A Blog by Jonathan Low


Mar 17, 2014

Will Our Aggregated Personal Data Eventually Disrupt Financial Markets?

The value of the data our electronic devices are generating will soon be worth more than the gadgets themselves - if it hasnt happened already.

The challenge is at what point someone will be able to actually do something truly useful - and quite possibly disruptive with all of that ostensible knowledge. And if so, who will it be?

The smart money is betting on itself. That is to say, the fleet of gigantuan financial institutions and their privateer outliers like the hedge funds and private equity firms believe they are optimally positioned to take that data and trade on its implications. The problem they face is that there are so many of them from the same schools, using the same hard-and-software, parsing the same algorithmic rules and assuming similar approaches to risk. This causes them to follow similar strategies that tend to cancel each other out and even to cause crises as we have seen repeatedly going back to the first modern crash in 1987.

The techsters also think they have won pole position in this race. They, after all, invented all this stuff and created the capability to realize its potential. They, too, do  not lack for self-belief, and are further convinced that they possess the moral high ground because they are scientists and technologists, not mere bankers or merchants.Who better, they imagine, to generate yet another statistical program to unlock the meaning before anyone else does and make even more selling the secrets to the universe.

There is certainly ample evidence to support either of those contentions. Tech and finance have emerged from the financial crisis and lingering recession largely unscathed. They have, for the past generation (yes, it has been that long) partnered to generate unparalleled wealth, at least for themselves.

But there is a third contestant in this competition, a long shot to be sure, but one whose growing centrality, competence - and frustration - may best position them as the ultimate winner. We speak of the citizen-consumers themselves. The people whose activities, interests and inclinations are the fuel for the data frenzy. They are beginning to awaken to their power and how to wield it. There are growing calls for an end to the Faustian bargain trading 'free' data in return for access to pathetic discounts or weasely promotions. They want to be paid, they have terms to discuss and they know they have alternatives.

Whether 'the people' will ever self-organize to the extent necessary to extract concessions from those acquiring and then reselling their data (though whose it actually is has yet to be legally determined). But as the value increases as do the numbers of providers and professionals seeking access to it, the market about which we hear so much, may well act to enable the surprise. And wouldnt that be disruptive? JL

Evgeny Morozov comments in the Financial Times:

Sensors and internet connectivity are also turning “dumb” gadgets into powerful vehicles of prediction and speculation. The data they capture can be integrated with data from other gadgets and databases to create new information commodities whose value might eclipse the value of the gadgets used to generate the underlying data. Soon, the devices might even be given away for free.
In the past few decades, Wall Street has made finance a central feature of both the global economy and of our everyday lives – a process often described as “financialisation”. Silicon Valley, almost contemporaneously, has done the same for digital media technologies. That process, too, has a fancy name: “mediatisation”. With reports that Facebook is seeking to buy a drone-manufacturing company, ostensibly to connect the most remote corners of the globe, the days of blessed disconnection seem firmly behind us.
Understandably, many social critics find this troublesome, blaming technology for invading our lives. But it is a false target: mediatisation is actually financialisation in disguise. Having disrupted Madison Avenue, the likes of Google and Facebook – armed with better data, better engineers and better databases – will disrupt Wall Street next.
Silicon Valley companies sit on a trove of data about our most banal daily pursuits. And the kind of data that they gather will only grow more diverse, as the Faustian bargain that we first accepted in our browsers – letting strangers monitor what we do online in exchange for nominally free services – will be accepted in many other domains, especially as the rise of the “internet of things” makes daily interaction with sensors, screens and other data-capturing devices unavoidable.
There is much to like here. A fridge that not only knows that you are running out of milk but can do something about it sounds empowering. Yet in the longer term there is a more consequential side: sensors and internet connectivity are also turning “dumb” gadgets into powerful vehicles of prediction and speculation. The data they capture can be integrated with data from other gadgets and databases to create new information commodities whose value might eclipse the value of the gadgets used to generate the underlying data. Soon, the devices might even be given away for free.
Consider your toothbrush. Armed with a sensor that knows when you are using it, it can detect behaviour patterns – how often you use it (or not use, as the case might be) – that help determine when you should see the dentist. That prediction would be more accurate if some other sensor-equipped gadget – say, a smart fork – knew how much sugar you consumed. The more data-tracking devices are hooked to the network, the more accurate the predictions.
Needless to say, there is always someone eager to pay for this – and ubiquitous connectivity will also mean ubiquitous and instantaneous data markets. Perhaps there would even be several bidders for such data so that an ad hoc online auction, along the lines Google uses to sell its adverts, is called for.
If Amazon can already study your history, predict your purchases and ship them before you even place an order – the online retailer’s “anticipatory shipping” technique – imagine what predictions other data-heavy companies could make.
For example, in a year or two, Google will be present in your car (thanks to its self-driving vehicles but also to the Android operating system that powers other models); in your bedroom (thanks to its acquisition of Nest, which manufactures smart thermostats and smoke detectors); in your pocket (through Android-powered smartphones); and in your entire visual field (via Google Glass, the wearable camera and screen).
In knowing your routes, your daily patterns and your contacts, Google has a far better picture of risk – for example, the odds that you will have an accident or default on a mortgage – than any insurance company or bank. And, in having unmediated access to you via your phone, Google can also sell you insurance or make you an offer for your personal data on the go, using a price point that you are most likely to accept.
That the financial value of your personal data is unstable, fluctuating based on your location, health and social status, means the spirit of speculation will not just invade our everyday life but will also make self-surveillance of our “data portfolios” highly appealing. We will resemble the confused analysts of the US National Security Agency: unsure of the future value of the data we generate, we will opt to store them for posterity. And, unsure of how to maximise that value, we will keep adding data streams in the vain hope that the value of our data portfolio (the sum total of our life) will rise.
The hope that such precarious data entrepreneurship can mitigate the problems of automation or ease our growing reliance on debt is the utopian conceit of the digital elites. Just because the World Economic Forum argues that personal data are emerging as a new asset class, that does not make it a natural or irreversible development. Nor is this development driven solely by technological innovation: like financialisation, mediatisation is primarily a failure of regulation.
Silicon Valley might, indeed, succeed in disrupting Wall Street. Alas, it has shown no real interest in disrupting its long-term agenda of making our lives tick in sync with the speculative logic of finance.


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