Modern Manipulation: How Tech Companies Are Using Behavioral Economics (w/ Raoul Pal and Dee Smith)


Dee Smith: So Raoul, it’s great to see you
again. Raoul Pal: It’s great to see you. DS: Well, here in New York in your wonderful
new offices. RP: In the new studio. DS: Absolutely. It’s great so really looking forward to talking
about a few things that we’ve talked about in the past and somethings maybe we haven’t. RP: There’s a lot going on all right. DS: There is a lot going on in the world. There is a lot going on. So I’d like to start with that actually. Where do you think we are in terms of markets,
in terms of just the general place where we find ourselves? RP: I’ve spent some time thinking about this,
and a lot of my framework of thinking actually came from your piece World On The Brink when
I try to understand it in the really big context, not just the minutiae of what the market’s
doing today, or where the world is today, or the trade negotiations. But in the big picture, I just see that things
are changing, and people need an understanding of things like what the rules-based global
order system is and what it means, which was really introduced to from you in that piece. I didn’t really understand the framework of
how much of the world we understand today operates because it wasn’t that relevant to
me because it worked. So I never tested it. I never thought about it. But now, we’re seeing some changes that are
really big. Now, does it mean that we are going beyond
what we know into a whole new system? When I read The Fourth Turning by Neil Howe,
which I think I’ve talked to you about before is it was very suggestive that generationally
these kind of cycles happen, and the world obviously contracts and expands in its economic
political thought process. And for me, it feels like this is the time. That it feels like things are getting more
extreme, whether it’s economic policy or the political situation. And the world political situation is getting
more extreme, more polarized. That usually when you get one extreme, you
either get the opposite extreme and eventually as the system comes near to breaking, you
find some sort of middle ground. And I just feel like we’re somewhere in that. DS: That Hegelian synthesis– thesis, antithesis,
synthesis– seems to not be working right now. And it seems like we’re at a point at which
we have not been for a long time as a civilization. But it seems to me that there are different
things going on– the role of technology, which is at a level and in the direction nobody
ever anticipated. The size of the population, which has in my
lifetime, tripled. I mean, it’s astonishing. And the role that those things have played
in increasing the divisiveness of the world. And so you see this splintering effect for
example that I think is manifest in all sorts of areas that nobody anticipated really. RP: Yeah, and the other thing I think is the
demographic– the aging population of the West. And now increasingly China is something that
we don’t know how to deal with because people have entirely different perceptions when they’re
retired for example than when then 30. When you have this many people going through
changes, they become risk averse or they want to look back in the past. That’s a particular focus I know you’ve looked
at it is that kind of focus of what was steady and good in the past or perceived to be steady
and good in the past– is that applicable in the kind of world that we’re talking about
where technology is fracturing and changing society so dramatically that people don’t
really have an understanding of what even is going on. DS: Yeah, well, as you know, I would argue
that it isn’t. It’s the politics of nostalgia, and it’s this
desire to return to what was seen to be a simpler time. But you know in thinking about that as having
finished World on the Brink and just seeing the world change– really when you stop and
think about the ’60s and ’70s, it was a time in which we were faced with nuclear annihilation
between the US and the Soviet Union. They were hiding kids under their desks and
doing drills that of course wouldn’t have protected anybody from anything. So it really wasn’t a golden age, but we see
it as that – RP: And if I look back on film clips or even where I remember growing up
in the late ’70s, in England, it was miner strikes. It was misery. It was inflation. It was no jobs. For instance, the music of the time– it’s
all about how disgruntled and miserable people were. So to look back on that and say those were
the great periods– in Britain for example– and again, I don’t want to make this political,
but more observational– is looking back and saying they were the great times before the
European Union. I don’t see that. And again, I’m not passing judgment the European
Union because I don’t want to get the comment section filled with politics. I just want people to observe what’s going
on. DS: Yeah, I think you’re exactly right, and
I also think that there’s an effect here of simply not being able to put yourself in the
shoes that you were in, in the past. And a friend of mine told me that someone
in England had mentioned to him that, in discussing Brexit, had said this remark, which I thought
was very pithy and expressed a lot of the attitudes of a large part of the British population. They said we would be happy to be measurably
less wealthy to be measurably more British, and that I thought was a very telling remark. Have you run across similar things in? RP: I think there are different narratives
from different people because society is fracturing. And not just in the UK, whether it’s Catalonia,
or whether it’s in the US, or all over the world where we’re seeing this. We’re seeing a little bit at– well, a significant
amount of this in Italy. I think we’ll see the rise in Germany. Different levels of dissatisfaction and discontent
coming from different narratives all rolling into one. It’s people don’t know who to blame for the
situation we’re in, and I think we should talk a little bit about some of the triggers
that got us here. So therefore these narratives get rolled into
one. So Brexit it becomes it. Or Trump or anti-Trump comes the other. When really that’s not the issue. That’s just the superficial level of what
caused these issues in the first place. Why did real wage growth remain stagnant or
shrink since the ’70s? Those are the questions. How much is globalization– it’s very fashionable
to think of globalization as the great opportunity for everybody. But it wasn’t. It was a really mixed thing. And one of the things that had a profound
impact on me was seeing James Goldsmith’s interview with Charlie Rose. This was back in 1996 after NAFTA was first
put in place, and they were negotiating the WTO. And James Goldsmith was a pure capitalist. He’s not a European socialist of the old-
but he was half French, half English. And he sat there and argued with everybody
every way he could to say what you’re about to do is wrong. Because you are going to give the full competitive
advantage to those with the cheapest labor force. So you’re just going to create labor force
arbitrage. And clearly in countries with expensive labor
force you’re going to destroy the labor force and their wages, and that will create social
unrest. It will create populism, and it will create
all things that we got to. It’s so prophetic. His answer was– and I think rightly so–
was have globalization but on equal terms. So his terms were if you want to compete in
China’s market, have a factory in China. Hire Chinese labor force and sell to China. If the Chinese want to be in the US, do it
that way. So you’re on a equal footing. So he kind of believed in some sort of tariff
system. And I had not come across that because everyone
before was so free market capitalist. I thought you know, maybe he’s right. So I understand why the Trump tariffs also
appeal to people, but also he was dead right what the outcome would be– this is Goldsmith–
would be this huge disparity. And in the end, it questions what the role
of government is. Is it for the people or for GDP growth? DS: Well, and this gets into a whole complex
of issues. And I think one of the things people are now
starting to talk about is hyper- globalization. It’s a term that’s now being used. You’re starting to see it. And the context that that’s usually given
in is the idea that globalization became a good in and of itself– became seen to be
a good in and of itself. And this process was encouraged simply of
its own accord, of its own merit without looking at what the actual outcomes of it were. And it became a kind of a thought camp, kind
of a groupthink. RP: Yeah, at all cost. DS: And unquestioned. And that led to a point at which the benefits
became– it is a benefit to be able to buy a $300 flat screen TV. No question. And that is a result of globalization. And it’s the kind of idea that things produced
at the cheapest possible price would benefit everyone– that sort of idea. But it tipped. The tipping point came. I would argue– and I know some of the people
in World on the Brink argue this too– when the financial crash of 2008-2009 happened
and suddenly the tables turned for so many people where there might have been some marginal
advantage to what they were seeing from globalism even though their wages were actually suppressed
or certainly had not advanced in real terms. But they were able to buy certain things,
and that was a compensation. And then suddenly, the bottom fell out of
it. So you had some very interesting observations
the last time we talked about how we got to where we are, and the role of debt, and its
origins. And I would love to hear you talk about that
again. RP: Yeah, my view on this is that is to get
to where we are today, we need to understand where we came from. And my view on this was it’s all about the
baby boomers, and it’s always the law of unintended consequences. Nobody really realizes what’s happening until
way too late. And then these kind of things– these big
political economic things– they take a long time before you realize the mess you got yourself
into. So if you think of the baby boomers– their
parents were austere. They lived through two world wars. They didn’t spend money. They had high savings rates. Nothing was frivolous. Everything had a function and a form. So then this massive population of young people
rebelled against that system as everybody does. So what they wanted was they want to do the
opposite of their parents. Most of us do that. So a couple of things happened. One was Wall Street picked up on it really
quickly, as Wall Street is quick to figure out how to make a buck out of people’s change
in sentiment. And the quick thing that they decided was
that why should you save like your parents saved? 20%? 30% of your income saving? We don’t need to do that because some smart
guy on Wall Street can take 5% of your income and magically turn it into your retirement
fortune. So you don’t have to do that, so you can go
and spend more money. There was another sub-narrative, which was
the post-World War II narrative across the world, which was spend– particularly prevalent
in America. Consumption was the savior of the US economy. So that was ingrained in these young kids’
heads. Consume, consume. Wall Street says, well, we can allow you to
consume. So up starts the pension system and the financialization
of the economy. So that is a slow process because all of these
baby boomers are young. So they’re not saving any money– much like
the millennials now. But as they started hitting the 30s, that
money started to really accumulate because it was a proportion of their income, and their
income’s are rising because they were going into jobs. And the economy was strong, et cetera. Then the second thing happens. So we’re about in 1980, 1982. And Margaret Thatcher did something that I
don’t think most people realized changed everything. Is she realized to bring the working classes
into the labor force, the best thing to do was let them invest in the economy by having
a house, which was a stroke of political genius and turned tons of working classes into middle
classes by being property owners. And that was the council houses in England. So they were government-owned housing projects,
and they basically sold them off for nothing– basically giving free money much like the
Russians did with the mining properties and stuff like that. So it politicized a whole bunch of people
who became conservative voters, which gave the whole strength to the Conservative Party
through the entire ’80s and into the ’90s. But what it did is turn people with no debt–
literally no debt– into massive debtors overnight and taught them that debt was good. Borrow money, you’ll get rich. At the same time, they liberalized credit
cards and other forms of borrowing for consumers. So therefore you didn’t have to save any money
to buy anything. The pension was taken care of by the smart
guy on Wall Street, and Wall Street had basically financialized your credit. So you now had a mortgage, and now you had
credit card debt. And now you had higher purchase. Then you were buying cars on lease. That was the big move, and this spread to
the US very quickly. Reagan had seen what had happened and realized
that it would incentivize Americans too. So this whole thing was great. It creates an enormous boom in the ’80s. But what happened was the debt boom became
huge because people borrowed more, and more, and more to drive that consumption that was
now ingrained within them. And then the governments were doing the same,
and the private sector was doing the same. And everybody– because interest rates were
falling often due to demographics. And so this whole thing created this enormous
debt bubble. But the other thing that really interests
me– a lot people talk about the debt bubble– but what really interested me is what they
did, which is, I think, the seed of the whole problem, is there used to be a division between
capital and labor. If you have the capital- – i.e. you had money–
you could risk it because you understood the risk. It was your capital to risk. If you were labor, you earned your income
to then eventually retire and leave the labor pool. And what happened is they made labor capital. Because you took savings from people that
ordinarily would have been in cash and leveraged them. The system leveraged all of this money. So people were then taking undue massive risk,
huge stock market risk, and massive debt risk. And they didn’t really realize they were doing
it. They didn’t realize that they had become the
leverage, or they had become the collateral for the global financial system. Because if you think of the world that we
live in now with hedge funds, and private equity, and venture capital, and all of this
stuff– it’s all leveraged capital base of the savings of retirement money. There’s very little other money out there. DS: That’s right. RP: There’s central bank leverage money, but
that’s just leveraging this collateral of the system. DS: Which is why pension plans are among the
world’s largest investors. RP: Exactly. Exactly. And so if that’s the collateral, you’ve turned
these people– they’re now risk takers, and they don’t know it. So 2000 came along, and they kind of got away
with it. Many people lost quite a lot of money. But when the collateral part of the system
started to break down in 2008 and the houses collapsed, which was their collateral, which
was then collateral within the financial system and that leverage built upon leverage– everyone
was like, I didn’t know I was doing this. And that was because they basically got taken
advantage of. This is why the financial system so out-sized
versus any other time in history because we turned labor into capital, and they didn’t
know the risk they were taking. So how do you unwind that system? Well, what you’ve got is now there’s disgruntlement
because I’ve lost money. My real wages have gone down. Globalization didn’t quite work in the same
way that I thought. Also you’ve got those bifurcated inflation
rates where anything globalized is ultra cheap, and anything non-globalized like health care,
pharmaceuticals, education is ultra expensive. So they’ve got themselves into a really difficult
situation of which they’re angry. The retirees– the baby boomers– are now
angry because they can’t retire. The young people are angry because they have
not as many opportunities, and they’re now having to do things like borrow money to get
an education. That didn’t used to occur. So we’ve now got those two bifurcated parts,
and then we’ve got the middle of the destruction of industries that were never replaced by
capital intensive industries– the shift to the global services economy. All this has happened at the same time. And then, as you rightly say, you throw in
technology. And the outcomes become kind of warp speed
in how fast they come, and the inability to people to deal with that is huge. DS: And the debt bubble is bigger now than
it was in 2008. RP: That’s right. DS: By quite a large margin. RP: Yeah, and it’s shifted around. And now the emerging markets are part of the
debt bubble. So they’ve got $15 trillion dollars that they
borrowed of dollars. So this whole leverage upon leverage upon
leverage is still there. But my fear is that we are getting to many
tipping points and that these are not quick things that overnight. But those baby boomers are leaving the labor
force, and they’re retiring. I mentioned in Real Vision several times when
my father retired, what did he do? His spending went straight down– fell probably
60% in the first year. And it’s probably 80% less until he recently
became ill– 80% less than where it was at peak. So that’s so deflationary. But also, what did he do? He sells off his pension. He switched to fixed income. So he’s selling off equities. You start thinking about downsizing houses,
buy a new car, and those things. But if those people, which are basically the
collateral of the financial system– most of it’s owned by these baby boomers– if they
start divesting the collateral of the system, the whole leverage has to shrink. DS: And they will because they simply don’t
have enough money. Because they didn’t save 30%. RP: What they’re going to do? Die with a basket of equities? DS: Exactly. RP: No, the idea is that it was there to save. And now the problem is, is we go back to the
original story– that smart guy on Wall Street never made them the money they were supposed
to make. DS: That’s right. RP: So they haven’t got the money they thought
they had, and they would have been much better to have invested 20% of their savings and
put it in the bank. But Wall Street lied to them. DS: Well, one of the things that I think gets
lost in this whole argument is a visceral understanding of what debt is. Because debt is borrowing from the future
to pay for the present. And it only works if the future is always
wealthier than the present. And I think we’ve lost sight of that. RP: Yeah, although there is some complication,
I’m not clear in my mind whether government debt falls into that category. We thought it did. We think of it like a household balance sheet,
but maybe it’s not. DS: Well, that’s true. And this is one of the great fallacies is
that people say it’s easy to run a government. You just run it like a household. But households and governments are entirely
different. For one thing, most households don’t print
money. But nevertheless, I think that– and we don’t
really understand what government debt is. And some people claim we don’t understand
what money is, as you know. But there certainly is an underlying presumption
about debt that it is based on a rosier future than the present. RP: Well, student debt is the clearest example,
right? That you’re going to get a payoff from the
money you borrowed that bought you an education that’s going to give you a return on your
capital or on the debt. But maybe that’s the fallacy like the debt
on mortgages was or the fallacy like the equity market was. And it seems to be playing out that if there’s
too much desire for debt to buy something with, usually the thing you’re buying is worthless. I haven’t got it. It’s excess leverage and excess speculation,
or excess desire for something. And it feels like an education is almost becoming
worthless, particularly– and we’ll talk about this when we go forward– is what education
do you need now? What is actually pleasurable to the world
we’re moving into? It’s not clear. DS: It’s not. But it is clear that certain jobs- some of
which are very highly paid, many of which are not– are much more subject to replacement
by automation than others and the ones that are creative. RP: I thought that. And I thought that all creative arts were
not going to be replaced, but I’m even seeing music made by algorithm. And I’m seeing, yes, OK, It doesn’t fall into
the realms of genius and the greatness that great artists do. But for the majority of the population, a
lot of music is now basically an algorithm. So I’m now thinking, OK, well maybe painting
can be as well? Maybe all forms of art work? And that makes me really miserable about OK,
well, who does have a role for the future? And maybe the answer for that is– and I think
we’ve talked about this before– is birth rate collapse. And we think birth rates are low now, but
maybe then they go down to a half. Because in many nations they’re 1.0– 1.3
in some parts of Europe per family. So they’re not replacing. They’re shrinking dramatically. But maybe they’ll fall even further because
there is no actual need for as many people. DS: That won’t happen in other parts of the
world very quickly though. RP: No, that’s right. DS: And that creates another kind of bad taste. RP: Another huge imbalance that’s out there. DS: There’s another discontinuity with this
that I think is just becoming apparent and that is that robots and automation– let’s
say generally artificial intelligence, automation, the world of robots– all those things together
as they replace jobs. Robots don’t buy things. So the whole consumer cycle is broken, and
this is something that is just beginning to become clear. And really, we don’t know what the implications
of it are. Because normally somebody has a job. You pay them. They go out, and they spend money. And that creates the economic cycle. But a robot doesn’t. RP: Because therefore productivity has no
benefits to the economy except to the owners of businesses to get the excess profits, if
there are any. Because with robots, you can compete away
all the profits as globalization did. So it’s not clear that it does that. You’re dead right. Where does the money come from? What is society if it’s not a consumer-based
society? OK, that’s what we understand now. Not all societies have been consumer-based
societies. DS: That’s true. RP: Maybe personal well-being is how the society
becomes over due course. Maybe it’s not. Maybe it’s some sort of self-interest with
a different rewards-based system. I don’t know. DS: This also gets into the issue of equality
because there’s another interesting argument that technology actually accentuates inequality
because technology requires investment. Investment requires wealth. So the people who invest have a disproportionate
advantage as you just mentioned of the fruits of technology. The people with less wealth have maybe a secondary
advantage. So it actually increases the divergence. It increases the inequality. RP: There’s a classic version of this that
I don’t think most people are aware of, but they need to be aware of. So there’s firms out there– and I won’t name
names. There’s a bunch of algorithmic-based AI investment
funds. So there is a world of what these guys are
doing, and there’s a world of traditional investors. So there’s a traditional portfolio manager
in Ohio looking after a state pension fund, investing in the hotel sector. He gets his research from Morgan Stanley. He goes on the conference calls. He listens to the management. He maybe looks at his charts, and he forms
his investment view. And he makes buy and sell decisions. Who he’s competing against is now not the
other fund manager in Florida’s State pension planner or whoever it is. It’s in fact with one of these firms that
ping’s– they have such huge computer power– they’re pinging every single hotel booking
website in the world millions of times a day. Because they know there’s an algorithm within
all of those booking sites that increases the price and lowers the price according to
demand. They ping it for prices. And what it’s telling them is what the occupancy
is like at every hotel they want to check in any city anywhere in the world in any economy–
in real time. So they know of course what the results are
going to be. They know at any one day how well the hotel
sector’s doing. So what chance has the poor guy who’s been
doing the work the world used to be– applying his brain, applying his blood, sweat, and
tears into his portfolio? What chance does he have? So what happens is the excess profits go to
the other guy, which is what you’re talking about. DS: Exactly. RP: The automation is creating excess profits
or super-normal profits elsewhere. Now, can those super-normal profits get competed
away? Well, we’ve seen that in the high frequency
trading industry where there were super-normal profits and then so many entrants that profits
collapsed. DS: And that can be algorithmically driven
as well. RP: Of course, of course. Once the technology’s there, the barriers
to entry actually collapse quite quickly. So I don’t know what that means either into
the overall things. There are a lot of questions here– no answers. DS: Well, I think that we’ve got to peel the
onion on the questions before we can even start to— RP: Yeah, I totally agree. DS: But one of the things that I think is
very evident– and you mentioned financialization, which I think is a huge issue. But the tie of that to short termism and the
whole way we think about the world now in terms of very short term returns, and very
short term gratification, and so forth– and again, ties back to what our ancestors who
had gone through not only two world wars but a depression though about. And they thought of much longer terms. And that, itself, has a psychological effect. And I think you’re seeing it not only with
the older generation, but I think you’re seeing it with the younger generation that they’re
interested in right now. And there is something to be said for treasure
the present moment and focus on the carpe diem and all that. But nevertheless, when your focus is entirely
on the short term, perhaps because you don’t even believe you have any idea what the long
term— RP: Or is it a behavioral aspect of we are now conditioned for a gratification-based
economy? DS: Exactly. RP: And we’ll come onto behavioral economics
later because I think this plays a big role in where all of this is going and some of
the real complications of the world. But maybe we’re now conditioned to an environment
where we want it, and we want it now just because that’s where the world’s gone. So we’ve become much more short term in nature. Now normally, for me, if I see that, I know
that the out-sized returns or the great opportunities lie in different time horizons. And wind forward the political clock 20 years
let’s say, maybe to stop this ridiculous cycle that goes through politics that people have
a 12-year term or a 10-year term. And so your vote counts, so you really make
a difference. And then you get the government in as long
as they don’t do anything illegal. The government is in and stays in, and we
don’t have those mid-term cycles of, as we’ve just gone through, a fiscal boost to goose
the economy. Then it slips off again. Then you have to have another goose to get
into the election, get re-elected. This is no way to run an economy, particularly
not an economy the size of the US, where it’s ultra-prevalent in that. And all of those things– I think the opportunity
if we’re looking for answers, the answers will lie in the opposite of short term. The opposite of things that are there now
are probably where the answer lies. Because as we talked about in the beginning,
there’s only a number of outcomes. And usually the polar opposite’s somewhere. It’s either the opposite of what we’re doing
now or a centrist ground. DS: Yeah. And of course, the other side of that equation
is that there are arguments now that the tempo of politics is mismatched to the tempo of
society so that it moves too slowly. So these political points of decision like
Brexit– and you have this thing and it’s like collapsing a waveform physics. Suddenly, it’s there, and you have to live
with it as opposed to some system where there’s a constant re-measuring, which it sounds like
science fiction now. Although it’s technologically possible. And the idea of that is that society and technology,
and the techno-social reality is moving so fast that our 19th and 18th century systems,
which posited where you elect a government or you decide on policies that you leave them
there while– it is actually mismatched. RP: So could you go to a kind of semi-referendum
based system– again, we’re just now theorizing– based on some sort of accountability system–
and I want to come into this later– using let’s say block chain technology where you
get to vote on all various issues. And you poll it. Is that a way of dealing? Switzerland does that by having its many referenda
on certain things. I don’t know if that’s the right answer because
referendums are somewhat dangerous on their own path, but it works for Switzerland. There’s not much extremism in Switzerland. The country has a path in the way it goes
and the way it does things. And it kind of works. DS: I think we would have to really understand
how well-educated the Swiss are. Because I think when historians look back,
one of the great failures I think– at least in terms of the United States– is going to
be our failure of education. Because we expect people to vote and make
decisions. Even if it’s indirect, you’re voting for politicians
in whom you’re putting a trust– political trust to make decisions on your behalf. But you’re expected to vote on a range of
very complex issues, more complex than ever. And our education system has failed to the
extent that people don’t actually understand what they’re voting for. Not because they’re not intelligent but because
they’re not sufficiently educated. RP: Yeah, but the pushback you get from suggestions
like that is oh, well, that’s an elitist world that you’re looking at. And that’s complex, and you’re right. From the ground up, people need to have a
better understanding of these things. But then it does become the intellectual elite
against the others, and does that actually take into account their voice? I’m not sure that it does either. So I get the point, but I worry that it also
misses the point. DS: I agree with you. You’re almost blocked at every— RP: That’s
right. There are no easy answers there. DS: We don’t see the answer at this point. It’s the horizon problem. It’s over the horizon. RP: Yeah, and this is where I’m super excited
and super worried about where things are going, and that’s the rise of behavioral economics. And the reason being is let’s say we go into
a world where– well, it’s happening now. In fact, politics has become behavioral. So behavioral economics came out of a guy
called Skinner. And Skinner basically tested rats in a lab
and gave them stimulus– positive and negative stimulus. And as soon as the rats learned it, they learned
that they could get the stimulus. Whether it was water or whether it’s to avoid
an electric shock, which was the negative and positives– an avoidance of pain. So they would hit a lever, and the electric
force field in this cage would stop. That whole thing was about how your environment
conditions you, and it was a big breakthrough. Out of that came behavioral economics and
Thaler has just won the Nobel Prize for behavioral economics. But the advertising industry has to first
catch up. They realize you can create incentives for
people– false or real– to act in certain ways. But now technology has allowed us to do this
at scale. And the last US election, the Brexit vote,
and a number of other things were really the grand experiments of behavioral economics. And now, the problem is with this. In a technology driven world, it’s incredibly
easy to influence people without them knowing. Just look at your Amazon feed, your Facebook
feed, and 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 to them that basically the
dopamine sensors and how people are conditioned by environment and not necessarily by reasoning
or other things and how Facebook could use the Like button and emoticons to drive dopamine
releases in humans, which they want more. It’s the lab experiment for the rat in the
water. It’s exactly the same thing. Amazon picked it up. They all picked it up, and they used it to
extremes. But then what they found is firstly they could
get people to buy things and engage in the platform because anger, like– all of these
things create don’t dopamine receptors and stuff like that and adrenaline– things that
we get slightly addicted to as humans. 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. Now, whatever extent the Russians influenced
the election– I’m less interested in that. But anybody can influence anybody. DS: That’s right. RP: So now governments can influence anybody
in the same way by using behavioral incentives because they have massive data abilities. If you think go back to the artificial intelligence,
and the speed of processing and all that stuff– now, who stands a chance in any of this? Do we even have what we think of freedom of
choice anymore? I don’t know. Behavioral economics could be really interesting
as ways of creating incentive systems. So they’ve used it in India right now to stop
people getting run over on train tracks. And they use these nudges. The UK government has used them. The US government did for a little bit but
haven’t for a while, but many governments have started to do this. DS: And there’s a huge debate about nudges. RP: That’s right. DS: There have been several. RP: That’s right. And so there should be. Some of it could be very useful in creating
incentive-based systems that work. China, on the other hand, has taken a huge
private economic experiment based on punishment systems, which don’t work as well as reward
systems. But their punishment systems– they’re kind
of good society credits or penalties that you get for doing certain things aren’t right. And that by behavioral economics to run a
population, which is really getting more concerning. So I think there’s many things we can fix
using behavioral economics in the sense of how to get people to pay taxes, how to do
this, how to incentivize people into the economy, how to get people to set up business and become
entrepreneurs, how to get education in better ways– all sorts of things. If you understand behavioral economics, you
can change an entire education system. Problem is there’s the will of governments
and what they can do with it– if you’ve got the wrong government. And worse than that is the bad actors in this
open architecture of technology– the information superhighway– what the hell they can do. And then you say, who was smart? Were the Russians, the Iranians, and the Chinese
smart to close their internet? Maybe they are. DS: Well, this is the splintering effect that
I think you see. It’s part of the same— RP: Yes, it’s all
part of the same thing. DS: It’s all about the same thing. But one of the things that I find so fascinating
about behavioral economics is the extent to which it has blown away essentially the neoclassical
economic assumption that essentially people are rational actors who take actions designed
to maximize their benefit. And that’s just not actually true. RP: It’s scientifically proven. That’s the difference here. With behavioral economics, it’s scientifically
proven that people base most of their actions not on– the behaviorists will argue there
is no nature or nurture debate. Everything is nurture. That there is very little instinct within
the human being, and there’s very little proven. And that’s a very complicated argument I won’t
go into, but basically everything is an effect of our environment. So therefore, all economic theory is essentially
worthless. DS: But there’s also the element of behavioral
economics that goes back to the early humanoids, hominids, and our immediate predecessors who
evolved in small groups and hunter-gatherer societies where it was always safer to think
that there was a lion in the grass and that this has created a whole series of what they
call “cognitive biases.” RP: Exactly. DS: And those biases are incredibly interesting. And I think if you learn to see them in yourself,
you can at least try to recognize when you’re making some of these mistakes. And those mistakes often, I think, contribute
to failures in markets and just failures in life. RP: Well, look, if we go back to the big examples
that we talked about of the rise of debt and the rise of the pension plan– both were basically
reward-based systems. They were basically you don’t need to spend
as much money. Get this guy here, you get him some gratification
consumption. DS: Exactly. RP: So as humans, we’re almost conditioned
to do that because we’re the rat in the lab who’ll go for the water every time because
it feels good. What chance have we stand? And that was the failure of government and
regulation I think. Many people at first would have said you can’t
regulate this. We all need the ability to do this. In the end, we created a rotten pile of mess
because it wouldn’t be regulated. And then we have the other problem of the
influence of global corporations within governments. DS: Well, what you’re actually describing
is several different kinds of social engineering experiments going on at the same time. RP: Yes. DS: All of which are using one form or another
of behavioral economics but to accomplish different things. RP: Exactly. DS: And I think that that’s where we are right
now. RP: Now, but government overall has not used
it yet for the good. How do you nudge society in certain ways? How do you create– and we’ll come onto a
bit of this– how do you create let’s say a moral code in this tribalized world where
technology is tribalizing everybody? Can that be done by incentives-based systems
when you talked in The World on the Brink about what is the future kind of system? I see a role for this because there are ways
of not having the government that we know now but having a more– it’s the world where
we have a more kind of disintermediated government, where then they don’t have the overarching
rule but they’re involved at a micro level and in a number of things. Maybe that’s the way you can deal with it
because you can’t have an overriding skill set when half your population live in a country
but don’t live in the country. If you live on the internet, you live in a
different world. DS: That’s right, yeah. You have, of course, this kind of idea is
the fodder of conspiracy theories and all those sort of things, which I find to be a
fascinating topic. And I think they go to some of the cognitive
biases that we have. People would rather believe that someone is
in control of things, even if it’s someone working against their interests. Then they would like to believe that there’s
simply no one in control, and people are managing from the edges. And the thing is just wheeling. And that is in fact the way I look at it. I don’t think any– I think people try to
exercise control. RP: I don’t think there is a great master
plan. I think people are humans. They try their best, do what they want. Now, whether they have good intent, ill intent,
or a balance between the two– yeah. But then the problem is, is then there is
always the hand-grenade when there was a conspiracy theory. I was shocked to the core when I first read
Confessions of an Economic Hitman, which was about a guy who worked for I think was the
World Bank or IMF and what he did on behalf of the US to destroy governments. I’m like, I don’t want to believe in this
world. But then if you believe in that, you can almost
believe in anything. So that makes it very easy for people to believe
in any conspiracy that there is some big lever being pulled. DS: Another way to approach it is that all
conspiracy theories are correct in that there’s someone trying to do that conspiracy but that
none of them have that much effect in the bigger picture. This could be a whole program– we won’t go
into that. But it’s a fascinating topic. But I think to explore behavioral economics
a bit more– they talk about these two systems. System one, which is fast thinking. It’s relatively automatic. It’s this idea of heuristics, which means
rules of thumb– things that you just use to make snap decisions. And then there’s the system two, which is
analytical, slow thinking, considered. And system two is what we prize as the human
ability to– but system one often defeats system two on a daily basis, almost an hourly,
minute to minute basis. RP: We think we’re individuals. But if we shouted fire in this studio, nine
times 9 out of 10 almost everybody would do the same thing. DS: That’s right. That’s right. RP: So we actually operate in certain ways
that are predictable. And the more data you have, the more you understand
how it works– that you don’t need to use forecast models. You can actually just analyze the data and
trends from that, which throws, again, going back to it throws out all of the old economic
models because they weren’t based on data analysis. Data analysis now rules the world as these
high frequency trading firms, and the algorithm trading firms, and the artificial intelligence
players are all proving. DS: One of the interesting topics in that,
of course, confirmation bias is one of the most deadly of the behavioral economic biases–
that we look to find information that confirms what we already believe instead of finding
information that could falsify it, which is what scientific method is based on. It’s that you try to falsify. You don’t try to verify. The whole American adventure in Iraq based
on the intelligence finding that there were weapons of mass destruction, which was in
large part based on ignoring evidence that there weren’t. It was simply selective use of intelligence,
which is confirmation bias. It can be incredibly problematic, but it’s
something that is so– there’s some kind of a switch that flips. And you decide, oh, it’s an aha moment. I see it. I got it. I understand it now. Let me find all these things that tell me
I’m right. RP: Because humans are so delusional. I fall into that bias all the time as everybody
does. And this is why the machine is so powerful
and why we have to be actually truly concerned– not flippantly concerned, but truly concerned
because there is no bias. And it’s the massive ability to process data
in ways that human brain can’t. We can process incredible data– like everything
we’re seeing now in all the colors and all– machines are no one near that, nowhere near
our cognitive abilities in certain ways. We cannot process a fixed type of data in
a quantity that machines can without a bias because we need patterns to fill in the blanks. And it’s our pattern recognition that causes
our problems. DS: It is. It’s a double-edged sword. It’s a classic double-edged sword. There is you know an emerging narrative that
is claiming that computer programs do have biases, and the biases are based on the people
who write the programs. And there’s been some interesting work on
this– that you think it’s unbiased. But when you actually reverse engineer it—
RP: So that’s an interesting point. So therefore is AI a function of its environment
too like a human is. DS: Exactly. RP: So behavioral economics applies to machines
in the end too. DS: In some way that we don’t understand. RP: Although the interesting one was the DeepMind
experiment with go, and chess, and all of these things. And this machine got so fast at beating every
grandmaster and every computer that ever existed in all of these games. But what happened was, what really blew people
away, it was developing moves that nobody’s ever used before. Because humans hadn’t done them. So I don’t know where that came from because
one machine was learning from another. So I don’t know whether those biases carry
through necessarily because there’s been clear evidence in that particular experiment that
they learned their own way, which hadn’t been used before. DS: They did. And that is very interesting. And this is yet another topic we don’t have
time to go into. But one of the most fascinating things about
the argument about artificial intelligence is computers are great a calculation, and
they’re great at things like go and chess that require calculation. They are not great at things that even animals
can do that require something that seems to be beyond calculation. There’s a lot of debate about what that is
now, and whether computers will ever get to it, and whether computers will ever get conscious. There’s this thing called “Mary’s room.” And the “Mary’s room” is a thought experiment. And I can’t recall the name of the philosopher
who came up with it. But Mary is a very bright girl who has learned
everything possible about color. She’s learned everything about how the eye
receives color and the cones. And she’s learned all the things about the
electromagnetism of color and of the color red particularly. And she’s learned everything that you can
learn from reading about the color red. But she has done it her entire life in a gray
room on a gray screen, and she’s never seen any color except for gray. So the question is when the door finally opens
and she walks out and she sees a red apple, does she have new information? Is the actual visceral experience of that
something that can’t be accounted for in her vast knowledge of the color red? And that’s one of the thought experiments
they used to say will computers ever have consciousness? Will they ever actually be able to do the
things that humans can do so easily like looking around the room and saying those are chairs,
and that’s a box but I could turn it over and use it as a chair– all these things that
we can just do without thinking about it and many, many more. And so I agree with you. We need to be very worried about it, but it’s
still up in the air whether artificial intelligence is really intelligence or whether it’s really
consciousness and where that divide comes between what makes us human or even what makes
biological intelligence different from silicon-based intelligence. RP: Yeah, and then he who controls the machines
in that world rules the world. And again, it goes back to whoever has the
capital to run these things essentially can run the world. DS: Well, and this is going to become I think
one of the biggest issues is that as– and again, there are going to be political solutions
that are going to have to emerge. Because it’s not going to be feasible. It’s going to be a negative externality if
you want to put it that way to the people who own these things that there’s going to
be too many people who are simply not going to be satisfied for them to have all that
the— RP: But thing is, is Silicon Valley thinks it has an answer in the universal basic
wage. But I’ve never seen that, which is an inverse
incentive system actually creating happiness amongst humans because they have no sense
of purpose. And they’re not intending for us to be productive. Maybe that they don’t need to be productive. How do they then live productive lives that
gives us a sense of being? DS: Meaningfulized. RP: Meaningfulized. That’s very complicated, and that requires
a whole new set of governing– maybe if you look up the experiment Bhutan did and the
universal happiness. Maybe that is something that’s within it,
and that’s maybe what the government’s role is to do in the end and not just endlessly
drive GDP for their purpose. But you need to have a happy population. The question of what is government and what
is its purpose is nothing that’s really ever addressed. DS: No, that’s true. And we’ve had lots of theories about it. And I think another interesting thing about
the present moment is that all of the systems that we’ve had are seem to not be working. So again, we’re at this point where I like
the term a “horizon problem,” meaning that you can’t see what’s over the horizon by definition. RP: But what’s odd is that horizon is hurtling
towards us. DS: Exactly. Exactly. RP: I think the world is becoming almost ungovernable
in the way that we understand it, And I produce a piece in Real Vision for the macro insiders
guys that most people haven’t seen but I think will put it together with this to go out. Because I talked about the tribalism stuff
that you and I have talked so much about. And what world can you construct a societal
moral code, or ethics code, or a group of society norms when we physically are located
in the society. We’re right now in the United States. But we can do anything online. We can be anybody. We can have whatever ethics code we want,
and we are basically not restricted by any government in what we do. So we have the code that we have in this country,
but that now is an increasingly small part of our lives. Because increasingly more and more of our
lives are lived in the global sphere of the internet. And I don’t know how government can even operate
in that system. How do you even get people to do things? Which is why I think behavioral economics
is part of it. And also somehow the problems of the tribalism
is that it breaks rifts. Everywhere you go. We’ve just seen the story broken about the
Russians and the vaccine story– that they’ve gone online looking for a contentious issues
– vaccine – and then have given the pro and the against arguments, created big fights,
and splintered people, again, using basically behavioral economics principles on what drives
people’s emotive behavior and created a rift where none existed. And the online tribalism creates rifts everywhere. DS: Well, of course, Russia is an interesting
example because what Russia really is afraid of is the United States undermining and overthrowing
the Russian government. And so their policy, if you step back and
look at it, is not about putting one group forward politically as much as it’s about
simply creating discord and chaos. RP: Absolutely. DS: That’s what they want. RP: Because the more domestically focused
the US is on its own domestic policy and the discontent within its people, the less they
operate on the world stage, the freer Russia is to operate in its own way, and the less
they’re under pressure for a regime change or any other change. DS: And of course you do have to say that
the United States has over the last 20 years attempted and accomplished in some cases many
examples of regime change. So it is not an insane idea. RP: No. And of course the US is doing the same. I’m just not sure they’re as prevalent online
as the Russians, and the Chinese, and the Iranians, and the Israelis have been who’ve
been masterful at this. Because they realize that I can’t fight you
with a nuclear warhead. There’s no way I can fight you with a gun
or any other weapon. But guess what? You don’t regulate your internet, so I can
walk in and do anything I want. And it’s completely open architecture for
me. I can get anything out of Facebook, which
has been proven. The worst thing is people are bang all about
this is Google is the largest receptacle of information on humans that exists on earth. It is owned by private hands. Not one of us knows the security measures
how the data is secure. What hacks happen on a daily basis to Google? What are the state players doing in cyber
wars with Google? Who’s protecting it? Is the US state helping it not lose it? Should it be in private hands? I know the libertarians amongst people would
say it should be that the state has too much power here. I’m sorry, but this is a company that has
a finite number of resources. It’s not even worth a trillion dollars, and
it needs to fight the entire Chinese cyber program so they don’t steal our program? Because if they steal our data using behavioral
economics, they can adjust how we do things and what we do and the malcontent or happiness–
everything about us. DS: Well, and of course they’ve stolen data
left and right. How did the Chinese get an aircraft carrier? One of the most complicated machines ever
up and running in record short time? They stole the American manuals on how to
run an aircraft carrier essentially. That’s what they did. And that is just one example. RP: Yeah, IP rights and all this. And the US are bad players in the same– everybody’s
a bad player in this world. So the conspiracy theorists are right. DS: But of course, the answer to your question
how do you deal with this is, again, this splintering effect. Scott Malcomson has come up with this term
“splinternet,” which he things– and he’s being proven prescient about it– is that
the world is splintering. The internet is splintering. And so the Russians and the Chinese can reach
a point where the United States has to change the configuration of its internet. And then you see it’s a win-win situation. They win from their standpoint if they create
chaos in the US. They also win if they turn us into a less
free society. So it’s— RP: Yes, and the problem is, is
a lot of the answers are more government control. But I’ve got an idea that’s been developing
in my head about this is how do you do this. And Tim Berners-Lee’s been looking at this–
the invention of the internet– in how we can deal with this. And one of my things is firstly we need to
be responsible online. The anonymity of the internet is a big problem
that creates tribalism. Because I may online call you anything I want,
but the chance of me doing that to your face are very slim. Maybe after a few drinks, I might. But you know what I mean. That kind of human element is disconnected
by the internet. Now, if you had some form of identity online–
and let’s call it a blockchain-style identity. So everything you do in your footprint online
is traceable to you. So therefore you’re trolling online. Your abuse, what you do– well, it’s decentralized. So it’s very difficult to hack. It’s very difficult to do anything with. Maybe there’s an answer with that, that allows
you to do that. And then voting can come the same way, and
a number of things can be built off an architecture that means you have to take responsibility
for who you are. Because then if you’re a Russian bot, I can
see from this that you’re not part of that system. So then you can have a decentralized internet
but without centralized control because it gets controlled in itself. Because you can’t have an identifier without
being somebody. DS: And if you’re just some jerk in high school
who’s harassing some other student to the point that they might commit suicide, you
can also see who you are. RP: Exactly. And does that have to be handed over to government? Because the Bitcoin world has been not too
bad at policing itself when there’s theft and stuff like because you can see where things
move and who does what. So maybe it doesn’t require what people would
think, oh my god, the government’s going to take all of our data. Maybe the data can be decentralized, and the
government doesn’t need to do it. But the government can adjust our behavior
patterns by incentive programs to create a unified approach to society and a globalized
internet society. DS: I think the issue is to make it ubiquitous
there has to be something that does that. In other words, somebody has to ensure that
every single person or you avatar every fake person– whatever– they all have this blockchain
identity ID. RP: Yeah, and whether it’s blockchained or
whether it’s something else— DS: Whatever it is. But there’s something that has to– it’s not
going to simply happen on its own. And so how do you effect that? RP: Or maybe you can have it unless you apply
for it in person. So i.e. it comes with your birthright as your
identifier. Call it your passport number. DS: Your social security number. RP: Yeah, and call it in India your Aadhar
number. OK, because I know some people don’t like
the Aadhar thing because it’s a centralized database. But just say it’s your fingerprint. It’s your retina scan. It is you, your digital footprint. And let’s say it’s not held by government. That will appease all of the people who are
scared of the government having control over this. And true, it’s not right. So that decentralized thing could be somewhere
the answer. And again, I think somewhere the answer is
some sort of behavioral economic element to get people to have an incentivebased system
to behave in a societal way– whatever that is. DS: So in the midst of all these things that
we’ve been talking about of splintering, and social de-cohesion, and all of these issues–
we’re seeing the rise of a kind of a figure globally– the strongman-type leader that
we have not seen except here and there. But it’s now a global phenomenon. What do you think is behind that? RP: I think when fear of change becomes extreme,
usually you find a strongman. So if you look at the strongmen that came
in the Middle East– and again, a lot of this was in World on the Brink– it came after
periods of huge change. Strongman is you’ll save us. We don’t know what’s going on, but you’ll
help us. Now, obviously, the strongman usually alienates
a better part – a because it usually comes with populism. It’s very rare. Sometimes you get the centrist, the Gandhi-style,
which brings everybody together. But often you would get the polarized version,
which is what we’re getting now, which is we’re rejecting that, so this is something
to stand behind. So I think it comes out of all of these seeds
of discontent. It comes out of this fear of change. You talk about it– the desire for nostalgia. Please take us back to something we understand. And it’s difficult to express to people because
people take a snapshot of now. They don’t realize that 2010 Facebook was
just taking off, and now its ruling governments– our spending patterns, our news patterns–
the information, the false information. Everything we know is being run by these platforms
that didn’t exist a decade ago or existed in a really nascent way. That’s how fast things are changing. We cannot catch up. We’re fighting a warfare with nuclear warheads
when in fact the warfare is being held over Facebook. This is how fast things are moving, and that’s
only one of the things. Artificial intelligence, robotics, all of
this stuff– everything is coming. And I think big data was the kind of big revolution
that was the enabler for the whole lot. So that is why I think is people just holding
on to somebody who will tell them a message that they can believe in. DS: Because they simply can’t deal with being
out and adrift in the ocean of change, and they don’t recognize the world that they find
themselves in. RP: Well because most people– and I talk
about this a lot in business, personal lives, everything. Most people fear change. I’m the kind of guy who actually likes change. DS: Yeah, so do I. RP: But most people fear
change. They like things just be as they are. If you can, that’s fine. I want to be at home. I want to have my barbecue on Saturday. I want to have the kids. I want to have the dog, and that’s how my
life is. Nothing wrong with that. So when change is happening fast and somebody
says I will stop this, I will hold back the sea. Then they go, OK please, just do that. DS: Yeah. I think there’s also this fear of cognitive
dissonance or this need for cognitive dissonance to be resolved where you think you understand
things and then things are going an entire– it’s very closely related. But it’s a little bit distinct is that you’ve
got two things or more than two things that are at loggerheads or in opposition in terms
of the concepts that you’re having to hold in your head at one time. And it seems that that’s something that’s
extremely corrosive, or difficult, or just unpleasant for a lot of people. Personally, I believe I try to have cognitive
dissonance. Because if I don’t have it, then I think I’m
convincing myself that I understand something that I maybe don’t understand. And I think it’s a useful trait, but I think
it’s also– and it is disturbing. But if you’re going to use it as a tool, you
have to get used to being disturbed. RP: That’s right. The future is uncertain. Arguably, it’s more uncertain than it has
been for a very long period of time because of all these changes we’re talking about. Not necessarily the politics, I’m just talking
about the technology and where is this path going to lead to. How are all of these things going to fit together? That’s very hard for most people to deal with
who like to go to work every day, get paid, go for dinner on the weekend– that thing
is very much under threat, obviously. DS: So I’m going to end ask you a very unfair
question– two unfair questions. RP: OK. DS: What do you think the biggest surprise
we’re going to have in the next 12 months and secondly in the next five years might
be? I’m not going to hold you to it, but I’d just
love to have your thoughts. RP: So I’m going to talk against my own biases. Maybe the biggest surprise is that this whole
process of what many of us think is the big change, The Fourth Turning, the fracturing
of the global economic system– the system that creates the new system from within–
maybe it doesn’t happen in the next 10 years. Maybe it drags on longer. Maybe we’re in a lot longer phase– the phase
that Argentina’s been in for 50 years. I don’t know. But there’s a hope amongst all us optimists
even though we’re pessimistic. We’re still kind of optimistic that something
better will come out of it. And maybe it doesn’t. Maybe that process is much longer because
we’re talking human terms and not in our instant gratification in terms of the next recession. It’ll all blow up. It’ll all happen. It’ll all clean. We’ll all clean slate. The new leader will arise who’s a centrist,
who will take us through with this enlightened journey of understanding the world that we
live in. Maybe that doesn’t happen. Maybe we flip between left and right– strongmen,
a general loss of freedoms. So all of these things that have been the
feature– maybe that continues. Maybe each time is a blow up in certain areas
it gets papered over yet again, and again. And this thing goes on, and on, and on. So that would be a longer term thing, which
is against my view, but I’d just like to question the short term. I like to question my own views. And to that, I would say most people– I think
we are on a 50/50 outcome of the US, of almost the entire administration going to prison,
or the entire administration getting voted in twice on a landslide victory. I think those are the two outcomes. Because if we do not reach resolution, things
only get worse. It’ll strengthen that story. Because if I look at the story of the centrists,
or the oppositions, or anybody else, there is no cohesive story except to attack. If you’re attacking, you’re not listening. So the people who are doing that– and so
I think that that’s not a way to win anything. The other thing is I think there’s a reasonable
probability without trying to put my own bias into this that there’s an extraordinary amount
of criminality that went on. Whether that was with the Russians or without
the Russians. So I think there is a reasonably high probability
if I look at how Mueller is pursuing this like a mob prosecution and going up the chain
and basically discrediting everybody within the chain. I think he’s not put a foot wrong. And so I feel that that is a reasonable chance. There’s a 50/50 chance of half the administration
going to– I mean literally half the people involved in the administration going to prison
or they get a landslide victory in an election and it’ll last eight years. DS: I wouldn’t argue with you about that,
and I wouldn’t argue with you about your longer term prediction. And I think that one of, again, the biases
that we have is that it’s either dystopia and it’s an apocalyptic scenario. It’s nuclear war, a zombie apocalypse– whatever
it is. Or it’s utopia. And we may just muddle through. And maybe that’s the best. RP: Well, it depends. It depends whether muddling through because
I think you’ll agree that the muddling through is creating more extreme outcomes right now—
DS: That’s true. RP: –in the political environment and maybe
the personal welfare of people and a number of things. So if that’s the case if the muddle through
is A, we don’t have a slate cleaning opportunity with a new way for a new world– I think the
extremes get further. And that’s not a great world to live in, but
that was the world of the 1970s. We talk about the ’70s has a halo effect for
people. I grew up in the ’70s. I could play in the streets, and I could ride
my bicycle and all of that stuff. But the reality was it was a bloody awful
world of a huge geopolitical mess, a huge economic mess, which was an economic hangover
for almost the entire decade. Maybe that can go for another decade or so. DS: I guess. I hope we see it. I hope we see what happens. RP: Yeah, exactly. Seeing what happens is the most interesting
thing here because we don’t know. Neither of us know. We’re just trying to observe. And again, neither of us are coming with any
particular bias in this. We’re just saying, listen, this is a fascinating
set of circumstances, which is probably I think one of the most exciting points in all
history is the point we’re now in and where we go. DS: I agree with you. And you know the old Chinese curse– may you
live in interesting times. And I’m not sure it’s a curse. I think it’s fascinating too. Raoul, always a pleasure. RP: Dee, loved it. Thanks so much. DS: Thank you. It was great to interview Raoul on so many
topics that relate to our changing world today. We really covered the waterfront, and I hope
you enjoyed as much as I did Raoul’s thoughts and ideas on the nature of the changes we’re
seeing, where markets might be going, and where we as a world are going today. Thank you for watching.

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96 thoughts on “Modern Manipulation: How Tech Companies Are Using Behavioral Economics (w/ Raoul Pal and Dee Smith)

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  2. Considering the growth in population, economics should have been healthy throughout the last 50 years except as per my previous statement, the powerful have delayed Utopia for the purpose of their greed. Not to mention that we now we're quite possibly facing world annihilation via the climates changes! Charming!

  3. Should've asked me, I saw it coming in the 70s by the end of the 80s the way spending was growing anyone could or shave have predicted that last crash. People still haven't learned any lessons. People must learn to think rationally for themselves, stop listening to Wall Street and government.

  4. “Most households don’t print money.” Most? Which household prints money? I bet the government would like to know that. LOL

  5. Hi guys. I just want to remind you to click subscribe and notify so you can get all the latest 3 year old videos that you can handle.

  6. Another fantastic Real Vision video.
    Did anyone else notice the drink under Dee Smith gets blurred out during the interview… weird???

  7. Probably the most well thought conversation about human behavior on the internet. Insight like that will help propel mankind into an exciting Star Trek world in the future.

  8. I am a boomer, my parents had nothing. I decided early on not to have kids not to live there sad not happy lives.
    . But I never over spent I have been dept free since 1988.

  9. "Neither of us are coming with a bias in this."

    Ummmm . . . that's what you think.

    Clearly you're right wing capitalists. I didn't just know that almost immediately, but all throughout as well.

  10. Just because the US is in the middle of chaos and things only seem to be getting worse, doesn't mean that other parts of the world are going thru the same thing, all my life I've been seeing countries become a basket case out of prosperity and stay there for a couple decades and then come back again, and then go back into the chaos for another 20 years, it's just things that happen, I mean Canada is doing really really well, Indonesia is doing somewhat well, Colombia, Uruguay, Chile, the fact that their neighbours are a complete mess doesn't affect them, so it all depends on how you see things.

  11. 9 ads.. don't y'all realize most people ad block. How about 3-4 ads, that could be better because people will be more willing to watch them😐
    Love all yr videos! @RealVision Finance.
    As we move into a technological advancement you discuss why we should own a flip phone✔️🤦😂

  12. "There was an extraordinary amount of criminality that went on…"
    Dead wrong on Mueller. Pal.
    You're clearly influenced by the social media you abhor demonstrating exactly how
    Silicon Valley bias trumps reality.

  13. Please stop confusing MONEY, gold coins, with currency and debt notes, computer credits. In real money, Dow is down 35% since 1966. In currency, debt notes, computer credits, the Dow is UP 2,500%. Money and debt are not the same.

  14. I agree with some of what these guys say but acting like we are in less critical times than the 60's because of the then threat of the cold war and now there isn't. Really? Now we have a divide between Russia and the US that may actually be worse just as US Russian expert Stephen Cohen has said quite often lately.

    I quit watching them at the 26 min point by which time they still hadn't focused on the corruption of governments, banks and corporations. Insane monetary policy by central banks that has led to extreme income disparity so whatever guys……

  15. "Who does have a role for the future" … only Keynesians see higher productivity as a problem and the role of the government is to "create jobs" so that "productivity has no role for the economy". This is such obvious nonsense unless you've been indoctrinated into Keynesian economics. On that scenario all automation is bad. On the one hand "automation gets rid of the profits" but on the other hand it puts all the money in the hands of the "owners:" So which is it? You can't have it both ways. The reason for rising inequality is not automation but priting of money and giving it to the banks, ie., the unequal distribution of the benefits of automation and increased productivity. Increased productivity means that people have to work less but are more rich, not that they are less rich. These people are completely illogical. The problem of unemployment exists only in "mixed economies" in which high taxes and regulations create a class of overlords, the rent-seekers, ie., government employees and govt-sponsored "private" corporations, who keep the mass of the population down. Getting a "job" in this system is not about "productivity" but about "distribution", ie., it's about gaining access to the tax-loot. Government workers often do little that is productive and are mainly occupied promoting the govt, eg., schools and universities, but also the so-called "health system" the funciton of which is to create a govt monopoly to medical services. These things "cost" so much only in the sense that a lot of the economic activity needs to be directed to sustaining these people regardless of their actual benefit to society. In other words, the benefits of automation are directly redistributed in the direction of the rent-seekers. The "unemployed" and the poorly paid are simply those who can't be accomodated in the rent-seeking beaurocracy and who still have to pay the prices inflated for the benefit of the rent-seekers: the costs of health, education, regulations, taxes and housing. Automation and AI are feared primarily because they expose this whole farce for what it is.

  16. @11;45, worth considering that as Baby Boomers were in late Teens/Early 20's world went off the Gold Standard and this flipped the dynamic from Savings/Productivity to Credit/Consumption model, which managed to get financialised in the 80's

  17. I believe that one of the biggest use case scenarios for behavioral economics is online dating platforms like Tinder and OKC. While social media and search giants are finally beginning to have light cast upon them, I feel as if the online dating world still operates entirely in the shadows. And, yet it's quite possible because of the highly primal/emotive nature of mate partnering that this is the area most susceptible to manipulation. Dating apps, like social media, require perpetual user engagement and an expanding user base. What does that translate to for dating apps? How would they, hypothetically speaking, achieve ongoing user engagement while simultaneously expanding their user base? How would they use data /algorithms in such a way as to keep their user base engaged with the platform long term? I think the answer to that question lies in search and discovery – how people are matched, who people are matched with, and on what data driven basis people are matched. Fun fact: all major dating apps are owned by Match Group. I guess that makes them the Google of dating.

  18. They are wrong, the great masterplan is Fed and worlds central bank system, pure satanic driven system controlled by debt

  19. What’s the case of a market collapse, = who’s the first major player are going start to sell? They all algorithms driven = never

  20. Fascinating conversation. Many of us are thinking about these areas of modern changes. This covers some important areas.

  21. Jewish communist/ZIONIST has subverted white Christian culture…Jews from the Frankfurt school of Germany..

  22. As usual Raoul Pal is awesome; I could listen to this guy all day long. So insightful; such crystal clear thinking and so erudite.

  23. No doubt recession will occur at some point, however when how much, will it be less or as bad as 2008 ? My reading is its going to be a major recession as Europe hasn't recovered and there is no redundancy there and China is itself in big difficulty both demographically and politically! And economically it is stretched externally with belt and road which is to allow China to export to Europe and 3rd world countries, Even if trade talks lead to trade deals. This will result in lots of proxy wars!

  24. anonymity is only value of internet; there is no truth without anonymity. the greatest value of bitcoin comes from anonymity. transparent and tracable does not mean not anonymous; bitcoins are traced, not their owners.

  25. Some very dangerous and attractive ideas discussed here. I have several methods by which I could control the human race in a eugenic manner, whilst the non-technologically advanced would never even be aware of the malignancy. BUT I still agree this is THE WAY.

  26. LOL love the predictions at the end. Looking it from a year later its clearly the landslide and the global steady state. But if Trump gets rid of the Chinese communist party, reunifies Korea and reforms banking without everyone panicking he will trigger an optimism driven boom.

  27. Technology as it is used for money and market platforms is always dissected by financial think tanks as a means to maximize profits through some kind of front-running strategy or other automatic high frequency trading. The LARGER story is how it is being used by Sovereign Treasuries, and Central and Primary Dealer Banks to actually control the digital prices of digital assets. I'm amazed how this topic is NEVER discussed in the main stream or the alternative media. It is THE financial story of our time.

  28. I'll tell you what comes next. You think it's scary that tech companies are trying to replace humans in jobs? Think a bit further. All they have to do next is pay their robots a wage & then program their robots to use all that money to buy products from their own companies on an infinite basis. They will have infinite revenue & just made human life obsolete. The algorithms will then determine that the most "efficient" way to use humans is to run a rat wheel so we can help charge their batteries! Do you now see why the tech gods are in such a hurry to study how to run away to Mars?

  29. Nearly everything comes down to human nature at the human level and game theory at the societal scale and the conflicts between them so behavioural economics is going to be a bit part of whatever system we end up with because once we get there it'll be very hard to get out.

  30. Thanks. Very thought-provoking. Best intro macro analysis and discussion of the impact of "finantialisation" / securitisation of real assets ever encountered. Also your discussion of demographics, real-time information systems driving investments, etc.

  31. AI is biased based on its data, not the programmers as such. So if there's a correlation in the data because of some bias in the data that was collected then that bias will be in the model unless it is recognised and 'corrected'. The question is if the data contained all possible data would that bias still be there and if so is that still a bias or an accurate model?

  32. The real problem in this world is how greed has corrupted everybody's mind. We have survived since the beginning of time under the mentality that we take care of ourselves first, so that we are strong enough to take care of others.

    Makes sense from a survival stand point.

    Yet if we changed our mentality to forget about our own well being and pour all our energy into helping outside of our own self, we wouldn't have this problem.

    The old model for example in traversing a river is to find our way across and figure out how to get the others across.

    If we only created a human chain that spanned the river so that the rest could use the human chain to guide them across the river, we'd be much stronger

  33. How is Raoul manipulating us? Stale clickbait then begging you to join his stale little club so he can profit and buy more skinny jeans for himself.

  34. Astounding. And they even took it to behavioral economics. And I thought my MBA wasted my time with those concepts. Are we able to access that Charlie Rose interview?

  35. Everything on line is fake, fake means two dimensional, not real. It's all metaphors from the past. The baby is real. The picture of the baby is not real. Gold is real. Crypto and debt is fake, not real. If it ships in a wire it's fake, not real. The way to defeat the internet is give it false information. Block chain? How about trusted tested friends? The tribes are colluding to take down the giants. Will they? We have a splinter between real and fake. Fake is over valued.

  36. Mueller said, no collusion. Looks like a land slide victory for Trump is the 2020 outcome. Hope so. I predict we figure it out and adapt as humans always have. We adapt.

  37. What is government debt? With permanent zero or negative rates and the ability to continue to roll that debt on and on, when and who becomes the GLOBAL ARBITER OF SOUNDNESS? The BIS was this body for many years, and now they are the worst offenders. Little Switzerland, the bastion of rationality is entrenched in negative rates. The Direct Democracy, prided by its informed citizens, when given the monumental chance to bring back some sense of the gold standard…they rejected it soundly. Do you have eyes to see? The world has gone dead beat debtor!

  38. So Rao: you really think we in the US should trust the deep state with EVEN MORE access and control to personal data than they are already abusing? Surely you have more common sense than that! There will always be bad actors in places of power because power always corrupts humans. No, Mueller did not get it right. He was there to make it go away to shield the Clintons and Obama. I hope by now you can see that bias of yours has been thrashed to bits. The half of the administration that should, but probably won't, go to jail is no longer in power but cannot reconcile themsleves to accept that fact. They lost it by backing a candidate so obviously evil and corrupt that even the most unsophisticated voters were rubbed the wrong way by her sense of arrogance and entitlement. Only because the corrupt and out of control US intelligence complex remains in place, ignored by a complacent Republican party that deserves a Nobel prize for incompetance, do we seem to be muddling through, as you call it. You both articulate interesting academic points regarding the financial and geopolitical forces and posit relatively benign change scenarios. But I think it is virtually certain real world conditions as the debt bubble unwinds will be unprecedentedly catastrophic and beyond the control of any government or group of allies. The exact start time of the unwind is unpredictable but " will come as a thief in the night" according to my sources.

  39. Equal footing. Correct.
    Your information gathering regarding the Baby Boomers is spot on! Collateral…
    Muddling through is the way of the fool.

  40. TRIBALISM IS MULTI FACETED ,ITS ENVIRONMENTAL,INHERITED ,SURVIVAL FROM EARLY MAN , ENFORCED ON AN INDIVIDUAL TO COMPLY [SKINNER] THEN WHEN YOU HAVE INTERNET TRIBALISM ,IT IS SO DIFFERENT FROM THE NORM THAT IT CAUSES A THIRD WAY WHEN CONFRONTED WITH SOCIETAL TRIBALISM AS I HAVE INDICATED IN MY OPENING. CONFLICT IS CREATED WITHIN INDIVIDUALIZATION OF THE SELF,SO CHAOS……MY KEYBOARD IS STUCK ON CAPS????

  41. Heard of AI machines while working on a data problem began creating their own language, and the humans could not decipher, so ended The experiment.

  42. There have been thousands of labor-saving devices and none of them buy things…… Robots are just the next example…. Combines but plenty of people out of work as well

  43. I wish I was smarter. So much of what was said here was wonderful stuff…but what is their bias? What are they selling?

  44. appreciate the citation of C0nfessions of Ec0nomic [email protected] – fascinating book. Kahneman reference with Big Tech is definitely eerie…need to investigate more. He is a reductionist, which I fundamentally disagree with. We can more often tell when we are being prodded/nudged, sometimes at the time and sometimes in retrospect. There can be a 6th sense about this.

  45. Tech is accelerating so dramatically. If your not a bit concerned your not seeing the big picture. Machine Leaning is going to put a great deal of people out of work.

  46. When youtube continually bombards you with autoplay videos from a particular channel, even when you keep disliking videos from that channel, you can be reasonably certain that it's establishment propaganda you're being bombarded with.

  47. The digital "Wild West" desperately needs a Constitution to serve the people, not the corporate profiteers and the surveillance State.

  48. I don't believe non-globalized entities; Healthcare, Pharmaceuticals, and Education are expensive because they aren't globalized. I believe they are expensive because they conspired with legislators and financial entities (government/non-government) to create a massive amount of government-funded (backstopped) money to allow them to raise prices through the roof. In the end, "The People" will pay while the architects will cash in.

  49. The control is in, and it has shown to be very efficient.
    TV, vaccination, smartphones, drugs, major sports religion, social media.
    Less than 5% has any critical thinking, in fact any logical thinking at all about common sense things.
    The planet is full of psychopaths, crazies and zombies.

  50. Raoul always impresses with his processor speed…but the question Dee asked about his origin story of 1940's capitalism til now…has me playing it all out and not being able to find a hole in his thesis. Absolutely nailed unintended consequences on the timeline…lack of savings, consumption, financialization of savings, debt, labor into capital, WTO issues, etc…So thankful this is free 🙂 Joined for paid trial.

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