Tim Wong, Steve Levitt, Ebay discussed on Freakonomics

Freakonomics
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Wong whose day job is researching artificial intelligence and machine learning some of the most cutting edge research in the world is being funded by ads right if you think machine learning and a is going to have a huge impact a huge impact in the world that is from economist. Travel to medical research and diagnosis. You may want to think about what it means that most of it is subsidized through this infrastructure. So there's lots and lots of links through the economy. That are not always obvious. But i think are thinking through because it points how widespread a downturn could be so if there is an advertising bubble canopy deflated in slow controlled. Way to avoid massive economic unraveling. Tim wong thinks so but change won't come from the industry players. They have too much incentive to keep selling it's got to be driven by the buyers one of the groups that has the most to lose our people who theoretically might be wasting a lot of money on advertising but wong does not think the buy side pressure will be enough because i think one of the biggest problems in the spaces that there is no objective. Third party evaluator of some of these claims claims. That is about ad efficacy. And so what i advise is kinda punk rock n d e r. The nba er is the national bureau of economic research. What does wong's punk rock version. Look like it's basically a research group that is willing to be a little bit of a troll to the advertising industry and so again. how do we throw off the veil reduce the passage in the marketplace. You really need a dedicated group of people who are doing good research on this run where you want is a handbrake where you can slowly bring down the momentum in the market so that it can deflate without exploding there are of course. Many people and institutions already doing research on advertising spending. But let's be honest. Most of them have someone's thumb on the scale and conventional wisdom. Isn't the only thing that someone like tim. Wong is challenging. It's also the billions of advertising. Dollars that dr trillions of dollars of market value. So it takes some courage to suggest those billions and trillions may not be kosher one of my favorite arguments. That people are using right now. Is you know. Companies wouldn't put money into this if it didn't work so isn't that proof that the ads actually work. That in fact is exactly what we heard earlier. From the unilever veteran keith weed the fact that coke and dove and ford have been around for decades and the fact that companies like unilever spend billions suggests that maybe advertising does work which is kind of crazy. Circular mind maze. If you think about it. But i do think that again. This is very parallel to the kinds. Psychology to had driven market bubbles in the past. One reason to suspect that ads do work. Well is the underlying assumption that firms like unilever who buy so much. Advertising are as econ. One one textbooks tell us profit maximize irs. So why would they waste so much money. Any economists that tells you that firms are profit maximizing is not ever worked with firms. That again is steve levitt. The realistic picture of is that firms are composed of people and all of the foibles and shortcomings that people exhibit in their everyday life. They bring those to work with them. We s steve to dallas the berkeley economist. Who worked for a time at ebay. What he thought of levitz take on the non profit maximizing behavior of allegedly profit maximizing firms as an economist hearing you say that causes my stomach to hurt but at the same time. I know that you are absolutely correct to dallas. By end of his time at ebay had come to think that his cynical view of advertising didn't go far enough he recalls the time ebay asked him to measure the efficacy of affiliate advertising. Think of bloggers who put in links to say company websites. Well we worked closely with the senior director in charge of spending the money on that and after two our intensive meeting. We figured out a way to do that to do that. Meaning to measure whether these affiliate links were really worth buying he turned to me and said you know steve if your results look as bad as they did for paid search. I'm not going to believe your numbers now. I was obviously shocked because it made me realize that religion and not science is. What's winning this battle. But then i realized that it's something a lot more profound and for which. I actually have a lot of compassion. If you're working on something for ten twenty twenty five years this is part of your identity and this is part of what you believe in. And if i'm going to prove that what you thought worked so well in ways that you don't quite understand because you're not a statistician or an attrition and you have to take it at face value. What are you going to believe your gut tells you that what you've been doing for the last twenty years is really influential or some egghead academic. That's showing you a bunch of equations that you don't understand and is claiming that you're wrong. This digital advertising issue is just part of a bigger conversation about the power of modern technology companies for their first few decades. They were pretty much given free reign. But now they are facing scrutiny over the breadth and depth of their power power both seen and unseen the. Us government has brought a major antitrust case against google facebook youtube twitter and frankly thousands of digital platforms and repositories stand accused of promoting misinformation and or mishandling user. Information given all that society probably deserves a better answer than a lot of companies. Pay a lot of money for advertising so it must work. I think the question isn't necessarily do want it internet with ads or without ads. That again is tim. Wong the question is do you want an internet. That's just based on a huge monoculture. that's largely funded through ads. We're the most powerful companies use ads and we're vc's don't choose.

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