Lee Anne Fennell on How Categorization Can Affect Markets
From Severed Spots to Category Cliffs
The New-York-based MSCHF recently acquired L-Isoleucine T-Butyl Ester, one of Damien Hirst’s spotted paintings, and sliced it up into 88 single-spot servings that sold for $480 a pop—more, in total, than the $30,485 purchase price of the painting. They then auctioned off the hole-filled remainder for $261,400. The whole, in this case, was apparently worth less than the sum of its parts (counting the added value of the stunt itself). While MSCHF’s “Severed Spots” project is a very literal example of how slicing up an asset can increase its value, it speaks to an issue that is ubiquitous in law, policy, and everyday life: the lumpy, discontinuous, all-or-nothing nature of many things in the world. Efforts to address such (apparent) indivisibilities underpin many market innovations and are also central to problem-solving in multiple spheres, from public goods to personal goals.
I explored the significance of configuration—whether dividing things up or piecing them together—in my recent book, Slices and Lumps: Division and Aggregation in Law and Life (which you can sample here). But the topic is huge, and the book could only scratch the surface of the many implications for law—an assortment of which received thoughtful attention in a University of Chicago Law Review Online book symposium (and here's my introductory essay). The daily news also contains constant reminders of how much lumpiness—and responses to it—matter to everyday life. Severed spots are an entertaining example, but more serious ones abound, from lumpy work arrangements that exacerbate gendered patterns, to the seemingly lumpy choices that public officials now face about whether—and what—to reopen.
My new paper, Sizing Up Categories, delves into another aspect of lumpiness: the all-or-nothing cliffs that categories generate. Categories break the world into cognizable chunks to simplify the informational environment, flattening within-category differences and heightening between-category distinctions. Because categorization often carries high stakes, it predictably generates strategic jockeying around inclusion and exclusion. These maneuvers can degrade or scramble categories’ informational signals, or set in motion cascades like adverse selection that can unravel markets.
Read more at PrawfsBlawg