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“alia est differentia”, other things being variable, is the Visible Hand of economics

What has news of an election in India cause it’s stock markets to rise exponentially in days,where with a good percentage companies for years have been impacted with low stock turns, high inventory, high Cash Conversion Cycles, low GMROI and thus high debt and Gearing ratios? Not that it’s different in markets across the world? Or a headline that has valuations jumping by the day in billions? Or a conference on Inclusive Capitalism is an Oxymoron? Or the world has over 450 million small farmers and at the other end we have a food, water, population and energy relationship crisis or how relationships are more important than skills in careers? Or are these metrics even relevant anymore?

Perception of change often proves that all we learn and do has nothing to do with the fundamental equations either in accounting or math, but being “Predictably Irrational”.

A 1987 classic titled “Capital Market Myopia“by William A. SahlmanHoward H. Stevenson
http://hbr.org/product/Capital-Market-Myopia/an/288005-PDF-ENG
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“Focuses attention on a phenomenon we call capital market myopia, a situation in which participants in the capital markets ignore the logical implications of their individual investment decisions. Viewed in isolation, each decision seems to make sense. When taken together, however, they are a prescription for disaster. Capital market myopia leads to over-funding of industries and unsustainable levels of valuation in the stock market.”

and now the recent work by Clayton Christensen

HBR June 2014 “The Capitalist’s Dilemma BY CLAYTON M. CHRISTENSEN AND DEREK VAN BEVER
“The tools we use to guide our investments are blind to the best opportunities for creating new jobs and new markets”.  One phenomenon we’ve observed is that, despite historically low interest rates, corporations are sitting on massive amounts of cash and failing to invest in innovations that might foster growth. That got us thinking: What is causing that behavior? Are great opportunities in short supply, or are executives failing to recognize them? And how is this behavior pattern linked to overall economic sluggishness? What is holding growth back?

The word “behavior” jumps out as pivot around irrational execution of sitting on vast cash and yet, failing to invest?
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http://hbr.org/2014/06/the-capitalists-dilemma/ar/1

More importantly, what if you had software algorithmic ability and technology that could model, map, analyze and leverage “Predictive or Reactive analytics ” that created or identified opportunities in advance and either mitigated this risks, or created new opportunities for investing before or after they happened?

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http://www.bbc.com/news/business-27435457%5Bembed%5D%5Bembed%5Dhttp://blogs.wsj.com/digits/2014/05/25/investor-talk-on-ubers-valuation-hits-as-high-as-17-billion/?mod=ST1

http://www.businessweek.com/videos/2014-05-26/inclusive-capitalism-is-an-oxymoron-de-rothschild#r=lr-sr

http://skollworldforum.org/session/skoll-world-forum-2014/sessions-2/farm-plate/

http://www.businessweek.com/articles/2014-05-22/the-latest-executive-dustups-prove-relationships-not-skills-determine-success

At the Stanford Peace Innovation Lab, we are doing some exciting work as a team on behavioral economics, persuasive technologies and what the simple but next deep insight is. We believe it’s around “behaviors”.

If being rationality was so fundamental, why do most of us do things we do everyday and at the end of it as why did we do and not do what seemed logical from simple tasks such as going to a meeting on time to taking a break? Because we are people and are #PredictablyIrrational. #aliaestdifferentia is critical as we have built around the minds over the last decades on behavioral economics to create our own framework.

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We often see conversations by the day. How much do we price this asset, or what is the cost of the fossil fuel supplychain over the next 2 weeks or what’s on FB that we have to acknowledge now or do we post this on Twitter or Instagram or do we have to check the news now or do we have to respond the mail or my chat? These events never end.

 

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#PredictableIrrationality is alia est differentiaother things being variable, is the Visible Hand of economics.  This is the fundamental premise of the work and research that is now entering algorithmic phase of the cycle. Imagine the applications? From investing in assets, people, markets, bonds, startups, or recreating policies in government or creating and leveraging new opportunities from current models where it’s now democratized and available for all to participate and collaborate in. Imagine for a minute these behavioral algorithms do what Google as a company did for search and this for behaviors.

All that is being written is form notes and work being done in research, modeling and analytics which has resulted in stealth mode work.

 

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The May 13th blog post the title was  #BEHAVIORS OF #PREDICTABLEIRRATIONALITY, THE VISIBLE HAND OF ECONOMICS! https://gerardjrego.com/2014/05/13/behaviors-of-predictableirrationality-the-visible-hand-of-economics/

Why is alia est differentia, (other things being variable) the change in the way we fundamentally look at economics and thus societies, people, businesses, governance and economies?

Let’s start with the data.

Historic Stock Market Crashes, Bubbles & Financial Crises

The Dutch Tulip Mania (aka “Tulipomania”) of 1634-1637
The South Sea Bubble (1716-1720)
The Mississippi Bubble (1716-1720)
The British “Railway Mania” Bubble
The Florida Real Estate Bubble of the 1920s
The Stock Market Crash of 1929
Kuwait’s Souk al-Manakh Stock Bubble & Crash
Black Monday – the Stock Market Crash of 1987
Japan’s Bubble Economy of the 1980s
The Collapse of Barings Bank (1995)
The Dot-com Bubble (Late 1990s)
http://www.thebubblebubble.com/historic-crashes/

or the Wired article in 27.12.2010 titled “Algorithms Take Control of Wall Street” http://www.wired.com/2010/12/ff_ai_flashtrading/ to  the  “The Front-Runners of Wall Street” APRIL 7, 2014,  http://economix.blogs.nytimes.com/2014/04/07/the-front-runners-of-wall-street/?emc=eta1.

or Thomas Piketty’s work on inequality “Capital in the Twenty-First Century” or why startup valuations and acquisitions have numbers that often defy gravity from the most rational folks in the business.

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We have over the last few quarters taken the time and leveraged our past work to create a model which is based on some realities of today. Our mission is simple. Create a framework that reflects the reality of what we need as people, societies and nations to create a new evolution of capitalism. That is “alia est differentia”.

We are now mapping the models via algorithms. (work is WIP and will be shared at a later date)

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  1. #PredictablyIrrational
  2. #alia est differentia
  3. #BehavioralAccounting
  4. #BehavioralInventory 
  5. #BehavioralPools
  6. #BehavioralCommerce
  7. #BehavioralSupplychains
  8. #BehavioralAnalytics
  9. #BehavioralDesign
  10. #BehavioralContracts
  11. #BehavioralClimates/#BehavioralWeather
  12. #Prosumption
  13. #Circularity

 

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The applications that we are looking at vary across risk modeling, asset valuation, social change, climate impact,  equity investing, policy making, product design, management and engineering, etc. The applications are limited by imagination.

 

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This is work in progress and data or detailed modeling is being documented and will be published at a later date. This is just to share our work and ideas as a collaborative platform and conversation. What we have are potentially a new framework with new metrics that will be believe will leverage new models and lens for everyone to look through and identify, create and collaborate around a platform that enables #Circularity, #Prosumption and behaviors. The bottom-line is that alia set differentia is a result of “Predictably Irrational” behaviors.

 

* All screen shots from their respective web sites

 

 

 

 

 

 

 

 

 

 

 

Categories: Uncategorized

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