Tuesday, August 28, 2007

Super Crunchers has landed

Ian Ayres

Why would a casino stop you from gambling?

Why would would an airline give a seat to a less profitable customer?

Turns out that the answer to both questions concern the rise of data base decisionmaking that is at the heart of my new book I just published called Super Crunchers: Why Thinking-By-Numbers is the New Way to be Smart.

Casino's like Harrah's are predicting "pain points" for individual customers -- how much they can lose at a setting and still come back for more. The pain point is an individualized prediction based on dozens of pieces of information about your demographics and gambling history. If you get close to your pain point, Harrah's might send out a "Luck Ambassador" to tap you on your shoulder and give a free steak dinner to make sure you don't lose too much money.

Airlines are doing the same thing. In the old days, if a flight was cancelled, an airline might book customers for the next flight on a first come, first serve basis. Later airlines started give priority to frequent fliers. Later yet, they started giving priority to the most profitable customer.

But now some airlines have started to predict their customers pain points. If you and I are bumpbed from a flight and there's only one seat left on the next flight, an airline might give that seat to the less profitable customer. Why? Because the airline might have estimated that the less profitable cusomter is closer to his or her pain point (say, she had three bad flights in the last year) and might stop using the airline. While you might be more profitable, the airline uses a massive dataset to estimate that you'll stick with them even if they bump you to a later flight. Welcome to the wonderful new world of data-driven decisionmaking.


"...Casino's like Harrah's..."

"...customers pain points..."

Apostrophe transmigration?

Interesting. It brings to mind a possibility, and I wonder if you address it in the book: will the increasing ability of corporations and other organizations to calculate "pain points" lead to a world where the aphorism "squeaky wheel gets the grease" is a bedrock truth? A world where persons difficult to satisfy and quick to complain (read: jerks) are always the first to be accommodated? Where those who meet inconvenience with calm and politeness (read: mature adults) are automatically bumped to the bottom of the priority list? Will the folks with a naturally high "pain point" be forced to yell and complain and threaten to never use the airline again when their flight is cancelled -- even though they wouldn't otherwise -- because they know that the best (and perhaps only) way to get good customer service is to generate data points showing that their pain point is low? Will number crunching engender a world in which people have an incentive to demonstrate as much "pain" as possible?

Just a thought. Of course, the world has always worked like this, at least to a certain extent. But data crunching may make it even more so. And when corporations and organizations share data with each other, your pain point will be known as soon as you walk in the door (be it a real door or virtual).

I see this approach making things more fair, not less. The squeaky-wheel technique works precisely because an enterprise does not notice the customer who simply, quietly does not return.

That said, I doubt this technique works for all cases. I'll give you a call when a company realizes I am about to fire it before I decide to. So far, large enterprises are 0 for a dozen or two on this score.

Still, one small step up from the status quo.

These are amusing examples of dressing up a judgment call with numbers. How are these "pain points" quantized? That's where the real difficulty lies. These examples just show how gullible people can be to a prediction once a few numbers are thrown in

I have had to have great sensitivity to these pain points. My main function is to stop potential fraud before it gets out of hand, without disrupting valid customers and orders. Since I have always worked in stand-off businesses (internet, mail order and telephone order), you don't have a customer in front of you to complain when you hold them up for validation.

You can't know what you can't see, and the customers who disappear rarely leave traces. The industry heuristic in these areas is that for the 1 complaint you receive, 10 customers left (i.e., the tip of the iceberg). You can survey, poll, whatever, but even statistically, your sample is going to be skewed by the disgruntled customer who refuses to respond.

That said, I have found that the most effective method is a modification of the squeaky wheel (from the consumer point of view). When you do complain, have your complaint and your desired remedy planned out at the beginning. Stick to your remedy, and realize that customer care costs up to $50/hour for the receiving company (between staffing, overhead, lost opportunity, etc.) so that many companies have streamlined responses to certain complaints as it saves them money to accede to them; i.e., simple ROI for care.

Although I do have to say, to counter cn's point, that obnoxious does not equal accepted. A clear-headed complaint is more likely to receive a speedy response than a rant, if only because the ranter will either get hung up on if they are abusive (most companies allow this) or will be so overwrought that a solution cannot be proposed to them.

On a half hour call, I got a $450 credit from a cell phone provider for roadside assistance, because I took it up the line, outlasted a supervisor who wanted me to go part or nothing on my solution, and laid out my case and proposal, and put it in terms of expectations and results, with corporate reputation thrown in.

A quick query from an open access advocate--why play the bestseller game? Why not just make the book available for free on the web, or at least go with a publisher like Benkler's who allows people who can't afford the book to get a free copy online?

One of my big problems with the new database-based decisionmaking is that it is likely to be a self-fulfilling prophecy--once these "oracles" make decisions about who "the people chose" to be the most popular, it's just assumed that they're right. There's no transparency to check those results.

Why are elite law profs so fond of these new modes of decisionmaking (see, e.g., Sunstein's infotopia?). Maybe because the black box reputational scores in U.S. News & World Report (+Merton's old observations on the Matthew Effect in Science) are a a big reason for their continued dominance in their field.

The "innovation" here--and I use the term "innovation" generously--is not in any particular use of mathematics (aka "number crunching") in decision making, but rather in the organization's decision to use "number crunching" in making decisions, or more exactly how some "number crunchers" have persuaded decision makers to accept their advice in how to manage their organization. (I'm pretty much agreeing with Zathras, except I'm not quite so cynical.)
"Pain Points" are ('is'?) the concept that does this persuasion, but I suspect that there's no real evidence that there's any actual pain involved.
The actual "number crunching" isn't in all that likelihood all that sophisticated--rather it's the decision to base decisions on the numbers that's radical, I suspect.

I spend my days trying to learn how not to fall into these predictability traps. Isn't that what education is about?
The logic of lowest common denominators does no more that lower those denominators even further.

Never memorize something that you can look up.
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