How Amazon’s Algorithm Gets You to Spend Money | Big Think

How Amazon’s Algorithm Gets You to Spend Money

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Companies like Amazon take advantage of the fact they know a whole lot more about buying patterns than you do. As author and entrepreneur Jerry Kaplan explains, information asymmetry is the real crux of Amazon's business plan. That Amazon sells goods is incidental. The real money is generated by machine learning algorithms that can deftly achieve arbitrage: the ability to set prices in a way that maximizes profits. So the next time you spot a price shift for a product you've been keeping an eye on, know that a hyper-intelligent computer system has for just as long kept its eye on you, and it's smarter than you think.

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JERRY KAPLAN:

Jerry Kaplan is widely known in the computer industry as a serial entrepreneur, inventor, scientist, and author. He is currently a Fellow at The Stanford Center for Legal Informatics. He also teaches Philosophy, Ethics, and Impact of Artificial Intelligence in the Computer Science Department, Stanford University.

Kaplan co-founded several ventures including Winster.com (social games); Onsale.com (online auctions); GO Corporation (tablet computers); and Teknowledge (expert systems). He wrote a best-selling non-fiction novel entitled “Startup: A Silicon Valley Adventure”, selected by Business Week as one of the top ten business books of the year, and optioned to Sony Pictures, with translations available in Japanese, Chinese, and Portuguese. His latest book is titled Humans Need Not Apply.

Kaplan co-invented numerous products including the Synergy (first all-digital keyboard instrument, used for the soundtrack of the movie TRON); Lotus Agenda (first personal Information manager); PenPoint (tablet operating system used in the first smartphone, AT&T's EO 440); the GO computer (first tablet computer) and Straight Talk (Symantec Corporation's first natural language query system). He is also co-inventor of the online auction (patents now owned by eBay) and is named on 12 U.S. patents.

He has published papers in refereed journals including Artificial Intelligence, Communications of the ACM, Computer Music Journal, The American Journal of Computational Linguistics, and ACM Transactions on Database Systems.

Kaplan was awarded the 1998 Ernst & Young Entrepreneur of the Year, Northern California; served on the Governor’s Electronic Commerce Advisory Council Member under Pete Wilson, Governor of California (1999); and received an Honorary Doctorate of Business Administration from California International Business University, San Diego, California (2004).

He has been profiled in The New York Times, The Wall Street Journal, Forbes, Business Week, Red Herring, and Upside, and is a frequent public speaker.

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TRANSCRIPT:

Jerry Kaplan: If you’ve ever been online and if you haven’t, I don’t know what you’re doing watching this video. You know that many websites are tracking and studying your behavior and in a way they help you by presenting products and information that they think that — they believe — based upon your browsing history and other characteristics are going to be of great interest to you. But there’s also a darker side to that activity. While that may add great convenience to you, the truth is that that also permits them to look at questions like what do they estimate you’re willing to pay for that product? Now a lot of people think mistakenly that you’re supposed to charge the same price for a product to everybody. That’s not the case. You can’t discriminate based on certain criteria — race, religion, sexual preference. But it’s perfectly fine for me to charge this guy more than that guy because I think he’ll pay more and just look at airplane tickets as a perfect example of that sort of thing. Now here’s the problem. We’re taking those kinds of decisions in these websites. Amazon itself is a fantastic example of this and we’re incorporating very sophisticated machine learning algorithms that are designed to manage the overall behavior of the group of people who are visiting that website.

In order to optimize profitability for the companies that are running those websites. And they will cut you the least slice of pie, the smallest slice of pie that they can to get you to send you to do what they want you to do in order to maximize the profits of the corporation. Now you may have been on Amazon and you may put things in — ....

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