abstract-coloring-page-by-thaneeyaWe don’t speak of it very often but economists face a fundamental challenge with respect to innovation: if innovation is something no one has anticipated, then the (Savage) axoims upon which we base our rational choice decision-making cannot apply.

Let me explain. Decision-making is all about actions and their consequences. Leonard Savage created the framework by which economics deals with this by assuming that all agents ‘look before they leap.’ That is, an agent would choose amongst actions available taking into account all possible states of the world and the consequences in each state. This requires agents to have complete knowledge of the state-action space.

Savage himself thought this assumption was heroic and basically could not be justified by anything he had seen regarding human capabilities. Instead, he saw that people would more likely pursue a ‘cross that bridge when you come to it’ rule to examine what happens over a smaller set of states and then plan things out. Savage, however, did not know how to do it. He wrote:

I am unable to formulate criteria for selecting these small worlds and indeed believe that their selection may be a matter of judgment and experience about which it is impossible to enanciate complete and sharply defined general principles. Savage, The Foundations of Statistics, 1972, p.16)

Indeed, in a paper I published in 1996, I argued that Savage couldn’t do this because it was, in fact, impossible.

Savage was emphasizing computational complexity and essentially making a point that rationality is bounded. But when it comes to innovation — which could be conceived of as coming up with an entirely new state of the world — it is fundamentally impossible to plan everything out. Everyone is forced to cross that bridge when they come to it.

In this situation, we can be surprised when something like the iPhone comes out or CRISPR or what have you. We change our outlook for the future. We recalibrate and that is it. To be sure, many would like to have planned out for the possibility earlier but the world seems to move on. These things represent the system working with epochal pockets to break up the monotony.

But the very same issue — that not all states can be conceived of and planned for — necessarily means that sometimes innovations come to the market at times that seem random. We can trace the set of innovations that needed to proceed the iPhone and rationalise why 2007 was its time. But there are other innovations for which it seems surprising they happened when they did. Why now and not years earlier.

And so we arrive at the adult colouring book. In 2015, three of the best selling books of the year were adult colouring books. In Canada it was 5 of the top 10 including the top 2. These sell for around $10.00 and have complex designs that would be challenging for a kid to colour between the lines. They are highly rated and sometimes seen as challenging and sometimes as relaxing.

Near as I can tell (and I’ll admit my research methodology is weak on effort), the idea for adult colouring books came from an illustrator, Johanna Basford. She convinced a British publisher to commission her idea — a book called Secret Garden — and since then it has sold over 2 million copies. There were others that launched around the same time in different countries. It appears to be a situation following the theory of multiples where a few people have the same idea at the same time. That suggests a common cause but it is hard to identify it. The New Yorker speculated it was about adults returning to their youth. But again: why now?

A natural theory is that it may have been an accident. Ask any economist who heard about the adult colouring book idea before it was done and they would likely have said that it wouldn’t work because it would be imitated and the art wouldn’t be worth much. Basford has proven that incorrect and seems to be doing just fine. The same is true for initial pioneers but their run may be for a few years but that would be enough to justify any initial investment.

The idea of colouring books for adults was around earlier. Apparently, there were some subversively themed ones in the 1960s (when else). But these ones seem to be a sort of art phase. They are relaxing, easy to learn and can be done while doing other things. To be sure, they had to be designed which is why people weren’t using children’s colouring books for these things. But once they were, there was a compelling market. An immediate “I could use that” notion for some people.

And as with such things, they also become “X could use that” and they are a safe gift. They are marketed at adults, look pretty and for that reason are a very safe gift. They won’t offend anyone and no one will be hurt if they come by a year later and see an uncoloured book on the shelf. In some sense, this is the ‘Pet Rock’ of our era except that they can be tailored, branded and customised to taste.

Finally, and I would be remiss as an economist not to mention this, as a physical book category they are likely to be robust to the two big challenges of that industry: second hand sales and digitization. Once coloured, they can’t be resold. And we are yet at a point where an iPad version (and you should know they exist) is going to substitute for either the use-value or the gift-value of these things.

My point is this: the fact that prior to 2011, no one saw this business opportunity and after that point it was completely obvious, is basically the same innovation event as occurred with the iPhone. It could have happened a decade, two decades or more earlier. It did not simply because no one thought about it who had the confidence to design it and take it to market. And that tells us, as economists, that there can be $100 bills or $10 million dollar bills casually lying on the sidewalk in a state we have not conceived.

8 Responses to Adult Colouring Books Remind us that Innovation lies outside economics

  1. Innovation is not deterministic, but that doesn’t mean it isn’t predictable, or that it can’t be known what people will want/enjoy/purchase. The fallacy in your argument is the idea that anything can be known with absolute precision (e.g. the year the iPhone comes out, what features it will have, why people bought Pet Rocks, whether adult coloring books can be successful). There are too many variables to know anything absolutely from simple and obvious ones like external events (war, terrorist acts, new regulations, earthquakes or other ‘acts of God’) to near simultaneous introduction of similar products, to slight changes in business model that makes something more or less attractive and accessible, to the difficulty in creating new critical technologies or the sudden availability of something that reduces cost or increases supply by an order of magnitude. These are just a few things that clearly impact not just innovation and its timing, but also its marketability and potential profit (economic surplus).

    Nevertheless, while we can’t be precise, we can certainly predict using probabilistic models to a reasonably high degree of certainty which things are likely to be successful and why, and to look both into the near term and the long term and make solid predictions about innovations that will be coming.

    Trying to apply the model of actors making rational choices when they don’t have complete knowledge of their present or future alternatives is the wrong way to assess innovation. Ken Olsen (founder of minicomputer maker Digital Equipment Corp.) famously said in 1977 that “There is no reason for any individual to have a computer in their home”. He couldn’t conceive that all of us would own 3 or 4 of them (or more) and carry supercomputers in our pockets with us everywhere, because he was thinking only about the use cases for large (expensive) computers as business tools in the late 1970s, rather than all the entertainment, communication, research, and social applications that are common today. But that doesn’t mean that others couldn’t see it (Steve Jobs, Bill Gates).

    That’s because the set of available products and their benefits at any point in time is a temporary artifact based on available technologies and designs and contexts, and these are constantly changing. However, the things we need to get done, and the desired outcomes are much more stable over time. That’s why “jobs to be done” theory (or Outcome Driven Innovation — the proprietary methodology that JTBD is based on) is a far more reliable way to assess not only which products will be successful, but what things we should build. It would be crazy to predict the emergence of adult coloring books at a specific time in history (no surprises there — anything that requires someone’s creativity and inspiration to make something is clearly random), but not at all difficult to assess their likelihood of commercial success if introduced into the world in 2011. If economists would say otherwise, then they are using the wrong model to evaluate the concept.

    This is measurable and predictable within an economics framework, especially when considering potentially disruptive innovations, and as long as there are relative scarcities of anything that people desire to get done, innovators will see $1000 bills lying on the sidewalk (and economists should too). If you’d be interested in exploring this further, let’s talk.

  2. ThomasW says:

    This reminds me of a story my father tells. He was running a soft drink bottling and canning plant around 1970. He relates how somebody came in with a proposal to bottle drinking water. He says he and his partner listened politely to the proposal, then later had a good laugh that anybody would be stupid enough to buy bottles of water when it’s freely available from the tap or a drinking fountain.

    Needless to say, this has been proved wrong.

  3. Steve says:

    Didn’t Frank Knight have something to say about risk and uncertainty in 1921?

  4. […] the (Savage) axioms upon which we base our rational choice decision-making cannot apply” [Digitopoly]. Implying that colleges and universities should purge their boards of business-people, eh? Letting […]

  5. […] 1. Joshua Gans on adult coloring books. […]

  6. Karl K says:

    The iPhone could not have happened a decade earlier. A Microsoft engineer explains why in this 2015 MarginalRevolution comment (if it doesn’t jump correctly, find “SeattleEngineer”).

  7. Anna B says:

    Adult coloring books definitely exploded but they did not originate in 2011 – Dover Publications has been putting out coloring books, some marketed to children but others definitely with an adult or at least older-child audience, at least since the 1980s. Ditto with detailed, historically-researched paper dolls (my preferred hobby). http://store.doverpublications.com/ They have a lot of new ones now responding specifically to that market of people looking for complex designs, but look at the original publication date on a lot of their titles.

  8. […] Read more musings about the popularity of colouring books and what this says about economists at Digitopoly. […]

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