Surveillance Economics

            …or Why Does My Barber Have an App?

Does my barber need an app? Contemplating that question opened up an intriguing can of worms…

One of the more difficult aspects of economic analysis is the unfortunate fact that economies involve humans making decisions. The math works but the results don’t follow the math because the humans don’t pay attention to the equations. Interest rates are zero but investment doesn’t budge. We implement “cash for clunkers,” but the only effect is to drive up prices for used cars. In my engineering days I would say, “Just take the humans out of the loop,” which, of course, is not an option.

The key dilemma is that the success or failure of any macro economic policy will rest on many millions of microeconomic decisions. This year’s Nobel Laureates for economics, Bannerjee, Duflo and Kremer, who do most of their work in the developing world, focused their considerable analytical gifts on understanding these millions of decisions. They built the models for human behavior.  The only thing missing was the data to precisely define those humans.

With the advent of surveillance capitalism (or surveillance totalitarianism in the case of China), for the first time, we have the capability to understand those humans in exacting detail.

According to the account by Shoshana Zuboff*, Google initially began tracking our lives, reading our emails, and plotting our movements to improveour search results. Google knew that when I searched, “repair garage door opener,” that I needed help with my ancient Sears LiftMaster because I had purchased a replacement remote 10 years ago.

Google soon discovered that these data profiles and the ability to predict behavior were of interest to advertisers. The profiles were termed, “behavioral surplus” because they were a byproduct of Google’s other services like search, email, maps, and Google docs. Each time they add a new data source their rendition of us becomes more robust and their ability to predict our behavior increases.

As the old saw goes, “no one on the Internet knows you are a dog”, thus, clearly mastering the on-line world was not nearly good enough. So these surveillance capitalists are moving on to the physical world, which will bring them ever closer to the essence of ‘us’.

Google buys Fitbit and its Project Nightingale sneaks off with millions of health records from Ascension. Facebook wants you to buy its new monetary unit, Libra.  Google is planning for checking accounts. The Apple credit card is offered to anyone opening their iPhone wallet to get those basketball tickets. One click and you are approved. Our health and our personal financial life are soon to be surveilled in detail.

There is a huge and lucrative market for these, “behavioral futures.” And the best part is that the surveillance capitalists don’t need anyone’s permission to extract the elements required to do the rendering!

Today, almost every enterprise is engaged in rendition to extract data and create behavioral futures for sale.  My vacuum cleaner sends a floor plan of my house to iRobot. My H-P printer sends H-P, the number of pages I’ve printed and what colors I used. If I had a smart car it would send my driving habits to the app owner for resale to insurance companies and car dealers. You can object to the data extraction or even block it, but your product will no longer function as advertised.

Naturally, my barber needs an app. Not so much to track my ho-hum hair styling needs, but rather, to match my data with others and join the market for behavioral futures.

As the Internet of things takes hold and people install smart houses, smart watches, and smart vehicles and wear smart clothes these behavioral futures will become more and more robust. It seems, as we get dumber about security our things are getting a lot smarter.

At this stage, predicting behavior is mere child’s play. Practitioners have already taken on the next challenge. The real money is in influencing. And we already know it works.

In 2014, Facebook did a test run. They shifted the news feeds of two groups of users for one week. One group got positive upbeat news and the other got the typical disasters of the day. The change had a statistically significant impact on the mood of the users as measured by the posts and messages they sent out. These messages, in turn, influenced the mood of more users not directly involved in the study. The test showed that, “emotional states can be transferred to others via emotional contagion, leading people to experience the same emotions without their awareness.” (Atlantic, June 28, 2014)

In response to this amazing opportunity, the academy has established a new discipline. It might be called Data Science, Applied Economics or Data Analytics. More generically, let’s call it surveillance economics. It combines the robust analytical methods of the aforementioned micro economists with the massive data flows from everything connected to the Internet. Critically, it produces the ability to target and influence individuals.

The ultimate dream of one-to-one advertising is here. They are no longer splashing a banner ad across the web page that just loaded. Oh no, they are sitting at our kitchen tables convincing us.

Imagine that one day Google will be able to evaluate the quality of an ad by reporting my change in heart rate to Beretta as I look at an advertisement for their new side-by-side shotgun!

We can expect this capability to play a major role in the 2020, election campaigns. With robust behavioral futures of individual voters in key states, campaigns can micro-target customized messages and news items for each of us. With a little A/B testing the politicians will soon discover what works best to move us to their point of view.  Google recently stepped on this idea by announcing that they would block micro targeting by political campaigns. Skeptics I spoke with wonder if that capability might be quietly reserved for some of their preferred candidates.

We all worried about Putin picking our president. How do we feel about Sergey Brin or Mark Zuckerberg making that choice?

* The Age of Surveillance Capitalism, January 2019.