When algorithms rule the world

From Quartz:

By evaluating a heap of existing recipes and looking at what flavor-imparting molecules their ingredients contain, the computer can come up with radical combinations. One of the IBM food truck’s current recipes, the “Swiss-Thai Asparagus Quiche,” brings together Swiss gruyère, Greek feta, and Thai curry spices. If IBM keeps churning out combos like that, it’ll give fusion cuisine a run for its money.

Those taste limitations extend beyond food, too. Consider House of Cards, the political thriller now its second season on Netflix. In creating it, Netflix was informed by existing viewer data: It knew that lots of its customers enjoyed Kevin Spacey, who plays the lead role, and a good proportion of those viewers were also fans of director David Fincher. Throw in another preference—one for political dramas—and the company knew it was the perfect show to bet on.

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When algorithms rule the world

The behavioural science behind Netflix pricing and the Facebook loading screen

behavioural science Facebook loading screen

I thought the above example was pretty interesting. And this too, about Netflix pricing:

You don’t understand prices. You don’t buy things based on anything resembling “logic.” You buy things based on, well, something else— mental “shortcuts.” And Netflix wants to hack your mental shortcuts.

One way companies use prices to trick us is to offer cheapo, inferior goods to get us hooked on a product that we’ll eventually spend more on. Time Warner Cable, for example, experimented with an “Essentials” package that offered cable without the most popular channels at a discount, expecting (and, as I’ve been told, often discovering) that customers would upgrade to full cable when they realized how much they love TV.  In a way, Netflix is already doing this: In December, it introduced a $6.99 plan ($1 discount) that allows streaming to one screen only.

The more sophisticated strategy isn’t to offer two prices, but three. In Hasting’s words: “good,” “better,” and “best” price tiering. Why three? Because of the magic of the Goldilocks effect in pricing.

It reminds me of a great talk I saw some time ago about the way The Economist packages up subscriptions, as explained by Dan Ariely here.

The behavioural science behind Netflix pricing and the Facebook loading screen