IDE Annual Conference 2016

MIT Initiative on the Digital Economy
Thursday, May 19, 2016 from 8:30 AM to 6:30 PM (EDT)
Cambridge, MA

Click here for videos from the conference!

::Welcome & Introductions::
David Verrill

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Erik Brynjolfsson
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GDP is the most widely used measure of economic activity, heavily influencing policymakers in setting economic objectives. But is GDP a good measure of well-being? Unfortunately not. In fact, GDP and well-being can go in opposite directions. Economists are attempting to develop a better measurement system. But to complicate things further, the rapid growth of the digital economy and the explosion of free goods has made, and continues to make, GDP an even worse indicator of well-being. As an alternative, we find that consumer surplus is a better indicator than GDP, and we are collecting large amounts of data in real time and conducting choice experiments to better capture and understand our economic well-being.   Over the course of the next few months we will be experimenting with the use of Conjoint Analysis against our data set to explore a potential alternative to GDP that better measures the digital economy.

::Keynote – Social Robots: From Research to Commercialization::
Cynthia Breazeal, MIT Media Lab

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The fields of Social Robotics and Human-Robot Interaction are undergoing rapid growth, motivated by important societal challenges facing the general public, and the desire for intelligent machines to work collaboratively with people. In this talk, I highlight a number of provocative research findings that illuminate the social attributes of personal robots. This new “breed” of social robot interacts with people in an interpersonal way, more as a partner rather than as a tool, and opens new applications for socially intelligent machines in the future.  I illustrate these possibilities by highlighting a number of research projects from my group at the MIT Media Lab. An important goal of this work is to use socially interactive robots as a scientific tool to understand human behavior, to design machines that can engage us on social and emotional levels, and to use these insights to create robotic technologies and platforms that can enhance quality of life with specific applications focusing on health, education, and telecommunication. The commercial aspects of bringing social robots to the home as a mass consumer product and as an open platform will also be discussed in the context of Jibo, Inc.

::Big Data and Human Society (The Impact of Blockchain) ::
Sandy Pentland

The World Economic Forum spawned the Personal Data Initiative, which has caused the emergence of a new asset class where individuals have the right to possess, control and dispose of their personal information.  Personal data has “leaded” out everywhere, with a lot of celebrated breaches – some accidental, some hacked.  Blockchain offers the promise of secure computation and encrypted data – at scale.  This new paradigm for computing allows data to be exposed with encryption to a trusted 3rd party with decentralized ownership and walled gardens for an open platform.  The MIT Engima ( platform makes it possible to use and maintain data without holding that data.

::Platform Revolution::
Marshall Van Alstyne, Boston University

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Facebook, PayPal, Alibaba, Uber―these seemingly disparate companies have upended entire industries by harnessing a single phenomenon: the platform business model. Platform Revolution delivers the first comprehensive analysis of how platforms use technology to match producers and consumers in a multisided marketplace, unlocking hidden resources and creating new forms of value. When a company like Uber connects drivers with passengers, everybody wins― except traditional cab companies, which are scrambling to survive. Assumptions about operations, finance, strategy, and innovation all change. Platform Revolution explores the what, how, and why of this revolution and provides the first “owner’s manual” for creating a platform marketplace. Revealing the strategies behind some of today’s rising platforms, the authors explain how entrepreneurs―and traditional companies― can thrive in this new world. In cases as diverse as shoes, spices, dating, energy, home appliances, and education, Platform Revolution provides the essential guide to unlocking the potential of an economic landscape transformed.

::Productivity, Employment, and Inequality::
Erik Brynjolfsson, Erina Ytsma, Frank MacCrory, Andrey Fradkin, Adam Saunders

Erina Ytsma
: Surfing or Working? Responses to Changes in Workload
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Most companies learn about organizational strain only when it’s too late; when employee engagement slips, productivity decreases, quality suffers, and key employees leave the firm. We are investigating how big data approaches can help companies identify and address strain before such negative consequences occur. As a first step we use big data to gain a finer-grained understanding of worker time use and productive efficiency and its relation with changes in workload. We will present preliminary results of this analysis in our talk.

Frank MacCrory
: The Value of Skills and Education in the Second Machine Age
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US median wages have stagnated for 30 years, yet this masks a surprising amount of variation among different groups.  A large literature documents that skill-biased technical change (SBTC) has led to substantial real wage increases on average for those with at least a college degree, and declines on average for those with less education.  However, SBTC is not a single dimensional construct.  We identify seven orthogonal dimensions of skill across 514 occupations and examine how the earning power of each skill changed over the period 2006-2014. We find that (1) different skills accrue different levels of wage, (2) these wage effects vary on both the actual use of IT in the occupation as well as the general level of IT intensity in the industry, (3) up to 32.9% of the college premium is due to skill-IT complementarity, and (4) the technology-skill effects on wage are nonlinear. We discuss implications for workers, educators and policymakers.

Andrey Fradkin
: The Rise of Peer-to-Peer Marketplaces: What Have We Learned?
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Peer-to-peer marketplaces such as Etsy, Uber, and Airbnb have experienced tremendous growth across a wide range of verticals. These marketplaces use technology to create trust and streamline transactions, allowing small, inexperienced and non-professional sellers to succeed in global markets. The rise of this model highlights three important shifts in the business environment. First, the role of brands is changing as trust in reputation systems and algorithms increases. Second, contracts between firms, workers, and consumers are increasingly arranged just-in time rather than in advance. Third, as competition for attention escalates, consumers demand experiences that minimize cognitive load. This talk will synthesize evidence on these factors and will discuss potential future directions for the peer-to-peer model.

Adam Saunders
: New Measures of the US Economy
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Our research addresses the shortcomings of GDP in the context of measuring digital information goods. According to the Bureau of Economic Analysis, the information sector makes up only 4-5% of the economy—around the same share it occupied before the World Wide Web was even invented. However, as a result of the innovation and technological change that brought about the Information Age, consumers have been finding increasingly value in digital goods, such as Google searches, Wikipedia articles, and Skype calls. But because the prices and marginal costs of these goods are incredibly low—if not zero—the wealth of products that we consume online is almost completely unaccounted for in the official statistics of our economy. In our review, we discuss how GDP has evolved to include intangibles, and also examine other areas where GDP falls short. We also evaluate three approaches that economists have used to estimate the value of digital goods: calculating Internet access fees, imputing barter transactions between consumers and advertisers, and appraising the amount of time that consumers spend online. These methods, we find, still underestimate the value of digital goods or are otherwise not ideal. We conclude that in order to properly account for these goods, we should directly measure consumer surplus using conjoint analysis, through which we could potentially find trillions of dollars’ worth of value that is not currently included in GDP, and be able to better understand the sources of value in our economy.

::Only Humans Need Apply: Winners and Losers in the Age of Smart Machines
Tom Davenport

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Nearly half of all working Americans could risk losing their jobs because of technology. It’s not only blue-collar jobs at stake. Millions of educated knowledge workers—writers, paralegals, assistants, medical technicians—are threatened by accelerating advances in artificial intelligence.

The industrial revolution shifted workers from farms to factories. In the first era of automation, machines relieved humans of manually exhausting work. Today, Era Two of automation continues to wash across the entire services-based economy that has replaced jobs in agriculture and manufacturing. Era Three, and the rise of AI, is dawning. Smart computers are demonstrating they are capable of making better decisions than humans. Brilliant technologies can now decide, learn, predict, and even comprehend much faster and more accurately than the human brain, and their progress is accelerating. Where will this leave lawyers, nurses, teachers, and editors?

::New Digital Business Models::
Andrew McAfee, Deborah Soule, Sagit Bar-Gill, George Westerman, Daniel Rock

Deborah Soule:
Fostering a Digital Organization
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The digital transformation conversation tends to focus on visible changes in customer experience, operations and even business models. Relatively little attention is paid to the organization behind these capabilities.  In this research, we focused our attention on the way organizations themselves begin to change as they become more digital.  Truly transformed enterprises don’t just adopt digital innovations. They develop the capability to reconfigure both digital and human resources fluidly. They establish partnerships, identify talent, and find experts more readily than traditional firms. They can adapt quickly to narrow windows of digitally-driven opportunity.

Yet established companies are not known for being nimble and agile. So how can enterprises develop the dexterity to compete in a digital age?  Over the past two years, we conducted interview- and survey-based research with our IDE sponsors to pursue this question. In this presentation, we’ll share insights about organizational characteristics that collectively support an enterprise’s current digital capabilities while also positioning it to incorporate successive waves of digital innovation.

Sagit Bar-Gill
: Firm Size Distribution Goes Online: The Evolution of eBay Firms’ Sales Distribution
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The size distribution of firms is an important indicator of market concentration. Studying the distribution of sales for eBay’s commercial sellers, this paper provides the first analysis of a firm size distribution (FSD) at an online market, further examining its evolution, and the underlying growth rate patterns. The evolution of eBay’s FSD is characterized by increasing mass in its right tail, yet it remains better-fitted by a lognormal than by a power law distribution throughout our ten-year period of analysis. This is in line with a possible convergence towards a power law in the long run, while currently market concentration is lower compared to power law FSDs found in many traditional industries. Smaller firms are the fastest growing group of businesses, followed by large firms. Sellers’ growth rate patterns obey Gibrat’s Law only among the subset of top selling firms.

George Westerman
: What it Takes: Investigating a Novel Method for Employee Screening and Development
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Traditional methods of screening potential employees struggle to measure individual traits that are essential in the digital world, such as creativity, initiative, and grace under pressure.  However, big data analysis of individual micro-behaviors offers promise for better insights.  In this study, we use video games to identify the traits that differentiate high from low performers in a set of occupations.  These games infer personality traits from gaming behavior rather than the answers an individual gives in a formal assessment environment. We will report initial findings from studying call center representatives in a major financial services firm.

Daniel Rock
: Intangibles and Growth Accounting
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Extending the work of Yang and Brynjolfsson (2001) with more recent data, we update the standard growth accounting methodology to take into account the value of intangible assets, particularly those associated with the computerization of many firms in recent decades. We propose a modification of the production function, adopted from the q theory of investment, which treats the adjustment costs and costs associated with the creation of intangible complementary assets as investments instead of current expenditures. The national accounts do not include the value of the resulting intangible assets creation as part of output and do not include the capital gains accruing to the owners of these intangible assets as income.  As a result, a revised calculation of total factor productivity (TFP), taking into account these growing intangible investments, reveals quite a different picture of the US economy from that estimated by the conventional methodology.  In particular, we find that the magnitude of intangible capital investments that accompany computerization of the economy is plausibly substantially larger than the direct investments in computers themselves.

::Keynote – People First in the Digital Economy::
Paul Daugherty, CTO Accenture
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::Social Analytics and Digital Experimentation::
Sinan Aral, Renée Gosline, Glen Urban
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Renée Gosline
: The Customer Experience: Using Behavioral Science For Digital Strategy
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Behavioral science can lend insight into the implications of technology-mediated decision-making. Three projects based on experimental methodology unpack the effect of technology on choice. In the first project, we introduce the concept of CCX — Collaborative Customer Exchange — and provide a framework for identifying win-win value extraction. The second project extends previous research on “web morphing” to examine the effect of “Emotion Matching” between consumer states and media stimulus (using facial recognition technology). Our third project tests the impact of Co-Created Narratives in social media on persuasion. In toto, these projects underscore the importance of avoiding an under-socialized view of consumer behavior in digitally-mediated experiences.

Glen Urban
: Deep Learning and Big Data for New Product Opportunity Identification
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Deep Learning is an exciting new technology to understand the information in big data.  In this talk we examine the feasibility of using deep learning to assess opportunities for new products based on consumer descriptors and clicks.  A synthetic data application is presented for credit card in order to assess the potential for new attribute configurations and recover the true preferences of the consumers in the data base.  Advantages and disadvantages of deep learning are reported and next steps in the research program are described.

Sinan Aral
: Social Analytics (Without Experimentation)
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In studies ranging from behavioral science to medicine to social networks, humans exhibit social behavior that drives and derives action.  A recent study in the noted journal Cell, Gillian Matthews (UCL, MIT) randomly isolated mice and gave some cocaine and some saline.  She observed synaptic changes in dopamine neurons in the Dorsal Raphe Nucleus.  Both groups experienced some changes, with the common factor of isolation.  We inherit the neural pain of being alone, which motivates us to be social.  In our own work we conducted an experiment that included more than 13 million runners in the US, measuring who runs, how often, why, when, where, how fast, along with weather, temperature, time of day, etc.  One question we wanted to answer was “what peer motivation causes one runner to increase the amount of running?”  The data show causality as one might imagine – social influence has a robust but declining effect on distance, duration, and pace.  One interesting outcome was that increased activity by a “fat” friend, caused an outsized response by a “fit” friend.  The reverse was not true.  Let couch potatoes remain couch potatoes, and the motivated use anything to increase motivation.

::Wrap-Up – Inclusive Innovation Competition::
David Verrill
Devin Cook
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The acceleration of technology has led to remarkable benefits for business and the economy, but what about people earning middle- and base-level incomes? Digital innovations can enable a broader population to share in the prosperity of the Second Machine Age. The Inclusive Innovation Competition identifies and celebrates those organizations that are inventing a more inclusive, productive, and sustainable future for all.

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