If you’ve ever been online and if you haven’t
I don’t know what you’re doing watching this video. You know that many websites are
tracking and studying your behavior and in a way they help you by presenting products
and information that they think that they believe based upon your browsing history and
other characteristics are going to be of great interest to you. But there’s also a darker
side to that activity. While that may add great convenience to you the truth is that
that also permits them to look at questions like what do they estimate you’re willing
to pay for that product? Now a lot of people think mistakenly that you’re supposed to
charge the same price for a product to everybody. That’s not the case. You can’t discriminate
based on certain criteria – race, religion, sexual preference. But it’s perfectly fine
for me to charge this guy more than that guy because I think he’ll pay more and just
look at airplane tickets as a perfect example of that sort of thing. Now here’s the problem.
We’re taking those kinds of decisions in these websites. Amazon itself is a fantastic
example of this and we’re incorporating very sophisticated machine run algorithms
that are designed to manage the overall behavior of the group of people who are visiting that
website. In order to optimize profitability for the
companies that are running those websites. And they will cut you the least slice of pie,
small slice of pie that they can to get you to send you to do what they want you to do
in order to maximize the profits of the corporation. Now you may have been on Amazon and you may
put things in – I use what’s called a save for later or something in your cart.
And you come back the next day and good news, you know, this book is three cents less or
that’s two cents more or this is a dollar more. But there aren’t people doing that.
This is a machine learning algorithm. And what it’s doing is analyzing time of day
and the characteristics of what you bought in the past and how you’ve respond to different
kinds of incentives. And where you came from and what kind of browser you’re using as
a major factor. Anything it can in order to adjust the price to just the point where you’re
going to buy at the highest possible price. You as an individual have freedom of choice.
It’s a free country. Buy it. You cannot buy it. That’s great. But we as a group
as a set of customers purchasing from Amazon or some other site we adhere to certain statistical
properties. So as a group we don’t have that freedom because it can be managed by
the entity on the other side. Whenever there’s an information asymmetry like that they know
what you’re likely to buy by what your characteristics are and they can optimize the yield on site
based upon that. They’re at an advantage over you. Amazon is a wonderful company but
it is basically one giant machine learning algorithm. It is designed to do what’s called
arbitrage. It knows what it can buy things for. It knows what it can sell things for.
And it can adjust the profitability in that zone in order to maximize sales, in order
to maximize profits. And it can do so in a way that is far more
efficient than has ever been possible in retailing before. So when I think of Amazon the fact
that they’re selling goods is incidental. I think of it like a stock trading programs.
Buy low, sell high. Buy here, sell there. There’s a spread. These really are arbitrage
systems and you are the mechanism by which these companies maximize their profits.