if two like chromosomes determine the female sex, but male if the female sex is determined by unlike chromosomes because the process involves the inheritance and subsequent duplication of only a single sex chromosome. The offspring may be capable of sexual reproduction, if this mode exists in the species.

At the time of the birth, many scientists thought that the female had mated with another species, or that it had used sperm obtained years before. Female sharks are capable of storing sperm, although none have been known to store it as long as these sharks had been isolated. Instead, the female shark’s own genetic material combined during the process of cell division that produces an egg. A cell called the secondary oocyte, which contains half the female chromosomes and normally becomes the egg, fused with another cell called the secondary polar body, which contains the identical genetic material.

Previously, Dr. Schuett said, zookeepers and others tended to discount evidence of virgin births precisely because they were so out of the ordinary. But in recent years it has been found in Komodo dragons, other lizards and snake species. Still, parthenogenesis among vertebrates tends to be rare, and, while it may occur in the wild, has been documented only in captivity. “It’s a last-resort tactic that animals use when they absolutely can’t find another mate,” Dr. Hueter said.

While it has the advantage of ensuring the survival of a species in the absence of males, it also comes at a cost: a loss of genetic diversity. And that, Dr. Shivji said, may spell conservation problems for some shark species whose populations are declining. If it becomes more difficult for female sharks in the wild to find a mate and instead they reproduce through parthenogenesis, then the offspring will be less genetically diverse, making the species more susceptible to diseases and other problems. . . ." From Female Shark Reproduced Without Male DNA, Scientists Say.
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". . . Lesbian couples may be able to have a baby that shares both their genes following a new technique pioneered in the US. Scientists at the Reproductive Genetics Institute in Chicago have devised a way to create “artificial sperm” from any cell in a woman's body which can be used to fertilise another woman's egg.

It was initially developed to allow men with no sperm—those who have received radiotherapy or chemotherapy for cancer, for example—to father children. But it is being seen as a way of enabling lesbian couples to have a baby with genes from both partners. US scientists are now trying to produce viable human embryos after the process, known as haploidisation, proved successful in experiments on mice. It involves taking half the genetic material from one cell and injecting it into another woman's egg, resulting in an embryo which contains half of the mother's genes and half of the cell donor's genes. . . ." From Lesbian couples ‘could have own baby.’

Engineering a Paradise with Featured Thought Merchant David Pearce

". . . David Pearce promotes the abolition of suffering in all sentient life. He argues that the abolition of suffering can be accomplished through paradise engineering. In The Hedonistic Imperative, Pearce outlines how technologies such as genetic engineering, nanotechnology, pharmacology, and neurosurgery could potentially converge to eliminate all forms of unpleasant experience in human life and produce a post-human civilization. . . ."
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". . . The term “abolitioinism,” used to describe the use of biotechnology to eliminate suffering, was first proposed by Lews Mancini in 1986. Abolitionism is the use of science to maximize happiness and minimize suffering—not just in humans but in all sentient life. It is a philosophy inspired by utilitarian ethics: if happiness equals value, then the elimination of suffering or 'maximization of value' should be the prime objective of the human race. . . ."
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". . . It is hard for me [i.e., Barry Schwartz] to see much reason for concern over a society that dedicates itself to promoting happiness by cultivating virtuous character and human excellence. It strikes me that this is a vast improvement on the pursuit of increased per capita GDP. Making this point, I think, is Richard Layard’s main objective in his book, Happiness: Lessons from a New Science, which is cited by McMahon as a prime example of the current interest in identifying happiness-promoting policies. Layard’s argument, in essence, is that one of the things nations do is pursue policies. Given that nations pursue policies, they ought to be pursuing policies that promote the welfare of their citizens. All nations have pretty much taken it for granted that the way to promote the welfare of citizens is by increasing national wealth. It has seemed reasonable to take wealth as a proxy for welfare, because the more wealth citizens have, the better each citizen will be able to pursue welfare as he or she sees it. If wealth is not an end in itself, but rather a means of promoting welfare, then it would certainly be good to know whether it is achieving this end. . . ." From Why Societies Should Pursue Happiness.
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". . . Four of the world's biggest pharmaceutical companies are proposing to launch a television station to tell the public about their drugs, amid strenuous lobbying across Europe by the industry for an end to restrictions aimed at protecting patients. Pharma TV would be a dedicated interactive digital channel funded by the industry with health news and features but, at its heart, would be detailed information from drug companies about their medicines. . . ." From Coming soon: the shopping channel run by drug firms.

Inter-Virtual-World-Exchange: Contracts, Regulation, and Taxation

". . . Anshe Chung Studios, a company that emerged from inside a virtual world by reinvestment of value created within virtual worlds, is preparing to launch a virtual financial market, financial products and a set of services that are going to allow direct capital flow and investment across virtual world boundaries. No real money trades will be involved. This step will be the first of many in the creation of an open, cross platform Metaverse economy that transcends individual virtual worlds.

"Some virtual worlds like Second Life, Entropia Universe, and IMVU have demonstrated the enormous economic potential that exists when key sectors of a virtual world economy such as content creation, trade, banking and services are privatized. This has lead to a boom in each of these worlds that has yet to be matched by any other economy, real or virtual," says founder Ailin Graef a.k.a. Anshe Chung. "Now the time is right to go further and link these exciting spaces together, to begin with the creation of the global Metaverse."

"In the real world, the flow of capital and investment across national borders has always been a driving force for political progress, economic reforms and the emergence of a global conscience and economy", adds Guni Graef, CEO. "We believe that allowing residents in a virtual world, no matter which one they have chosen to live in, to easily diversify their portfolio of virtual investments into other virtual worlds is going to lead to a paradigm shift. At ACS we are convinced that once capital is flowing freely, people, goods and services will follow and eventually we will see incentive and pressure for the emergence of open tools and standards. It is our vision that one day even traveling across virtual worlds and taking your belongings with you should become as easy as a mouseclick." The new financial market will allow Second Life residents to invest their Linden Dollars directly in ventures such as banks, malls or biospheres in Entropia Universe while those who earned their fortunes in Entropia Dollars will be able to easily diversify their investments into assets such as Second Life virtual land funds, virtual game development businesses or the IMVU fashion design industry. . . ." From Anshe Chung Studios to Link Virtual World Economies.
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". . . [This] clearing and exchange system would be fully governed by private contract with a single company. It is, in essence, a proprietary system with some unspecified exposure to "real world" public regulation. This is by contrast to standard international economics in which the relation of private agreements and public regulations is relatively clear (or at least we have a sense as to how to resolve debates over who regulates what). How the evolution of the online economy will interface with the mainstream economy—and economic regulation—is still an open question.

Despite the hype from some quarters that the online economy is its own entity, separate from the regulatory dinosaurs of the "real" world, I would not sell the mainstream regulators short. How the interactions of old economy regulators and new economy companies evolve will play an important role in determining the success of private attempts at financial market-construction. Moreover, whether this one particular attempt to build a “virtual” financial transfer system will take hold or if it will be overtaken by another privately-run system is a question that will be left to the market. . . ." From Brave New World(s): From International Finance to Inter-Virtual World Finance.
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". . . Unlike poker chips, which are heavily regulated by the casinos that use them as units of exchange, Second Life—and the Internet in general—is more or less a free-form marketplace. “Although Zarin acquired tangible property, the chips, the chips were not property in the relevant tax sense because they were only a ‘local’ medium of exchange, like currency or banknotes. The chips had no independent existence or value other than to facilitate gambling at Resorts [Casino].” While in a casino, “chips are merely symbols denominating the amount of the bets at stake,” the currency and goods in Second Life take on a fungibility of use that pushes the limitations that chips in a confined setting cannot. Not surprisingly, the users of other virtual worlds and other virtual currencies are already testing their supposed boundaries with great success. These parallel innovations inform the potential boundaries of Second Life. Despite clear rules and multiple attempts to eliminate real-money trading of goods from various virtual worlds, third-party grey markets are still used and easily accessible by users. Whereas, Blizzard, the owner World of Warcraft, has tried with minimal success to restrain the continued commodification of its virtual goods by banning real money transactions associated with the game, Sony, the owner of EverQuest, has taken the opposite approach by “creating its own auction site where it can control and profit from the player demand for sales of virtual items.”

Removing these issues from the virtual-world context does not solve the problem, as seen in markets of related technology. Chinese regulators have ordered websites to limit the use of “QQ coins,” a form of virtual money, stemming from “concerns that the online credits might be used for money laundering or illicit trade” after news reports that customers were using credits to “gamble, pay for phone-sex services and to shop online.” In keeping with its mission to create a user-defined world of general use in which people can interact, play, do business, and otherwise communicate, Linden takes an even more hands off approach then Blizzard, Sony, or the Chinese government, and unlike the Resorts casino in Zarin plays little no part in defining how Linden’s are used—in or out of Second Life. Shielding Second Life income from taxation under an imputation theory is proper only to the extent that the Second Life economy can be enforceably bounded—a requirement that is at best tenuous. . . ." From The Taxation of Virtual Worlds: Understanding Theories of Taxation Through an Analysis of the Second Life Economy by Tim Miano.