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No More Deadwood On HBO

Kottke reports that HBO has killed the 2 proposed Deadwood movies that would round out the long gone 3 season series.

Deadwood 17

Here's the economics and management roundup for this season's 5th episode of Deadwood.

Swearengen awakes from his bout with sepsis and stones to be told - as managers often are - that they'd better get back on the stick quickly as events have continued to spin away from control while they were gone.

Swearengen also encourages Doc Cochran to paint a rosy scenario for the public - lest Al be taken advantage of on his sickbed. Not uncommonly, asymmetric information is invented and spread by those who need a leg up on the competition.

At the Bella Union, Tolliver is surprised at the size of the cut he gets as a percentage of profits from the brothel he spun off, Chez Ami. He also wonders if they have increased the amount as a way to spread false information.

Tolliver also finds out from the prostitute Doris that Wolcott - the new and well-backed operator about town, and uneasy partner - enjoys certain sexual perversions. Tolliver sees this as a possible wedge that he can use to take advantage of Wolcott.

The new county commissioner, Jarry, brings a formal notice to Merrick the newspaperman to publish. The small print suggests that claims will be widely invalidated (leading to volatile asset prices). However, Merrick points out that the language is so murky as to make the document worthless. Jarry disagrees and demands that it go on the front page. Merrick accepts the charge and then takes the equally murky path of posting the notice on his door instead of publishing it. Jarry is almost immediately threatened with lynching - although the axis of Wolcott-spread rumors, Jarry's official pronouncement, and Tolliver's secret buying of claims appears to be working well.

As the proto-riot proceeds, Swearengen finds out that the cause is Jarry, and that he is allied with Swearengen's competitor Tolliver. Swearengen jumps two steps ahead to conclude that the territorial government knows of the Jarry-Tolliver alliance (there is no proof of this, other than the Wolcott-Jarry alliance appears to be using Tolliver). If the territorial government does know this, then it is incumbent on Swearengen that Jarry be protected - any harm to him will be blamed on Swearengen. This causes Al to enlist his recent enemy - the honest Sheriff Bulloch - to protect Jarry. This he does.

Later, Swearengen tells Bulloch that the territorial government cannot be behind this - they should be looking for bribes, not pulling strings. Naively Bulloch speculates that Tolliver is behind things, and Swearengen replies with clear vision that Tolliver is a natural ally against the territorial government. Swearengen correctly surmises that there is an outside force pushing events (he does not yet know that Wolcott represents uber-miner George Hearst).

A curious story arc is how the former tutor, Miss Isringhausen, continues to reduce the symmetry in information by telling Swearengen's aide Adams that Alma Garret has Swearenegen kill her husband. The latter part is correct, but the former is an invention. Her motives remain unclear, but she does seem to be successfully investing in building loyalty from Adams.

Deadwood 16

Here's the economics and business angles in this season's fourth episode of Deadwood on HBO.

The show opens with Wolcott - the odious new character from last week - engaging in some casual and brazen industrial espionage by openly scouting the works at Alma Garret's claim.

Back at her hotel, Ms. Garret fires her ward's tutor Ms. Isringhousen and tries to buy some loyalty with a generous severence package. Later we find out that the latter is not pleased and is interested in the disproportionate response of having Garret killed. In fact, she hints that Garret has killed before (although there is no evidence for this).

Crop Ear - a road agent - comes to seek Swearengen's approval for a job. He is prepared to kick the standard 25% back to Swearengen.

Cy Tolliver buys a gold claim (16 Above Discovery) for $600. It's becoming apparent that the rumors of claim invalidation are starting to work, although Ellsworth consoles Alma Garret that such rumors are routine in a gold camp. She later uses that opinion to put pressure on Farnum to sell his hotel to her before its value drops. He is clearly tempted, but as one vector for the rumors, he has an information asymmetry that favors him over Garret.

Jarry, the new Lawrence County Commissioner arrives in town. His plan is to allow any gold claims that predate the treaty with the Sioux to stand (it isn't made clear in the show, but historically that is almost none of them), and to invalidate all other claims. The invalidated claims will be sold at set prices, through a lottery offering a buy or withdraw choice to the winner. Jarry indicates that the lotteries will be fixed in Wolcott's favor. Wolcott's employer Hearst is clearly engaging in regulatory capture. To avoid conflict, Jarry wants a rumor of his presence spread - perhaps the current owners will sell out before the invalidation. Of course, it doesn't make any sense to tell Tolliver this unless it is a hint that he too can bribe his way into an advantage in the lottery.

Star and Bullock are looking to start a bank with financing from Denver. It will require 15% down on their part, for a $2 million stake. Star suggests using Alma Garret's or Swearengen's accounts for collateral, but Bullock isn't interested in either. This is the first time we get a solid indication of how much Garret has made on her late husband's $20,000 investment.

As the show closes, Wolcott tells Tolliver that he will set up a new opium dealer in town, with a saloon and brothel in which Tolliver can have a half interest. Since this will edge in on Swearengen and Wu's businesses, and help Tolliver, it is clearly intended to purchase loyalty.

Deadwood Episode 15

Here is the economics from the 3rd episode of the second season of HBO's Deadwood. This is the richest source of intelligent economics in the major media. As I suspected, the first two episodes were economics-poor because they bridged the first and second season. In this episode the economics content of the show really hits its stride.

Francis Wolcott comes to town and announces to Farnum that he is interested in buying an "assortment of claims". Farnum remarks that it is wide of Wolcott to hedge. It would be more correct to say that he is diversifying. Specifically, hedging involves buying assets in a way to  lock in (paper) profits on some of them, while diversification just means buying a set of of assets to reduce your risk across the set. The former is typically done ex post to making (paper) profits, while the latter is generally done ex ante to reduce the risk inherent in attempting to earn profits.

Later, Farnum tries to run a con on Wolcott. He offers him a sealed letter, supposedly written by Wild Bill Hickok, allegedly containing information about the location of a rich gold vein. Farnum offers to pay Wolcott $100 to deliver the letter, but wants Wolcott to pay $10,000 for the letter, since he may just want to open it and exploit the information rather than deliver it (note there's an implicit contract there - that will never be fulfilled - for Farnum to repay the $10,000 if the letter is delivered still sealed ). This is a (simple) sequential game with a call option at one of the terminal nodes. Clearly the first node choice for Wolcott is to buy (for $9,900) or not to buy. At the buy node, his choices are to deliver the letter (and hopefully collect $10,000 for a $100 profit) or to open the letter and collect an uncertain value. The latter is clearly a call option - the most he can lose is the $9,900 and his upside potential is infinite.

So, Wolcott buys the letter for the $9,900 balance, and not surprisingly there is no useful information in it. Wolcott asks for his money back and is denied. Farnum delivers a quick platitude about caveat emptor. Unfortunately, for Farnum, Wolcott is better player from a bigger game. Wolcott has valuable asymmetric information, namely that he is an agent acting on behalf of George Hearst (yes, that Hearst).  Revealing this snare  convinces Farnum to begin backpeddling. Yet Wolcott doesn't really want his money back; instead he enlists Farnum in spreading rumors that the legality of all the gold claims is in question. Later Wolcott enlists the help of Cy Tolliver in spreading this rumor too. Well-defined property rights are viewed by economists as a key to understanding why people make risky investments - they are more inclined to undertake risk when they are certain that their property right will guarantee that they receive any profits. By calling into question the legality of existing property rights, Wolcott and Hearst are discouraging investment in claims by the current claimholders. Since the claims are call options whose value is largely determined by their upside potential, Wolcott and Hearst are reducing the value of claims by making it less likely that the upside potential can be made more certain.

Reputation and credibility effects have become increasingly important in economics over the last 30 years. In particular, credibility is established by building a reputation for acting in a particular way. This is usually a desirable thing, but it can have unusual consequences. In Deadwood, Al Swearengen has developed a reputation as a man not to be crossed or trifled with. So, when his door is locked and he does not answer, his minions are afraid to force the door. The problem for Swearengen is he is barely conscious from bladder stones and sepsis.

Lastly, Trixie wants to better herself, so she asks Sol Star to teach her bookkeeping - a skill that might allow her to get out of the brothel, or perhaps support herself after her desirability fades. Nothing comes of this, but later Trixie uses an accounting metaphor to explain one of Swearengen's odder actions - the employment and protection of a differently-abled woman named Jewel. Jewel is not a liability since "there's entries on both sides of the ... ledger". It isn't clear yet what asset Jewel provides for Swearengen (although readers of my posts from the first season may recall that Jewel deals guns to the prostitutes).

Deadwood Episode 14

Let's see where economics and business ideas cropped up in HBO's Deadwood this week.

One of the big story arcs is the conflict between Al Swearengen and Bulloch. In last week's episode they came to blows and almost to murder. It appeared that it would continue that way this week when regulatory capture entered the picture. Again Swearengen followed economic principles rather than the emotional ones that often drive other television shows. Swearengen has been in a running battle with the government of the Dakota territory, which wants to take control of Deadwood, but hasn't been able to pull it off yet. He'd like to be able to capture the Dakota regulators (that is, align their interests with his own) but has so far failed. This week Al is told that the Montana territory is an alternative that may be interested, and that Bulloch may be their representative (he isn't, but this story fits Swearengen's paranoid view of Bulloch). On the chance that Bulloch is connected to Montana, Swearengen apologetically makes peace with him to obtain a foil to counter the interests from the Dakota territory. He knows that competition between the government agencies is likely to reduce the costs they end up imposing on him.

Cy Tolliver is still riddled with doubts about competition from the new brothel Joanie Stubbs is spinning off from Tolliver's own Bella Union Saloon. He offers his workers a bonus to indicate that he feels business will continue to be good. Implicitly this is a pre-payment of efficiency wages (that is, wages that are kept above market to promote loyalty and reduce shirking).

A couple of random prices also cropped up in this week's episode. Five dollars is the price to dispose of a body without burial (you probably don't want to know how). Two dollars will not buy time with a prostitute at Joanie Stubbs new upscale brothel; not sure what the price is at the ones run by the two saloons though.

See you next week.

Go Buy Entrepreneur!

This blog caught the attention of a reporter at Entrepreneur, and I have officially been noticed by the legacy media. There on pg. 22 is an article entitled "Go West" by Steve Cooper. It's about my series of posts on the business and economic ideas running through the new HBO show Deadwood (read them all here).

You can find the article online ... but by all means go out and buy the real thing!

Deadwood 1

The new HBO series Deadwood is the richest source of economics and management insights that the legacy media have ever produced. It also won two Emmys and has been renewed for a second season. No word when that will be or whether the first season will be out on DVD.

BTW: no intention to offend anyone ... the show repeatedly uses the words whores and pussy, so I will too where it follows the show.

Here's what I got out of the first episode, which originally aired last spring and in repeats this past summer.

Prices Are Everywhere

The opening scene is an impromptu execution by the authorities to prevent a lynching - what most concerns the victim is that his family receive his boots ... probably his most valuable possession.

The scene shifts to Deadwood itself, where the rent on a corner lot where you may only put up a tent but no building is $20 per day. That is also the price of gold per ounce. Drinks are marked down to zero for the doctor, as long as he keeps quiet about the john that was killed by one of the whores. A barker hawks a free commode to anyone who checks out a certain store. But rooms at a hotel are expensive - E.B. Farnum, the owner, says you can't get one until tomorrow unless you kill a guest.

Later, prices of $12 for picks, $10 for knee boots, $15 for hip boots, $10 for shovels, and $8 for pans are announced.

Still later, the cost to fondle the whores is 2 touches for 15 cents.

And lastly, a lonely prospector named Ellsworth offers Trixie (one of the whores) $1 per minute to share his troubles with him.

Marketing

With respect to purchases made at other places, new hardware store owner Sol Star remarks about the buyers "It ain't like something's been foisted on them. They'll be sorry about what they bought by sun up. Then to reassure his partner Seth "Montana" Bullock "These are quality items. They meet these folks needs. They're being offered at a fair mark up, and we're announcing their availability." Truer marketing words were never said.

A more fly-by-night retailer is offering $0.50 bars of soap alleged to contain $5 prizes.

Presentation

Sol turns subtle when warning Seth quite literally that "Coming out with your fly down might strike the wrong note."

A Business Plan

Star and Bullock's hardware store offers no excuse exchanges; permanence is important too, "We'll be here for you to find us." Prices are set and posted, first come first served. Someone offers $2 to hold a pair of boots, Sol says yes, but Seth overrules him.

Buzzwords

With regard to their business, Star remarks that they have used due diligence. He also remarks that Swearengen is likely to sell them a lot because he is a motivated seller. Swearengen in the antagonist of the series, and a maker of just about everything that happens in Deadwood.

Underground Economies

A handicapped woman who works at The Gem (a saloon) also deal guns to the whores.

Bidding for a Derivative

A claim called "Nine Above Discovery" features heavily in the series. At this point, it is viewed as one with little or no potential - it has been explored a bit and found wanting.

The interested buyer is a rich Eastern dandy, Brom Garrett (today, finance textbooks actually call such buyers "dumb dentists"). The seller is named Driscoll. Swearengen is behind the sale: Driscoll owes him money, and he has a faux alternative buyer in E.B. Farnum (the hotelier). Swearengen encourages Garrett into a bidding war with Farnum, played up by Driscoll that pushes the price from $14K to $20K before Garrett closes the deal. Swearengen honors Garrett's letter of credit with gold, making one wonder how much private information Garrett gave away. Garrett later notes to his wife how he has exhausted his funds in three days.

Later, Driscoll settles with Swearengen. Driscoll is to get 30% of the price. First Swearengen notes that he didn't want the price bid from $14K to $20K (the excessiveness of which might raise eyebrows), and he doesn't feel that he should pay on that. Driscoll then reduces his claim to $500. But Swearengen holds Driscoll's gambling markers. Eventually, Driscoll settles for $20 and some pussy. Later, Swearengen has him killed in his sleep to keep him quiet.

Organized Crime

A family of Swede's that fled the town are found murdered (a little girl is the only survivor). A small world phenomenon is displayed as the rumor that it was the Sioux sweeps town.

Calls for a posse are made in The Gem. This is a problem for Swearengen, who offers $50 per Sioux head starting the next day, but the next round for free that night, and half price pussy for the next 15 minutes. Bullock, Wild Bill Hickock and a few others ride out to examine the site, and close the show by winning a draw with the highwayman who did the deed.

Value of Celebrities

When Wild Bill Hickock comes to town, he is offered $50 per night to gamble exclusively at Nuttall's # 10, a small saloon.

See my earlier posts about Deadwood.

Deadwood 2

The new HBO series Deadwood is the richest source of economics and management insights that the legacy media have ever produced. It also won two Emmys and has been renewed for a second season. No word when that will be or whether the first season will be out on DVD.

BTW: no intention to offend anyone ... the show repeatedly uses the words whores and pussy, so I will too where it follows the show.

Here's what I got out of the second episode, which originally aired last spring and in repeats this past summer.

Organized Crime

The episode begins with Farnum, the hotelier, taking Driscoll's body to Wu, the Chinese butcher. Wu feeds bodies in need of quick and quiet disposal to his pigs. Several episodes later we find out that Swearengen protects Wu's opium trade. In this episode, we find out later that Swearengen buys the allegiance of petty criminals with opium.

The other two highwayman that murdered the Swede's come to Swearengen. He is upset that they did the job without his permission. They claim it was a random meeting, and offer Swearengen his cut.

Asset Pricing

Bullock and Star want to buy their lot rather than rent it. They find out that a barber paid $600 for the adjacent lot ten days before. They offer $750, which Swearengen counters with $1000. He is concerned that they will open as a hardware store, then turn it into a saloon, and use their friend Wild Bill Hickock as a draw (Hickock has just met Bullock while enforcing frontier justice on a highwayman, but Swearengen is sure there is a deeper relationship). Star denies any such plans, to which Swearengen remarks that "In a camp like this, Sol, there's no law or enforceable contract." He then counters again with an offer of $500 now, and half of their net until October (about 3 months). Bullock says he will settle for $1000 and his word that there will be no saloon. Swearengen declines.

Buzzwords

Bullock is too hot to deal with Swearengen, so he names Star as his proxy.

Diversion

Bullock is too hot to deal with Swearengen, so the latter sends a whore to divert his attention while he deals with Star.

Valuing a Derivative

Garrett quickly concludes that the claim Nine Above Discovery is useless. He goes back to Farnum in the hopes that he will buy it, but Farnum refuses. Garrett smells a rat. He speculates about hiring Wild Bill Hickock to defend his interests for a fee plus a percentage.

Opportunity Costs of Lives

The doctor and Calamity Jane take in the orphan of the Swede's. She cannot overcome her fear to speak. One of the highwaymen remarks that he can't be sure the girl can't identify him, and the value of her life drops sharply. Swearengen goes to see the girl himself, and pinches her to consciousness, dropping the value of her life even further.

Swearengen also sets up the two highwaymen to kill Wild Bill Hickock. Hickock's life was of little value to Swearengen, and it is worth even less if the gets into business with Star and Bullock. But, the highwaymen fail, and one is killed.

Swearengen is now left with one girl who can finger the highwayman who can finger him, or one highwayman who can finger him anyway. This puts the value of the highwayman's life lower than that of the girl, and Swearengen kills him.

See my earlier posts about Deadwood.

Deadwood 3

The new HBO series Deadwood is the richest source of economics and management insights that the legacy media have ever produced. It also won two Emmys and has been renewed for a second season. No word when that will be or whether the first season will be out on DVD.

BTW: no intention to offend anyone ... the show repeatedly uses the words whores and pussy, so I will too where it follows the show.

Here's what I got out of the third episode, which originally aired last spring and in repeats this past summer.

Monopoly Becomes Duopoly

The episode opens with the conversion of a former hotel to a new saloon, The Bella Union. Swearengen is furious with the previous owner (who is leaving town) that he wasn't offered right of first refusal. The former owner remarks that "You would have had me killed first." He notes that he has taken precaution against Swearengen's "road agents".

Opportunity Cost of Lives

Doc Cochran recognizes that the deaths of the three highwayman reduce any danger to the Swedish orphan.

Brom Garrett deduces that Swearengen is behind the deal that left him with a worthless claim. He threatens to hire the Pinkerton's to go after him. The threat reduces the value of Garrett's life. His wife Alma urges him to flee. Swearengen urges Garrett to further examine his claim with Swearengen's henchman, Dority. Dority kills Garrett, but is secretly witnessed by the prospector Ellsworth. His life now loses value too.

Product Differentiation

Swearengen goes to visit Sy Tolliver, the owner of the Bella Union. He remarks that he opened in March of 1875, but was driven out by the army. He complements Sy on maintaining secrecy. He offers to collude on pussy prices, which is refused. He quips that they must do "special acts". He also notes that The Bella Union has craps, a game The Gem does not. Sy notes that they serve different markets, and that the rougher Swearengen caters to pioneers.

Business Temperment

Farnum will not rent a room to Calamity Jane, a single woman. Her friend Charlie Utter offers to check out so that he can have her room, which Farnum refuses because there is a waiting list.

Swearengen won't deal with Star, since he is too angry about the Bella Union.

Bullock cuts wood for the store prematurely. Now that he has a sunk cost, he wants the deal to be done.

Bullock then refuses to sell to Jack McColl, a foul mouthed drunk. Charley Utter remarks about this that "I'd be lousy at retail, I guarantee you that. I don't have the patience for it.". Star rejoins about his partner "I'm not sure how much future he's got [either]."

Asset Pricing

Swearengen, Star and Bullock finally settle their differences. Swearengen's offer is $1000 plus right of first refusal, an option to buy for $1000 plus cost of improvements, and an agreement to not offer gambling or any sales to the owner's of the Bella Union. Star bargains him down to only normal sales on the last point, and the deal is done.

After killing Garrett, Dority finds gold on the claim. The value of that asset now rises, but Alma Garrett is the new owner.

Celebrity

Charley Utter is offered money to set up a shooting tournament featuring his friend Wild Bill Hickock.

Reducing Competition

It turns out that the owners of The Bella Union were directed to their property by Farnum. He saw this as a way to reduce his hotel competition. When Swearengen finds out he calls him a "Judas goat". I wonder if there is an implicit threat to send him into the wilderness.

Underground Economies

Swearengen buys the services of faro dealer at the Bella Union with opium. Turns out the man is working both sides.

Asymmetric Information

Swearengen frets that he doesn't have "full information" about the connections of Bullock and Star, Hickock's entourage, and the Bella Union people. In truth, the three groups are unconnected before arriving in Deadwood, but do have common interests in opposing Swearengen.

Later, Trixie, Swearengen's favorite whore shaves the hard parts from the bottom of his feet with a straight razor. He remarks "Trust is a hell of a way to operate. Every fucking beating I'm grateful for. Every fucking one of 'em. Get all the trust beat out of you. Then you know how the fucking world is." The irony isn't lost ... Swearengen had beaten Trixie in the first episode for killing a john.

See my earlier posts about Deadwood.

Deadwood 4

The new HBO series Deadwood is the richest source of economics and management insights that the legacy media have ever produced. It also won two Emmys and has been renewed for a second season. No word when that will be or whether the first season will be out on DVD.

BTW: no intention to offend anyone ... the show repeatedly uses the words whores and pussy, so I will too where it follows the show.

Here's what I got out of the fourth episode, which originally aired last spring and in repeats this past summer.

Property Rights

After finally winning at poker, Hickock tells Bullock that "It looks like the camp is a good bet. They'll get the Sioux making peace. Pretty quick you'll have laws here and every other thing." Bullock remarks that I'd just settle for property rights" to which Hickock responds "Would ya?"

Derivative Pricing

Swearengen now wants to bid on Garrett's claim, and Farnum can't figure out why. Swearengen tells him that it is worth losing the $20K on the claim if it keeps the Pinkerton's away. Farnum continues to act as the middleman and offers Alma Garrett $12K for the claim. She defers, and secretly enlists Wild Bill Hickock to evaluate the claim instead. Farnum is optimistic that she will sell, but Swearengen is nervous that she did not accept right away. He pushes Farnum as to whether he offered her the whole $20K, and when told that only $12K was offered he is angry. But Farnum negotiates to keep $2K if he can get Alma Garrett to settle for $12K.

Underground Economies

Alma Garrett suspects foul play in the death of her husband. She asks the doctor for confirmation, but he declines. She confronts him: "Do other considerations constraint you? Other men?".

Sunk Costs

Alma Garrett wonders if she should "View [her] time here as one experience bought at a single price". If that is the case, then it would be optimal to leave.

But, she is concerned about the value of the claim - a claim apparently worth killing over. Further, why kill her husband, rather than just buy the claim from him?

Asymmetric Information

After Alma Garrett hires and pays Wild Bill Hickock, he immediately goes to discuss the matter with Swearengen. He pockets a payment from him as well to report back to Alma in a "favorable light". Hickock recommends to Alma that "Unless you need the money right away Mrs. Garrett, I'd defer a decision until someone honest and competent did a second reconnoittre.". Hickock recommends Bullock, and gives both payments to him.

Marketing

After finally meeting Wild Bill Hickock in The Gem, Swearengen wonders why he hasn't graced the place before. "No poker" says Hickock. Swearengen opines that he sticks to "liquor, pussy, and faro, anything else slows down the joint".

This meeting provokes a visit to Swearengen from Nuttall, who owns a small competing saloon that pays Hickock to gamble there. Swearengen assures him they made no appearance deal.

Opportunity Costs of Lives

Ellsworth knows his life isn't worth much since he saw Dority kill Garrett, and he presumes that Swearengen was behind this. But, he isn't sure if Dority knows he was a witness. So, he asks Dority for advice, and indicates that he would flee town if given a high sign that his life was in danger. Dority asks Trixie for advice, and she advised Dan to neither kill Ellsworth or tell him to run. She must think that Ellsworth's information is too valuable for him to divulge.

See my earlier posts about Deadwood.