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From World War II to the financial crisis, our institutional memory is fading fast

From World War II to the financial crisis, our institutional memory is fading fast

The young contestants on Lord Sugar’s reality TV show The Apprentice sparked outrage last week.

They appeared to have virtually no knowledge about the Second World War.

The online clips of the sequence capture to perfection their expressions of bovine outrage at even being expected to know such an esoteric thing as how long the War lasted. For many viewers, it was a powerful argument for an immediate raising of the voting age to at least 35.

Trying to be fair, I reflected on my own knowledge of the Boer War. The gap between that and my birth is not that much more than the one between World War II and Lord Sugar’s wannabes.

I have to confess that it is very sketchy. I know it was around 1900. The Boers nearly pulled off a shock victory, but our boys pipped them in extra time. And there was a siege at somewhere called Mafeking.

That said, the Second World War is of far more historic significance than Britain’s colonial skirmishes. The participants in The Apprentice might, one would think, be expected to know more about it.

Their ignorance reflects a more general trend towards what can be described as a shortening of cultural memory.

This can be seen in many seemingly unrelated ways.

Baby names, for example, are important indicators of culture. The example may seem slightly frivolous but, as the American polymath Stephen Pinker has written, the choice of name “encapsulates the great contradiction in human life: between the desire to fit in and the desire to be unique”.

Whenever there is a royal birth in the UK, the name given to the new baby enjoys a surge in popularity as people copy what is fashionable. But there is also the desire to give your baby a distinctive name.

In the twenty-first century, the turnover in popularity of names has increased dramatically.  It was steady for almost the whole of the twentieth century – once a name had made it into the top 10, say, it tended to stay there a long time. But the “churn” is now running at a rate nearly 10 times greater.

The outcomes of behaviour on the internet provide a more obvious example. At any point in time, the most popular memes on Twitter or the most viewed videos on YouTube are often millions of times more popular than the average. But their popularity is ephemeral.

In what many would regard as far more serious areas of economic activity, away from popular culture, this shortening of collective memory may have disturbing consequences for all of us.

In financial markets, for example, there is a traditional tale that a crisis happens precisely when the institutional memory of the last crisis has faded. But if traders and decision-makers develop shortened memories, crises could become more frequent.

Already bodies such as the International Monetary Fund are warning about the build-up of private sector debt, even though it is scarcely a decade since such debt precipitated the global financial crisis.

The apparent ignorance of The Apprentice candidates offers a warning to us all.

As published in City AM Wednesday 6th November 2019 
Image: World War Two posters by Andrew Curtis  via Geograph licensed for use CC BY-SA 2.0
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If there is something fishy about influencers, why do we take the bait?

If there is something fishy about influencers, why do we take the bait?
Social media influencer, Yovana Mendoza, provided an amusing diversion from Brexit last week. The 20-something vlogger built a very lucrative personal brand around veganism. She amassed over 3m followers on YouTube and Instagram by advocating a raw vegan diet and 25-day water fasts. All seemed to be going well until a competitor observed and filmed Mendoza eating seafood. The vlogger’s embarrassment was compounded by the fact that she tried to hide the fish. Unsurprisingly, the ensuing video went viral. Mendoza performed what has become the ritual apology on online media: “It was the worst day of my life. I felt like someone had died,” she posted. “Someone did”, was one of the less abusive responses, “the fish”. The final act in the saga was her own video in which she confessed to eating fish “for health reasons”. The episode illustrates some fundamental features of the online world. It shows how the popularity of products or ideas need not necessarily be connected to the inherent merits of the offer. There has always been a strong tendency in popular culture for success to breed success. Things become desirable, not necessarily on account of their inherent qualities, but simply because they are already popular. The internet compounds these tendencies. The inherent attributes of products become outweighed by the effect of social influence on the choices that people make. In more conventional markets, where social influence is weak, economic theory has a good understanding of how consumers behave. In this type of market, consumers gather information on the attributes of the alternatives, such as price and quality, choosing products based on their individual preferences and affordability. In recent decades, the theory has been expanded to incorporate situations in which consumers don’t have all the information to hand. But it is still essentially based on the idea that people compare what a product offers with what they want. This differs in the online world, because what people want is altered by observing what other people want. For example, Mendoza sought to convince her 3m followers that raw veganism and extreme water fasts were part of a healthy lifestyle, despite not following her own advice. There is no suggestion that Mendoza’s work is fake. But the high emotional content that she regularly published gave it a better chance of being noticed and spread by social influence. People are learning this fast, and the use of “clickbait” is spreading rapidly. The largest ever study on fake news was published just over a year ago in the Science journal, and it concluded that fake news and rumours tended to spread much faster and reach more people than accurate stories. A key reason is that fake news typically shows a much higher level of emotion in their overall content. The question is whether we will all learn to see through this and start behaving rationally again. But the furore around Brexit suggests that we have some way to go. Paul Ormerod 
As published in City AM Wednesday 3rd April 2019
Image: Clickbait by Pete Unseth via Wikimedia is licensed under CC BY-SA 3.0
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Move over Facebook and Apple, the next generation of customers has other ideas

Move over Facebook and Apple, the next generation of customers has other ideas

A visit to Rochdale Sixth Form College was a cheering experience last week.

This year, 55 per cent of A-levels were at grades A* to B.

True, Eton and Winchester do better. But this track record shows that even poor boroughs – and Rochdale is one of the poorest – have the capacity to deliver high-quality education with good leadership and teaching.

I gave a talk to over 200 A-level students of economics and computer science. They were a lively bunch who asked interesting questions. But the most fascinating piece of information I obtained was in the informal discussions afterwards.

Literally none of these 16-18-year-olds was on Facebook. They all used other apps to communicate with each other and share stories.

Globally, of course, Facebook continues to grow. The latest statistics give the site 2.27bn users who are active at least once a month. This is an increase of some 10 per cent compared to a year ago.

To set against this, it was only just over three months ago that Facebook suffered the biggest one-day loss in the history of Wall Street. The company’s shares dropped nearly 19 per cent.

This appears, with the benefit of hindsight, to have been due to a perception among investors that the reported growth in users was below expectations.

The biggest demographic of users is the 25-34 age group. But right in front of me was a group of bright young people from the demographic immediately below this. And there were no Facebook users.

A powerful way of understanding how things spread on social networks is based on work by the Scots Anderson McKendrick and William Kermack in 1927. This pioneered the mathematical analysis of how epidemics either spread or are contained in a population.

There is now a huge and complex body of scientific literature built on these foundations. But a fundamental point remains: for an epidemic to be sustained, a supply of new people who are susceptible to it is necessary. Otherwise, it eventually fades away.

A related problem seems to confront Apple. The tech company’s shares fell seven per cent in a single day last Friday, on fears that iPhone sales have peaked. In other words, the number of people buying the new models has plateaued – at best.

Apple’s chief executive, Tim Cook, warned that sales for the Christmas trading period could fall short of Wall Street’s forecasts.

What made the markets even more nervous was the announcement from the company that it would stop publishing the volumes of phones, tablets, and laptops sold. Apple has provided this information during its period of spectacular sales growth over the past 20 years.

Among the students I met, so-called “dumb phones” are rising in popularity. These are designed just to make calls and send texts.

The tech giants are increasingly seen as dangerous monopolies. But in an evolving market economy, even the biggest firm will eventually fail. The Rochdale students could well be revealing the future.

As published in City AM Wednesday 14th November 2018

Image: Smartphone Users by Pxhere under CC0 1.0
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Facebook, facts, and alternative fictions: How to predict the narrative of the future

Facebook, facts, and alternative fictions: How to predict the narrative of the future

Last Thursday, Facebook suffered the biggest one-day loss in the history of Wall Street.

The company’s shares dropped nearly 19 per cent.

Rather incredibly, Facebook reported an increase in revenue of no less than 42 per cent over the same quarter last year, and a rise in profits of 31 per cent.

But the narrative which swept the markets was wholly negative. Investors focused on the less-than-expected growth in new users, and on the company’s projection that its profit margins will fall in 2019 – from its current 44 per cent to just the mid-30s.

A wholly plausible alternative story would have been that the company continued to grow very strongly, but there would be some slow-down from the recent stratospheric rates of expansion. And the board was fully aware of the situation – this was not an adverse surprise.

The facts could have been used in support of either of these narratives. Yet one of them prevailed, and the other got no traction at all.

Objective evidence was perhaps a stronger element in the 20 per cent fall in the Twitter share price the day after the Facebook plunge. The company reported a drop of one million users following its action to delete fake and offensive accounts.

But even here, a different story could readily be concocted. A potentially major problem had arisen, but the company had taken decisive action to deal with it. Further, its efforts to monetise the platform were starting to work.

John Maynard Keynes emphasised the importance of narratives, rather than mere facts, in financial markets. He described what has subsequently become known as the Beauty Contest Game.

In the politically incorrect 1930s, newspapers would run competitions based on pictures of young women in bathing costumes. But the winner did not have to judge which of them was in some objective sense the most beautiful. Rather, they had to guess which one most entrants would select as the best.

Keynes pointed out that this can rapidly become even more complicated in the markets. As he put it so elegantly: “We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.”

Scientific advances in the twenty-first century are making it possible to anticipate which narrative around a particular event will predominate.

There are two separate aspects of this. The first relates to our understanding of how ideas or stories either spread or are contained across networks of individuals. It turns out that where a narrative gets its initial traction in the network can be much more important than its actual content.

The second of course is the development of artificial intelligence and big data. These technologies enable the networks which connect people, whether on Twitter or in financial markets, to be mapped in detail.

It is not just hedge funds but central banks such as the Bank of England that are interested in these exciting new technologies. There is power to be had in mapping alternative narratives and predicting the future.

As published in City AM Wednesday 1st August 2018

Image: Social Media by Pxhere is licensed under CC-BY-1.0
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‘Expertise’ has become a tool of the liberal establishment to drown out opposing views

‘Expertise’ has become a tool of the liberal establishment to drown out opposing views

The row over the Conservative-supporting journalist Toby Young’s appointment to the universities watchdog has been intense. Despite the relative obscurity of this public position, the left wing Twitterati have been besides themselves with rage. The affair has culminated in his resignation, over some tweets he posted. They are certainly a bit near the knuckle, to say the least.

Yet a great deal of Twitter consists of verbal abuse of one kind or another. Perhaps sensitive souls should steer clear of this medium of communication.

There was an altogether more sinister and fundamental aspect to the attacks on Young. He was deemed by many academics to lack suitable qualifications for the post. He did not have sufficient “expertise”.

Danny Blanchflower, a Gordon Brown appointment to the Monetary Policy Committee, called him “totally unqualified” and suggested that universities should boycott the Office for Students until Young is fired. It would be a diversion to recall Blanchflower’s own prediction that unemployment under George Osborne could rise to 4 or even 5 million. Forecasting errors of this magnitude seem an essential qualification to be on the MPC.

Young was educated at both Oxford and Harvard and taught at Cambridge. He is a founder of the successful New Schools Network. So it may not be readily apparent to the non-expert why he lacked the skills to serve on a body which regulates universities.

Perhaps a clue lies in the abuse of Patrick Minford in the latest issue of the newsletter of the Royal Economic Society (RES). Minford, a distinguished academic economist, is a strong supporter of Brexit.

The BBC is attacked in the newsletter for giving publicity to a report by Minford published by the group Economists for Free Trade. An Oxford professor is cited with approval for saying that Minford is not an expert in international trade. His views on the topic are those of a “maverick”.

Very few economists specialise in international trade. I have to confess here that I was one of the few to take the then available option on international trade theory in my final year at Cambridge. But I did so on the grounds that it seemed pretty straightforward and easy.

But a lack of this esoteric expertise has not prevented the “overwhelming majority of the economics profession”, according to the RES newsletter, from disapproving wholeheartedly of Brexit.

Underlying the great turmoil of politics at the moment is precisely the view that the “experts” are less trustworthy and objective than they purport to be. The suspicion is that they attempt to appear knowledgeable to impose the policies they prefer all along.

If we have a question on quantum physics, we might reasonably rely on an answer from Stephen Hawking. More prosaically, we can rely on an engineer to build us a bridge.

But many economic and social issues, such as Brexit or regulating universities, are far more complex. They do not admit answers which are scientifically proven in the same way.

What we are seeing is a concerted attempt by the metropolitan liberal elite to impose a bogus consensus on us. One which, dressed up as “expertise”, excludes any other views.

As published in City AM Wednesday 10th January 2018

Image: Twitter screen by Photo-Mix is licensed under CC by 0.0
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Companies that bow to the social media mob are operating in the wrong century

Companies that bow to the social media mob are operating in the wrong century

Pizza Hut is the latest addition to the list of companies grovelling to criticism on social media.

The restaurant chain tweeted an apology for running a promotion in the Sun newspaper.

A few weeks ago, Paperchase said that it would not place any more marketing campaigns with the Daily Mail after receiving “hundreds” of complaints.

In the public sphere, last year Greater Manchester Police staged a simulated terror attack in the massive Trafford Park retail complex. The carnage began, realistically, with the cry “Allahu Akbar”. Following a Twitter storm, the police felt forced to apologise.

Boris Johnson, in his inimitable style, has condemned Pizza Hut and Paperchase for being “cowardly”. The campaign against them was run a by a small group of hard-left activists calling themselves Stop Funding Hate.

But examples such as these raise a more important question. Which century is British management living in?

After being attacked by critics on social media, many outfits respond with blind panic. A famous Monty Python sketch depicts the novel Wuthering Heights, not in words but in semaphore, a nineteenth century technology. Many senior managers seem to remain stuck at this level of communications technology.

Scientific knowledge of how things spread on social media such as Twitter has grown enormously in the last few years. Yet swathes of top management appear to be completely unaware of this work.

A high-powered study published last year by the physicists Guido Caldarelli and Gene Stanley, editor of the top statistical physics journal Physica A, confirmed that social media users typically form communities of interest which foster confirmation bias, segregation, and polarisation.

In other words, in general people on social media are preaching to the already converted.

With Rickard Nyman, a computer science colleague at UCL, I conducted a real-time analysis of the tweets during the Brexit campaign. Modern algorithms reveal as clear as day that there were two communities, with little connection to each other. One group was talking about what they would see as the “grown-up” themes of employment, the economy, trade and such like. The other, in essence, just didn’t like foreigners all that much.

The key moment was when, with just over two weeks to go, immigration began to get traction as a theme amongst the “Remain” Twitter community. Otherwise, the two groups were just reinforcing existing opinions and prejudices.

More is known. A significant proportion of tweets do not get retweeted at all. And it is the act of retweeting which shows that the recipient is paying attention.

Simply being a follower and reading a tweet involves effectively zero effort. The number of followers is a very weak indicator of a person’s influence.

Most tweets which express strong emotions essentially just fade away. It is the more balanced ones which have a greater chance of getting traction across the network.

The most depressing thing about the reactions of companies and public bodies to social media attacks is not, as Boris would have it, their cowardice. It is that they seem to show very little understanding of modern technology.

As published in City AM Wednesday 13th December 2017

Image: Pizza Hut via Stephen McKay is licensed under CC by 2.0
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