By standard Economic theory, that is not a stable strategy, since it incentivises starting new dating apps. It only has to be moderately successful to ensure a profitable exit. Over time, Match would run out of money.
Given that Economists overwhelmingly get these things right more than our intuitions, I'm really curious what explanations they have.
It might, but there are lots of sticky things in human behaviour. A person fully aware of the situation in your statement, and only looking for money may do so, but the vast majority of people (off HN) likely do not have the skills (tech/business), do not care about the skills, might not want to start a company or simply are happy enough with their life to not want to rock the boat too much.
Here's a mathematical question: if you could flip a coin, with a 50% chance of getting a billion dollars, and a 50% chance of never having more than $1000 in your bank, would you flip the coin?
The "mathematically correct" answer would be to take the bet, but the rational decision any well-settled person would take is very likely not to flip.
Not a revenue of $1000, but always being $1000 away from being in debt.
...yeah I get "what if I spent $900 on a purchase and got the money back the next day" is a valid criticism, but I mean, just above poverty.
By the way the P(expected) = (1 billion * 0.5) + ((almost) zero * 0.5) = a very respectable 500 million, which even at $1000 a day would take 500,000 days or over a thousand years.
> Not a revenue of $1000, but always being $1000 away from being in debt.
On the contrary, the bet posed was "Here's a mathematical question: if you could flip a coin, with a 50% chance of getting a billion dollars, and a 50% chance of never having more than $1000 in your bank, would you flip the coin?"
It's a cash cap, not a risk statement.
So by the terms, you do just need to set up a way to ensure a cash flow to you while you continue to build up more illiquid safety net and ensure fewer and fewer things cost you money even if you don't own them.
Even if you want to reframe as always being $1000 away from being in debt, that's easy, there are financial arrangements that can let you structure extraordinary assurance that $1000 would never dip below zero, even if you accept it as a narrow lane between the cap and bankruptcy.
I would expect the average SWE on HN to be worth more than a $1000. (Of course there are exceptions, I'm not an SWE myself but I'm only talking about the average person for simplicity.)
> Given that Economists overwhelmingly get these things right more than our intuitions, I'm really curious what explanations they have.
Why doesn't it?
If someone is willing to sell you something for $1M - and you can make it user hostile and extract $10M from it - why not keep making that $1M purchase of new dating apps?
As long as Match buys the apps for less than what they can extract from them - it's sustainable.
Dating apps have very peculiar dynamics (e.g. you need to somehow get women on the app and men will follow automatically). Also women may be conservative and they might not want to join the latest dating app that ranks 50th on the App Store. So it’s not like anyone can create an app and be successful enough to be worth acquiring. Very few will reach that threshold and then the monopolist can buy those few ones.
So standard economics don’t apply. Also, the statement “ Economists overwhelmingly get these things right more than our intuitions” needs a citation.
> Given that Economists overwhelmingly get these things right more than our intuitions, I'm really curious what explanations they have.
Not an economist but starting a new dating app is very hard because those suffer network effects. It's not like most apps which can work on their own.
That's why there's no stress going on at Match group to keep the monopoly running, those new apps don't come up often and cannot come up often due to the nature of the business.
That's also why most of them suck so much even before being bought by the monopoly. To overcome this strong network effect stacked against them, they have to push a lot of marketing levers, some of them unethical and others are very costly.
Given that Economists overwhelmingly get these things right more than our intuitions, I'm really curious what explanations they have.