In Which Jake Questions the Free Market

One of the things that makes my work with Zome different from a lot of other approaches to modulating energy demand is that we aren't trying to solve the problem by using price-signalling or any other sort of market-based approach.

Market-based approaches are the dominant line of thinking for how to control demand, and when you are first approaching the problem, the reasoning behind it makes sense:

• A lot of things in our society manage supply/demand relations pretty well by markets, where changes in supply lead to changes in price that lead to change in demand, until equilibrium is reached.  This is total Econ 101 material.
• At the macro-scale, power in the US grid is pretty much entirely managed by markets, and that works pretty well (if you ignore the whole Enron thing).
• Pilot studies where you give people information about power prices (e.g., through a red light that glows when the price is high), and they moderate their demand, or you give the same information to appliance controllers (e.g., thermostats with a budget and a cooling goal) and they shift their use accordingly.

I don't trust it though.  You see, I just think that price is a pretty lousy and impoverished signal, and there's no reason to restrict ourselves to that when we're running an algorithm on computers.  If you commit to using a market-based approach, you're throwing out pretty much the whole world of distributed algorithms and other engineered self-organization approaches.  And most engineered systems don't use markets for good reason---they're a lot of complex hassle to get right, give you lots of ways to shoot yourself in the foot with unexpected emergent effects, and really just beg for exploitation if you get any real money involved.

If you assume you have to solve the problem with a market, you probably can (I'm pretty sure market-based approaches are Turing complete, if you allow complex enough structures and derivatives), but you might have to twist the problem into a pretzel to do so.

So I tend instead to think the right way to approach a complex distributed control problem like energy demand shaping is to start by solving the distributed control problem, and then figure out how to match it well with external incentives.  Maybe the answer will be a market, but usually it won't, just because markets are only one tiny corner of a really big design space.

And I might be on the way to saying something much more definitive about it.  Just recently, when looking at how the Zome approach compares to price-signalling approaches, I noticed that it's really easy for a distributed demand response market to end up completely failing and always being very far from equilibrium.  And this result just might be more general...