incentives Archives

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Exolymph creator Sonya Mann's active website is Sonya, Supposedly.

June 26, 2016

Corporate Ecology

Sci-fi author Charlie Stross wrote the following in 2010:

“Corporations do not share our priorities. They are hive organisms constructed out of teeming workers who join or leave the collective: those who participate within it subordinate their goals to that of the collective, which pursues the three corporate objectives of growth, profitability, and pain avoidance. (The sources of pain a corporate organism seeks to avoid are lawsuits, prosecution, and a drop in shareholder value.) […]

We are now living in a global state that has been structured for the benefit of non-human entities with non-human goals. They have enormous media reach, which they use to distract attention from threats to their own survival. They also have an enormous ability to support litigation against public participation, except in the very limited circumstances where such action is forbidden. Individual atomized humans are thus either co-opted by these entities (you can live very nicely as a CEO or a politician, as long as you don’t bite the feeding hand) or steamrollered if they try to resist.”

This is true to an extent, insofar as any way of regarding a system can be true. But it’s more complex than what Stross has laid out. Real life is always more complex than the aesthetically appealing description.

Photo by Rui Miguel Matos.

To grab the most recent counterexample, the results of the Brexit referendum were abhorrent to London’s financial sector. It remains to be seen whether and how the UK will withdraw from the EU, or if it will have to relinquish Scotland in the process, but it’s pretty clear that outcomes fiercely opposed by the corporatized elite can come to pass and gain tremendous public prominence.

This is also a simplification: “those who participate within [a corporation] subordinate their goals to that of the collective”. Not exactly. I might say “those who participate in a given system act according to the system’s incentive structure” instead.

You get ahead in a big company — companies of most sizes, actually — by making your boss look good. Raises and promotions are allocated to employees who boost their supervisors’ status. (Wisdom from my dad, who’s worked for the same giant enterprise tech company for thirty years.) Making your boss look good may or may not align with helping the company succeed as a whole.

In 2007, political humorist and journalist Jon Schwarz defined the Iron Law of Institutions:

“[T]he people who control institutions care first and foremost about their power within the institution rather than the power of the institution itself. Thus, they would rather the institution ‘fail’ while they remain in powerwithin the institution than for the institution to ‘succeed’ if that requires them to lose power within the institution.” [Italics in original.]

This could be summarized as “people care about their status among members of their ingroup, not members of the outgroup(s)”. Almost all cultural entities — and corporations are encrusted with culture — can be examined as communities going through hipster hype cycles and jockeying for power among themselves.

But of course, reality is also more complex than this paradigm. People can and do raise a cause above their individual wellbeing.

Corporations are assemblages of different types of people arranged in various idiosyncratic feedback loops. For the corporation to be sufficiently successful and stick around, the system must be reasonably optimized for its own survival. But it doesn’t have to work well from any objective standpoint. It can lurch in one direction or another on both macro and micro levels (the infamous Nokia acquisition and employee rating system are beautiful examples).

Anyway, we should not forget that regarding a company as a united entity with clear goals is just a rhetorical device, not a 1:1 reflection of reality.

June 9, 2016

Las Vegas & Self-Doubt

From a very long essay that probes human nature and coordination problems, here’s a passage about gambling, random initial conditions, and the resultant perverse incentives:

“Las Vegas doesn’t exist because of some decision to hedonically optimize civilization, it exists because of a quirk in dopaminergic reward circuits, plus the microstructure of an uneven regulatory environment, plus Schelling points. A rational central planner with a god’s-eye-view, contemplating these facts, might have thought ‘Hm, dopaminergic reward circuits have a quirk where certain tasks with slightly negative risk-benefit ratios get an emotional valence associated with slightly positive risk-benefit ratios, let’s see if we can educate people to beware of that.’ People within the system, following the incentives created by these facts, think: ‘Let’s build a forty-story-high indoor replica of ancient Rome full of albino tigers in the middle of the desert, and so become slightly richer than people who didn’t!'”

I’ve been to Las Vegas. It is perhaps the most surreal, dystopian place that I’ve ever seen. (Obviously there are much worse cities with equal aesthetic impact, but I haven’t personally visited them.) I guess that’s what you should expect from a metropolis developed by mafia cartels?

The Vegas sky blares with neon lights; the inside of every building is coated with cigarette grime. Elderly immigrant women stand on the sidewalk, wearing yellow shirts that advertise escort agencies, and slap their fliers against their palms. The drinks are huge, just as neon as the billboards. The casinos all have different exterior themes, but inside the slot machines are the same.

Walking up and down the Strip, every kind of advertisement is incessant, and you can spend copious amounts of money as pointlessly as you want.

Photo by Matthew Straubmuller.

Of course, I have to wonder — are my objections to Las Vegas’ tourist culture classist? Plenty of people enjoy it. They go there on purpose, spend their money on purpose, and come back next year. Yes, the city is ecologically terrible — all that decadence in a desert is obscene — but San Francisco features a greater number of miserable humans camping on the street. Let she who is without sin cast the first stone, etc.

Maybe the reason why I don’t like Vegas is that it caters to people who aren’t bourgeois intellectuals, which is the snobbiest possible way for me to describe myself, but still pretty accurate.

Maybe I’m unconsciously writing all of this as a way to signal “virtue” as perceived by members of my ideological tribe. I’m not into conspicuous consumption, so I’m “good” by the norms established in my social sphere. Never mind how odd my own conspicuous information habits look to other groups.

The larger point of the passage I quoted at the beginning is that people follow their incentives, even if their choices seem silly or tragic when analyzed from a great height. Sometimes incentives are really obvious, albeit in an absurd way — whoever builds the most ostentatious casino will profit — and sometimes incentives are expressed through social compulsions that don’t make 100% sense.

(PS: Schelling points are “focal point[s] for each person’s expectation of what the other expects him to expect to be expected to do” — more on Wikipedia.)

March 14, 2016

Don’t Show Up If You Won’t Cash Out

Stanford historian Leslie Berlin wrote an homage to Silicon Valley’s success that you may have seen linked around. It’s a good essay, but I was irked by a particular passage about Silicon Valley’s tradition of mentoring and reinvestment:

“This model of one generation succeeding and then turning around to offer the next generation of entrepreneurs financial support and managerial expertise is one of the most important and under-recognized secrets to Silicon Valley’s ongoing success.”

Berlin’s observation is true, but it’s phrased to make the phenomenon sound altruistic. Like I said on Twitter, the last round of entrepreneurs support the rising stars because they’ll get richer by doing it. There’s nothing wrong with that, and I don’t begrudge Marc Andreessen or Peter Thiel their fortunes.

However, I always feel slimy when self-interested profit-seeking is dressed as friendship and fatherly good feeling. Not that they can’t coexist, but no one amasses billions by only funding their friends and nephews (or nieces, theoretically). I’m reminded of Facebook’s Free Basics (née Internet.org), which is a marketing initiative passed off as philanthropy.

Stanford Theatre in Palo Alto. Photo by Franco Folini.

Language is important. Stories are important. The cultural memes that we absorb and the words we use to express them have real-world ramifications. (I know I’m either preaching to the choir or wasting my time, because those are the only two options on the internet…)

Maybe I shouldn’t worry about anyone else’s capitalist instincts, but it’s easy to be exploited when you’re convinced that everyone who helps you is doing it out of the goodness of their heart. If you feel like your business partner or your employer is granting you a favor, you’re less likely to stand up for your own end of the bargain.

inb4 someone calling me paranoid or cynical 😉

March 1, 2016

Amagooglezon

Amazon has a whim machine bolted onto their ecommerce system. The recommendation engine is a combination of practical — “Other people who bought X also bought Y” — and bemusingly enthusiastic: “You clicked on X before so I bet you’d really like ALSDJFLKSAJF too! Wow, look at all those letters! Notice how they’re in the same alphabet as X? Pretty impressive, huh?” It’s bad at nuance but it’s good at throwing out options. There are so many options for it to scan and suggest.

This stock photo amuses me. Image via Robbert Noordzij.

Businesses need to solve hard problems in order to be successful. Shopping on Amazon is cheap and convenient and they have a vast array of goods. Selling things cheaply without collapsing is a hard problem, and so is convenience, and so is being stocked with lots of products. Amazon conquered all three challenges. Now the benefits feed into each other. Customers love the cheapness and convenience, so sellers must stock their storefronts. Sellers are much easier to aggregate than customers, so once you figure out the customer bit, you’re golden.

Superstar internet businesses — and I guess most high-value companies in general — are all about positive feedback loops. Circular incentives that channel energy from initial success to intermediate success to dominance.

When you search for something on Google, you make Google better by feeding data into their algorithm, and your presence incentivizes both websites and advertisers to cater to this particular search engine. You come back because the algorithm is so good at presenting the information you want. Websites worry about SEO and advertisers drop $$$$$ because that excellent algorithm keeps pulling you back. The incentive structure is great for Google. That ingenious feedback loop made them dominant and it keeps them dominant.

Fast forward to 2037 when we’re surfing Amagooglezon (or whatever supplants them) with our heads swimming in VR buckets. We’ll bounce from product to product, purchasing and appraising and reviewing and returning and diving into on-demand experiences. I wonder how recommendation systems will work then — maybe they’ll have personalities. Maybe we’ll fall in love with them. Maybe we’ll hate them. Maybe our wallets will be managed by AI assistants and none of this will matter.

Tag: incentives

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