Monday, October 10, 2016

How true is the statement "The best minds of my generation are thinking about how to make people click ads"?

Who works on advertisement optimization?
It is true that companies like Google, Yahoo, Facebook, NetFlix and Microsoft have big research departments with a lot of highly educated and smart people who do a lot of mathematics to optimize their business models. At least microsoft, netflix and yahoo are publishing a lot of papers in the field.
Most of the time these researchers came from famous universities or have close partnerships with them.
My former university the Hasso-Plattner-Institut e.g. is involved in research together with SAP, IBM, Microsoft and Schufa.

What are they doing?
The papers are most ot the time about mathematical models to predict the future on a solid basis. Typical problems that you have in advertisment are:

  1. Hypothesis testing
  2. Explore exploit dilemma
  3. Clustering target groups
  4. Big data issues
  5. Online learning
  6. Calculating and maintaining quantiles on the fly
  7. Parallel execution
  8. Margin utility
  9. Non linear optimization

These techniques are not only useful for optimizing advertisment but the methodology that is developed can be adapted by other people as well.
e.g. a lot of the techniques that are used to find the best ad with minimal loss comes originally from medical trials that tried to minimize the deaths of people during finding the best drug.

The important thing is that these results get published and are usable for other researchers.
At least the following industries should use the models from advertisment:

  • engineering
  • healthcare
  • construction
  • aerospace
  • project management
  • country budget allocation

Currently it is still a challenge to do so.

So you would say that the people optimizing advertisement are wasting their talent and instead should cure cancer or decrypt our DNA.
The truth is that they might develop the methodology to actually do so.

Getting paid for developing is a must have. Unfortunately ads are currently a well paid business.
Nevertheless I know a lot of people working for the silicon valley companies and one of their preconditions is that they are allowed to publish their work.
If you go to google scholar you might want to search for papers from:

  • Yehuda Koren
  • Deepak Agarwal
  • Weinan Zhang
  • Mark Slee
  • Torben Brodt

They all work for famous company and they try to make the world better by participating in the global research space.

So from my perspective to answer the two questions:

The best minds of my generation are thinking about how to make people click ads.

  • Yes, this is true

  • No, as long as they publish their work and it can be used to cure cancer they are doing a great job

The Prize in Economic Sciences 2016:

The Prize in Economic Sciences 2016 is awarded to
Oliver Hart and Bengt Holmström
“for their contributions to contract theory”
What is Contract theory?
Contract theory provides us with a general means of understanding contract design. One of the theory’s goals is to explain why contracts have various forms and designs. Another goal is to help us work out how to draw up better contracts, thereby shaping better institutions in society. Should providers of public services, such as schools, hospitals, or prisons, be publicly or privately owned? Should teachers, healthcare workers, and prison guards be paid fixed salaries or should their pay be performance-based? To what extent should managers be paid through bonus programmes or stock options?
Contract theory does not necessarily provide definitive or unique answers to these questions. However, the power of the theory is that it enables us to think clearly about the issues involved and help us understand the potential pitfalls when designing new contracts.
From the Press release:
The long and the short of contracts
Modern economies are held together by innumerable contracts. The new theoretical tools created by Hart and Holmström are valuable to the understanding of real-life contracts and institutions, as well as potential pitfalls in contract design. Society’s many contractual relationships include those between shareholders and top executive management, an insurance company and car owners, or a public authority and its suppliers. As such relationships typically entail conflicts of interest, contracts must be properly designed to ensure that the parties take mutually beneficial decisions. This year’s laureates have developed contract theory, a comprehensive framework for analysing many diverse issues in contractual design, like performance-based pay for top executives, deductibles and co-pays in insurance, and the privatisation of public-sector activities. In the late 1970s, Bengt Holmström demonstrated how a principal (e.g., a company’s shareholders) should design an optimal contract for an agent (the company’s CEO), whose action is partly unobserved by the principal. Holmström’s informativeness principle stated precisely how this contract should link the agent’s pay to performance-relevant information. Using the basic principal-agent model, he showed how the optimal contract carefully weighs risks against incentives. In later work, Holmström generalised these results to more realistic settings, namely: when employees are not only rewarded with pay, but also with potential promotion; when agents expend effort on many tasks, while principals observe only some dimensions of performance; and when individual members of a team can free-ride on the efforts of others.
In the mid-1980s, Oliver Hart made fundamental contributions to a new branch of contract theory that deals with the important case of incomplete contracts. Because it is impossible for a contract to specify every eventuality, this branch of the theory spells out optimal allocations of control rights: which party to the contract should be entitled to make decisions in which circumstances? Hart’s findings on incomplete contracts have shed new light on the ownership and control of businesses and have had a vast impact on several fields of economics, as well as political science and law. His research provides us with new theoretical tools for studying questions such as which kinds of companies should merge, the proper mix of debt and equity financing, and when institutions such as schools or prisons ought to be privately or publicly owned. Through their initial contributions, Hart and Holmström launched contract theory as a fertile field of basic research. Over the last few decades, they have also explored many of its applications. Their analysis of optimal contractual arrangements lays an intellectual foundation for designing policies and institutions in many areas, from bankruptcy legislation to political constitutions.

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