Predicting human behaviour is legal, predicting machines is not?

Prof JR Varma of IIMA has a food for thought post.

He points to casinos saying they look for whatever possible ways to predict human behaviour and make you gamble more and more (and lose). However, any person who looks to predict these machines and play the game is deemed as illegal. Why?

I read this Wired story about some hackers being sent to jail for “hacking” slot machines in US casinos. “Hacking” is probably the wrong word to use for this: they made money by predicting what the slot machine would do by observing it carefully, and using their knowledge of the insecure random number generator used in the software of the slot machines. It appears therefore that it is illegal to predict what a machine would do by figuring out its vulnerabilities and observing its behaviour.

The irony of the matter is that the entire business model of the casinos is built on figuring out the vulnerabilities of the human customers, predicting how they would bet under different situations and designing every minute detail of the casino to exploit these vulnerabilities. The New Yorker had a story five years ago about how a casino was redesigned completely when the customer profile changed from predominantly older male customers to more women:

So Thomas redesigned the room. He created a wall of windows to flood the slot machines with natural light. He threw out the old furniture, replacing it with a palette that he called “garden conservatory” … There are Italian marbles … Bowls of floating orchids are set on tables; stone mosaics frame the walkway; the ceiling is a quilt of gold mirrors. Thomas even bought a collection of antique lotus-flower sculptures

Casinos “monitor the earnings of the gaming machines and tables. If a space isn’t bringing in the expected revenue, then Thomas is often put to work.” The design is optimized using a massive amount of research which can justifiably be called “hacking” the human brain. If you look at the Google Scholar search results for the papers of just one top academic (Karen Finlay) in the field of casino design, you will see that she has studied every conceivable design element to determine what can cause people to bet more

More importantly, much of this is at the centre of finance as well:

Perhaps, we should be less worried about what the hackers have done than about what the casinos are doing. Unlike the vulnerabilities in the slot machines, the vulnerabilities in the human brain cannot be fixed by a software update. Yet hacking the human brain is apparently completely legal, and it is not only the casinos which are doing this.

Probably half of the finance industry is based on the same principles.

Finance industry also looks for all possible ways to make you trade and invest and is considered as perfectly fine. But you try and game the industry and just like the casino case, you are going to be behind bars.

Fascinating to think about this..

 

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One Response to “Predicting human behaviour is legal, predicting machines is not?”

  1. Veeru Says:

    True. Nowadays Behavioral finance is gaining popularity in the corporate world.

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