#behaviors of #PredictableIrrationality, the visible hand of economics!

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”.

Ever since Adam Smith and capitalism’s pioneer economics thinker, the theory of rationality and invisible hand has been at the forefront. Lead by economists thereafter and that drove business models for centuries.

The theory of the “Visible Hand” is the principle that people are #PredictablyIrrational in an marketplace. This is a behaviors that are not self-regulating due to lack of #Circularity of rational models that connect #Adjacencies of behaviors via economics. Impact current models to dichotomies of have and have nots, that form a continuous state of systemic unpredictability. Few headlines.

The slumps that shaped modern finance (1720 to 2008)

Contagion Spreads in Emerging Markets as Crises Grow,  By Ye Xie and John Detrixhe  Jan 24, 2014

US Solar Energy Capacity Grew An Astounding 418% From 2010-2014

US Solar Energy Capacity Grew An Astounding 418% From 2010-2014

Indian Stocks Rally Ahead Of 2014 General Elections, Fuelled By Hope

China Slowdown Deepens

Random searches reveal that the visible hand is  #PredictablyIrrationality, for in all the headlines there is much to learn from hindsight with a 20:20 vision.

So what is the hypothesis?

Before we begin we must acknowledge the brilliance of Dan Kahneman, Amos Tversky, Dan Ariely, Sendhil Mulianathan and other pioneers of behavioral economics & finance.

Daniel Kahneman and Amos Tversky wrote “Prospect theory: An Analysis of Decision under Risk” in 1979 which laid the foundation of how psychological behavior and it’s impact on economics in decision making was a critical causal behavior.  This was seminal. 

However it is clear that if everyone of us were rational in every market there would be no chaos on the roads, stock markets, contracts, products we buy, homes we fill with things, the food we eat, etc. The list goes on.

In economics, the invisible hand of the market is a metaphor used by Adam Smith to describe the self-regulating behavior of the marketplace. Individuals can make profit, and maximize it without the need for government intervention.”

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Why is behavior such as critical pivot to look at? People. It is clear that people are #PredictablyIrrational.

#PredictablyIrrationality is the visible hand of economics as a behavior and that over 99% of the masses demonstrate this behavior. It is this very premise that has the opportunity to create value, disrupt value, transfer value or simple implode value ( most of the time). And the framework that we are working on is the #BehavioralAccounting of all that goes on in the linearity.

Our focus is #circularity and #prosumption. How do we convert to algorithms that enable us turn the pyramid on its head and create new opportunities which we believe we are in the midst of. Industries are getting disrupted around the visible hand of  #PredictablyIrrationality where behaviors are disrupting the very markets that defined the basis of capitalism.

Creating new marketplaces where demand-supply behaviors are #predictablyirrational, but where the control laws like that of a combat aircraft enable the equilibrium through #circularity are the new model for economics, capitalism and markets. #Circularity creates the opportunity for #adjacencies, where seemingly disconnected industries now connect due to the model of #circularity that is built into the framework of the visible hand. Do we see this in action?

Looking to save money, big business dives into the sharing economy
Zipcar and AirBnB aside, sharing isn’t just for consumers. A peek inside the growing big business sharing economy
“For mining companies, airlines and other businesses across the globe, the growth of the sharing economy is helping both equipment renters and owners to increase efficiency and save money … and, not incidentally, to conserve resources. By sharing resources, AirBnB users can reduce the number of hotels being built and Zipcar users can reduce the number of cars on the road. Similarly, businesses that share resources can maximize efficiency, reduce waste, and save money on rent, spare parts and expensive, limited-use equipment.”

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Insurance connects to spare parts. Tesla is now a utility company.  Auto OEMs with connectivity will become ISP platforms. Mobiles becomes POS terminals. Starbucks looking at finance. The list is endless. This is the biggest era of disruption and the fundamental of it all is the visible hand of economics which is now ever more than before able to leverage the #behaviors of #PreditcableIrrationality, through commoditization of technologies from the mobile to the cloud.




Daniel Kahneman on Thinking, Fast and Slow

We’re All Predictably Irrational – Dan Ariely

Sendhil Mullainathan and the Behavioral Economics of Extreme Poverty

Studying Economic Behavior in Unusual Places with Richard Thaler

Categories: Uncategorized

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