How Amazon’s Algorithm Gets You to Spend Money
Companies like Amazon take advantage of the fact that they know a whole lot more about buying patterns than you do. As author and entrepreneur Jerry Kaplan explains, this sort of information asymmetry is the real crux of their business plan.
Jerry Kaplan is widely known in the computer industry as a serial entrepreneur, inventor, scientist, and author. He is currently a Fellow at The Stanford Center for Legal Informatics. He also teaches Philosophy, Ethics, and Impact of Artificial Intelligence in the Computer Science Department, Stanford University.
Kaplan co-founded several ventures including Winster.com (social games); Onsale.com (online auctions); GO Corporation (tablet computers); and Teknowledge (expert systems). He wrote a best-selling non-fiction novel entitled “Startup: A Silicon Valley Adventure”, selected by Business Week as one of the top ten business books of the year, and optioned to Sony Pictures, with translations available in Japanese, Chinese, and Portuguese. His latest book is titled Humans Need Not Apply.
Kaplan co-invented numerous products including the Synergy (first all-digital keyboard instrument, used for the soundtrack of the movie TRON); Lotus Agenda (first personal Information manager); PenPoint (tablet operating system used in the first smartphone, AT&T's EO 440); the GO computer (first tablet computer) and Straight Talk (Symantec Corporation's first natural language query system). He is also co-inventor of the online auction (patents now owned by eBay) and is named on 12 U.S. patents.
He has published papers in refereed journals including Artificial Intelligence, Communications of the ACM, Computer Music Journal, The American Journal of Computational Linguistics, and ACM Transactions on Database Systems.
Kaplan was awarded the 1998 Ernst & Young Entrepreneur of the Year, Northern California; served on the Governor’s Electronic Commerce Advisory Council Member under Pete Wilson, Governor of California (1999); and received an Honorary Doctorate of Business Administration from California International Business University, San Diego, California (2004).
He has been profiled in The New York Times, The Wall Street Journal, Forbes, Business Week, Red Herring, and Upside, and is a frequent public speaker.
Jerry Kaplan: 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 learning 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, the smallest 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 responded 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. You can buy it. You can not 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 program. 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.
Companies like Amazon take advantage of the fact they know a whole lot more about buying patterns than you do. As author and entrepreneur Jerry Kaplan explains, information asymmetry is the real crux of Amazon's business plan. That Amazon sells goods is incidental. The real money is generated by machine learning algorithms that can deftly achieve arbitrage: the ability to set prices in a way that maximizes profits. So the next time you spot a price shift for a product you've been keeping an eye on, know that a hyper-intelligent computer system has for just as long kept its eye on you, and it's smarter than you think.
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- Levamisole can thin out the prefrontal cortex and affect cognitive skills.
- Government health programs should encourage testing of cocaine for purity.
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Political division is nothing new. Throughout American history there have been numerous flare ups in which the political arena was more than just tense but incideniary. In a letter addressed to William Hamilton in 1800, Thomas Jefferson once lamented about how an emotional fervor had swept over the populace in regards to a certain political issue at the time. It disturbed him greatly to see how these political issues seemed to seep into every area of life and even affect people's interpersonal relationships. At one point in the letter he states:
"I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend."
Today, we Americans find ourselves in a similar situation, with our political environment even more splintered due to a number of factors. The advent of mass digital media, siloed identity-driven political groups, and a societal lack of understanding of basic discursive fundamentals all contribute to the problem.
Civil discourse has fallen to an all time low.
The question that the American populace needs to ask itself now is: how do we fix it?
Discursive fundamentals need to be taught to preserve free expression
In a 2017 Free Speech and Tolerance Survey by Cato, it was found that 71% of Americans believe that political correctness had silenced important discussions necessary to our society. Many have pointed to draconian university policies regarding political correctness as a contributing factor to this phenomenon.
It's a great irony that, colleges, once true bastions of free-speech, counterculture and progressiveness, have now devolved into reactionary tribal politics.
Many years ago, one could count on the fact that universities would be the first places where you could espouse and debate any controversial idea without consequence. The decline of staple subjects that deal with the wisdom of the ancients, historical reference points, and civic discourse could be to blame for this exaggerated partisanship boiling on campuses.
Young people seeking an education are given a disservice when fed biased ideology, even if such ideology is presented with the best of intentions. Politics are but one small sliver for society and the human condition at large. Universities would do well to instead teach the principles of healthy discourse and engagement across the ideological spectrum.
The fundamentals of logic, debate and the rich artistic heritage of western civilization need to be the central focus of an education. They help to create a well-rounded citizen that can deal with controversial political issues.
It has been found that in the abstract, college students generally support and endorse the first amendment, but there's a catch when it comes to actually practicing it. This was explored in a Gallup survey titled: Free Expression on Campus: What college students think about First amendment issues.
In their findings the authors state:
"The vast majority say free speech is important to democracy and favor an open learning environment that promotes the airing of a wide variety of ideas. However, the actions of some students in recent years — from milder actions such as claiming to be threatened by messages written in chalk promoting Trump's candidacy to the most extreme acts of engaging in violence to stop attempted speeches — raise issues of just how committed college students are to
upholding First Amendment ideals.
Most college students do not condone more aggressive actions to squelch speech, like violence and shouting down speakers, although there are some who do. However, students do support many policies or actions that place limits on speech, including free speech zones, speech codes and campus prohibitions on hate speech, suggesting that their commitment to free speech has limits. As one example, barely a majority think handing out literature on controversial issues is "always acceptable."
With this in mind, the problems seen on college campuses are also being seen on a whole through other pockets of society and regular everyday civic discourse. Look no further than the dreaded and cliche prospect of political discussion at Thanksgiving dinner.
Talking politics at Thanksgiving dinner
As a result of this increased tribalization of views, it's becoming increasingly more difficult to engage in polite conversation with people possessing opposing viewpoints. The authors of a recent Hidden Tribes study broke down the political "tribes" in which many find themselves in:
- Progressive Activists: younger, highly engaged, secular, cosmopolitan, angry.
- Traditional Liberals: older, retired, open to compromise, rational, cautious.
- Passive Liberals: unhappy, insecure, distrustful, disillusioned.
- Politically Disengaged: young, low income, distrustful, detached, patriotic, conspiratorial
- Moderates: engaged, civic-minded, middle-of-the-road, pessimistic, Protestant.
- Traditional Conservatives: religious, middle class, patriotic, moralistic.
- Devoted Conservatives: white, retired, highly engaged, uncompromising,
Understanding these different viewpoints and the hidden tribes we may belong to will be essential in having conversations with those we disagree with. This might just come to a head when it's Thanksgiving and you have a mix of many different personalities, ages, and viewpoints.
It's interesting to note the authors found that:
"Tribe membership shows strong reliability in predicting views across different political topics."
You'll find that depending on what group you identify with, that nearly 100 percent of the time you'll believe in the same way the rest of your group constituents do.
Here are some statistics on differing viewpoints according to political party:
- 51% of staunch liberals say it's "morally acceptable" to punch Nazis.
- 53% of Republicans favor stripping U.S. citizenship from people who burn the American flag.
- 51% of Democrats support a law that requires Americans use transgender people's preferred gender pronouns.
- 65% of Republicans say NFL players should be fired if they refuse to stand for the anthem.
- 58% of Democrats say employers should punish employees for offensive Facebook posts.
- 47% of Republicans favor bans on building new mosques.
Understanding the fact that tribal membership indicates what you believe, can help you return to the fundamentals for proper political engagement
Here are some guidelines for civic discourse that might come in handy:
- Avoid logical fallacies. Essentially at the core, a logical fallacy is anything that detracts from the debate and seeks to attack the person rather than the idea and stray from the topic at hand.
- Practice inclusion and listen to who you're speaking to.
- Have the idea that there is nothing out of bounds for inquiry or conversation once you get down to an even stronger or new perspective of whatever you were discussing.
- Keep in mind the maxim of : Do not listen with the intent to reply. But with the intent to understand.
- We're not trying to proselytize nor shout others down with our rhetoric, but come to understand one another again.
- If we're tied too closely to some in-group we no longer become an individual but a clone of someone else's ideology.
Civic discourse in the divisive age
Debate and civic discourse is inherently messy. Add into the mix an ignorance of history, rabid politicization and debased political discourse, you can see that it will be very difficult in mending this discursive staple of a functional civilization.
There is still hope that this great divide can be mended, because it has to be. The Hidden Tribes authors at one point state:
"In the era of social media and partisan news outlets, America's differences have become
dangerously tribal, fueled by a culture of outrage and taking offense. For the combatants,
the other side can no longer be tolerated, and no price is too high to defeat them.
These tensions are poisoning personal relationships, consuming our politics and
putting our democracy in peril.
Once a country has become tribalized, debates about contested issues from
immigration and trade to economic management, climate change and national security,
become shaped by larger tribal identities. Policy debate gives way to tribal conflicts.
Polarization and tribalism are self-reinforcing and will likely continue to accelerate.
The work of rebuilding our fragmented society needs to start now. It extends from
re-connecting people across the lines of division in local communities all the way to
building a renewed sense of national identity: a bigger story of us."
We need to start teaching people how to approach subjects from less of an emotional or baseless educational bias or identity, especially in the event that the subject matter could be construed to be controversial or uncomfortable.
This will be the beginning of a new era of understanding, inclusion and the defeat of regressive philosophies that threaten the core of our nation and civilization.
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