Choice architecture makes its way into anti-trust Google Ruling
CHOICE CHOICE
ARCHITECTURE ARCHITECTURE
MAKES ITS WAY INTO MAKES ITS WAY INTO
ANTI-TRUST: GOOGLE ANTI-TRUST: GOOGLE
RULING RULING
IINTRODUCTION NTRODUCTION
The theory of monopoly has to date been firmly rooted in the analog world. Traditionally, a monopoly occurred when there was a single seller or producer and no close substitutes. With the Justice Department’s ruling that Google operates a monopoly in search, we’re in a whole new realm – one in which cognitive biases are now recognized by law.
BIASED DECISION- BIASED DECISIONMAKING AND CHOICE MAKING AND CHOICE ARCHITECTURE ARCHITECTURE
As I’ve written about before, important discoveries in the behavioral sciences have shown for years that human decision-making bears little resemblance to the super-rational calculations beloved by economic theory. Economic theory posits that we should always make decisions that maximize our own utility, whatever that may be. But we don’t. Humans are subject to a vast number of cognitive biases, many that we are not even aware of.
THE POWER OF BEING T THE POWER OF BEING T DEFAULT DEFAULT
Defaults – the option first offered to you in a decision-making situation – are incredibly powerful. Study after study has shown that the default option (particularly in a low-consequences situation) is highly likely to be the one chosen. Which brings us to a fascinating new understanding of monopoly than we have historically used.
DEFAULT POWER → PRICING DEFAULT POWER → PRICING POWER POWER
The second-order effect of being the dominant default search engine is that Google is the only game in town for many advertisers, giving it unparalleled pricing power. As Paresh Dave writes in Wired, “United States District judge Amit Mehta ruled on Monday that Google has unlawfully maintained its dominance in search by using anticompetitive deals to keep rivals from gaining traction. And without fear of pressure from competitors, Google has been able to charge whatever it wants for search ads, he said.”
THE BEGINNING OF THE END OF THE THE BEGINNING OF THE END OF THE DIGITAL ADVERTISING MODEL AS DIGITAL ADVERTISING MODEL
AS WE KNOW IT? WE KNOW IT?
I’ve argued before that the whole programmatic ad model is looking like a bubble to me.
Bubbles occur when the price of something exceeds its fundamental value by a large margin. The programmatic-ad system that is the dominant part of ad spend tells advertisers that “Programmatic advertising is a perfect realm where precision meets automation, and where your ads reach their perfect audience – almost as if by magic.” Google’s search dominance has long supported its claims that it can finely target prospects by combining huge amounts of data on interests, behaviors, demographics and even time of day.
WHAT BUBBLES WHAT BUBBLES LOOK LIKE LOOK LIKE
What if the leaps of faith underlying digital ad spending follow the pattern of a bubble? Economist Hyman P. Minsky, in his 1986 book Stabilizing an Unstable Economy observed that bubbles tend to go through five predictable stages: displacement, boom, euphoria, profit-taking, and panic.
What I don’t think many people appreciate, yet, is the massive change in the concept of what an asset is that this ruling represents. Rather than a tangible, analog, item, we now are being told that controlling critical elements of choice architecture are understood to control critical parts of our economic lives. That’s a really big deal.
Want to spark some thinking in your own organization?
