The Diderot Effect

The Diderot Effect states that buying something new creates a spiral of consumption leading you to buy new things. Things that you never needed in the first place. Buying a brand new car, leading to buying car accessories that you did not need. This can be explained by breaking it down to two parts. The first is the initial need that triggers the purchase of something new. The second is the social and mental value we put on the new possession. For example, what would a new couch be any good, unless I upgrade the surrounding furniture. One reason for this could be the constant consumer favouring ads, influencers, and content that take up our attention these days. A consequence of this kind of an environment is that we almost never think about “downgrading” or “simplifying” our lifestyle. Now it’s always about “more”. Could this be because consumption is at the center of the economic machine and we still haven’t figured out a way to sustainably grow.

The Peter Thiel Questions

Peter Thiel in his book Zero to One, listed 7 questions a startup must answer in order to make it big.

  1. The Engineering Question: Can the technology create a 10x improvement rather than an incremental improvement? Is the superiority in technology going to be obvious to the customer?
  2. The Timing Question : Why “now” is the right time for your startup and why is the problem you are solving important now? Is it a space that is trending up now? If yes, is it trending up slowly or fast?
  3. The Monopoly Question : Is the startup going to be a monopoly? Will it have a very very big market share in a small market that is growing? Will it be hard for new entrants to replicate what you have done?
  4. The People Question : Do you have the right people in your team? A team with a culture and conviction that can drive them to innovate such a solution into existence.
  5. The Distribution Question : Do you have a way to reach your customers efficiently?
  6. The Durability Question : How can you dominate the market for the next 20+ years? What can fuel the consistent demand and supply? What will stop new entrants from putting you out of business over a long period of time?
  7. The Secret Question : Do you know something that others don’t?

Opportunity Cost

Opportunity cost is the difference in cost between a choice and its next best option. The loss of potential gain by choosing an alternative. Even though the concept arises from a financial point of view. This can be applied to almost any kind of decision making. Every decision is a trade-off and the opportunity cost is just an indication on how much we are actually trading off. The risk free rate used to compare different investment options is another application of the opportunity cost. When we decide to spend time on a task, we are inherently deciding not to spend that time on something else. That will have a consequence or a “cost” attached to it. When you choose to buy a house we are saying no to renting one, moving to another place etc. All these options have an opportunity cost attached to them.

True Economic Indicator

What is a true indicator for a country’s economy? The most prominent indices are often used as a proxy for the current status of the market and by extension the economy. However, the stock market only represents the bigger and stronger companies in the economy, that were capable enough to get publicly listed. It does not account for the small businesses, the out of the garage shops and the unorganised sector. They form a considerable part of the economy and probably are the first to feel repercussions from an impending downturn. They are first to lose access to capital and debt. Is GDP per capita a good indicator of the economy? Well, it averages out the difference between the 2 sides, one represented within the stock market and the rest.

Measuring national income can account for all parts of the economy, but it is a lagging indicator. It measures the state after the fact. Similarly, the yield curve on risk free instruments is a leading indicator, where it measures the overall market sentiment for a future time horizon. Some indicators are used to indicate the economic activity that occurs between the economies, for example the Baltic Dry Index. Could a combination of these be used to offer a more complete picture of the economy. A starting point could be to classify all the different economic activity that happens within an economy and how each of them can be measured fairly accurately in a given time frame.

Software for War

The US air force is hiring companies to build nervous system for war as part of their project known as Advanced Battle Management System. “The goal of ABMS is to enable the Air Force and Space Force to operate together and as part of a joint team – connecting sensors, decision makers and weapons through a secure data network enabling rapid decision making and all-domain command and control,” according to an Air Force press release.

This project is part of Joint All-Domain Command & Control (JADC2), which is a software platform that will help them orchestrate battles on multiple fronts – air, land, sea, cyber – and even the electromagnetic spectrum. JADC2 aims to link all of their entities like ships, aircrafts, soldier etc. This can help them run operations much more efficiently. More importantly, it opens up the possibility of collecting tons of data from the field and using that to better predict scenarios and outcomes. Which in turn can be used to strategically deploy resources during an operation in real-time. Could this mean that we are building a real-world war machine that can possibly predict attacks and weaknesses of the opponent with more certainty. On the other hand, this can become an Achilles heal as well.

Lateral Thinking

Lateral thinking is a concept developed by Edward de Bono. It involves a way of thinking that does not adhere to the typical step-by-step thinking following a logical order. Our brains are conditioned to think in a straight-forward manner. It takes deliberate effort to do some kind of lateral thinking to arrive at a conclusion or solve a problem. Traditional thinking is more vertical, where each thought is connected or related to the next one following some logic. Edward de Bono argues that thinking happens in 2 stages. The first stage is a perceiving stage, where the brain sets the environment, the constraints to think under. And the second stage, where the brain uses the environment to arrive at a conclusion.

He has also described 4 ways to practice deliberate lateral thinking:

  1. Awareness : First step is to be cognizant of how the brain works and how it thinks. You’ll have to do some kind of meta-thinking and figure out what were the thoughts that you thought and what patterns and constraints were assumed.
  2. Random Stimulation : We have a tendency to avoid distractions when trying to think. One way to trigger lateral thinking is to let these stimuli be acknowledged in the thinking process.
  3. Alternatives : Even after solving a problem or if the solution is obvious, it is still useful to keep it aside and think about other ways it can be solved.
  4. Alteration : This technique involves reversing different elements of the problem, questioning what’s taken for granted. One easy way to do this is to ask questions starting with “What if..?”.

Federated Learning

Federated Learning is a machine learning technique that trains algorithms with separate local samples and without exchanging them. This enables training of an algorithm using multiple devices. This is a huge plus from a data privacy and data security point of view. The basic principle is that the algorithm is trained on the locally available data and the resulting model parameters of the algorithm are then exchanged to other instances. The “other instances” can be either centralized or decentralized. Determining data characteristics from just the parameters is close to impossible. Splitting the datasets into smaller local sets counteract the bias that maybe only seen in some data sets. Smartphones use this form of learning where a central model is retrieved from the cloud. The local data produced by the smartphone (for example, usage statistics, keyboard strokes etc.) is used to update the model. The updated model is then sent back to the cloud over secure channels. This shields the raw user data from the external cloud infrastructure.

A major field where this can be used is in the digital health vertical. Starting from all the data that is harvested from wearables of consumers to data from hospitals and insurances. It fits into the criteria of having a very dispersed data and can still fulfill legislation like GDPR.

Compounding

Compounding is a concept that primarily comes from finance and economics. Basically compounding refers to the interest on interest that you gain on a deposit or a loan. Albert Einstein once said that Compound Interest is mankind’s greatest invention. Compounding goes beyond the field of economics. It can be applied to relationships, habits, learning as well. If we try to boil it down, it comes to two things. The frequency component, i.e. the sheer disciple of performing a task or sitting down to write consistently, day after day. Lionel Messi once quoted “I start early, and I stay late, day after day, year after year. It took me 17 years and 114 days to become an overnight success”. The second component is the passage of time. Sometimes the change is not visible and it can be demotivating. But sticking to the process is the only way to manifest compounding.

Placebo Effect

It is an effect where you experience a positive or negative effects from an inactive “look-alike” substance or treatment. The inactive substance is called the placebo. The mind has a powerful influence on the body and expectations can trigger this effect. More the expectations more they can feel it. The effects are less prominent on people who don’t believe that the medicine or treatment is going to help them. Placebo effect is extensively used in medical research. Test subjects are given either the actual medicine under trial or the placebo. This will help get a more accurate idea on the efficacy of the medicine. To take this one step further, these studies can be done in a double blind way. In a double blind study, neither the researchers nor the test subjects know what treatment they are getting. This helps reduce the bias in the study due to placebo effect.

How TransferWise Works?

TransferWise is an online money transfer service. TransferWise offers transfers at the mid-market rate, i.e. the rate that you would find on Google. Other banks and transfer services usually offer a higher rate and make a profit out of it. TransferWise uses smart matching to match your transaction to another one that is happening the other way round. This avoid currency conversion and enables them to make a profit even at a mid market rate. In addition to that, they have a network of local banks around the world to facilitate these transactions locally.

Borderless Account

This is a free-of-charge account that users can use to hold, receive and send money in different currencies. This also works on the network of local bank accounts around the world.

How they make money

  1. Fee on transaction: The markup that they set on each transaction dependent on the amount being transferred.

  2. Borderless Account: Even though the account itself is free-of-charge, the transactions are subject to a fee.

  3. TransferWise for business: Companies can use their account to accept and make payments for their global business. This eliminates the hassle for managing different currencies.

  4. TransferWise for banks: They provide an API for banks to use the TransferWise network to make payments, enabling them to provide cheap rates and faster money transfers.

References

TransferWise Business Model

How TransferWise works