Why do moods matter politically? Think first about economics. If you can predict the mood of a group of people then you might be able to predict how likely they are to buy (and sell) and how much they will pay (and sell for). So investors who speculate on the stock market have a lot to gain by accurately assessing and predicting the moods of markets.
Here “mood” is a handy catchall for an assessment of whether potential customers and investors en mass are optimistic or pessimistic, take a long term or short term view, or are prepared to take risk or are risk averse in relation to particular commodities. Such reductive mood assessment and prediction is important for hedge fund managers.
Hedge funds 101
Hedge funds are investment “vehicles” for speculating on markets (as far as I understand them). So a company managing a hedge fund invests your money to buy shares on the stock market, with the expectation that they (the management company) will later sell the shares at a profit. The return on the resale allows the company to pay back your investment with interest and make a profit. (In fact, individuals can’t invest directly in hedge funds, but your bank or other portfolio manager might — and I’m simplifying.)
There are risks, as the value of the shares the investment manager buys may drop. In this case the company loses on that transaction. But if, on average, the hedge fund company sells the shares it acquires at a price sufficient to exceed what it paid plus the costs of the operation and any interest owing, then it wins.
Hedge fund managers that speculate in this way have to be big and robust enough to secure borrowing, to absorb the risks, and be agile and good enough at making predictions.
Algorithms and emotions
That’s where sophisticated computation comes in. Hedge fund managers use algorithms to buy and sell shares and transact funds very quickly, even over minutes and seconds. They also look increasingly to all the data out there to gauge mood shifts in markets — including social media data.
In February this year, feature writer in the Guardian Carole Cadwalladr delivered an engaging and disturbing article about how some of the smarts deployed to predict market behaviour are being deployed in political campaigns. There are reports online about billionaire Robert Leroy Mercer, joint CEO of Renaissance Technologies, an investment management firm deploying sophisticated software to manage hedge funds.
Mercer is also a computer science PhD with academic credentials. He co-authored articles on automated language translation algorithms as deployed in Google Translate. Such systems infer translation mappings from vast repositories of sentences for which the translation is already known, e.g. English and their equivalent French sentences.
The algorithms use statistical methods for effecting translation between these languages, bypassing lexicons and grammar rules. The programmers don’t have to know much about the languages they are designing for. They just need an extremely large (big data) set of sentences and their translations into other languages.
The political punch line to this narrative is that Mercer was one of the major funders for both the Trump and the Brexit campaigns. He also has a large stake in a company called Cambridge Analytica (worth a look) that was employed by both of these campaigns. Apparently, “trackers from sites like Breitbart could also be used by companies like Cambridge Analytica to follow people around the web and then, via Facebook, target them with ads,” according to Cadwalladr.
She reports, “On its website, Cambridge Analytica makes the astonishing boast that it has psychological profiles based on 5,000 separate pieces of data on 220 million American voters – its USP is to use this data to understand people’s deepest emotions and then target them accordingly.” She adds, “The system … amounted to a ‘propaganda machine.'”
It’s all about mood manipulation. From then on the story gets complicated …
- Brown, Peter F., Vincent J. Della Pietra, Stephen A. Della Pietra, and Robert L. Mercer. 1993. The mathematics of statistical machine translation: parameter estimation. Comput. Linguist., (19) 2, 263-311.
- Levitt, Steven, and Stephen J. Dubner. 2005. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. London: Penguin http://freakonomics.com/
- Cadwalladr, Carole. 2017. Robert Mercer: The big data billionaire waging war on mainstream media. Link.
- I am grateful to Hannah Kaner for alerting me to Cadwalladr’s Guardian article.
- Part of the political complication is that profits on short term hedge fund transactions apparently don’t get taxed in the US. So there’s every incentive for a wealthy hedge fund manager such as Mercer to back a political candidate who can be persuaded to deliver tax legislation favourable to their method of operation, at least according to a strident piece by Cenk Uygur, host of The Young Turks Youtube channel.
- Some links to online news articles about psychometric big data and Cambridge Analytica
- I gather from press reports that Cambridge Analytica was started with the help of graduates from the University of Cambridge Psychometric Centre (and elsewhere). The Centre provides an online demonstration tool that “lets you input any text and receive a prediction of its author’s psycho-demographic profile.” When I entered the text of this post it calculated that I am probably: 31 years of age; “the epitome of masculinity”; liberal and artistic (rather than conservative); neither particularly impulsive and spontaneous nor organized and hardworking; I am contemplative; competitive (as opposed to team working and trusting); a bit more easily stressed and emotional than laid back and relaxed. I entered a 5,000 word book chapter I wrote and came up with a similar result, though my age had increased to 34 and I came across as a bit more organized, hardworking, laid back and relaxed. An email from my mother came out as similar (including the gender), as did Trump’s inaugural address. So something is amiss!
A verbatim of a Trump speech (of the campaign kind) showed him to be the epitome of masculinity, slightly conservative and traditional, slightly organised and hardworking, very laid back and relaxed. His “digital footprint suggests that [he is] calm and emotionally stable. [He comes] across as someone who is rarely bothered by things, and when they do get [him] down the feeling does not persist for very long.” The Independent article that includes the transcript described this particular speech as “rambling,” but the psychometric tool puts Trump’s age at a mature 30. I also entered The Tale of Peter Rabbit (Beatrix Potter), the author of which comes up as feminine, thankfully. The psychometric parameters align with so-called OCEAN personality profiling (openness, conscientiousness, extroversion, agreeableness, neuroticism).
Journalists have tried similar tests on the website, and are unimpressed. There is presumably much more to the technology (4,000-5,000 data points per individual?) than is suggested by this demonstrator.