Free markets are not free. There are costs to gather information, build context, compare choices and estimate outcomes. "Transaction costs" are the time and effort to execute a transaction. Schramm's communication model ( based on Claude Shannons' theory of communication ) exposes the mechanism of transaction costs. The Meme Theory is an empirical use of the Schramm communication model.
Jack creates a message, encodes contextual information and transmits it to Jill. Jill receives and decodes the message using her own context.
If their contexts are identical, if they possess the same vocabulary and beliefs (homogeneous), then transaction costs are low. But as their contexts diverge (heterogeneous), transaction costs rise from translation errors, miscommunication, need for synchronization of contexts. This balance of homogeneous versus heterogeneous defines architecture. How is context is synchronized and why does it diverge?
For human beings, sending and receiving information requires time and effort. Just like computer hardware or networks, human beings transmit information at a fixed rate, due to impedance in communication.
Schramm's communication model shows low-level mechanics. Coase Theory gives a strategic perspective of costs and leads us to design patterns...
"because markets are costly to use, the most efficient production process often takes place in a firm"
Organizations reduce transaction costs for a goal or product. Fewer transactions mean less human interaction; a reduction in the time and effort to assess information. Transaction costs are the foundation of division of labor in economics and the basis for design patterns, topologies which minimize transaction costs. The right pattern at the right time creates optimum efficiency and response.
Assemble four workers into a peer-to-peer topology. Each team member acts as an independent participant in a perfect free market. Here we have twelve information channels. As new members are added, channels (and transaction costs) rise exponentially and the effects are...
♥ High redundancy: workers send duplicate data to each other.
♥ High contention: duplicate data is misinterpreted or outdated.
♥ High latency: most data travels three hops.
Now assemble the same four workers into an organization (Mediator pattern), add a manager to partition and direct information to the right destination. Team size increases 25% but information channels shrink 33% to eight channels.
♥ Low redundancy: each worker has only the necessary data.
♥ Low contention: The manager is the sole source of information.
♥ Lower latency: information travels a maximum of two hops.
The hierarchical organization substantially reduces errors, conflicts, unnecessary duplication and decreases reaction time by reducing transaction costs.
2) Internal models are developed over time through sets of send/receive messages. Miscommunication occurs from improper interpretation of received messages, delay of receive messages, initial development of a context model or a poor methodology of send/receive messages used to develop the model.
3) In the Recursive Schramm model a person's context contains models of itself which are derived from other people. Jack builds a context model of Jill. But Jill's context model contains its own model of Jack. An accurate model would include Jill's model of himself.
Implications: How we derive a context model is vital. Relationship determines appropriate exchange. A set of exchanges which are narrow and repetitive will produce a limited context model. If we know that future exchanges are equally narrow and repetitive, then the model might be acceptable. But more likely, the methodology of exchange is flawed and produces a flawed context model, which generates continuous miscommunication.
I'll repeat that. How we interrogate and interpret determines the accuracy of future communication. How we ask questions and interpret answers builds a foundation.
