The Keynesian beauty contest

A Keynesian beauty contest is a concept developed by John Maynard Keynes and introduced in Chapter 12 of his work, General Theory of Employment Interest and Money (1936), to explain price fluctuations in equity markets.

Overview
Keynes described the action of rational agents in a market using an analogy based on a fictional newspaper contest, in which entrants are asked to choose a set of six faces from photographs of women that are the "most beautiful". Those who picked the most popular face are then eligible for a prize.
A naïve strategy would be to choose the six faces that, in the opinion of the entrant, are the most beautiful. A more sophisticated contest entrant, wishing to maximize the chances of winning a prize, would think about what the majority perception of beauty is, and then make a selection based on some inference from their knowledge of public perceptions. This can be carried one step further to take into account the fact that other entrants would each have their own opinion of what public perceptions are. Thus the strategy can be extended to the next order, and the next, and so on, at each level attempting to predict the eventual outcome of the process based on the reasoning of other rational agents.

It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees. (Keynes, General Theory of Employment Interest and Money, 1936).

Keynes believed that similar behavior was at work within the stock market. This would have people pricing shares not based on what they think their fundamental value is, but rather on what they think everyone else thinks their value is, or what everybody else would predict the average assessment of value is.

Subsequent theory
Other, more explicit scenarios help to convey the notion of the beauty contest as a convergence to Nash Equilibrium. For instance in the p-beauty contest game (Moulin 1986), all participants are asked to simultaneously pick a number between 0 and 100. The winner of the contest is the person(s) whose number is closest to p times the average of all numbers submitted, where p is some fraction, typically 2/3 or 1/2. If p<1 p="1">
In play of the p-beauty contest game (where p differs from 1), players exhibit distinct, boundedly rational levels of reasoning as first documented in an experimental test by Nagel (1995). The lowest, `Level 0' players, choose numbers randomly from the interval [0,100]. The next higher, `Level 1' players believe that all other players are Level 0. These Level 1 players therefore reason that the average of all numbers submitted should be around 50. If p=2/3, for instance, these Level 1 players choose, as their number, 2/3 of 50, or 33. Similarly, the next higher `Level 2' players in the 2/3-the average game believe that all other players are Level 1 players. These Level 2 players therefore reason that the average of all numbers submitted should be around 33, and so they choose, as their number, 2/3 of 33 or 22. Similarly, the next higher `Level 3' players play a best response to the play of Level 2 players and so on. The Nash equilibrium of this game, where all players choose the number 0, is thus associated with an infinite level of reasoning. Empirically, in a single play of the game, the typical finding is that most participants can be classified from their choice of numbers as members of the lowest Level types 0, 1, 2 or 3, in line with Keynes' observation.

In another variation of reasoning towards the beauty contest, the players may begin to judge contestants based on the most distinguishable unique property found scarcely clustered in the group. As an analogy, imagine the beauty contest where the player is instructed to choose the most beautiful six faces out of a set of hundred faces. Under special circumstances, the player may ignore all judgment-based instructions in a search for the six most unique faces (interchanging concepts of high demand and low supply). Ironic to the situation, if the player finds it much easier to find a consensus solution for judging the six ugliest contestants, he may apply this property instead of beauty to in choosing six faces. In this line of reasoning, the player is looking for other players overlooking the instructions (which can often be based on random selection) to a transformed set of instructions only elite players would solicit, giving them an advantage. As an example, imagine a contest where contestants are asked to pick the two best numbers in the list: {1, 2, 3, 4, 5, 6, 7, 8, 2345, 6345, 9, 10, 11, 12, 13}. All judgment based instructions can likely be ignored since by consensus two of the numbers do not belong in the set.

Via: wikipedia

The 3 Keys to Motivation

"Drive: the surprising truth about what motivates us", the newest book by Dan Pink, is a winner! It explains how intrinsic motivators beat extrinsic motivators, like rewards and punishments, for the more difficult cognitive tasks and jobs that are the core of what the new world of work and business are about.

What are the 3 most important intrinsic motivators?

Autonomy is our need for independent action and control over tasks, time, place, and team. One example is ROWE, the results-only work environment.

Mastery is our need to show we are "masters" of something that matters to us. The example he uses is comparing Encarta to Wikipedia (open source movement and community sharing).

Purpose is our need to matter in the larger scheme of things. Achieving your highest fulfillment does not have to be incompatible with making a living.

Via: www.careerhubblog.com

Startup Triplets: Startup Advice In Exactly Three Words

1. Watch your cash. [tweet]

2. Pick founders carefully. [tweet]

3. Hire generalists early. [tweet]

4. Hire specialists later. [tweet]

5. Invest in culture. [tweet]

6. Avoid tempting distractions. [tweet]

7. Support customers maniacally. [tweet]

8. Avoid business plans. [tweet]

9. Write a blog. [tweet]

10. Never fudge numbers. [tweet]

11. Encourage diverse thinking. [tweet]

12. Guard your time. [tweet]

13. Defer renting space. [tweet]

14. Get enough sleep. [tweet]

15. Delay raising capital. [tweet]

16. Persist through downturns. [tweet]

17. Decide with data. [tweet]

18. Improve product daily. [tweet]

19. Recognize revenue consistently. [tweet]

20. Start charging early. [tweet]

21. Reward early adopters. [tweet]

22. Sell something today. [tweet]

23. Say “NO” often. [tweet]

24. Accept imperfect data. [tweet]

25. Recruit with zest. [tweet]

26. Nurture your best. [tweet]

27. Treat vendors well. [tweet]

28. Believe in yourself. [tweet]

29. Respect your competitors. [tweet]

30. Try something new. [tweet]

31. Build a brand. [tweet]

32. Focus, focus, focus. [tweet]

33. Iterate more often. [tweet]

34. Use your product. [tweet]

35. Live your vision. [tweet]

36. Encourage rational debate. [tweet]

37. Make decisions swiftly. [tweet]

38. Face harsh realities. [tweet]

39. Don’t break laws. [tweet]

40. Protect your health. [tweet]

41. Celebrate your successes. [tweet]

42. Cancel unnecessary meetings. [tweet]

43. Improve emloyee's resumes. [tweet]

44. Beware big bullies. [tweet]

45. Share the experience. [tweet]

46. Maintain your relationships. [tweet]

47. Keep it fun. [tweet]

48. Sales fixes everything.

49. Ship then test.

50. Do not partner.

Via: onstartups.com

A revolution happens when society adopts new behaviors

Us Now takes a look at how this type of participation could transform the way that countries are governed. It tells the stories of the online networks whose radical self-organising structures threaten to change the fabric of government forever.

“A revolution doesn’t happen when society adopts new tools, it happens when society adopts new behaviors” – Clay Shirky, Us Now

Via: usnowfilm.com

The Incomplete Manifesto for Growth

Written in 1998, the Incomplete Manifesto is an articulation of statements exemplifying Bruce Mau’s beliefs, strategies and motivations. Collectively, they are how we approach every project.

1. Allow events to change you.
You have to be willing to grow. Growth is different from something that happens to you. You produce it. You live it. The prerequisites for growth: the openness to experience events and the willingness to be changed by them.

2. Forget about good.
Good is a known quantity. Good is what we all agree on. Growth is not necessarily good. Growth is an exploration of unlit recesses that may or may not yield to our research. As long as you stick to good you'll never have real growth.

3. Process is more important than outcome.
When the outcome drives the process we will only ever go to where we've already been. If process drives outcome we may not know where we’re going, but we will know we want to
be there.

4. Love your experiments (as you would an ugly child).
Joy is the engine of growth. Exploit the liberty in casting your work as beautiful experiments, iterations, attempts, trials, and errors. Take the long view and allow yourself the fun of failure every day.

5. Go deep.
The deeper you go the more likely you will discover something of value.

6. Capture accidents.
The wrong answer is the right answer in search of a different question. Collect wrong answers as part of the process. Ask different questions.

7. Study.
A studio is a place of study. Use the necessity of production as an excuse to study. Everyone will benefit.

8. Drift.
Allow yourself to wander aimlessly. Explore adjacencies. Lack judgment. Postpone criticism.

9. Begin anywhere.
John Cage tells us that not knowing where to begin is a common form of paralysis. His advice: begin anywhere.

10. Everyone is a leader.
Growth happens. Whenever it does, allow it to emerge. Learn to follow when it makes sense. Let anyone lead.

11. Harvest ideas.
Edit applications. Ideas need a dynamic, fluid, generous environment to sustain life. Applications, on the other hand, benefit from critical rigor. Produce a high ratio of ideas to applications.

12. Keep moving.
The market and its operations have a tendency to reinforce success. Resist it. Allow failure and migration to be part of your practice.

13. Slow down.
Desynchronize from standard time frames and surprising opportunities may present themselves.

14. Don’t be cool.
Cool is conservative fear dressed in black. Free yourself from limits of this sort.

15. Ask stupid questions.
Growth is fueled by desire and innocence. Assess the answer, not the question. Imagine learning throughout your life at the rate of an infant.

16. Collaborate.
The space between people working together is filled with conflict, friction, strife, exhilaration, delight, and vast creative potential.

17. ____________________.
Intentionally left blank. Allow space for the ideas you haven’t had yet, and for the ideas
of others.

18. Stay up late.
Strange things happen when you’ve gone too far, been up too long, worked too hard, and you're separated from the rest of the world.

19. Work the metaphor.
Every object has the capacity to stand for something other than what is apparent. Work on what it stands for.

20. Be careful to take risks.
Time is genetic. Today is the child of yesterday and the parent of tomorrow. The work you produce today will create your future.

21. Repeat yourself.
If you like it, do it again. If you don’t like it, do it again.

22. Make your own tools.
Hybridize your tools in order to build unique things. Even simple tools that are your own can yield entirely new avenues of exploration. Remember, tools amplify our capacities, so even a small tool can make a big difference.

23. Stand on someone’s shoulders.
You can travel farther carried on the accomplishments of those who came before you. And the view is so much better.

24. Avoid software.
The problem with software is that everyone has it.

25. Don’t clean your desk.
You might find something in the morning that you can’t see tonight.

26. Don’t enter awards competitions.
Just don’t. It’s not good for you.

27. Read only left-hand pages.
Marshall McLuhan did this. By decreasing the amount of information, we leave room for what he called our "noodle."

28. Make new words.
Expand the lexicon. The new conditions demand a new way of thinking. The thinking demands new forms of expression. The expression generates new conditions.

29. Think with your mind.
Forget technology. Creativity is not device-dependent.

30. Organization = Liberty.
Real innovation in design, or any other field, happens in context. That context is usually some form of cooperatively managed enterprise. Frank Gehry, for instance, is only able to realize Bilbao because his studio can deliver it on budget. The myth of a split between "creatives" and "suits" is what Leonard Cohen calls a 'charming artifact of the past.'

31. Don’t borrow money.
Once again, Frank Gehry’s advice. By maintaining financial control, we maintain creative control. It’s not exactly rocket science, but it’s surprising how hard it is to maintain this discipline, and how many have failed.

32. Listen carefully.
Every collaborator who enters our orbit brings with him or her a world more strange and complex than any we could ever hope to imagine. By listening to the details and the subtlety of their needs, desires, or ambitions, we fold their world onto our own. Neither party will ever be the same.

33. Take field trips.
The bandwidth of the world is greater than that of your TV set, or the Internet, or even a totally immersive, interactive, dynamically rendered, object-oriented, real-time, computer graphic–simulated environment.

34. Make mistakes faster.
This isn’t my idea – I borrowed it. I think it belongs to Andy Grove.

35. Imitate.
Don’t be shy about it. Try to get as close as you can. You'll never get all the way, and the separation might be truly remarkable. We have only to look to Richard Hamilton and his version of Marcel Duchamp’s large glass to see how rich, discredited, and underused imitation is as a technique.

36. Scat.
When you forget the words, do what Ella did: make up something else ... but not words.

37. Break it, stretch it, bend it, crush it, crack it, fold it.

38. Explore the other edge.
Great liberty exists when we avoid trying to run with the technological pack. We can’t find the leading edge because it’s trampled underfoot. Try using old-tech equipment made obsolete by an economic cycle but still rich with potential.

39. Coffee breaks, cab rides, green rooms.
Real growth often happens outside of where we intend it to, in the interstitial spaces – what Dr. Seuss calls "the waiting place." Hans Ulrich Obrist once organized a science and art conference with all of the infrastructure of a conference – the parties, chats, lunches, airport arrivals – but with no actual conference. Apparently it was hugely successful and spawned many ongoing collaborations.

40. Avoid fields.
Jump fences. Disciplinary boundaries and regulatory regimes are attempts to control the wilding of creative life. They are often understandable efforts to order what are manifold, complex, evolutionary processes. Our job is to jump the fences and cross the fields.

41. Laugh.
People visiting the studio often comment on how much we laugh. Since I've become aware of this, I use it as a barometer of how comfortably we are expressing ourselves.

42. Remember.
Growth is only possible as a product of history. Without memory, innovation is merely novelty. History gives growth a direction. But a memory is never perfect. Every memory is a degraded or composite image of a previous moment or event. That’s what makes us aware of its quality as a past and not a present. It means that every memory is new, a partial construct different from its source, and, as such, a potential for growth itself.

43. Power to the people.
Play can only happen when people feel they have control over their lives. We can't be free agents if we’re not free.

Via: brucemaudesign.com

5 examples when crowdsourcing doesn't work

1. When the crowd does not have sufficient understanding or knowledge

For crowdsourcing to work you need to find the right crowd. If the technical or scientific knowledge required is rare then crowdsourcing might not be helpful unless you can find a crowd of people with the requisite foundational knowledge.

2. Where the problem is diffuse and complex

Crowdsourcing lends itself to solving clearly focused problems where there is little ambiguity or nuance – a great recent example of this was the DARPA balloon challenge.

For diffuse and complex problems it might be necessary to chunk up the challenge (if that is possible). And for problems that require painstaking layering of knowledge and information with long term focus it might not be commercially viable.

A good example of this is the discovery of longitude via crowdsourcing in the 18th century. It worked in the long run, but it took a really long time and was funded by the government. However, it might be argued that this kind of discovery would be much quicker today with computer power.

3. When you want to keep your plans secret

Clearly secrecy requires that only a few people know the secret. Thus crowdsourcing something that is meant to be a secret is probably a bad idea (unless you are executing a cunning hide in plain sight sort of plan).

4. Your problem needs to be compelling enough for contributors to care

Experience of Wikipedia indicates that people will contribute to things that are interesting to them. Thus if nobody cares about solving your problem then crowdsourcing might not be the answer.

To get an idea of how crowdsourcing works on an everyday basis there is a good discussion of how Wikipedia contributions happen by Henry Blodget in:Who The Hell Writes Wikipedia, Anyway?.

There is also a well known report by Forrester about Social Technographicsthat segments the participation of people within social networks. It shows that only a small proportion of people create or share content, a few active creators or editors, with the bulk of people lurking or not participating at all.

5. Crowdsourcing for complex problems requires dedicated resources

To undertake the kind of knowledge work required to solve complex problems contributors need uninterrupted time in the zone.

This is exemplified in some of the large open source software projects where companies pay people to work full time on open source projects for commercial advantage:

Many of the leaders of key projects (like Guido van Rossum, the inventor of Python, who works at Google (nasdaq: GOOG – news – people )) are paid by their employers to continue to lead their projects. Is there an open source community? Of course there is. But on the most prominent projects, the members of the community have jobs and are paid to work on open source because the software is so beneficial to their employers, even though it is not owned by them. True, there are hybrid models, and the smaller the project, the more likely it is unfunded. But when it becomes a big deal, open source becomes commercial.

Via: socialmediatoday.com

The Future of the Internet: And How to Stop It

The Future of the Internet: And How to Stop It by Jonathan Zittrain: An excellent book which contrasts what Zittrain calls the generative web, which enables builders to make new things, and the closed web of proprietary technologies. He describes the main ideas in the book in this very entertaining talk:

Via: timkastelle.org