Paul Buchheit makes a very interesting observation about Facebook: it knows who you are. In online commerce, it’s difficult to know someone’s true identity because identities can easily be faked. This creates asymmetric information problems and impedes transactions. Auction sites like eBay use reputation systems to try to solve the problem, but what if you don’t have a reputation in the first place?

One way for an honest person to get around this problem is to do something expensive that would be unprofitable for a conman. So banks have expensive buildings to signal that they’re not going to run away with your money. If they were, it wouldn’t be profitable to build the expensive building in the first place.

Paul’s idea is that you can use Facebook to signal your identity by building up a credible network of friends. Building friends is costly, especially ‘high quality’ friends who have entered a lot of data into their profiles and have confirmed details of their relationship with you. Dishonest people could build fake networks, but it may not be profitable for them to do so compared to honest people.

So one way that Facebook can make money is by verifying people’s identities. I imagine they could calculate something like an “identity score” for each person, which measures how likely that person is who they say they are. People with more friends are more likely to be genuine, and the quality of links between friends could be taken into account too (e.g. how often two friends share things on Facebook). This could be calculated recursively, taking account of the quality of your friends, and your friends’ friends, and so on. Facebook can then sell these kind of metrics (with their users’ permission of course) to trading sites like eBay. I think it it’s a great idea.

Remember back in math class when the professor was talking about Eigenvectors and you thought that it was kind of pointless? Well check out the 25 billion dollar Eigenvector. (Yes, it’s about Google …).

Rob Elliott wondered about the relationship between income and occupation among respondents to our econ blog reader survey. Here’s the answer (click for bigger):

Maybe being an academic isn’t so bad :)

News from the Beijing auto show:

“If you look at the fastest-growing market segments in China, there are two — SUVs and luxury cars,” said Joseph Y.H. Liu, GM China’s vice president for sales and marketing.

Auto sales in China are booming, with analysts and automakers forecasting growth at 15-20 percent this year. But demand for the biggest vehicles is even stronger, with sales of luxury cars and SUVs expected to surge by 40-45 percent.

…

Buyers of land yachts have also been unintended beneficiaries of a government policy meant to help the poor. Beijing has tried to shield farmers and the urban poor from high oil prices by freezing pump prices for gasoline and diesel, keeping them among the world’s lowest. That takes the sting out of filling up a gas guzzler.

Via Data Mining, here is a cool video showing the spread of Walmart stores in the US over time. It’s like a virus! :)

A higher quality version and explanation of how it was done are here.