Sunday, December 18, 2016

Economics of New Economy

A courageous leap is the most valuable coin of a creative thinker................Emmanuel sodipo

Imagine you’re about to leave the house to pick up your kids. As you grab your keys, a device from your coffee table interupts:
“It looks like you’ll use the last of your milk tomorrow, and yogurt is on sale for $1.29. Would you like to pick up an order from Shoprite, for a total of $4.95 before it closes for the xmas break?” You say yes. Alexa confirms; The order will be ready for delivery in 20 minutes.

The next generation of smart assistants and connected devices will learn from user habits and pick up on behavioral and environmental patterns in order to make these experiences more predictive. Devices like the Echo will access data from everyday interactions to predict specific opportunities for a transaction.

The future of predictive retail requires designing new ecosystems for commerce. These systems will be built around the human, rather than around a particular device or around online/offline experience. These systems will need to incorporate human connection, spatial design and lots of data.
Companies everywhere are making investments to build their digital businesses.

Decisions about digital platforms can make the difference between high growth and high margins or limited growth with declining margins. Unlike other technology and business investments, the digital business gets to the core economics of the company: revenue, growth, and margins.

The right digital business investments are of paramount interest to the CEO and critical to its long-term agility and margins. While questions about revenue, viral growth, and privacy receive attention, it is the agility and margins that ultimately determine the success of most digital businesses.

However; the Economist and the CEO differ in Approach:

Digital economics is set to upset markets trends and change everything. But economists don’t buy into the hype largely because the old economics lens remained useful for looking at the changes taking place.

The economics of the “New Economy” could be described at a high level;
Most human activities can be described by five high-level components: data, prediction, judgment, action, and outcomes.

For example, a visit to the doctor in response to pain leads to:
1) x-rays, blood tests, monitoring (data)
2) diagnosis of the problem, such as “if we administer treatment A, then we predict outcome X,
but if we administer treatment B, then we predict outcome Y” (prediction),
3) weighing options: “given your age, lifestyle, and family status, I think you might be best with treatment A; how you feel about the risks and side effects” (judgment)
4) administering treatment A (action)
5) full recovery with minor side effects (outcome).

As machine intelligence improves, the value of human prediction skills will decrease.

Machine prediction will provide a cheaper and better substitute for human prediction, just as machines did for arithmetic.

However, human judgment skills will increase as it complements prediction.

I believe the CEO and Economist prediction requires some human judgement.

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