When the number becomes the target

A price is a lovely thing when you think about it. Millions of people each know something small, and it all gets folded into one number. You don’t need to know why something is scarce; the price tells you.

But there’s a catch economists like to point out. Once people start making decisions based on a number, the number starts getting pushed around by whoever benefits from pushing it. It stops measuring the thing and starts measuring who’s leaning on it.

That matters a great deal if you build something that pays out based on a market price. Someone with enough money can nudge the price for a few minutes, cash out at the wrong value, and let it settle back. The market forgets by lunchtime. The money doesn’t come back.

So we stopped thinking of pricing as estimating, and started thinking of it as a game against someone who’s paying close attention. The fixes come in rounds. You add a floor, and the floor becomes the thing to aim at. You follow the market more closely, and the original trick works again. You average over time, and someone works out how long they need to hold the price up. It feels a bit like running to stay in place.

What helps is asking, of every rule, which way it fails. If it’s going to be wrong sometimes, we’d rather it paid out a little too little than a little too much. Too little can be fixed later. Too much gets noticed, and then it gets repeated.