Saturday, June 30, 2012

Early Indications May 2012: The limits of consumerism

In 1968, a young reporter named Joe McGinnis covered the presidential
campaign of eventual winner Richard Nixon. Nixon was determined to
overcome the liabilities that were thought to have contributed to his
loss in 1960 to John F. Kennedy. At the Kennedy-Nixon debates, for
example, Nixon's skin tone, choice of suit color, and physical
awkwardness contrasted with his verbal command of the material: radio
listeners voted Nixon the debate winner, but Kennedy was viewed as the
winner by the TV audience. In 1968, a television producer named Roger
Ailes took charge of managing the Nixon campaign to avoid any such
missteps. McGinness's chronicle of the campaign, The Selling of the
, put McGinniss on the map as a political observer, and Ailes
has continued to shape American political debate as well.

Fast-forward to 2012. The selling techniques for a television
candidate are blunderbusses in the age of Internet marketing. The term
of art is "microtargeting," and both the Obama and Romney campaigns
are expending considerable sums of money and expertise on the analysis
of sub-segments of the electorate. At base, political campaigns
overlap consumer products branding. In fact, to see how political
intensiveness and likelihood to vote map against soft drink
preferences, television viewing, and automobile ownership, I urge you
to take a look at the charts published in The Atlantic or the New York Times.

One widely reported microtargeting effort occurred in 2004 when the
Bush campaign neutralized a segment of the traditionally Democratic
coalition: socially conservative black voters responded particularly
strongly to anti-gay marriage messages. In the runup to the 2008
campaign, and to some degree in response to Bush's 2004 success,
Hilary Clinton's pollster and chief campaign strategist Mark Penn
published a book on microtrends that illustrated the blurred line
between his job at a public relations firm and his work on the
campaign. (In 2009, the conflict of interest resurfaced as firms
affiliated with Penn won nearly $6 million in stimulus spending.)

Very few people understand how web advertising works. Rather than try
to explain it here, I can include a few references:

- The Atlantic, 2/29/12

- Wall Street Journal

- Penn professor Joseph Turow's new book, The Daily You

Such data-rich customer -- er, voter -- profiling means that political
ads will be triggered by seemingly apolitical searches or site visits,
and persist across one's web travels. Both the Obama and Romney
campaigns mine Facebook data from individual voters, who repeatedly
say in surveys that they are uncomfortable with behavioral tracking,
to the limited extent they understand it. Microsoft's decision to
limit tracking in the new Internet Explorer browser is not well
received by advertisers.

As any good marketing executive knows, integrated marketing can amount
to more than the sum of its parts. Microtargeted online ads, e-mail
campaigns, negative TV ads, positive radio spots, statesman-like
thought pieces, friendly voices on the Sunday morning pundit shows,
billboards, direct mail -- campaign marketing has become a complex
beast indeed. And for all the sophisticated microtargeting that is
possible, the power of the brand - Hope, in 2008 for example -
dictates many of the other possibilities. As usual, we are witnessing
the fights to define the brands in the post-primary, pre-election
doldrums. Will Mitt Romney be equated to a wealthy, out-of-touch
business executive or a can-do manager? Especially in light of weak
job numbers, does President Obama get to boast of his foreign policy
record or defend the limited impact on employment of hundreds of
billions of borrowed stimulus dollars?

I'm very sensitive about romanticizing the past. The good old days are
seldom as good as selective memory can portray them. Nevertheless, I
am concerned that developing political campaigns as just another
consumer preference has definite limits: it ignores the necessity for
sacrifice.  David Brooks made this point nicely in a New York Times
piece on May 17: in contrast to the limits on popular sentiment
engineered by the Founding Fathers (Madison most notably), "Leaders
today do not believe their job is to restrain popular will. Their job
is to flatter and satisfy it. A gigantic polling apparatus has
developed to help leaders anticipate and respond to popular whims.
Democratic politicians adopt the mind-set of marketing executives.
Give the customer what he wants. The customer is always right."

But the customer/voter's self-interest, even when it might be
enlightened, will not solve hard problems, of which there is no

-Public pension funds continue to budget for 8% investment returns
even though the reality is far less rosy than that. Thus the shortfall
in public pensions will be far larger than predicted. (WSJ story here.)
Even aggressive, expensive investments such as hedge funds are not
making up the slack. According to author Simon Lack, cited in the Economist , "Indeed, since 1998, the effective return to hedge-fund  clients has only been 2.1% a year, half the return they could have
achieved by investing in boring old Treasury bills." Social security is only the
tip of an underfunded iceberg among elders that we can see from afar
yet pretty much ignore.

-Student loans are being taken by naive families, to finance
educations with low or uncertain returns, at an unsustainable rate.
Total student loan debt is roughly $1 trillion, and rose 8% this year.
At the same time, college graduates are the majority of the
unemployed, and the institutions must change their form, incentives,
and content to address a new world. So far that is not happening on a
wide basis.

-The cost of the wars in Afghanistan and Iraq can never be completely
calculated, extending as it does probably six decades out in veterans'
health care costs. Amputations and concussion ramifications will cost
billions to address. More urgent still is the need for mental health treatment adequate to the need: far more veterans of those wars have
committed suicide after mustering out than were killed by combat

The limits of politics as consumer preference are being played out
everywhere from France, to Italy, to Mexico, to Greece, to the U.S. As
the planet encounters physical and other limits to infinite growth on
multiple axes -- the nexus of aging, health care, and pensions, along
with carbon, petroleum, animal protein, and others -- the question is
no longer only or primarily "what do I want?"

At base, the fallacy of the consumer hypothesis is deeper than
politics. As research from scholars including Barry Schwartz, Daniel
Gilbert, Shawn Achor, and many others is showing, material stuff,
money, and success do not make people happy. (Excesses of the same
ruin lives, whether of lottery winners, Elvis Presley, Kurt Cobain,
Michael Jackson, Tiger Woods, Whitney Houston, Bobby Petrino, and many
others.) Meaning, purpose, community -- these old-fashioned notions
run counter to the consumerism mythology. When will politics be forced
and/or ready to embrace civic values that acknowledge shared sacrifice
rather than endlessly finance subsidies with a tax on the future?

The answer may lie on the web, with hints coming from the likes of
Kickstarter,, and Ushahidi, rather than from the promised
algorithmic paradise of the Big Data political analysts that, probably
earnestly, try to bring to American elections the same mechanics that
have made Wall Street what it is today.

Early Indications June 2012 Review essay: Daniel Kahneman, Thinking Fast and Slow

In his masterful reframing of the history of science, The Structure of Scientific Revolutions, Thomas Kuhn introduced the notion of a paradigm shift. These shifts begin when what he called "normal science," the use of an accepted theory of the era in a given field, was confronted by a sufficiently large number of anomalies the theory couldn't explain. If the sun revolves around the earth, for example, then how can earth's night, day, and position relative to other non-solar heavenly bodies  be explained? The process of theory-building followed by anomaly accretion helps explain many pivotal moments in the history of science, which does not, Kuhn found, progress by steady addition to existing theory.

Daniel Kahneman won a Nobel prize in economics in 2002, despite not being an economist, for work done with his late collaborator Amos Tversky on numerous departures of observed human behavior from the tenets of neoclassical economics: briefly, that economic agents act independently on the basis of full and relevant information, that all actors seek always to maximize their utility, and that people have rational preferences among identifiable outcomes. Kahneman's new book, Thinking Fast and Slow, furthers this mission, but also does much more.

Kahneman begins the book by recounting a series of stories about the extraordinarily rich collaboration he enjoyed with Tversky, who died in 1996. The output of their professional and personal partnership continues to redefine the world's understandings of human choice, possibility, and self-deception.  As a personal tribute, this section is warm and affecting, but I believe Kahneman is building another layer of argument as well, to which we will return presently.

Humans pose (and face) a series of three paradoxes, embodied in the architecture of the book. The first of these, the contrast between quick intuitive judgments and considered calculation, is fascinating to observe and ponder: humans display a persistent habit of using cognitive shortcuts known as heuristics when confronted by new questions. A troublesome feature of the interplay between these two systems of thought is substituting an answerable, easier nearby question for a difficult one. "Is political candidate A qualified to govern a complex democracy?" is a hard question. On the other hand, "Is candidate A well dressed and carefully spoken?" is readily answered, so we frequently act on the false understanding that we have answered the tough, original question. In the search for easier questions, humans will conflate loudness with accuracy, or the first number at hand with a realistic estimate.

The second paradox exists between economic man and humans, who can be counted on to value fairness, for example, rather than reliably maximize utility at every opportunity. What Richard Thaler of the University of Chicago refers to as "econs" (the theoretical creatures) are rational and selfish, with persistent tastes that do not change, in contrary to "humans," who of course have limited information, change their mind, and are often generous. Experiment after experiment has shown patterns of preference and behavior that violate the neoclassical assumptions that continue to dominate economic orthodoxy, and the many examples in the book are fascinating, if unsettling: in Kuhnian fashion, Kahneman and his colleagues have built a mountain of anomalies.

Finally, Kahneman differentiates between the remembering self and the experiencing self. This set of insights draws in part on experiments involving colonoscopies and other unpleasant procedures as well as vacations and similar peak experiences.  Tellingly, if asked whether they would take a dream vacation under the condition that they would take an amnesiac drug and be denied all photos afterward, most people refused the vacation. In many instances, it appears we live for the future memory of the moment rather than for the moment itself. As elsewhere in the book, the implications of one single insight are momentous.

Within the extreme richness of Thinking Fast and Slow, the nuances and surprises embedded in these three discussions are far too numerous to summarize. Several insights struck me as illustrating the broad implications of this book. Certainly investing and business decisions need be examined in a new light, and policy choices should be informed as well. But unlike most examples of Kuhn's paradigm shifts, I believe Kahneman seeks also to improve individual human existence as well. Three examples follow:

-People are extremely deft at telling stories to explain the past: the Allies were confident of the ability to win World War II; the rich deserve their wealth as reward for hard work, moral worth, or other factors; the U.S. had a manifest destiny to subdue the American west and the various nations with prior claims thereto. Life is lived forward, however, and human foresight is demonstrably poor. Nevertheless, we as a species persist in overconfidence in our predictions in multiple domains.

-In contrast to hindsight narrative or overconfident foresight, an underappreciated proportion of existence derives from luck. A corollary of this fact is that reward structures at the top (CEOs) and bottom (the unemployed and disabled) of an income pyramid should probably be rethought.

-The mere fact of focusing on something artificially raises its profile: "Nothing is as important as we think it is as we are thinking about it."

Psychology is commonly defined as the study of the mind, singular. What Kahneman implies with Thinking Fast and Slow is perhaps the most profound legacy of his friendship with his longtime collaborator: by calling on people "around water coolers" to hold each other accountable for watching themselves think and for spotting each other's potential self-deception, Kahneman turns psychology -- and perhaps thinking itself -- into a communal enterprise. Bigger than prospect theory, heuristics, and the other theoretical breakthroughs of this one man's brilliant career, the potential of a renewed collective discourse could be the farthest reaching paradigm shift of all generated by what Kahneman and Tversky thought about together, at whatever speed.