The Trouble with Big Tech

**ONLINE ADVERTISING EXPLOITS **

HUMANITY'S MALLEABLE TASTES

Traditional cost-benefit methods hide the time cost of digital business models

By Diane Coyle May 13, 2019 in the Financial Times

​

We humans like to think of ourselves as reasoning beings, in contrast to other creatures — pigeons or mice, for example. Yet behavioural science debunks human exceptionalism. Often we act according to rules of thumb rather than rational calculation. In embracing this insight, economists are applying lessons long since learnt by advertisers and marketers, and demonstrated anew by digital businesses enticing us with just one more click and then another.

​

Historian Timothy Snyder argues in a recent essay that digital addiction represents the wiring into our lives of psychologist BF Skinner’s experiments with conditioned behaviour. Like the Mad Men of Madison Avenue, their Silicon Valley successors are using these techniques to persuade us to buy and browse and click, in their pursuit of profit. Many digital companies operate an advertising-based business model. We pay them no money but donate ample time; in return for our attention they earn revenue from advertisers.

​

Is this a good or bad thing? There’s some evidence that people place a high value on these free digital goods. But the corrosive effects of compulsive clicking are evident too. Economists have trouble evaluating the social cost and benefit of advertising because the way we define economic welfare assumes people have fixed, known preferences and — given those — decide how they want to spend their money. This standard approach ignores the essence of the ad-based model, namely that people are spending time rather than money.

​

The point is that nobody has fixed preferences. We are eminently persuadable, concluding that we do after all want the blouse or the lawnmower or the dog bed for which technology has served us up an ad. Human desires are highly malleable; many people have a positive taste for novelty.

​

Economist Nicholas Kaldor made an early attempt in 1950 to consider the economic cost-benefit of advertising. He weighed the benefit of the provision of information and the creation of jobs and demand against the fact people might end up paying elevated prices for branded goods. Even before the Mad Men weaponised the business, he was sceptical there was any net benefit to society. Today, there is no doubt that the online market is opaque, riddled with bots and fraudulent clicks. A majority of the revenues go to Google and Facebook. Competition inquiries are under way or likely in several countries.

​

Yet even if the market were competitive and transparent, there would be reason to believe digital advertising adds nothing to economic welfare — or worse. One estimate of the dollar value of the provision of free digital goods, calculated by imputing a value accruing to advertisers for people’s attention, found it to be minimal — less than 0.5 per cent of global gross domestic product.

​

Adding in an estimate of the value of the attention the ads and the click-addiction techniques absorb — the value of our time — would make the cost-benefit calculation decisively negative. In a services-based economy, the value people derive from how they use their time is a better measure of economic welfare than prices. With zero-priced digital services, it is all the more important to remember the time cost — not least because everybody’s time budget is strictly limited in a way monetary budgets often are not.

​

If a much-loved pet were subject to a Skinnerian behavioural experiment to make them obsessively spend several hours a day pressing levers for food, most fond owners would be outraged and put a halt to the practice. Yet the massive experiment on us is far worse. It does not rely on natural preferences for necessities but creates new wants, some positive, some harmless, others clearly damaging the fabric of our societies.

​

Nobel Prize winner Paul Romer has called for a tax on online advertising. He identifies online targeted ads as the source of socially corrosive behaviours and argues that a tax might shift the digital business models to the old-fashioned one of selling people a service they want to buy. The Romer tax would be an excellent start to limiting not only the social or civic costs but also the economic time cost to this massive behaviourist experiment. Competition investigations are another weapon in the policy armoury to limit the harm to economic welfare. Regulation limiting the amount of online advertising — as with TV advertising — may be needed too.

​

There is nothing inherently wrong with wanting to change preferences and make people buy new goods and services — innovation drives market economies. But there really is a limit. And we are well beyond it.

​

The writer is Bennett Professor of Public Policy at the University of Cambridge