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Obesity: Nudging Towards Health 2.0

Health 2.0 is 21st century health policy. It is about rational discriminating patients making decisions about their quality of life; it is about nudging people to participate in a wellness-and-lifestyle programme  (WLP) with timely and effective health care for better health and improved quality of life. Our client, Medfit Proactive Healthcare, is the first and only medical exercise, physiotherapy and rehabilitation facility in Ireland.  Medfit intervention not only increases mobility in a cohort of patients presenting with chronic pain, orthopaedic injury or limited mobility but the Medfit trial data shows improvements in MET scores translating into appreciably large cost reductions. The analysis makes use of HSE information, together with the CSO population projection data. Calculating the present value of the total cost to the State from obesity and the complications of type-2 diabetes in 2014 monetary terms (i.e. the capitalised cost to the State to 2046) at €9.98bn, a scenario in which the problems of overweight/obesity in the 55-65 age group are being addressed through the proposed WLP preventive health and wellness intervention at Medfit could potentially reduce this figure to €9.49bn, a saving of €490m.

In the counterfactual setting where inertia exists about health and wellness, where new ideas, technology and innovation are disrupting the health sector, we believe that the projected cost savings are sufficiently robust to nudge the narrative forward on treating expensive diseases in the latent risk age cohorts. Clinical trial data not only highlights the benefits of a real demand for WLP, complementing protocols for hip and knee replacements, chronic back-pain, obesity, type-2 diabetes, but it also allows an insurance provider to assign patients according to risk profiles based on both the statistical and clinical data. It also provides you with the opportunity to be healthier in the 21st century.  Short report is attached..MedfitWeb2015…..The final report is available from our client, Medfit, at www.medfit.ie

A Nudge Too Far: Are You Ready for the Future?

Using audience participation games Patrick will be addressing business audiences in both Singapore (March 3rd) and Hong Kong (March 6th) on the theme of the digital self and data patterns. Building on a series of behavioural economics anecdotes and real examples from game theory he will present a critical review of game theory and behavioural tools as applied to (i) algorithms and data patterns, and (ii) predicting individual behaviour from patterns. The presentation will introduce the nudge phenomenon of assessing rational behaviour by discovering individual patterns and analysing the information content of data patterns. The audience participation games will be framed by asking: ‘are you ready for the future?’

Information and registration contact: connect@mbsw.edu.sg

TalkTemplate Asia PDF

Management Behaviour & Twittering of Geese

An early version of a manuscript has been discovered amongst the archives, so here it is with a particular relevance today in defining the game boundaries of a management team, wherein products survive, markets evolve and firms grow. As players, management adapt to their environment and adopt new strategies just like a family of geese in a ‘game of geese’ against the stealth fox.

Management Behaviour & Twittering of Geese

Whither the Euro? The Liar’s Paradox

Whither the Euro? The Liar’s Paradox

In Dickens’ Hard Times the character Mr Gradgrind can’t help but speak about Facts to his pupils: ‘Now, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted in life. Plant nothing else, and root out everything else’. As we listen to Mr Draghi, to Mr Carney and to Ms Yellen, as we read the Financial Times or listen to business channels, isn’t it all about the Facts and the numbers? Analyst’s commentary coupled with an over-reliance on Facts and numbers has thrown economic policy making into the lion’s den of semantic incoherence. We forget that the real economy is about losing a job, going bankrupt, losing your home, personal and household debt.

Facts and Numbers:  Relevance of Godel

Sadly, economic policy making has evolved into a game of natural numbers. In addition to semantic incoherence – ‘numbers on the upside’ or  ‘targets below forecasts’ – we would argue that Gödel’s first incompleteness theorem may have a direct relevance to policy makers, warning them of the incompleteness of an economic policy, reliant on numbers alone.  Each time a new policy statement – boosting credit in Southern Europe, changing interest rates or QE – is added as an axiom, there are other true statements that still cannot be proved, even with the new axiom. If an axiom is ever added that makes the system complete, it does so at the cost of making the system inconsistent. His argument shows that any consistent effective formal system that includes enough of the theory of the natural numbers is incomplete: there are true statements expressible in the language of economic theory that still remain unprovable within the EU system of policy signalling. For example, what would happen if QE were introduced by the ECB? Thus the policy problem for ECB and for the EU is that no formal system, reliant on numbers and number predictions, satisfying the hypotheses of the theorem, exists. Instead we have noise and signals.  

Godel’s sentence

Economic policy today is transmitted as number signals into the financial markets. Any decision to change interest rates, for example, will have already been discounted by hyperopic analysts. Mr Draghi like Mr Carney will push the forward guidance to ensure a target natural number is met – an inflation level or a growth rate target. On a quarter-to-quarter comparison, EU growth averages less than 0.5%. It is but a number. The Fed sets an unemployment target number of 7%, however measured, and only when unemployment converges to that number will the Fed signal an interest rate change. However, Godel’s incompleteness continues with the austerity mess, and the game of number predictions.

Waiting for Economics

What has happened to macroeconomics in the hands of bureaucrats and politicians? Once there was a policy mantra, P: ‘low (high) inflation explains currency appreciation (depreciation)’ and ‘low (high) interest rates explain currency depreciation (appreciation)’. The US Fed added QE which contributed to a devaluing US dollar. The ECB has been anxious about the strength of the Euro v US dollar, but the Euro has depreciated against Sterling. Is the interest-rate differential between the US and EU so much greater in natural number counting than that of the EU and UK to explain a depreciating-appreciation Euro. If policy prescriptions, P, each represent examples of the Gödel sentence that each time a new policy statement is added as an axiom, there are other true statements that still cannot be proved. We have the liar’s paradox embedded in economic policy decision making: Nominate a P. ‘P is false’. But it cannot be true for then, as stated, it is false – nor can it be false, for then, it is true.

Signals and Noise

Interest rates and inflation figures are Facts, they are numbers. Natural numbers that are allowed to guide policy – it is a mess. EU faces a deflation trap defined by a long period of low inflation, below a target rate of 2%.  The Economist in its May 24th 2014 edition referred to this period as one of ‘lowflation’. Mr Draghi had signalled in early June 2014 how he intended to tackle the imminent threat of deflation – lower interest rates and a European style QE boosting credit by providing funding to banks on the condition that they lend to business.  Now we await the ECB meeting this week (September 4th). He will be reminded that the economic fundamentals are just numbers. Interest rates, exchange rates and inflation are natural numbers. The EU target inflation is 2%, ECB interest rates are now at 0.15%, falling from 0.25% and the Euro/Sterling rate of exchange fluctuates around 0.7911 and 0.8123. Natural numbers but with a potent impact on policies that directly affect everyday life.

1944-2014: Breton Woods to Brisbane

Did Mr Draghi signal at the Jackson Hole meetings last month that the Eurozone needs a relaxed fiscal and monetary policy? Will we see a signal from the ECB this week towards a purchasing of securitised assets? According to European Commission figures last month (August 2014) Eurozone inflation was at 0.3%, well below the target of 2%. In the real economy, however, bad banks dominate the landscape, unemployment continues to rise and growth remains stagnant. Yet our policy makers remain persuaded by Facts and data and numbers.

A reliance on Facts and numbers will continue to stifle policy making; it will ensure that Europe is at least a decade away from any numbered gains in productivity, any increases in real wages or any increases in growth. There is always hope. But in the reliance on Facts and data there is a great danger for policy makers sailing between the Charybdis of raising interest rates too soon and the Scylla of raising rates too late.

Analysts could be predicting a weakening Euro, strengthening US$ and Sterling as we end 2014. FX analysts will try to predict likely movements in the currencies but currency misalignment still continues. Indeed, in a world of numbers we will continue to ask: whither the Euro and Eurozone economies in an era of stagnant growth? But unless ECB engages with QE, Europe will continue to drift into debt-deflation cycle. Maybe there is hope that at the G20 in Brisbane later this year our policy makers will consider an interim regime of managed exchange rates across the world #tuncnunc to facilitate a return to economics. Earlier discussion on managed exchange rates on http://www.patrickmcnutt.com/news/signalling-china-and-the-us/

NOTES:

Godel’s Theorem

Gödel’s theorem shows that, in theories that include a small portion of number theory a complete and consistent finite list of axioms can never be created, nor even an infinite list that can be enumerated by analyst’s computer programmes.

SIGNALS

 € Appreciates: Low inflation and High Interest Rates

If appreciates expect lower inflation, and high real interest rates

€ Devalues: High Inflation and Low Interest Rates

Low and negative rates of interest € devalues

 NOISE

 € Appreciates: Low inflation and High Interest Rates

If appreciates expect lower inflation, and high real interest rates

Higher unemployment and downward pressure on wages

Internal Member State devaluation

 

Activist shareholders, Tobin’s q = Marris v

Investors generally over-react to good and bad times. Equity values are now increasing at a decreasing rate across the indexes as investors anticipate corporate earnings and begin to read the signals; many investors extrapolate past share price performance, and using an moving average or charting the trends in the share price are de rigueur in the search for a Fibonacci pattern. Management are in a signalling game with shareholders, especially the activist shareholders who are demanding changes in the execution of strategy. From Pepsi to Apple from Hertz to Red Lobster, activist shareholders are trying to break up companies, demanding change from management. In http://www.mheducation.asia/html/9781259071065.html Chapter 4 of Decoding Strategy we define the activist shareholder as Bayesian – seeing what they want to see at a point in time. As Aristotle observed in Rhetoric it ‘is a matter of putting one’s hearers, who are to decide, into the right frame of mind’.  It becomes a constant exchange between activist shareholders and the management team of the targeted company. Most prominent today is Carl Icahn; he sees a pot of cash in Apple and is urging a share buy-back. The Apple C-suite management team are a player in a game of signalling and they should really engage in positive learning transfer [PLT], by signalling to shareholders how they intend to execute strategy, re-assuring them that further innovation will support a continued rise in the Apple share price.

All shareholders prefer high expected returns but they should also be concerned with the impact of signalling on share price performance.  Signals can be observed at any time: check the business feeds from CNN, cnbc or Bloomberg. Apple at US$554 January 24th 2014 9.37 ET is not the call – rather it is Apple at a sustainable US$800 by end of 2014. And that target price depends has a co-variance matrix that depends on (i) the outcome of market share zero-sum game with Samsung; (ii) Apple’s penetration in China with China Mobile and (iii) the launch of a nano-iPhone. The latter has been a theme of this Blog, notably in an open Memo to Ms Ahrendts: http://www.patrickmcnutt.com/news/memo-to-ms-ahrendts/. A nano-iPhone launch would signal innovation – the real challenge, however, is not just in the timing of a launch date but the price point. It should be competitively low priced with a volume throughput encroaching demand from low end smartphones across the world. We should be debating the sweet price for an advanced well specified nano-iPhone not the share price of Apple.

Mant of these issues are accommodated within the Marris methodology; for example, failure to re-invest the cash or any signals of lagged innovation can damage the long term value of the company. Bayesian shareholders are attracted to companies like Apple and Red Lobster’s parent company Darden Restaurants. They are unlikely to praise management. But as shareholders they are frustrated. In game theory language, they believe that management are bounded rational or limited in their decision making. A nano-iPhone signal to the market would be a better play for Apple executives now than a share buy-back. New product launch is a classic PLT signal, re-assuring investors that Apple executives are playing to win the game, not playing to lose. In addition, it could relax the constraint imposed by activist shareholders.

And the Marris v – probably better known as Tobin’s q – is a reliable metric in our game theory tool-kit where rational investors are also concerned with how their share portfolio co-varies with the signals in a signalling game. It is the ratio of market value and book value or the replacement cost of the firms’ assets. Combined with other metrics, the Marris v offers a guide to investors: if v > 1 consider a sell and if v < 1 consider a buy. Who didn’t buy ARM at 95p in early 2009? Taking a moving average of v, defined as v if v > v consider a sell and if v < v consider a buy.

Compare Intel v ARM share prices over the past 5 years. The relative high performance of ARM’s share price from less than £1 in early 2009 to £9.80 at 10.44 GMT January 24 2014 reflects management PLT, their innovation and their attack on Intel’s dominance in the chip market and Intel’s lagged response to getting its chips into smartphones and tablets. Intel management were bounded rational. They tried to acquire ARM but antitrust law prohibited the acquisition. Tobin’s q is interchangeable with Marris v. Both rely on market valuations; the Marris v, however, should be understood in terms of PLT. Management’s type, that is, their ability to define the game dimension and their ability to win the game represent an intangible asset in the Marris v. The Marris v by relying on market valuation avoids many of the descriptors of accounting profits wherein high profits often equate with a monopoly position. But it could also be the case that companies with high market shares earn profits not attributable to concentration in the market – they are more efficient and more innovative than their competitors. Observe the share price and the investment commentary but when v < 1 or v < v step back, read the signals, make a judgement call and consider a buy as a long term investment – do not look back and do not regret the decision once made.

Who Owns our Personal Data?

 Who Owns our Personal Data?

Personal information and data stored in the cloud have an inherent high ‘tradable’ value – they facilitate the discovery of patterns.  We trust the providers and processors and distributors of the data, they retrieve our personal data and they can and do use it. Our data is now a tradable asset. But who owns the information? In Chapter 12 of our 2010 book Political Economy of Law http://www.elgaronline.com/view/9781848445215.xml we had discussed property rights and consumer e-needs in an Internet era arguing for the integration of the economics of information into legal reasoning. There is a new challenge for the law, relying on ‘material facts at time period t when technology has already taken the market to time period t+T (pp306)’. Google believes that the information it is harvesting is its own by virtue of the harvesting. But you and I, as e-consumers, have claim rights to our personal data. Data exchange has become a transaction and we need to ask: who benefits from the trade in our personal data?

At the recent Midland’s Think Tank http://midastechnologies.ie/agenda/ in Mullingar, Ireland, I raised this issue in the context of how we could use this market exchange to our advantage in Ireland? A cloud services free trade zone [FTZ] in personal data and data patterns was presented as worthy of consideration.

At the Think Tank a range of interesting presentations were outlined and provided a great platform to showcase the greatest technology advance since the 1980s digital revolution – the Internet and all its applications.  The Internet is part of our daily lives. Not only is it the screen in front of us but also the back infrastructure of wires and machines.  We were told that there is an exponential growth in data and a reliance on data. Individuals are outsourcing memory to smart devices such as smartphones and tablets; we are reliant on pre-authorised smartcards, buying tools and Apps to support basic queries and purchases. SEPA when rolled out will smooth electronic transactions. Companies are migrating from in-house IT to outsourcing data storage.

We have become datified…..

In the June 2013 edition of Foreign Affairs the authors Cukier and Mayer-Schoenberger argued that we have become datified – Google’s augmented-reality glasses datify our gaze, Twitter datifies our thoughts and LinkedIN and Facebook datify our professional and personal networks. Datification, we contend, is a pre-requisite for third parties as they begin to extract an inherent ‘tradable’ value in our data patterns. But who owns the information? Do Google and Facebook, for example, own our data?  The EU Commission in their definition of ‘personal data’ in the Internet era are debating the traditional rules of data protection viz 2014 General Data Protection Regulation. Commissioner for Justice, Viviane Reding, commented recently in Global Insight that ‘personal data is the currency of the digital economy’ and that by 2020 it will account for 8% of EU-27 GDP.

Our data is at least worth the equivalent of 8% of EU-27 GDP before exchange and trading. Tradable personal data is a good example of the frozen market concept introduced in Political Economy of Law. Frozen markets uniquely evolve from ‘a latent underbelly of technology struggling to meet new challenges and set new standards in a modern economy (pp312)’. We should recognise the frozen market and persuade governments to transfer the trade in personal data to a cloud services free trade zone in personal data and data patterns.  With so many start-ups and legacy IT companies in Ireland, there may be an opportunity to bring them all together under one umbrella – a cloud services free trade zone, providing storage solutions, security and surveillance capabilities. The cloud zone could be designed as a ‘special services’ zone similar to the Shannon FTZ.  All IT companies registered would enjoy a 3 -5 year sunset clause of special tax incentives for employing IT staff. Information would be stored and processed into data patterns in the cloud zone. It is only when the data is traded does it become subject to Irish value-added tax or custom duties.

Free Trade Zone in Personal Data…

Mixing a tablespoon of skilled labour with a dose of FTZ is a recipe for baking the projected 8% of EU-27 GDP into an employment cake of highly productive Stakhanovite workers in the age of automation, technology and innovation.

One way to integrate the complexity and potential of the cloud is the organisation of a cloud free trade zone, subject to legal, regulatory and environmental issues. It could be established under an Irish or pan-European variant of the US inspired 2009 Alternative Site Framework [ASF] initiative, by re-organising the Shannon FTZ into an alternative site framework in cloud services spread across ‘magnet sites’ from Mullingar to the Inishowen Peninsula in Donegal. In this the 50th anniversary year of the Shannon FTZ it could be part of planning for the next fifty years of economic growth in Ireland reliant in part on personal data as a tradable asset.  Data security is paramount and our reliance on the data-keepers is dependent on trust and on transparency in their use of our personal data. A cloud services FTZ in personal data could provide both trust and transparency. Questions may arise – do we really own our personal data patterns? Who benefits from any trade in our personal data? Answers should be diverted into exploring options that will create new job opportunities in an Internet age characterised by a shrinking role for human labour.

Memo to Ms Ahrendts

MEMO

Re: Apple Inc: Play not to lose: Minimax strategy

Dear Ms Ahrendts

Congratulations on your recent appointment. We have been commenting on Apple for a number of years in this Blog, and from the perspective of game theory. You should challenge everything about the data – market share figures, consumer loyalty and the source of the competitive threat. Apple does need to refocus, to reshape its strategy in order to compete in an evolving game that exhibits both convergent technologies and rapidly changing set of consumer preferences. Are you a brand? Are you a design company or an innovator? Analysts look at Apple in terms of profit margins and a company trading on earnings estimates and revision of the estimates. With new product launches across the i-suite of products, coupled with an underlying iOS ecosystem, they look forward to new product launches, and endless queues by early adopters and loyal fans at different cities across the world. But from our perspective, observing Apple as a player in a game, we would adjudge that you are not winning the game.

Confused consumers

First of all, your product offerings are in danger of becoming nodoids: in other words, they come to represent nothing more than a roll-out across a common platform of a suite of not dissimilar products absent any innovation. Consumers are either underwhelmed or disappointed. Once they ask the nodoid question: ‘is an iPhone an iPad or is the iPad an iPhone?’ the game dynamic switches from a game of playing to win to a game of playing not to lose. This is happening. Secondly, the analysts expect the i-Watch – so what? Analysts continue to debate the next big thing. So what? Could it be IPTV or cloud solutions?  So what? You know that you are not in search, you know that you are not in digital mobile advertising, you are a late entrant into cloud services, you failed to acquire Twitter, SIRI failed, Newton failed in the 1990s and in 2013 you allow us to believe that you are not a player in IPTV.

We have argued this before #tuncnunc discussing a range of game solutions to consider: launch a nano iPhone or engage in a telecom alliance with 4G LTE providers such as China Mobile. The 5C launch is about maximising profit margins; a nano offensive play, however, would ignite a $99 ‘sweet price’ competition for full functionality smartphone devices. Forward guidance on the stock estimate above $500 may adjust for these events in 2014-15 but these events may now be too late from a game perspective to play to win the long game. In other words, no longer is it about how Apple is performing in 2013, it should be about Apple’s likely performance in 2023.

 

 

Second mover advantage: SMA & Minimax

So an alternative for you to consider in your new role is to secure the second mover advantage [SMA] by playing not to lose. First, recognise that your market shares are increasing at a decreasing rate. Correct that trend. The iPhone 5 delay, for example, created a zero-sum switch to rivals, notably Samsung, in the UK and possibly across the EU. Your smartphone market share is under threat in Asia as the convergent smartphone and tablet game evolves to become Apple’s game to lose. Start thinking like your competitors – reason like this: ‘I think-you think-I-think’: Apple thinks that Samsung expects it to defend the iPhone, so Samsung will attack the iPad. But Samsung believes that Apple will reason this way, and so assuming that Apple will defend the iPad, Samsung will attack the iPhone. But Samsung also knows that Apple will reason this way.

This line of reasoning suggests that some kind of a decision tree ‘what-if’ analysis will reveal which strategy is Apple’s optimal choice. But it is more complex than that – we argue in our new book Decoding Strategy that how either player does in the game depends on what each believes the other is likely to do. Apple has to choose to play a minimax strategy, that is, a strategy that minimizes the maximum amount Samsung can expect to get in the evolving smartphone and tablet game, and thus maximize the amount Apple can expect to win. It is for you to patch a minimax strategy into your strategic vision for 2014 and beyond. To quote T.S.Eliot: ‘What we call the beginning is often the end, and to make an end is to make a beginning, the end is what we start from’. With best wishes in t+1…..

A valuable tool to analyse business strategies

South China Morning Post Interview:

Game theory is about understanding human behaviour. Individuals, including employees and managers, are curious by nature; they like to observe people in action, as well as to play games and win. And while business leaders are making decisions every day, they are also players in a game which requires them to compete against rivals and come out ahead.

Read the full article here:
A valuable tool to analyse business strategies

New Decoding Strategy Book

masterclass

Link to book on publisher’s website

In his new book, Decoding Strategy, Patrick introduces the T/3 framework as a template for discovering patterns in company data and intelligence. With an emphasis on player type, game technology and time, the T/3 framework supports a narrative on rival interaction and observation. He argues that patterns do exist in the data but the challenge is to discover the patterns. Game dimensions are identified and companies are defined as players in a game. The book offers management and individuals a possible template for understanding patterns with a view to predicting the next move in a game.

Patterns & Predictions – Playing to win v playing not to lose.

Patterns & Predictions – Playing to win v playing not to lose.

Talk2013Patternsv01Asia.ppt

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