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Tech Companies’ competitive advantage – Bayes Rule and Behavioral Economics

Bayes Rule was discovered by Thomas Bayes and presented to the scientific community in 1763. It is the mathematical relationship between probabilities and is updated when new information is brought forward.

Today technology is rapidly growing as Artificial intelligence (AI) and robotics is developed and improved. Most people then, would be shocked to find out that these advances are made with the help of this 18th Century math theorem. The article, Tech Companies’ competitive advantage by Collin Lewis touches upon some of the remarkable things that are being done today using Bayes Rule. Things like Google’s robotic cars that “have driven themselves for hundreds of thousands of miles on the streets of several US states without being involved in an accident, or violating any traffic law” rely on systems that are built upon Bayes rule.  In 1996 when asked about Microsoft’s competitive advantage over its competitors, Bill Gates said it was their “expertise in Basyesian networks,” which led many other tech companies to quickly follow suit and adapt their own systems and programs to include Bayes theorem as well.

The big breakthrough in the field of Artificial Intelligence, which made google cars possible, was made by Professor Judea Pearl at UCLA working in Computer science. Pearl introduces Basyesian networks as a representational device, showing that “they constitute one of the most influential advances in Artificial Intelligence, with applications in a wide range of domains.” It is thanks to increased compute power and the work of Pearl that Bayes theorem is now used in robotics, AI, machine learning, and big data mining. You might have heard of IBM’s Watson, an AI system that competed on the popular tv show Jeopardy, and whose system relies on the use of Bayes rule in negotiating the semantic complexities of natural language which is pretty cool considering no human has been able to beat him.

Some other really cool things Lewis mentions that are possible today because of Bayes Rule include “Google’s search to LinkedIN, Netflix’s and Amazon;s recommendation engines”.

After  transitioning into behavioral economics and how the combination of that and the use of Bayes theorem is a great strategy in the cutthroat tech community, Lewis concludes that “As the major tech companies are showing, Bayesian and Behavioral Economics methods are well suited to address the increasingly complex phenomena and problems faced by 21st-century researchers and organizations” and that “if you are not thinking like a Bayesian, perhaps you should be”.


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November 2014