Thursday, February 23, 2012

Follow on to ticket analysis

There were some things I didn't make explicit, and I wasn't always clear with my terms. Re-posting this here to try to fix some of that.

  1. I was working in demanded units, but I was sloppy and spoke of this demand as if it came from actual people in a 1:1 ratio. This is not what I meant to express. For example, the 91,000 tickets demanded by veterans if we assume scalpers have 5,000 tickets is not saying there is demand from 91,000 burners. It could be 30,000 burners asking for a little more then 3 tickets each. But were this the case, we'd all have more tickets. See point 4.

  2. As far as tickets per bid, and bids per person, this is why I worked in units of tickets demanded: A ticket is directly convertible to one participant. But one potential participant could generate many bids, and each bid can be for one or two tickets. But since we have reasonable ideas about participant numbers and ticket numbers, working in these units removes unnecessary complexity, keeps the problem rooted in available facts, and avoids inserting unnecessary assumption points (how many tickets per bid? how many bids per participant?).

  3. This is also done to shine a light on the demand amplifying impact of the lottery system: The structure of the sale makes participants amplify the demand signal they send to the market ("If I want two tickets and I have a 50% chance of being successful, I should bid for 4, because I'll probably get 2"). So the game, when played out, says everyone should increase their bids to infinity, as long as they believe in no liquidity risk ("But if I bid for 8, my odds of getting two go up, and if I have extras I'll just sell them. Maybe I should bid for 10. No, 12...").

  4. If everyone amplifies their bid by the same factor, and if demand and supply were truly close to equilibrium, then everyone should get the number of tickets they need (50,000 people bidding for 50,000 tickets all bid for 5 tickets, each has a 1 in 5 chance of success, and on average, everyone gets one ticket. If they all bid for 6, they have a 1 in 6 chance of success. No shortage.). As this seems not to be the case, (and far from it), then either demand greatly outstrips supply (oh the places we all want to go!), or some participants scaled up their demand by a factor orders of magnitude in excess of the average participant (scalpers...?), or some combination of both.

  5. My conclusion is that, while stated demand may have been amplified by the structure of the market (game), it doesn't seem to explain all the observable evidence, and so I have to conclude that scalpers were present. I reject my (null hypothesis) "weak" assumption that there was only tiny scalper activity.

  6. One area that would be interesting to explore is assessing the outcome via market simulation. Determine the proportion of [good burners who bid for only what they need; scared burners who bid for more than what they need; virgins; scalpers] that produces an outcome consistent with the results. I'd need some time and help to go down that road. But possibly a good exercise for testing future ticket distribution solutions.

Tuesday, February 21, 2012

Something doesn't add up

I've chosen to revive the blog for this special community service announcement:

The numbers coming out of the Burning Man official channels on the ticket situation seem preposterous.

They may be right, but they're awful hard to believe.

These are the official facts:

  1. 43,000 tickets have been awarded so far via pre-sale and lottery.
  2. 40% of the demand came from virgins.
  3. Among returning burners affiliated with projects ("key people needed to bring projects to the playa"), only 20-25% got tickets (JRS Vol 16 #11).
Let's apply some algebra, and some assumptions.

Let's assume A: 100% of "key people needed to bring projects to the playa" are returning burners.

Let's also assume for the sake of argument, B: there was little to no demand from scalpers. I know, big assumption. More on this later.

So via 2, A, and B, 60% of the total demand was from returning burners.

Let's assume C: the lottery was truly random and fair and all participants had an equal chance of getting tickets.

This means 60% of the tickets went to returning burners. 60% of 43,000 = 25,800.

(3) says the odds of getting a ticket for this group were 20-25%. Let's be optimistic and take 25%.

The odds of getting a ticket (P)= total tickets available (T)/ total tickets demanded(D).

We know this group's odds were 25%, and they got 25,800 tickets.

P = T/D
D= T/P = 25,800/.25 = 103,200.

BRC population cap = ~50,000.

So this implies, if there was no scalper activity, the demand just from returning burners was ~2x the total population of the city.

The same math applied to virgins yields 68,800 tickets demanded by virgins. More than an entire BRC of virgins.

Total demand for tickets = 172,000. About 3x the population of BRC.

Last year sold out, and the population cap was around 50,000. Let's say the total demand last year was 60,000. This is still more than a doubling of demand in a single year. Yes, social media things happened to make it more known. Maybe our growth rate went nuts. But I find this hard to believe. Demand growth has been under 10% per year. To go from that to nearly 200% seems fishy to me.

Maybe I'm just a dismal scientist, but I think scalpers have most of the tickets. Here's the math:

Total demand is really nor just Virgins + Veterans. It's V + V + Scalpers.

While we can't solve for the total number of scalpers directly, we can use the numbers we know to put bounds on what it must be, given the facts.

The probability of getting a ticket remains constant for all parties in the lottery, and that was 25%.

.25 = 43,000 (tickets)/ (Vi + Ve + Sc)

so Vi + Ve + Sc = 172,000

If we assume that virgin demand and veteran demand really exist in a 2:3 ratio (40% vs 60%), then we can see how much demand must come from scalpers as the assumed demand from veterans changes.

For example, if there's no demand from veterans, then there's no demand from virgins, and it's all scalpers. 0 + 0 + 172,000 = 172,000.

If there's demand from 10,000 veterans, then there's demand from 6,667 virgins, and there's demand from 155,333 Scalpers. 10,000 + 6667 + 155333 = 172,000 which is the total demand required for the 43,000 tickets to yield lottery participants a 1 in 4 chance of winning.

So let's look at some more realistic and sad numbers. If there's demand from a full city of veterans (55,000: Plausible) that means there's demand from 36,667 virgins (scary, plausible). And 80,333 Scalpers (scary, sad), who would make up 47% of the total demand. And scalpers would be holding 20,000 tickets. Wow.

Let's try this another way: Let's assume scalpers were really a small part of this. Let's say they only have 5000 tickets. That still seems like a lot of tickets to be won by registering for 2 at a time, with only a 25% success rate. They'd have had to register 10,000 times, collectively. If true, veteran demand is for around 91,000 tickets, and virgin demand just over 60,000. 3 BRC's worth of real demand.

So what do I think is true?
  • Virgin demand is underestimated. These numbers make more sense when virgins and vets are at a 1:1 ratio or better. Maybe virgins feared this would happen, and wanted to be in the lottery as vets, hoping for a special advantage. Maybe scalpers were more likely to claim vet status. Who knows.
  • There is unaccounted for success. I don't think there was demand for 172,000 tickets. That seems insane to me, even if the Russian Mafia decided they were going to corner the BM ticket market. If demand was lower, then odds of success for applicants was much higher. This is a huge point of sensitivity. If odds are not 1 in 4, but 1 in 3 (odds up by 8%), then scalper demand for the same assumptions drops by 37%. I think success has been undercounted.
  • Scalpers have a metric shitload of tickets. There's no way around this. Even with the tiniest impact assumed for scalpers, and the most optimistic assumed success rate, the genuine demand would still be a whole city of veterans and another two thirds a BRC of virgins. And Scalpers still have 10% of the tickets. 4300 Burning Man tickets is a metric shitload in Imperial.

What to do:

Scalpers can scalp a Madonna concert because their activity doesn't impact the delivered experience for attendees. Madonna will go on stage. If she sings to an empty house, because scalpers bought all the tickets and couldn't sell them, then she still makes her money.

For an event like Burning Man, this is not the case. The attendees are the show. So for scalpers, it's a case of resource management. Cut down all the trees in the forest, and there is nothing to log next year. Cut down half the trees, and it's still bad. They have to find the optimal number of tickets to acquire such that there's still a Burning Man.

However, they were greedy. They cut down half the trees in the forest. This is not the long-term sustainable harvest rate.

By directing tickets to the key groups that need them, the BM organization is bailing out the scalpers. They're helicoptering in trees so that there's something to cut down next year. The scalpers can overfish with impunity. BM org will make sure there are fish next year, because they won't let the event fail this year.

This is bad.

We need to let it fail. We need to let all the art be small and feeble. We need a half empty city, half full of virgins who came great distances to be miserable, bored, and disappointed. In a dust storm. We need BM management to see the scale of the scalping, so they recognize it as a real problem, and take steps to defend their event from the forces that will arbitrage away their utopia, which has been left unguarded against the forces of the free market. We need the community to see it coming, and a panicked stampede of people desperately trying to unload tickets they know they're not going to use, because the know this year is going to be awful. We need the scalpers to realize they've just cut down the last Truffala tree, and to lose their shit, and their shirts as they try to minimize their losses and sell into the dieing market for tickets. We need to all suffer so that this never happens again.

My analysis is here.