I love Harari’s books, not only because they are very well-written but also because they teach me many new things and make me think. I will probably come back to Nexus after I have finished it.
One of the fascinating aspects of the book concerns the perverse power of social networks. I have often been asked why we never invested in social networks at COTE 100. We seriously considered it several times. We chose not to do so for ethical reasons. Reading Nexus confirms that we would not want to be shareholders of companies operating social networks because I have serious reservations about their business models.
I have already written about the influence of incentives on human behavior, particularly regarding the Volkswagen scandal several years ago. My idol, Charlie Munger, has often said that people tend to do what they are incentivized to do: “Show me the incentives, and I will show you the outcomes.” He also said, “If you want to attract ants, put sugar on the ground,” illustrating that financial incentives, if unethical, often lead to malicious behaviors.
The driving force behind the business model of social networks such as Facebook is user engagement. The more time a user spends and is active on a social network, the more the company operating the network collects information to sell advertisements. So far, so good. The big problem is that Facebook and other social networks, such as X, YouTube, and TikTok, have developed algorithms whose main goal is to maximize user engagement. These algorithms quickly understood that the messages that generate the most engagement are those of hate and fake news. If you want your post to get noticed on a social network, make it radical, hateful, and false, and chances are it will go viral.
In the wake of the U.S. elections and a vitriolic campaign, I wondered what could explain why the American people are so divided and why each camp is so deeply entrenched. Harari’s book provides part of the answer: social networks.
As long as these social networks aim to maximize user traffic and engagement, I believe they will continue to divide the population by misinforming and radicalizing it. If this remains the case, these networks will be nothing less than dangerous for the social fabric, our democracy, and our institutions.
I believe we made the right decision not to invest in social networks. Until their business model changes drastically, I do not think we will do so.
Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100
_______
Philippe Le Blanc’s Blog is published in
