From the course: Ethics and Law in Data Analytics

Digital market manipulation

From the course: Ethics and Law in Data Analytics

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Digital market manipulation

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- We assume that we more or less understand ourselves and our reasons for the decision we make. So when it comes to choosing to buy or not buy something, we assume that we are doing so for reasons that we ourselves understand. It turns out, however, that people in general are strikingly irrational in surprising ways. Especially when it comes to money. In a series of books and talks, Dan Ariely, Professor of Psychology and Behavioral Science at Duke University, argues that we do not know our own preferences very well. One unsettling thing about this is that if we suppose that there are people out there who are able to influence our preferences without our awareness of it, they can actually hack our decision-making process. We think we are in charge of our decisions, but that might be less true than we think. This fact of the human condition is sometimes used for social benefit. For example, behavioral economists advise governments on how to get people to save more for retirement. Or to volunteer to be organ donors. Or to be more honest on financial disclosure forms. Likewise, for-profit businesses can use these psychological insights for good. Or at least in ways that are good for their investors while not being overly harmful for their consumers. Most of us realize that things cost $4.99 because the brand interprets $4.99 as closer to $4 than to $5. And we all suspect that the outrageously expensive TVs are probably just put on the shelf to make the TV you are actually interested in seem like a good deal. Businesses have always used little tricks like these and most of us aren't particularly offended by such practices. But the history of marketing is littered with practices that we have to call manipulative. One recent marketing firm noticed that women feel the least attractive on Monday morning. And so recommended that makeup companies spend most of their advertising dollars at that exact moment of vulnerability. Many people are, if not outright offended, at least a little bit uncomfortable when they hear about marketing techniques that exploit our vulnerabilities. Offensive as it may be, however, when marketing departments were limited to TV and radio ads, direct mail, billboards, their powers of manipulation were very limited. But Ryan Calo in his 2014 article Digital Market Manipulation, explains how big data makes manipulation strategies such as selling makeup on Mondays much, much more serious. One reason it gives is because big data allows businesses to combine the two ingredients for traditional marketing. Personalization and systematization. An example of personalization occurs when a car salesman notices the signs of a middle-aged crisis in one of his customers and uses smooth language to get him to buy a wasteful car that makes him feel more youthful in that moment. This is personalization because this particular selling strategy would not work on most people. Systematization describes a general marketing strategy such as a car commercial on TV that is intended to provoke a feeling of youthfulness. But in the age of big data, systematization can be combined with personalization like it never has been. And this is because of big data and the algorithms that process them. Most of us have experienced this when an online seller uses an algorithm to give us a list of books we might be interested in based on what book we have already looked at. This may lead to a win-win. The business algorithm helps me discover books I like, all the while while they make money. But what if these algorithms can track your digital trail more widely and for example, use patterns of your Likes on social media to know when you have had a hard day and market a harmful tempting product to you at that exact moment of vulnerability? This is why it's more important than ever that we think about marketing in the digital age from a legal and ethical perspective.

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