Research Review Network Economies Innovators

Video links:
MS future vision on retail banking Presentation by: Ray Garcia
ING Living Tomorrow - Retail Banking

2015 Banking Retrospective
Center for Future Banking
Network Economies
Research Review
November 10th, 2008
Confidential
1057 blogs 2007 French Presidential Election

Agenda
 Innovators Alignment
 Research Plan
 Research Approach
 Network Economies
 2015 Outlook
2004 Oil Money contributions
to political campaigns
 Closing Remarks
Proprietary and confidential 2

Ray Garcia rgarcia@media.mit.edu
Innovator Alignment | Research Plan | Research Approach | Network Economies | 2015 Outlook
Innovators Alignment
Innovators alignment
Roles and Interaction
1924 Radial Org Char

showing concentration of power

The Research Innovators
Your Role
 Create a vision and give voice to the future of banking
 Develop and embody the grand challenges
 Inform your business innovation through research
 Foster an innovation culture
 Charter research activities in collaboration with CFB
 Find the opportunities to apply the research findings
 Innovate associates, product, and markets
 Think BIG and create entire new lines of business

Research Innovator Interaction
Map of They Rule Corp Boards
How we’ll interact
 Speculate the innovation
 Spot what remains to be known
 Identify research that needs to be pursued
 CFB finds who is working on the big problem already
 Sponsor the research with CFB
 Joint innovation and Research report to Executive Advisory Committee

The Innovators Challenge
 Visioning that does not exist today and may be difficult to describe what will be tomorrow
 Overcoming the fear of failure
 Measuring risk and calculating when it too much or not enough
 Treating ideas as a commodity, let them go, work on the ones that keep coming back
 Making the vision real and executing through the challenges
 Getting allies to see what your are imaging
 Learning from the past and not repeating the same mistake twice
 Knowing when to stop and not getting so committed to a failed path that you don’t change it
 Finding the essence of the problem or the guiding principles at work
 What is the framework or mental model being used, how can be to used to reframe the ideas
 Getting a sense of the timing and pacing for the innovation
 When it is good enough

Mapping Pigeon flight
Research Plan
Information Value chain
Behavioral Economies
Identity, Trust, Privacy, Security
Network Economies
Social Responsibility

Research Macro Themes Described
Macro Theme Description
Information flow is the signal versus and noise of information science. The value is an
Information increase or decrease in signal. Information is the lowest atomic unit of measure for
our research. The flows form interdependent chains or graph of relationships. The
Value chain flows of value are not exclusive to money and include any convertible value.
Includes any behaviors that happen before and after the decision of a consumer or

Behavioral producer. Behavior is observed, modeled, anticipated, projected, predicted as well as
all the vagaries of the human condition. The unit of measure is at human scale and
Economics includes many uncontrolled factors.
Identity includes concepts of privacy or public disclosure. Trust implies the concepts of
Identity, Trust gradations of security or no security if full trust is granted. Both included measures of
credibility and honesty or value systems that are human. The concepts span system
Privacy, Security processes and human interaction.
Network Networks are the systems that connect and the people acting in social interactions.
Information flows, social behavior, identity and trust are aggregated into economic
Economies interactions within a network.
Includes individual actions representing corporations as well their household and raises
Social questions of ethics. This aggregates the network economies into defined groups that
Responsibility care for direct and indirect impact and consequences of decisions.
* joined by a team of colleagues, researchers, students, support staff, bank line of business, committee

CFB Research Plan
Macro Trend Information Value chain
Information flow is the signal versus and noise of information science. The

value is an increase or decrease in signal. Information is the lowest atomic
unit of measure for our research. The flows form interdependent chains or
graph of relationships. The flows of value are not exclusive to money and
include any convertible value.
Questions Asked How do we empower people to use information?

How will the next generation of information clouds emerge?
How do we de-mystify financial management?
Research Topics Living Lab / Flagship store

Retail Banking Analytics
Sensing Stores / Speechome Video
Ambient Intelligence / Surface Computing/ Siftables /Word play
Affective Computing

CFB Research Plan
Macro Trend Behavioral Economics
Includes any behaviors that happen before and after the decision of a

consumer or producer. Behavioral is observed, modeled, anticipated,
projected, predicted as well as all the vagaries of the human condition. The
unit of measure is at human scale and includes many uncontrolled factors.
Questions Asked How do customers respond to “life events?”

How we predict what customers want?
How do we enable people to make rational decisions?
Research Topics
Behavioral Economics
Prediction Markets
Affective-Cognitive Predicting Customer Purchase Decisions

CFB Research Plan
Macro Trend Identity, Trust, Privacy, Security
Identity includes concepts of privacy or public disclosure or fabricated

personas which are both public and private. Trust implies the concepts of
gradations of security or no security if full trust is granted. Both included
measures of credibility and honesty or value systems that are human. The
concepts span system processes and human interaction.
Questions Asked What will be the new deal for data and privacy?
What are the new platforms to manage risk?
What are the new economic models for trust and security?
Research Topics Living Labs / New deal for Data

Identity and Identification Models
Personalized Customer Service
Trusted Investment Advisor
Face Reader for affective responsive computing

CFB Research Plan
Macro Trend Network Economies
Webiste map Networks are the systems that connect and the people acting in social
interactions. Information flows, social behavior, identity and trust are
aggregated into economic interactions within a network.
Questions Asked How will hyper-connected mobility and locality change banking?
How do we enable frictionless interactions to customers?
How will networks change the way we live//transact?
Research Topics
Mobile Commerce / Physical interaction / Living Lab
Future Consumption / Living Lab
Social Network Risk models
ATM & Mobile Phone interactions
Understanding Associates interaction – peers /managers/customers

CFB Research Plan
Macro Trend Social Responsibility
Includes individual actions representing corporations as well their household

and raises questions of ethics. This aggregates the network economies into
defined groups that care for direct and indirect impact and consequences of
decisions.
Questions Asked How can we enable people to live better?

How do we transform the image of banking?
How do we foster consumer financial health?
Research Topics
Volunteerism and activism
Civic Media and Voice of the Community
Financial Life Time household Literacy and decision making
Account Ability and sensible consumerism
Next Billion in our Neighborhood / Living Labs

Research Theory and Impact
Macro Theme Consumer Impact * Theory Basis Research Unit
Information Usability Communications Bits/Bytes

Value chain Sensing Store Signal/Noise Numbers/Time
Behavioral Consumer Individual Psychology

Economics Buying Decision Choice Theory Mind/Emotion
Identity, Trust Consumer Risk Containment Safe

Privacy, Security Confidence Chaos Theory Systems
Network Connected Complexity/Game/ Societal

Economies Consumption Graph Theory Knowledge
Social Consumer Values

Philosophy
Responsibility Literacy Ethics/Law
*sampling of research projects summarized

Research Approach
What is it?
How does it work?
Converting research to commerce.
Zaha Hadid Architect 3d Nurbs

CFB Approach: ‘Real-world’ connection
Traditional Model Consumer Banking Transformation
Product centric Customer centric New worldview
Competitor Market Customer needs Customer needs Customer needs

Product driven
driven opportunities (told) (observed) (discovered)
Academic
What we offer What they offer Market Opening What they say What is
observed Research
learn Methods
Banking Design CFB

Leader and innovator Comprehensive Opportunities Proprietary VOC
in banking product review, financials and identified (size, and market research Consumer insight Corporate and
and distribution market share, etc. growth, profitability) Market research University
Ethnography collaboration on
research
“if you always do what you always did, you
always get what you always got”
- Einstein

CFB Approach: Future Created
Consumer Banking Transformation
Banking Transformation
New Markets Created
Consumer Banking Transformation
Sustained Competition
Blue Ocean Strategy
Customer centric New worldview

Value the customer could not imagine.
Customer needs Customer needs

(observed) (discovered)
(discovered) This is the voice of the future.
Customer needs
Available thru Market value innovations developed using

What we can
cutting-edge strategic investments in emerging lines of
observe / learn
research business and ventures.
What we can
observe / learn
Customer Center for
Banking Design Future Banking Requires service innovation
culture, informed by research
Customer Banking and creative open visionary
Design
leadership.

CFB Approach: Design Research and Business Model Development
Customer Needs Observed (IDEO & Design Research)
TANGIBLE COMMON SENSE CLARITY

Information •help people grasp the bigger financial picture
Value chain •Go beyond a menu to a recipe; “I need expert financial guidance”
•Make financial information more understandable and tangible Transformative
instead of using abstract concepts. Business Model
-------------------------
CULTURE OF ACHIEVING Outside-In
Behavioral •Create moments of pride and mementos of achievement.
Economics “Account alerts are embarrassing – they make me feel poor” Customer Analysis
•Set an atmosphere of encouragement / Research
Identity/Trust MY PACE, MY ROUTINE Inside-Out

Privacy/Security •Infer preferences: “Amazon knows me better than my bank” Competitive Analysis
•Know and accommodate people’s schedules and daily
patterns.
Network WISDOM OF CROWDS
Compelling Offer
Economies •Enable people to use collective knowledge of fellow customers
•Foster reassurance by connecting like-minded customers
Finance Model
Social DISTRUST
Responsibility •Trust is difficult to attain, fragile, and can be easily eroded.
When trust is broken, we are often the last to know.

Existing Innovation Ecosystem informed by Macro Theme Research
CFB Macro Themes Research
Media Lab
concept Prototypes
New LOB Formation
CBT Market Research
Strategic Themes /
Opportunities
Strategic Planning
Review IP
landscape
Product Management
Idea Generation
Ideas
Ideas
Ideas
Ideas
Intellectual Property
Idea Management
Evaluate ideas Concept Process Management & Initiative Governance Stabilized
for IP value Development
Products /
Rapid
Prototyping
Services
Limit exposure
from existing
TG0
external patents
Approved Commercialization:
Concepts New Product Introduction (NPI) & Product Enhancement (PMI)
Define Measure Analyze Improve Control
Patent core Patent additional Review/revise Monitor for

features key features Patent app IP opportunities
Intellectual Property

CFB Approach: Understanding Research
What is foundational Research?

A process of continuous inquiry.
“The Media Lab may have lots
An examination of a subject from many points of view. of useful artifacts or techniques
that may be re-purposed in
Pursuit of what works, what does not work and why completely different ways than
they would expected… ”
Uncovering a theoretical proof or essential truth.
“Build first…ask questions later”
The construction of knowledge for the public good. “Break what is fixed””
“action oriented inquiry”
A systematic experimentation of observable phenomenon. “Academia can be very useful

when applied to Bank data and
may help uncover new
Creating Innovations! understanding that would
otherwise not be available to the
Information gathering Bank”
Scenario analysis
Product development
Marketing research
Collecting VOC
Business development

CFB Approach: Doing collaborative Research
“Triple Helix; Industry, Academia, Government”
2. Identify and create tectonic shifts in the global socio-economic landscape

• Experimental Research on what may impact the way people live, work and thrive.
• Long-term partnership with collaboration between academia, industry and the civic bodies
is the only way to identify potential mass adoption of new standards, behaviors and
business frameworks
3. Research to Predict, build, and test future drivers of business models

a. Agreed on a rapid extreme experimentation approach in live environments
b. Macro Themes generate emerging concepts to research real scenarios
c. Inform existing product innovation by pipelining the experimental research findings,

techniques, and artifacts into the enterprise to create a sense of ownership and urgency
to formulate or seize these emerging business models

CFB Research Outcomes Categories
“All outcomes need to be converted to products before they are useful”

 Artifacts
 Research results with tangible embodiments that demonstrate what is possible
 Early indicators of physical interfaces afforded interaction designers
 Example: Patties Maes, Siftables devices
 Techniques and methods
 The invention of new techniques for analysis of experimental data.
 Example: Deb Roy, Speechome fish lens and video processing
 Observations
 Speculative insights based on observations that inform hypothesis for experimentation
 Example: Dan Ariely Behavioral Economies patterns
 Understandings
 Theories that challenge the prevailing beliefs. Intangible experimental demonstration
 Example: Sandy Pentland, Sociometer discovery of Honest Signals
 Philosophy
 Radical thinking that breakthrough common practice
 Example: Stallwart, Free Software Foundation, Open Source Software

Converting Research into Business
“Finding and creating new billion dollar markets”

 Company creates the innovations
 Leadership provides the Vision for the Future
 Prioritizes innovation as part of its Hoisin planning
 Associates engaged in innovation are trained to think creatively by working with CFB
 Creates service concepts from marketing research and ethnographic studies
 Generated insights from its own data repositories with superior quants and tools
 Product Innovation teams collaborate across the company
 Product Teams create new IP and acquires IP to secure it position
 Engage its strategic partners to help create breakthrough products and services
 Uses the investment fund to fuel new market innovations

CFB Informing Business Innovation through Research
“Inform innovation through world class research engagements”

 CFB Through engagement with Academia
 Engages with researcher to influence their focus areas
 Spots interesting research outcomes
 Keeps a focus on the future horizon
 Informs the product innovation teams
 Provides creative context and inspiration to market innovations
 Assist leadership in realizing long term vision for Banking futures
 Trains the top talent in creating the future through Executive in Residence rotation
 May directly conduct research where gaps in conceptual knowledge are present

Research Conceptual Structure
VALUE SERVICE
CREATION SCIENCE
Financial RESEARCH
Ecology
Network
System Relationships
Dynamic Knowledge
Value
Creation
Information Behavior
Economic TECTONIC SHIFT
Models
Human
Interaction
Data
TACTICS TODAY STRATEGIC HORIZON RESEARCH FUTURES

Now – 12 months 1 – 3 years +3 to 10 years

Visualization link: World Growth in PC and Cell Phone Adoption
Network Economies
definition: any complex system where value is stored and exchanged
Why it matters!
Grand Challenges
What is it?
How does it work?
Impact
CFB Examples
Ethnography study map

Network Economies – Why it Matters!
 Conceptual inclusions into Network Economies
 All matching and routing systems
 All computing and communications systems
 Human and Biological systems
 The connected planet

 Estimated 1 billion bank accounts worldwide, 2 Billion Cell phones and growing rapidly
 Network economies are responsible for entire country and regions economic development
 Network economies are integral to globalization
 Financial/Banking systems are wholly dependent on network economies
 Range of Network Economies dependencies

 Trade systems of various types
 Reputation systems
 Supply and Demand chain dynamics
 Electric Power Grids
 Modern Food and Health delivery are not possible without Network Economies
 Transportation systems use network economies

Grand Business Challenges
 Market Discovery
 What techniques can be used to uncover hidden insights and unmet needs from the
voice of the customer as captured in a social network application?
 Can we identify and unlock the commercial potential of social capital inherent in
communities?
 How do we evaluate ways of fostering user generated content and a free exchange
of expertise within the community?
 Network Economic Models
 How can a social networks extend beyond a communication vehicle to have more
relevancy in managing a business effectively?
 Can labor be shared, cost spread, profit pooled?
 Can a network be used to manage business risk?
 Could it be used as a source of capital?
 Can the network aggregate its purchasing power?
Tsunami
 What is the balance between competition and cooperation within a network?

Grand Research Questions
 Networks converging physical and virtual spaces

 How do networks emerge and scale? How are physical and virtual different?
 What is the inherent value system and constraints under which they form?
 How is knowledge shared and problems solved within social networks.
 Do SmartMobs behave predictably? Can they be controlled?
 How would augmented reality retail emerge with social networks?
 Network Economic Models

 What are the micro-economic forces at play? Strange Attractor
 How do new currencies impact group decisions?

 New currencies could be coupons, loyalty point systems, barter systems, time
trading systems, money within games, micro/nano payments, one time use
codes, media capture and exchanges, peer to peer value exchanges.
 How do networks behave in physical spaces when using mobile Location based
services and can form spontaneous connections?

Network Economies – What is it?
 What are Network Economies
 Value exchanges based on relationships that transcend a single transaction
 Frictionless matching of producers and consumers, freescale growth
 Communities of Practice with convertible social capital
 Rebalancing of power asymmetries and disequilibrium
 Enablers of Network Economies

 Internet and ICT
 Mobility, cell phones, laptops
 Software that affords self organizing activities
 US Industry Examples using Social Networking

 Google, EBay, Amazon, Paypal, Skype, Joost
 Intuit Small Business Community
 Facebook - Visa Business Network
 Facebook - Fiserv MyMoney program
 Prosper Peer to Peer Lending

Network Economies – How does it work? a research history
 6 (5.5 – 6.6) Degrees of separation
 In 1960’s S. Milgram (psychologist) demonstrates 6 degrees using US postal mail
 In 1973 M. Granovetter (sociologist) theory “Strength of Weak Ties” spread of info in
networks
 In 1994 R. Reynolds paper on Cultural Algorithms using computational models
 Online 3 degrees of separation is more likely
 A. Barabasi (physics) demonstrates preferential attachment model, nodes with lots of
links have higher probability of acquiring more links.
 Yahoo research discovers growth in members and connections are needed for healthy
networks to thrive. If either stall the network dies.
 R. Dunbar (anthropologist) argues a maximum of 150 social relationships can be
maintained which is the historical size of farming villages.
 The world is highly clustered geographically and socially, enabling short paths
traversals within networks and across groups
 Social Contagion, diffusion of innovation, people imitate each other 0 1 2 effect where
the probability of imitation is great once 2 friends have done something
 Jared Diamond posits a theory for Societal Collapse inferring social networking theory

Network Economies – How does it work? Current research finding Nov. ‘08
 mathematical model “hidden metric space”
 may explain the “small-world phenomenon”
 relates to man-made and natural networks
 human language to gene regulation
 neural networks connecting neurons to
organs and muscles within our bodies.
 Natural world routing only uses local
knowledge and not global knowledge of the
network which is how communications
routing works today.
 Natural networks transmit information very How the hidden metric space guides communication.
If node A wants to reach node F, it checks the hidden
efficiently without any single node having distances between F and its two neighbors B and C.
Distance CF (green dashed line) is smaller than BF (red
knowledge of the structure of the entire dashed line), therefore A forwards information to C.
network Node C then performs similar calculations and selects
its neighbor D as the next hop on the path to F. Node D
is directly connected to F. The result is path ACDF
 Many complex networks share similar shown by green edges in the observable topology.
shapes that maximize their communications
Source: CAIDA, UC San Diego Supercomputer Center
 Implications range from cancer research on
gene therapy to more efficient routing on the
internet.

Network Economies – What are the numbers?
 Simple Math explains the net effect
 Potential number of interactions within a Social Network may be expressed as
 n ( n -1 ) / 2 where n is the number of people in the network
 Given a starting social network of 100 people with 100% growth rate to 200 people
 The number of potential connections grows from 4,950 to 19,900 or 302%
 d-2 probability of being friends decreases exponentially as the distance/dissimilarity
increases
 What this produces? Facebook example:

 Post money Valuation of 15 Billion as of June 08
 130+ Million unique visitors in June 08, comscore avg. internet Ads spend $132/user
 Technical statistics
 10 Million request/second (500,000 to database tier)
 1+ Terabyte/day of data volume and growing
 Visa & Fiserv on Facebook to access growing installed user base.
 Thousands of custom applications with a rate of innovation accelerating

Network Economies – It is not New, and has a Global Impact
 Globalization
 Thriving interdependent Social Networks
 Silicon Value/Alley, Boston, Austin
 Hsinchu-Taipei, Bangalore, Tel Aviv, Singapore
 Local Social Networks
 Cambridge, Helsinki, Sophia Antipolis, Stockholm, Munich
 Silicon Valley Innovation example

 Three large network facilitate new entrepreneurs
 Firms, R&D Labs, Universities
 VC’s, Investment Bankers, Law Firms
 Suppliers and Customers
 They all rely on reputation and trust to make decisions
 They are highly purposeful and dynamic with adhoc communities of practice
 The networks are highly diverse and global

Network Economies – Consequences of not taking it seriously
Global Salafi Jihad

Most complex systems
are not random and
present similar
topologies
Properties like:
small-world = high
clustering, low path
length
scale free properties =
self-organizing,
preferential
attachment.
Robust against random
failure but vulnerable
to targeted attacks.
Same pattern for:

Meth World
Gang Networks
Dark Web

Network Economies
Center for Future Banking
Media Lab Examples
Related projects
China Globalization Map

Network Economies – CFB MIT projects examples
 Catching up with today

 Situated Mobile Commerce a Living Lab
 Future Consumption Network
 Call Center and the Socio-meter
 Corp Social Media
 Related Projects
 Future Proof the Company
 Information Economics
Silicon Valley Network

Network Economies – Future Consumption Network / Living Labs
 Inquiry – What is the value of Hyper-Connected Social Mobile Networking at the

Convergence of Virtual and Physical Spaces?
 Inputs – Mobile and Telecom Infrastructure, Social Networking Capabilities
 Outputs – Idea Market connecting consumers, merchants, product manufactures,
and financial services, as well as Small Business Mobile Living Lab
 Academic Team
 Faculty - Sandy Pentland, Andy Lippman, David Reid
 Students - Kwan Lee, Dawei Shen, Aithne Pao, Anmol Madan, Taemie Kim,

Network Economies – Future Consumption Network
 Connected Consumption CFB Exec: Hans Schumacher
 Mobile-informed consumer through open
contribution
 Reverse auction environment
 Collaborative shopping
 Rewarded for participation
 Bank products offered as participation
incentive
 Sensing consumer short-term/long-term
interests
 Future Consumption Network

 Intelligent, on-demand network that brings
together loosely integrated entities in an
efficient and highly integrated manner
 Open transaction network
 Socially responsible network that rewards
savings & investment
 Dis-intermediating payment network

Network Economies – Future Consumption Network
CFB Exec: Hans Schumacher

 Budget Envelope Card
 Restrict spending behavior while
being rewarded/incented for staying
within predefined budget by category
 Budget surplus dynamically invested
 Real-time expenditure tracking
 Compete with peer groups
 Concrete Budgeting
 Actively manage short to long-term
financial goals and evaluate
purchase decisions on-demand to
attain a “concrete” financial future
 Comparisons to peer group

Network Economies – Call Center Social Analysis
 Inquiry – Examination of associate interactions with peers, managers and

customers, and activity analysis for predicting group behavior by including all
available communications traces.
 Inputs – Frontline call center interaction, work flows, email and phone data,
including socio-meter instrumentation.
 Outputs - group behavior analytics, models for successful interactions across
multiple channels, define behavioral characteristics that are critical to driving
success.
 Academic Team
 Faculty - Sandy Pentland
 Students - Ben Waber, Coco Krumme, Anmol Madan, Iolanthe Chronis

 Predicting Associate Interactions

 Predict the outcome of an associate/customer interaction after seconds of listening?
 Discover patterns of activity that usually go unobserved in organizations/call centers?
 Track and evaluate the unconscious human behavior with the collaborative and social side?
 Honest Signals hidden in Human communications

 People have 2 distinct “channels” of communication –
 verbal rational channel, which information flows linguistically
 nonlinguistic channel, often ignored, but carries as much information.
 Human behavior can predicted accurately by capturing thin slices of what people do.
 We need instrumentation since people can’t observe others objectively.
 Cannot manage what is not measured.

CFB Exec: David Price

 Experimental Proposal
 Test Social/Human Behavior in Contact Center
 Outfit 80 agents (4 teams), their managers, and Unit managers with wearable sensors.
 Track and record conversational and physical interactions between associates, team and
unit managers.
 Capture email, instant message and telephone records for the duration to contribute to the
analysis.
 Duration to last 30 days.
 Impact
 .004% shrinkage
 (80 agents @ 15 minutes)
 Hawthorne Effect

Network Economies – Corp Social Media
CFB Team with Jeff Carter

 CFB will utilize an external blog to …
 Promote dialogue with innovators, competitors, MIT & Academia, BAC Associates
 Communicate activities of the Center, disinformation to competitors;
 Position Bank of America as a progressive innovative leader;
 Learn in a lower risk environment strategies to utilize Social Media to engage key
constituents.
 Experimental Analytics
 Implemented Coremetrics, I2A tags, and collect Cluster Map data.
 iCrossing has included a reporting tool that CFB Team can access on-demand
 Post Launch SLA for detailed reporting work with Supply Chain
 iCrossing will provide a detailed 6 & 12 month summary post-launch summary
 Team
 CFB Exec’s, Legal, Social Media, PR, Marketing Communications

Network Economies – Corp Social Media

Network Economies – Related Projects
 Initiated by innovators in collaboration with CFB
 Oct 21st Design Charette, 70 people, Faculty, Students, BAC, City of Boston, guest speakers
 Event stimulated research possibilities not previously considered
 Video Documentaries available for Leadership Learning.
 Highlights of Projects Initiated:

 Living Labs project initiated with Mobile Initiative, Sandy Pentland
 City of Boston engaged with CFB, MIT, BAC in Living Labs project
 SBOC Data analysis – discovery of internal competencies in data and text analysis prior to
engaging MIT students.
 SBOC used in the EpiCenter project – connecting the virtual with the physical for richer
engagement with customers.
 Peer to Peer Lending Analysis – pattern recognition class doing analysis, possible academic
paper with significant finding pending. Ray Garcia with Dawei Shen and Hyungil Ahn
 Information as a Product
 Community Change Card, Jon Ramer, City of Boston
 Merry Miser project Charlie DeTar

Network Economies
Future Proofing the Company with
Information Economics of Network Knowledge

Team and Inquiry – Information Economics of Network Knowledge
 Bank Strategic Champions – Laurie Readhead and Lance Drummond
 Business Tactical Leaders – Margaret Weichert, Ross Feldman, Beverly Ladley, Indur Koul
 Innovators Committee – CFB - Hans Schumacher, Todd Inskeep; BAC - Marc Keller, Matt Calman
 Quant Committee – David Joffe and David Joa
 Audience – Quant doing Informatics and business leaders needing to understand information economics,
network and emergence theory.
 Business Inquiry –
 How might data and information captured within Bank systems be converted to knowledge that informs a
Financial Ecology and Network Relationships such that they can be leveraged as residual products.
 How would the Economics of Information assess value or reveal insights to be discovered to inform
service innovations, generate revenue, reduce risk, or improve operations?
 How does value emerge from a network and how would Quants use Informatics to continuously discover
emerging opportunities and threats given the severe challenges of data quality management.
 Research Inquiry –
 How do personal, social, commercial, knowledge networks emerge?
 What is the inherent value system and constraints under which networks form?
 How does using information economics to show how fairness contributes to efficiency and innovation?
 How is knowledge elicited, assessed, shared and problems solved within networks?
 What are the micro-economic forces within information intensive service businesses?
 What experimental methods are used to model, simulate, predict, inform, improve, knowledge products?
 What are the learning models, cognitive models, and affective models that influence knowledge
economies?

Research Design - Information Economics of Network Knowledge
 Theoretical Basis – Information Economics, Social Science, Computation, Information Science, Ontology
 Business Basis – Financial Ecology, Human Dynamics, Knowledge Management, Social Media
 Methods – Qualitative Research methods, quantitative analysis, ethnographies
 Techniques - data processing, statistical analysis, pattern recognition, text processing, machine learning
 Business Inputs – Bank transaction data, data from information network experimentation, marketing research databases,
external market data sources, financial data feeds, expert annotation
 Research Inputs – MIT prototypes in; common sense knowledge, social media, cognitive/affective markets, knowledge
markets
 Experimental Platform – communications market borrowing from several MIT projects and creating a system for on-going
long term research.
 Informatics Toolkit – an assembly of open source, or low cost, tools used in the analysis and visualizations of data.
 Key Outputs –
 Valuation of latent Network Knowledge factoring system dynamics, content, membership, relations between nodes.
 Knowledge elicitation, discovery, and dissemination, modeling, simulation and prediction of human systems including
cultural algorithms which inform market dynamics.
 A formulation of the research discipline in Service Science merging techniques from Qualitative and Quantitative
research borrowing from various practices. This Service Science would determine how to convert research findings
into innovative services that can be formulated, tested, disseminated within a large scale global company.
 The Network Knowledge and information economics would include a synergistic co-generated service innovation
between consumers and producers. This may include a communications marketplace that is both internal and external
and reconciles the need for knowledge elicitation and dissemination.
 Quant tools, techniques, and methods for applied information economics against bank data.
 Academic Team (proposed)
 Research Scientist – Marshall Van Alstyne (Sloan School), Kelly Hewett (BAC Market Researcher)
 Phd Candidates – Dawei Shen, Hyungil Ahn, Polychronis Ypodimatopoulos, Ankur Mani

Related Research to Information Economics of Network Knowledge
 Economic Choice Theory and Group Decision Making
 Problem Statement – How do people learn to make important economic decisions that impact their
personal finances and/or company value from the social engagements and information sources they
have available? What are the cultural forces at work? What methods could be used to experiment,
model, simulate, predict, inform, improve, group decision making within tribes, co-workers, and
communities of practice? How does economic literacy impact other important decisions such as
health, home, children, work, and consumer behavior? How does economic literacy change
throughout ones life and how is it inter-generational? How is economic literacy taught and learned.
What are the educational psychological models and cognitive models that help inform personal and
group decisions and how do social values systems influence the choices and expectations.
 Scaling the Service Innovation Process to create breakthrough new products (Cooperative
Collective Intelligence Elicitation and Dissemination)
 Problem Statement – Service companies lack the experimental research activities that are prevalent
in product companies and therefore do not have a science of service to create and build a body of
knowledge. The research methods and process for converting research findings into innovative
services requires a discipline to be formulated, tested, and disseminated to be effective within a large
scale global company. Can these service innovations be co-generated between the consumer and
producer such that they evolve into a synergistic relationship? Using Social Media to elicit knowledge
and applying methods for evolving the knowledge into innovations while opening communications to a
free exchange of ideas between consumer and producers is a challenge for industries where
confidentiality and proprietary information is consider a risk to the business and therefore all
communications is controlled. How to balance the economic benefits of a free communications with
the desire for control requires research in the economics of information to devise techniques to
resolve these conflicting goals.

Candidate Research Collaboration
 Academia
 Sloan School Center for Digital Business
 CSAIL
 Auto-ID Lab
 Corporate
 IBM Center for Social Software
 Rueters and Bloomberg
 Appforge
 Selectminds
 Government
 Fed Reserve
 City of Boston

IP Generation
 Technology disclosure with MIT
 Personal Augmented Reality in a Retail Environment
 Inventors: Ray Garcia and Stephen Miles
 An intelligent personalized agent running on a mobile wireless connected device that monitors
and advises a user in recommendation-making process in a retail setting through both private and
public information services, whereby the identification of the mobile device and rfid transponder
impacts both the personal display and the public display
 Conceptual Ideas under development
 Multi-function card associate with a mobile device that acts as a dual factor authentication using a
transparent card, embedded image that is reveal through matching with the display on the phone.
The card is anonymous with no markers. The information on the card includes dual magstripes,
barcode, optical storage, contactless rfid with a coil.
 Communications market which is a hyper network of knowledge and affective associations of
constructed information amongst a large group of participants. The knowledge is hyper connect to the
people, context of situation and circumstance, and has a financial ecology that expands in a free
market with minimal regulatory rules. Small world scale free networks of efficient information
economies are allowed to emerge.

Pattern Recognition Analysis of Peer to Peer Lending data from Prosper
From Sergio, Rahul, and Aithne, they are exploring the effects of social capital:
2. Social profile
 Friend: number of 1st-degree friends, number of 2nd-degree friends
 Endorsement: Endorsement number
 Group: Group leader reward rate, Group Rating, Group Size
3. Social Interaction - Bids from friends and group members
4. Classifiers were built to determine whether a list could turn into a loan.
5. Social factors are not determinant, but they do increase the chance of getting a loan when all other
financial features are similar. This is demonstrated clearly by using clustering.
6. Users do not have time to maintain many social profiles, it's beneficial to use existing social networks as a
foundation.
From Charlie, Matt, Ernesto, and Coco:

 A Bayes belief network and a decision tree are formulated for classification. The unique benefit of Bayes
network and decision tree is that it graphically presents some good practice for users if they try to increase
their odds to get a loan.
 Textual information, such as words used in endorsement, description, etc. is analyzed and proved to be
very influential.
 A risk assessment model built on Hidden Markov Model is formulated, and works very well. It can
effectively predict a loan carrier's financial health, and predict potential delinquency.
 Coco starts some interesting games with the image posted by users.

Sloan Research to leverage in experimental design
 Research Scientist Marshall Van Alstyne
 Correlation of speed of Information Diffussion via social networks with productivity
 Internal knowledge markets - Information economics applied to quantifying the effects of knowledge
management using price theory, information asymmetry, and network theory. The goal is to discover
information behaviors that predict success.
 Anti-spam & Malware Research - A formal proof of information economics impact on eliminating spam
without using a filter.
 Open Platforms & innovation
 The social efficiency of fairness

MIT Concepts prototypes to monitor
 PolyQuest: It’s your data, your connections
 Team: Polychronis K
 Problem Description: A next generation social network that is distributed and provides users complete ownership over
their data and social connections. Contrary to centralized social networking systems like facebook, each user
maintains their personal information and their list of friends on their own private web space. The list of their friends are
pointers to other web spaces, while public key infrastructure is used to provide different levels of access to different
friends, while providing minimum or no information to strangers.
 Experience Sharing Market for Forecasting Marketplace Success
 Team: Hyungil Ahn
 Problem Description: We develop a novel market game that harnesses people's collective perceptions and
experience sharing to forecast the success or failure of new items (products / services / UI designs, etc). Companies
can register their new items on this market (as a test bed) to ask people's collective opinion. In each trial session, a
participant makes his or her own best prediction on other people's overall opinion about the new items to get incentives
(e.g., real opportunities to experience the items) and have fun in gambling-like games. As a participants guess (or
portfolio) approaches the collective guess of all participants, he or she has a greater chance of winning an incentive.
Participants improve the accuracy of their next prediction by sharing their experiences. As participants have more trial
sessions, their collective prediction converges into one common opinion (forecasting the success or failure of new
items).
 Funk 2
 Team: Bo Morgan
 Problem Description: Funk2 is a novel process description language that keeps track of everything that it does.
Remembering these causal execution traces allows parallel threads to reflect, recognize, and react to the history and
status of other threads. Novel forms of complex, adaptive, nonlinear control algorithms can be written in the Funk2
programming language. Currently, Funk2 is implemented to take advantage of distributed grid processors consisting of
a heterogeneous network of computers, so that hundreds of thousands of parallel threads can be run concurrently,
each using many gigabytes of memory. Funk2 is inspired by Marvin Minsky's Critic-Selector theory of human cognitive
reflection, and is the foundation for the Neural Models of Mind project.

MIT Projects to License for use in future research
 Selectricity
 Team: Chris Csikszentmihalyi, Alyssa Wright, Benjamin Mako Hill
 Problem Description: Selectricity is a web-based voting system that supports anonymous and voter-verifiable
balloting, and includes an election-methods library that implements a variety of election techniques, includeing several
preferential systems. Unlike most voting projects, Selectricity does not attempt to address the issues raised in
mainstream political elections. Instead, it provides a simple set of tools that small groups and organizations can use to
incorporate computationally complex decision-making into new areas, and for purposes where they ordinarily would find
such decision-making into new areas, and for purposes where they ordinarily would find such decision-making
prohibitively complex. By supporting a variety of election methods, it provides a way for users to explore and compare
the effects of different voting systems and, ultimately, come to better decisions.
 Common Sense Reasoning
 Team: Henry Leiberman, Catherine Havasi, Robert Spear, Dustin Smith, Jayant Krishnamurthy
 Collecting Common Sense – the open mind common sense project, acquiring knowledge from untrained people
through the use of on-line interfaces and games.
 Common Sense Recommendations – that are more user friendly than collaborative filtering systems. Uses tools to
build intelligent recommendation agents and effective product exploration tools
 Not-So-Common Sense – infusing data sets with common sense
 Perspective Space – discovering distinct communities of people with jargon and belief structures from simple ratings
 Analogy Space
 Common Sense Investing
 Common consensus: a game for collecting commonsense goals
 ConceptNet
 Divisi: Reasoning over Semantic Relationships
 E-Commerce When Things Go Wrong

MIT Project techniques to re-build in future research for new inquiry
 Behavior Capture from Thousands of People On-line
 Team: Jeff Orkin, Deb Roy
 Restaurant game simulation of patron to host interaction to capture dialogs and sequences of common actions. The
analysis is statistical and produces dialog that mimics frequent occurrences of phrases.
 New Media Medicine
 Team: Frank Moss, John More
 Collaborhythm – collaborative decision making between doctor and patient
 Collective Discovery – a massive collection of “everyday experiments”
 HealthMap – real-time disease outbreak tracking and visualization system
 I’m Listening – pre-visit interviews to help categorize patient symptoms for efficient diagnosis.

Tentative Research Milestone Plan
Network Economies Defined Dec-08
Grant Draft based on initial research design Jan-09
Grant submittal and review Feb-09
Stakeholder commitment, Biz Relevancy, Funding, BAC staffing secured Mar-09
Research PI commitment and plan Apr-09
Executive Course in Information Economics to support research created Jun-09
Experimental Instrument created Jul-09
Initial Research execution and Analysis Dec-09
Research Paper Submittal to peer review conference Jan-10
Trial adoption of tools, methods, techniques, by quants for internal use Feb-10
Quant discovery of major revenue impact in network effect Apr-10
Journal Article submittal Jun-10

Champion Alignment | Research Plan | Research Approach | Network Economies | 2015 Outlook
Network Economies
Analyst Future Outlook
2015 Context Aware Computing

source: Gartner ITExpo 2008, William Clark
Analogous to MIT Sandy Pentland vision of an

Aware Society of Tribes in a Living Lab

Situation and Context Aware Tribes
What is Context Aware Computing

 Emerging context-enriched services will use
location, presence, social attributes, and
other environmental information to anticipate
an end-user's immediate needs, offering
more-sophisticated, situation-aware and
usable functions.
By 2012 estimates:
 More than 7.3 billion networked devices
worldwide
 298 million subscribers of location-based
services
 >75% of new search installations will include
social search element
• $150 billion of $1.8 trillion global telecom
spending will shift from services to
applications
• Global market potential that context-aware MVE algorithm plot on citywide activity
computing can impact: $215 billion Source: Sense Networks

Context-Aware Society in 2015
Context-Enriched
Context
Services
Community Brokers
Process
Consistency across
channels
Fine-grained,
anticipatory search
Identity
Environment
Personal
Commerce
Context Agents
Virtualized Knowledge
Sensors worlds,
Collaboration
avatars,
persona-bots
Universal
geo-fencing,
hyper-optimized Auto-tagging,
processes
me anticipatory
A way to
manage search
identity,
reputation,
Socialization and privacy
Personal Services

Challenges in Context-Aware Society
Real-Time
Context Delivery Context
Context-Enriched
Shared Services Brokers
Trust Community
Information
Consistency across Process
channels Identity Federation
Fine-grained, Environment
anticipatory search
Context
Agent Personal
Switching
Provisioning Commerce Cross-
Context Agents Personna
Experience
Virtualized Knowledge
Sensors worlds,
Collaboration
avatars,
persona-bots
Universal
geo-fencing,
hyper-optimized Auto-tagging,
processes Cross-Session
anticipatory
Experience
A way to
me
search
manage
identity,
Cross- reputation,
Sensor Endpoint and privacy Cross-
Overload Experience Personal Application
Services Experience
Socialization
Real-World, 2009: Context-Enriched Services in Mobile and E-Commerce
Context
Brokers
Are the network I'm on
and my current device
Reference capable of supporting
What information do System-Defined Rules
Endpoint Capability streaming video on the
vendors and comparison History product at this moment?
sites provide? User- Network Capability
Defined Do I choose to share the
What is my
Rules fact I have just arrived at
history with the Process Location
the store whose Web
various sites?
site I have been using for
Reference Environment comparison shopping?
Can I easily validate the
What are the tips from History level of trust and security
others making similar of the vendors I'm
purchasing choices? Role
Links Community Identity accessing on my
smartphone?
Journal
What are my tolerances for
Security m-commerce/e-commerce
Groups Trust from an expense and
usability standpoint?
Presence PIM Calendar
Is the salesperson How much information
Tagging Privacy
who I am working Trust Bookmarks Tolerances Reputation
do I expose to a vendor
with available Reputation or a community? How do
Calendar
physically or online Tasks Contacts Tolerances
I repair my reputation if
at this moment? damaged?

Figuring all this out – Navigating through large scale complexity
Assuming
 A desire to create the future
 Triple Helix Strategy – Industry, Academia, Government
 Experimental design
 Quality data and its meta descriptions
 Best research team
 Best methods and techniques for analysis
 Business willingness and patience to discovery the unknown
 A new understanding of information economics
 Then, how will you comprehend it all?

 So that you make the best decisions based on evidence, analysis and intuition
 Using transparency and access to complexity in a form that can be understood
 We need to provide the methods for our top executives to fly through the complexity
 Using new computational models, simulations, and interfaces
 These interfaces would use Visualization, Sonification, and Kinesthetic navigation
 One example of a new interface: G-Speak Overview

Suggested Next Steps for discussion
 Grand challenges revised
 Detail reviews of CFB project with each Executive in Residence
 Detail review of Information Economics research proposal
 Assessment on analysis and visualization techniques and methods applied to bank
data
 Presentation of MIT project assets to source innovations from
 Consideration of grants to direct new research
 Line up of innovation team within each LOB to work with research track
 Alignment of marketing research, innovation team, and CFB research to spot Billion
dollar opportunities
 Advisory Board communication on effort to inspire the rest of the company

Closing Remark
Big Company (statements heard in my first 90 days at BAC)

STAGNANT “We own the market we are just that big!”
CYNICAL “It will never happen!”
CONFUSED “What is going on in the market?”
TOO LATE “How did that happen?”
Future Proof Company (why I am here)

THINK “Service as a Science”
LISTEN “Co-create the future with the consumer”
SERVE “Mass preference and configuration”
SCALE “Human dynamics scale”
ADAPT “Grow, split, shift, evolve”

References and Suggested Reading list
CFB Research Macro Themes and research reviews posted on CFB website
CFB website for Network Economies blog posting by Ray Garcia
Hsinchun Chen and J. Xu The topology of dark networks: ACM Oct. 08
Bill Howard Analyzing Online Social Networks: ACM Nov. 08
Suggested Book List:

•Born Digital
•Honest Signals
•The Long Tail
•Crowdsourcing
•Network Power
•We are smarter than Me
•The Big Switch
•The Cluetrain Manifesto

For questions on this presentation contact:
Ray Garcia
Visiting Scientist
Center for Future Banking at MIT Media Lab
rgarcia@media.mit.edu
http://www.linkedin.com/in/alterwork


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MS future vision on retail banking Presentation by: Ray Garcia

ING Living Tomorrow - Retail Banking

Center for Future Banking

1057 blogs 2007 French Presidential Election

Proprietary and confidential 2

1924 Radial Org Char

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 Create a vision and give voice to the future of banking

 Develop and embody the grand challenges

 Inform your business innovation through research

 Foster an innovation culture

 Charter research activities in collaboration with CFB

 Find the opportunities to apply the research findings

 Innovate associates, product, and markets

 Think BIG and create entire new lines of business

Proprietary and confidential 4

Map of They Rule Corp Boards

How we’ll interact

 Speculate the innovation

 Spot what remains to be known

 Identify research that needs to be pursued

 CFB finds who is working on the big problem already

 Sponsor the research with CFB

 Joint innovation and Research report to Executive Advisory Committee

Proprietary and confidential 5

Proprietary and confidential 6

Mapping Pigeon flight

Proprietary and confidential 7

Macro Theme Description

Includes any behaviors that happen before and after the decision of a consumer or

Proprietary and confidential 8

Macro Trend Information Value chain

Information flow is the signal versus and noise of information science. The

Questions Asked How do we empower people to use information?

Research Topics Living Lab / Flagship store

Proprietary and confidential 9

Macro Trend Behavioral Economics

Includes any behaviors that happen before and after the decision of a

Questions Asked How do customers respond to “life events?”

Proprietary and confidential 10

Macro Trend Identity, Trust, Privacy, Security

Identity includes concepts of privacy or public disclosure or fabricated

Research Topics Living Labs / New deal for Data

Proprietary and confidential 11

Macro Trend Network Economies

Proprietary and confidential 12

Macro Trend Social Responsibility

Includes individual actions representing corporations as well their household

Questions Asked How can we enable people to live better?

Proprietary and confidential 13

Macro Theme Consumer Impact * Theory Basis Research Unit

Information Usability Communications Bits/Bytes

Behavioral Consumer Individual Psychology

Identity, Trust Consumer Risk Containment Safe

Network Connected Complexity/Game/ Societal

Social Consumer Values

*sampling of research projects summarized

Proprietary and confidential 14

Zaha Hadid Architect 3d Nurbs

Proprietary and confidential 15

Traditional Model Consumer Banking Transformation

Product centric Customer centric New worldview

Competitor Market Customer needs Customer needs Customer needs