The bottom line: Expect disruption to come in more areas of life as more technologies become democratized. People will try to leverage their newly found power by organizing themselves in large groups.
What’s happening: Fat-tail events are getting more prevalent. One cause is the digital hyper-connectivity of humans around the world. As a result they respond in real-time to emotional signals. Such a response can sometimes lead to non-linear behaviour (hype) in the entire system. There are serious ramifications if those signals can be expressed in the real world or using digital products that empower them.
Gamestop's volatility forced Hedge Funds to deleverage at 11 standard deviations away from the mean in data going back to 2010. One of the reasons was their use of traditional risk models. While “Value at Risk” are widely used, they are based on historical data.
Digging deeper: Platforms allow people to congregate and organize. And to express their opinions on a massive scale. We discovered there is information in that self-expression. This notion was popularized by James Surowiecki in Wisdom of the Crowds. Since then research has dramatically improved our abilities to extract information from crowds.
Take Michael Lee (Professor in Cognitive Sciences at UC Irvine) who developed complex probabilistic models for that purpose. They remove judgment and decision making biases e.g. in prediction markets. It's a type of “noise filter”, if you will, obtaining a clearer information signal from human opinions.
Yet collective human intelligence is not the only phenomenon of human crowds.
People also collaborate to do research and solve complex challenges. Examples vary: from searching for extraterrestrial life (NASA’s SETI) to DNA research. Many corporate brands successfully employed crowdsourcing too. HBR published best practices:“The Right Way to Use the Wisdom of the Crowds”.
Why it matters: Part of the “Great Gamestop Short Squeeze” success story was open access to investment research from Cathie Wood’s Ark Investment Fund. Freely sharing that on Reddit allowed Redditors to collaborate finding weaknesses in certain stocks.
But, but, but: This is only 50% of the story. They still needed a means to deploy their new strategies "in the real world". And they had: Robinhood. A new digital platform that democratized investing to retail investors.
The downside: Were investors being manipulated and did they expose themselves too much using a zero-barrier investment app? The $40B Gamestop transaction volume weren’t all Reddit retail investors.
Because there’s a high level of anonymity, wisdom of the crowds is sensitive to manipulation. As with Q-Anon conspiracy theories it’s hard to find out who manipulates the system by feeding it emotional triggers.
What to watch: Democratization isn’t just happening for digital-native products. New physical technologies have become so cheap they can quickly democratize too. Especially when tax incentives come into play.
Rooftop solar allows for households to be their own “utility company”. In Europe they sell surplus energy back into the grid! Imagine if they band together to combine their energy surplus and negotiate better prices. Or manipulate the electricity market. Or - worse - blackmail utilities by forcing network overloads or shutdowns!
Similar trends can be found in personalized medicine. Or drones. Or food: new farming startups create "kitchen farms" that can be massively deployed in individual households.
All these technologies (and their intersection with digitization) have the potential to threaten incumbents. Or disrupt markets. And because many physical technologies grow slower than Moore’s law, incumbents often underestimate their long-term disruptive nature.
Patrick Slavenburg's new initiative focuses on digital technologies s.a. Artificial Intelligence to power the green economy.
He co-founded a startup highlighted in big media s.a. NYT, Bloomberg News, PBS. Their 2 AI algorithms appear as case studies in "AIX: Designing for Artificial Intelligence", Sudha Jamthe, Stanford, 2020. Member of "AI SME Working Group" of EU Commission. Member global thinktank "IoT Council". Co-author upcoming book on AI and prolific Speaker/Chair.