A short letter today. I’m just off to host a quarterly conference call with Tim Price for subscribers of The Price Report. With the tenth anniversary of Lehman Brothers’ bankruptcy just two days away, it’s a time for reflection.
What’s changed, and what is still the same? I’m sure Tim will have much to say.
One the biggest changes I’ve noticed is how aware everybody now is of the power of the internet – investors especially. Companies that straddle network effects have been appreciated by investors very much in the last decade – the FANG stocks being the most common example. But it’s the influence of these companies that has become ever more readily accepted.
In a recent interview, macro investor Raoul Pal pointed to a particular meeting where the method of this influence truly began (emphasis mine):
In a technology driven world, it’s incredibly easy to influence people without them knowing.
Just look at your Amazon feed, your Facebook feed, all of these. Incredibly – and I don’t think anybody understands this – behavioral economics has basically won the world, and nobody realizes it.
Back in the mid-2000s, Jeff Bezos, the two founders of Google, Mark Zuckerberg, and a bunch of others – I can’t remember who else was there – all had a meeting with Daniel Kahneman who’s one of the founders of modern behavioral economics.
And he explained [our] dopamine sensors, and how people are conditioned by environment and not necessarily by reasoning, and how Facebook could use the Like button and emoticons to drive dopamine releases in humans – which they’ll want more of.
Amazon picked it up. They all picked it up, and they used it to extremes…
But then after that, they realized that they could sell that ability to anybody. Firstly to advertisers, and then so anybody else could abuse it. Now we have this open system of these things, and they can be abused. To whatever extent the Russians influenced the election – I’m less interested in that. But anybody can influence anybody.
The meetings he referred to are known as the Edge Master Classes, which took place in Sonoma, a small historic town in California. Jeff Bezos and Elon Musk were also there, as was the founder of Wikipedia, Jimmy Wales. The presentations were on how humans make decisions, and how they can be influenced to behave in different ways – without them knowing it.
Some of the presentations at these meetings were recorded and transcribed, as you can find here, which links to the 2008 meeting page.
A telling conclusion to the day’s presentation was made by a former Microsoft executive:
Humans, it seems, are like drunken poets, who can’t glimpse a screen saver in the corner, or plot some points on graph paper without swooning under the metaphorical load and going off on tangents these stray images inspire.
If we are in fact so malleable, it’s no wonder the companies that use that to their advantage have become so influential. But they’ve drawn the jealousy of government – and as we’ve explained in the past, this rarely ends well.
All the best,
Editor, Southbank Investment Research