What you see is not what you want but what you will 'engage' with. So is this an excellent way to learn about investing?
21-Apr-2022 •Dhirendra Kumar
Algorithms are the new symbol of good as well as evil. Any number of new products and services claim to be able to function magically better because words like AI, ML and algorithm have been sprinkled on them. On the other side, algorithms are almost the pure embodiment of evil, which social media and other digital content companies use to manipulate you.
As I was doing some background googling on this, I came across a succinct and clear analogy of this problem. In this video, the narrator said that imagine a group of teenagers who go to a party. On the way back, one of them posted on some social media that the party was nice, and everyone had a good time. Another one posts that the party was terrible and criticises the host and the fellow guests. It's human nature that those reading the two messages will pay more attention to the second message and share it further in larger numbers.
So far, so normal. However, the problem starts after this. The algorithm 'notices' this behaviour and then starts optimising for 'engagement'. More and more negative messaging gets shoved on to their screens, leading to a spiral of stronger reinforcement.
Transpose this to savings and investment content on social media and other digital media. Why is it so heavily biased towards the kinds of investing activity that is supposed to generate quick and outsized returns? Why is there so much content on crypto and which stocks will double over the next week and so on? The reason is the same. Such content is more likely to get 'engagement', as the content companies call it, and thus increasing their revenue. The behaviour of the systems is tuned for clicks and shares and forwards and this is the kind of content that generates all that.
Eventually, this will start having a serious effect on the beliefs and behaviour of new savers and investors. In fact, I already see it happening. There's no shortage of young people who believe that crypto or day-trading is the only way to invest. They think of long-term mutual funds or stocks investments in the same way as they feel towards owning a rotary dial phone - something that belongs to the past and is completely outdated.
You could argue that these are attitudes that build upon the instinctive attraction toward quick and outsized returns that is already there in almost everyone's way of thinking, and you would be right. That's very much what my point is. The instincts are there, but the logic of the engagement-enhancing algorithm relentlessly enhances and reinforces it. It's just like the example of the partying teenagers. There is one article or video or tweet on making a sensible, diversified set of investments that'll generate 5-6 per cent above inflation for a decade and make you wealthy and another one on doubling your money in three months.
Here's the most important part: In the pre-algorithm days, the question would have been which one you will click on. However, nowadays, that decision has already been made for you. You will be shown only the second one because that is what you are likely to click on, and that's what will make someone more money. Most of the time, the decision has already been made for you.
The question is, what can you do about this? I'm not here to suggest any legal or regulatory changes because it's hard to imagine how those would work. Instead, what are you going to do about this on a personal basis? I think the answer is self-evident. Be sceptical - all the time and about everything. Be sceptical not just about what any piece of content is saying but about why it is being shown to you at all. Always consider the contrarian view and go out looking for it. It's your attention, your money, and your investments. Optimise it for yourself and not for someone else's business.