Entrepreneur, Explorer, Angel.
Sometimes all at Once.
10TH June 2011
Timely - Uncategorized
Fool me once, shame on you. Fool me twice, shame on me!
But fool me after that, and it’s time to look for a Trust Badge before we share again!
Every day seems to bring fresh news of another Trust test in the Sharing Economy: another scam on Craigslist, Air BnB getting spoofed by “knock-offs” and hiring detectives (private, online, not guys with cameras) to police clones, and way too many fake Lady Gaga tickets. As I wondered what was compelling people to continue taking real world risks based on digital information, I fell upon a great paragraph in Niall Ferguson’s The Ascent of Money (kudos Jack from YEO for the rec.)
The answer is the “failure of invariance’.
According to Kurzweil in The Singularity is Near, the machines are gaining on us, and our “gut feel” is getting closer to being reverse-engineered in a mathematical formula. If you doubt the hard-wired fallibility of human beings, ask yourself the following question. A bat and ball, together, cost a total of $1.10 and the bat costs $1 more than the ball. How much is the ball? The wrong answer is the one that roughly one in every two people blurts out: 10 cents. The correct answer is 5 cents, since only with a bat worth $1.05 and a ball worth 5 cents are both conditions satisfied.
In Niall’s words, it’s only one of many heuristic biases (skewed modes of thinking or learning) that distinguish real human beings from the homo economicus of neoclassical economic theory, who is supposed to make his decisions rationally, on the basis of all the available information and his expected utility.
Here are a few of the cognitive traps: see how many you recognize
- Availability bias, which causes us to base decisions on information that is more readily available in our memories, rather than the data we really need;
- Hindsight bias, which causes us to attach higher probabilities to events after they have happened (ex post) than we did before they happened (ex ante);
- The problem of induction, which leads us to formulate general rules on the basis of insufficient information;
- The fallacy of conjunction (or disjunction), which means we tend to overestimate the probability that seven events of 90 per cent probability will all occur, while underestimating the probability that at least one of seven events of 10 per cent probability will occur;
- Confirmation bias, which inclines us to look for confirming evidence of an initial hypothesis, rather than falsifying evidence that would disprove it;
So, when you are taking risks based on your own cognitive powers, you are bound to mistakes as above. Now multiply the possibilities by the volume and velocity of opportunities for trust (and trust violations) online.That’s not a bad thing! It makes a compelling case again for a portable trust layer in the sharing economy.
- 10 Things to ask before Investing with someone
- May 08, 2014
- Angel investing for Family Offices: What if you knew ‘Zuck… back then.
- July 10, 2013
- Now I really want to be like Peter Thiel
- June 11, 2016