Wednesday, April 26, 2017

The Electric Car Revolution Now Faces Its Biggest Test

Are electric cars ready to stand on their own? 
If you took a spin down to the New York International Auto Show last week and saw the $37,500 Chevy Bolt (electric) parked next to the strikingly similar $17,000 Chevy Cruze (gasoline), the answer is probably a hard no. The Bolt is arguably a better car than the Cruze—but not $20,000 better. 
Edmunds, the car-research company, recently weighed in with a hard no of its own, warning that the elimination of a $7,500 U.S. tax credit is “likely to kill [the] U.S. EV market.” Edmunds pinned its argument on what happened in Georgia, a state that became an unlikely leader in electric cars thanks to an extra $5,000 incentive. At one point, almost four percent of new cars being sold in Georgia were electric. Then they pulled away the punch bowl. 
But a very illuminating thing happened after Georgia's incentives expired. Unlike the Nissan Leaf, which made up the majority of the EV market there, sales of electric-luxury Teslas were barely affected by the loss of the tax credit. In fact, more people are buying Teslas in Georgia today than during the subsidy years. 
The Tesla exception shows what happens when an electric car reaches parity with fuel-burning competitors in both price and function. Unlike the Leaf and the BMW i3, the Tesla Model S is quicker than similarly priced gasoline cars, has a long driving range, extensive fast-charging network, and is packed with unrivaled tech advances like Autopilot and wireless software updates.  
As a result, the Model S is now the best-selling large luxury vehicle in America. Changes to state or federal incentives are unlikely to alter that fact. But those Teslas are premium cars that start around $70,000. For plugins to really pass the subsidy test and take over the auto industry, they’ll need to prove themselves in cheaper classes of car, and there will have to be more manufacturers besides Tesla.

When might that happen?

The primary cost for an electric car is its battery, responsible for almost half the pricetag of a mid-sized plugin. If you take that away, electric cars are much cheaper to produce and maintain than internal combustion vehicles. (That’s why French carmaker Renault sells its popular Zoe without a battery, which customers pay a monthly fee to lease.) 1
For true mass-market appeal, the up-front sticker price is what matters most, and battery prices must come down further. Fortunately, prices are falling fast—by roughly 20 percent a year. The manufacturing cost of electric cars will fall below their gasoline counterparts across the board around 2026, according to a recent analysis by Bloomberg New Energy Finance. 2
Source: Bloomberg New Energy Finance
The question of when electric cars will cost the same as their combustion counterparts isn’t academic. The $7,500 federal incentive is set to taper off as each manufacturer reaches its 200,000th U.S. sale. For Tesla, that day will arrive sometime next year. Nissan and GM won’t be far behind—and any extension of the subsidy by the Trump administration seems unlikely.  
Another thing that makes electric cars more expensive is that, at lower volumes (less than 100,000 a year of the early models), even the traditional components of a car come at higher costs. Low production numbers and high battery development costs created a valley of despair for EVs that lasted decades, which is why subsidies have been critical to giving the sector enough breathing room to eventually stand on its own. 
Government incentives were crucial to the birth of the EV industry, and many countries and local governments will continue to offer them because of the critical role electric cars play in reducing pollution and combatting climate change. 
But even where governments are less enlightened, the valley of despair is coming to an end. Tesla, the first to approach price and function parity in the Model S sedan and Model X SUV, will attempt to recreate that magic later this year with the Model 3, a $35,000 entry-level luxury sedan. A longer-range Nissan Leaf will be unveiled in September, and depending on its pricetag, it could begin to approach the parity zone in the sub-$30,000 market.   
And then watch out: In 2018, Volkswagen plows into electrification with an Audi SUV and the first high-speed U.S. charging network to rival Tesla’s Superchargers. Jaguar and Volvo both have promising cars on the way too, and by 2020, the avalanche really begins, with Mercedes, VW, General Motors and others releasing dozens of new models.  
When the U.S. incentives begin to expire next year, don’t expect a Georgia-sized collapse in the market. The period of greatest peril is ending for EVs, and the time of greatest promise is beginning. All the top carmakers are investing billions of dollars to electrify their drivetrains, and the smart ones will compete aggressively on pricing in the short-term in order to establish market share for the long haul. Incentives are important, but they won’t define the market for much longer.

Tuesday, April 25, 2017

Dubai Aims to Be a City Built on Blockchain

Dubai has grown from a tiny fishing village to a major trading hub by attracting businesses with near-zero taxes, advanced transportation infrastructure and a secure environment in a tumultuous region.
Now it’s planning another transformation to bolster its claim as the leading center for business in the Middle East—to an economy that relies heavily on blockchain technology.
Blockchain is perhaps best know as the technology behind the digital currency bitcoin, but it can serve many purposes. It uses a digital ledger to efficiently share and track information related to contracts and transactions, the records of which are permanent, verifiable and secure.
The goal of Dubai’s government is to conduct a majority of the emirate’s business using blockchain, which it expects will make government services more efficient and help promote enterprise in Dubai as it will become easier to do business there.  
“We want to make Dubai the first blockchain-powered government in the world by 2020,” says Aisha Bin Bishr, director general of Smart Dubai, a government office tasked with facilitating innovation in the emirate. “It is disruptive for existing systems, but will help us prepare for the future,” she says.
Testing it out
Blockchain has yet to be deployed widely for commercial use, but many big global companies are testing the technology. It has attracted the most attention in the financial-services sector and is seeing growing interest from industries such as supply-chain management, health care and shipping.
For instance, Wal-Mart Stores Inc. is trying out blockchain to improve the way food is tracked, transported and sold to consumers across China. And Depository Trust & Clearing Corp., a big Wall Street firm that processes financial transactions, plans to start using blockchain by early next year. The technology shift could help cut its cost of warehousing information on the transactions it handles, savings that could be passed on to customers.
In general, blockchain has the potential to speed up transactions, increase transparency and help reduce fraud such as money laundering. But it also faces several challenges to broad adoption.
One is cybersecurity. Backers of blockchains claim they are secure by design, but the technology hasn’t been adopted widely enough yet for it to be seriously tested. Several hacking attacks against digital currencies in recent years underscore the security concerns.
Regulatory uncertainty is another hurdle, especially in the financial-services industry. Legal frameworks globally will have to change to adapt to the growing use of the new technology.
The costs to shift to the new technology, which continues to evolve, are also high. And there are many technical challenges involved in integrating blockchain databases with existing systems. Despite all that, the advantages of blockchain are attractive for many businesses and institutions. Dubai, a semiautonomous member of the United Arab Emirates, is the first city to back the technology on a government level.
Public-private effort
In March, Smart Dubai kicked off a citywide effort to implement blockchain. Over the coming months, it will conduct workshops with key government, semigovernment and private organizations to identify and prioritize the services that can be most enhanced by blockchain. It also will educate the public and private sectors about the technology’s potential.
Following these workshops, Smart Dubai expects the public and private sectors to collaborate and start rolling out blockchain pilot projects this year. It also plans to build a shared platform—Blockchain as a Service—for Dubai government entities to use for implementing their projects.
Wesam Lootah, the chief executive of Smart Dubai, says a collaborative effort is crucial to ensure that the emirate as a whole is moving in the same direction to take advantage of synergies and avoid duplication of efforts and costs.
Smart Dubai has appointed International Business Machines Corp. as its blockchain lead strategic partner and Consensys, a custom-software development consultancy, as its blockchain adviser.
Dubai is adopting this technology as “government agencies and businesses realize the need to have a shared, secured ledger that establishes accountability and transparency while streamlining business processes,” says Takreem El Tohamy, IBM’s general manager for the Middle East and Africa. “The key is to always keep business value at the forefront.”
First steps
Several key Dubai entities are already trying out the blockchain technology.
The Department of Economic Development, a government agency, is usually the first stop for any company planning to do business in Dubai. Its role includes facilitating the setting up of businesses, issuance of commercial licenses, protecting the rights of businesses and consumers, and promoting enterprise and trade in Dubai.
The department, to start with, is working on shifting its entire business registration and licensing services to blockchain.
“We want to transfer existing data to blockchain as well as create a system for new information,” says Mohammed Shael Al Saadi, the department’s chief executive for corporate strategy. “This data would be available to other Dubai entities, cutting down on duplication and easing and accelerating the process to set up businesses in Dubai,” he says.  
Another big early investor in blockchain is Emirates NBD, Dubai’s largest bank, which is majority owned by the Investment Corporation of Dubai, manager of the Dubai government’s portfolio of commercial investments. Emirates NBD in February started working with IBM and some other Dubai entities to explore the use of blockchain for trade finance and logistics.
Trade is Dubai’s biggest business. It has used its ports and free zones to become a major import-export hub, connecting markets in Asia with those in Africa, Europe and beyond. Non-oil foreign trade in the emirate totaled about $348 billion in 2016.
“The aim is to replace paper-based contracts with smart contracts that will help reduce complex documentation for the tracking, shipping and movement of goods,” says Ali Sajwani, the group chief information officer at Emirates NBD.
“We have a very clear objective to make Dubai the capital of the blockchain industry,” says Smart Dubai’s Ms. Bishr. “By 2020 we’ll have 100% of applicable government services and transactions happen on blockchain.”

An Exciting Time for the Energy Sector - Franklin Templeton

It’s an exciting time to be an energy investor, and at Franklin Templeton we are finding a number of compelling, bottom-up opportunities across regions, energy subsectors and capital structures.
Our macroeconomic analysis suggests that a moderate crude oil supply deficit will become more evident as the year progresses as a result of declining net imports into the United States and refineries returning from scheduled seasonal maintenance; however, we expect the perceived supply elasticity of US production to cap any material price appreciation in the near term.
The OPEC Effect
Since its founding in 1960, OPEC has played an outsized role in the macroeconomic landscape for crude oil. However, rapid progress in the US shale extraction industry in the 2000s changed global industry dynamics by introducing an elastic source of supply that can respond in a relatively short period of time to price signals in the market. As a result, OPEC members find it more difficult to support higher prices without losing market share, as occurred in the early 1980s.
OPEC’s late-2014 decision, driven by Saudi Arabia, to increase production and avoid a repeat of the debacle in the ‘80s—which took 20 years to alleviate—sent crude oil into a bear market that bottomed in early 2016 when oil slumped below $30 a barrel.
The strategy had its intended effect, gutting the marginal North American producers and causing the US oil rig count to fall from nearly 2,000 at the peak of the cycle to 400 last year.1
However, the impact was not contained within the US market as spending outside the United States also contracted significantly. With OPEC member states also feeling the pain from lower prices, the cartel reversed course in November 2016 and agreed to the first coordinated supply cut in eight years.
Furthermore, OPEC persuaded 11 state producers outside of the cartel, including Russia, to voluntarily cut production. These actions, when viewed against a backdrop of relatively stable demand growth, have supported the price recovery to today’s levels.
Will OPEC Production Curtailments Continue?
The near-term issues pertaining to OPEC are the degree to which accordant producers comply with supply cuts, and uncertainty as to whether the agreement will be extended at the next cartel meeting on May 25.
On the first point, slowing imports into Asia—the main recipient of OPEC exports—along with a narrowing of Middle East oil-price discounts, suggests that OPEC supply has indeed contracted, though it’s difficult to confirm the exact magnitude of decline given imperfect reporting mechanisms.
On the second point, the industry is hopeful that current OPEC and non-OPEC production quotas will be extended at the upcoming meeting, and many believe Russia’s participation will be crucial to reaching an agreement on this front.
There appears to be a growing acknowledgment that the significant decline in investment during the oil bear market could lead to an eventual supply shortage, and indications are that OPEC’s current strategy of limiting production is intended, in part, to incentivize investment in longer-cycle projects that will deliver production into the next decade.
What Does This Mean for North America?
The other macro issues affecting the supply side of the oil equation are specific to North America.
The first is recent US Energy Department data indicating inventory builds from historically high levels, which led to a brief selloff in March and has continued to pressure prices in the second quarter. Traders and investors tend to focus heavily on US inventories due to the frequency and availability of the (weekly) data, while most international reports are released monthly with a long delay, and can be very limited outside of the Organisation for Economic Cooperation and Development (OECD) countries.
However, the high-frequency US information is of limited value when it comes to forming a longer-term view, in our opinion, given that it’s based on estimates and can be volatile from week to week. Reasons for continued US inventory builds over the past several months include refinery re-stocking in anticipation of rising prices, a seasonal decline in demand, greater-than-expected refinery maintenance and downtime in early 2017, timing differences between reduced OPEC exports and crude oil deliveries, and the transfer of more extensive floating storage to land-based options.
Rising US Production
US production has also been on the rise thus far in 2017 which, when combined with the other factors mentioned above, has likely contributed to increased oil stores. Turning to global inventories, several of the oil and gas exploration and production (E&P) firms we met with believed OPEC was aiming to move crude inventories back into the five-year range.
While six months of sporadic inventory data is insufficient to form a definitive trend, we have been encouraged by what appears to be a broad-based decline in total petroleum OECD inventories outside the United States since their peak in the middle of last year.
The second major issue in North America pertains to the elasticity of shale supply. We discuss this dynamic in more detail below, but the basic takeaway is that North American producers will likely be fighting to ramp up their production into a rising oil price.
Successful production growth at scale could close the expected supply deficit and cap any material oil price appreciation, in our view, although the ability of producers to achieve that outcome remains in question. On the other hand, challenges bringing on new supplies could widen the expected deficit and have positive implications for commodity prices, company cash flows and investment returns.
Energy Company Perspectives
At the corporate level, sentiment seems more positive than expected given lackluster recent share-price performance and commodity-price weakness, a dynamic that we would attribute to the potential improvement in macro visibility.
Overall, the E&Ps we have talked to appear to have about half of their planned 2017 production hedged at $50/barrel (on average) and seemed unfazed by the 2017 dip in oil prices, suggesting that operating plans and results may be less sensitive to oil prices this year. Perhaps a bigger concern is execution risk as the North American E&P and oilfield services companies attempt to manage accelerated business activity in a higher price environment.
Potential challenges cited in this regard included logistical supply chain issues, infrastructure, equipment re-commissioning, and resource quality as companies seek to expand production outside of better-delineated core acreage.
Although many companies have been reporting strong single-well results, repeatability and scalability remain questionable, particularly for smaller companies that have not managed larger drilling programs in the past. This is potentially a very important factor as some companies that appear priced for perfection could be at risk of disappointing investors.
Furthermore, though capacity utilization in the oilfield services industry remains low for some equipment, the quality of existing machinery and the ability of new crews to work efficiently may also constrain E&P companies’ ability to execute their resource development plans while also leading to cost increases.
Commodity Prices and Cost of Production
The relationship between commodity prices and the cost and scale of production has a somewhat circular dynamic. While price depends on production and cost levels, the magnitude of the production ramp-up in the North American shale industry also depends on the stability of oil prices.
While most E&P firms’ development programs have already been set for 2017, their management teams did suggest a drop in the oil price back into the US$40s could lead to a meaningful retrenchment in activity and production. Even a flat US$50 oil price would likely imply steady-state supply beyond planned drilling programs according to our conversations, implying production levels that would likely disappointment analyst estimates on a longer-term basis.
On the other hand, our analysis indicates the mid-$50 to $60 level would likely lead to US production growth on the order of 500,000 to 1.0 million barrels of oil per day, which appears to be the level required to satiate the International Energy Agency’s forecasted global demand growth and support a balanced market if OPEC maintains its current, constrained production levels. 2
In our view, the latter scenario seems to be what the market is beginning to discount in equity values.  In any event, it appears that managing the cycle will be just as important for the service companies as the E&Ps, as costs are rising across the board and could pressure earnings and profit margins despite higher commodity prices, spending and resource development activity.
Investment Conclusions
Our general takeaway is that energy-sector opportunities in 2017 and 2018 are likely to be more idiosyncratic and company-specific, whereas in the recent past they’ve been driven more by the macro commodity price environment. As fundamental, bottom-up investors, this is an environment we welcome.
Although many companies in the industry have now shifted their focus from balance-sheet repair to drilling and production growth execution, it remains to be seen how easily production will ramp up, with major implications for the price of oil should producers materially over- or under-shoot guidance and expectations.
Focus on Production Targets
Our current focus in the E&P industry is on companies we think can meet production growth targets on budget while generating free cash flow in a recovering commodity-price environment.
We also look for companies with reserve and production growth optionality from underappreciated assets, which can come from the delineation of additional resource development opportunities. We remain very price sensitive, however, and demand a valuation margin of safety to cushion our investments from potential oil-price volatility or missed production targets in the near term.
Similar to E&P firms, the value of oilfield services firms tend to anticipate the cycle early on, and many related equities have recently been re-rated by industry analysts as firmer oil prices bolster expectations for increased drilling activity and profitability. While select opportunities in the oilfield services industry exist, from a valuation standpoint we appear closer to peak-cycle than trough-cycle for some companies, which could result in valuation compression if earnings recover.
Exploration Projects on the Horizon?
Turning to later-cycle opportunities in the sector, it is worthwhile to note that specialist offshore services firms indicated they were beginning to have more conversations with customers related to exploration and development projects in 2018 and beyond, suggesting that the capital-intensive deepwater market has perhaps bottomed and investment opportunities may be emerging in this particularly depressed industry segment.
Some large integrated oil and gas producers, meanwhile, have also been slower to re-rate and continue to offer selectively attractive value and healthy yield prospects, with most expected to be able to cover their capital spending and generous dividends at current spot prices within the next year.

Sunday, April 23, 2017

Amazon, the world’s most remarkable firm, is just getting started

AMAZON is an extraordinary company. The former bookseller accounts for more than half of every new dollar spent online in America. It is the world’s leading provider of cloud computing. This year Amazon will probably spend twice as much on television as HBO, a cable channel. Its own-brand physical products include batteries, almonds, suits and speakers linked to a virtual voice-activated assistant that can control, among other things, your lamps and sprinkler.
Yet Amazon’s shareholders are working on the premise that it is just getting started. Since the beginning of 2015 its share price has jumped by 173%, seven times quicker than in the two previous years (and 12 times faster than the S&P 500 index). With a market capitalisation of some $400bn, it is the fifth-most-valuable firm in the world. Never before has a company been worth so much for so long while making so little money: 92% of its value is due to profits expected after 2020.  
That is because investors anticipate both an extraordinary rise in revenue, from sales of $136bn last year to half a trillion over the next decade, and a jump in profits. The hopes invested in it imply that it will probably become more profitable than any other firm in America. Ground for scepticism does not come much more fertile than this: Amazon will have to grow faster than almost any big company in modern history to justify its valuation. Can it possibly do so?
It is easy to tick off some of the pitfalls. Rivals will not stand still. Microsoft has cloud-computing ambitions; Walmart already has revenues nudging $500bn and is beefing up online. If anything happened to Jeff Bezos, Amazon’s founder and boss, the gap would be exceptionally hard to fill. But the striking thing about the company is how much of a chance it has of achieving such unprecedented goals.
A new sort of basket-case
This is largely due to the firm’s unusual approach to two dimensions of corporate life. The first of these is time. In an era when executives routinely whinge about pressure to produce short-term results, Amazon is resolutely focused on the distant horizon. Mr Bezos emphasises continual investment to propel its two principal businesses, e-commerce and Amazon Web Services (AWS), its cloud-computing arm.
In e-commerce, the more shoppers Amazon lures, the more retailers and manufacturers want to sell their goods on Amazon. That gives Amazon more cash for new services—such as two-hour shipping and streaming video and music—which entice more shoppers. Similarly, the more customers use AWS, the more Amazon can invest in new services, which attract more customers. A third virtuous circle is starting to whirl around Alexa, the firm’s voice-activated assistant: as developers build services for Alexa, it becomes more useful to consumers, giving developers reason to create yet more services.
So long as shareholders retain their faith in this model, Amazon’s heady valuation resembles a self-fulfilling prophecy. The company will be able to keep spending, and its spending will keep making it more powerful. Their faith is sustained by Amazon’s record. It has had its failures—its attempt to make a smartphone was a debacle. But the business is starting to crank out cash. Last year cashflow (before investment) was $16bn, more than quadruple the level five years ago.
If Amazon’s approach to time-frames is unusual, so too is the sheer breadth of its activities. The company’s list of current and possible competitors, as described in its annual filings, includes logistics firms, search engines, social networks, food manufacturers and producers of “physical, digital and interactive media of all types”. A wingspan this large is more reminiscent of a conglomerate than a retailer, which makes Amazon’s share price seem even more bloated: stockmarkets typically apply a “conglomerate discount” to reflect their inefficiencies.
Many of these services support Amazon’s own expansion and that of other companies. The obvious example is AWS, which powers Amazon’s operations as well as those of other firms. But Amazon also rents warehouse space to other sellers. It is building a $1.5bn air-freight hub in Kentucky. It is testing technology in stores to let consumers skip the cash register altogether, and experimenting with drone deliveries to the home. Such tools could presumably serve other customers, too. Some think that Amazon could become a new kind of utility: one that provides the infrastructure of commerce, from computing power to payments to logistics.
A giant cannot hide
And here lies the real problem with the expectations surrounding Amazon. If it gets anywhere close to fulfilling them, it will attract the attention of regulators. For now, Amazon is unlikely to trigger antitrust action. It is not yet the biggest retailer in America, its most mature market. America’s antitrust enforcers look mainly at a firm’s effect on consumers and pricing. Seen through this lens, Amazon appears pristine. Consumers applaud it; it is the most well-regarded company in America, according to a Harris poll. (AWS is a boon to startups, too.)
But as it grows, so will concerns about its power. Even on standard antitrust grounds, that may pose a problem: if it makes as much money as investors hope, a rough calculation suggests its earnings could be worth the equivalent of 25% of the combined profits of listed Western retail and media firms. But regulators are also changing the way they think about technology. In Europe, Google stands accused of using its clout as a search engine to extend its power to adjacent businesses. The comparative immunity from legal liability of digital platforms—for the posting of inflammatory content on Facebook, say, or the vetting of drivers on Uber—is being chipped away.
Amazon’s business model will also encourage regulators to think differently. Investors value Amazon’s growth over profits; that makes predatory pricing more tempting. In future, firms could increasingly depend on tools provided by their biggest rival. If Amazon does become a utility for commerce, the calls will grow for it to be regulated as one. Shareholders are right to believe in Amazon’s potential. But success will bring it into conflict with an even stronger beast: government.

Saturday, April 22, 2017

The Knowledge Illusion

In “The Knowledge Illusion,” the cognitive scientists Steven Sloman and Philip Fernbach hammer another nail into the coffin of the rational individual. From the 17th century to the 20th century, Western thought depicted individual human beings as independent rational agents, and consequently made these mythical creatures the basis of modern society. Democracy is founded on the idea that the voter knows best, free market capitalism believes the customer is always right, and modern education tries to teach students to think for themselves.
Over the last few decades, the ideal of the rational individual has been attacked from all sides. Postcolonial and feminist thinkers challenged it as a chauvinistic Western fantasy, glorifying the autonomy and power of white men. Behavioral economists and evolutionary psychologists have demonstrated that most human decisions are based on emotional reactions and heuristic shortcuts rather than rational analysis, and that while our emotions and heuristics were perhaps suitable for dealing with the African savanna in the Stone Age, they are woefully inadequate for dealing with the urban jungle of the silicon age.
Sloman and Fernbach take this argument further, positing that not just rationality but the very idea of individual thinking is a myth. Humans rarely think for themselves. Rather, we think in groups. Just as it takes a tribe to raise a child, it also takes a tribe to invent a tool, solve a conflict or cure a disease. No individual knows everything it takes to build a cathedral, an atom bomb or an aircraft. What gave Homo sapiens an edge over all other animals and turned us into the masters of the planet was not our individual rationality, but our unparalleled ability to think together in large groups.
As Sloman and Fernbach demonstrate in some of the most interesting and unsettling parts of the book, individual humans know embarrassingly little about the world, and as history progressed, they came to know less and less. A hunter-gatherer in the Stone Age knew how to produce her own clothes, how to start a fire from scratch, how to hunt rabbits and how to escape lions. We today think we know far more, but as individuals we actually know far less. We rely on the expertise of others for almost all our needs. In one humbling experiment, people were asked to evaluate how well they understood how a zipper works. Most people confidently replied that they understood it very well — after all, they use zippers all the time. They were then asked to explain how a zipper works, describing in as much detail as possible all the steps involved in the zipper’s operation. Most had no idea. This is the knowledge illusion. We think we know a lot, even though individually we know very little, because we treat knowledge in the minds of others as if it were our own. 
This is not necessarily bad, though. Our reliance on groupthink has made us masters of the world, and the knowledge illusion enables us to go through life without being caught in an impossible effort to understand everything ourselves. From an evolutionary perspective, trusting in the knowledge of others has worked extremely well for humans.
Yet like many other human traits that made sense in past ages but cause trouble in the modern age, the knowledge illusion has its downside. The world is becoming ever more complex, and people fail to realize just how ignorant they are of what’s going on. Consequently some who know next to nothing about meteorology or biology nevertheless conduct fierce debates about climate change and genetically modified crops, while others hold extremely strong views about what should be done in Iraq or Ukraine without being able to locate them on a map. People rarely appreciate their ignorance, because they lock themselves inside an echo chamber of like-minded friends and self-confirming newsfeeds, where their beliefs are constantly reinforced and seldom challenged.
According to Sloman (a professor at Brown and editor of the journal Cognition) and Fernbach (a professor at the University of Colorado’s Leeds School of Business), providing people with more and better information is unlikely to improve matters. Scientists hope to dispel antiscience prejudices by better science education, and pundits hope to sway public opinion on issues like Obamacare or global warming by presenting the public with accurate facts and expert reports. Such hopes are grounded in a misunderstanding of how humans actually think. Most of our views are shaped by communal groupthink rather than individual rationality, and we cling to these views because of group loyalty. Bombarding people with facts and exposing their individual ignorance is likely to backfire. Most people don’t like too many facts, and they certainly don’t like to feel stupid. If you think that you can convince Donald Trump of the truth of global warming by presenting him with the relevant facts — think again.
Indeed, scientists who believe that facts can change public opinion may themselves be the victims of scientific groupthink. The scientific community believes in the efficacy of facts, hence those loyal to that community continue to believe they can win public debates by marshaling the right facts, despite much empirical evidence to the contrary. Similarly, the traditional belief in individual rationality may itself be the product of groupthink rather than of empirical evidence. In one of the climactic moments of Monty Python’s “Life of Brian,” a huge crowd of starry-eyed followers mistakes Brian for the Messiah. Caught in a corner, Brian tells his disciples: “You don’t need to follow me, you don’t need to follow anybody! You’ve got to think for yourselves! You’re all individuals!” The enthusiastic crowd then chants in unison: “Yes! We’re all individuals!” Monty Python was parodying the counterculture orthodoxy of the 1960s, but the point may be true of the belief in rational individualism in other ages too.
In the coming decades, the world will probably become far more complex than it is today. Individual humans will consequently know even less about the technological gadgets, the economic currents and the political dynamics that shape the world. How could we then vest authority in voters and customers who are so ignorant and susceptible to manipulation? If Sloman and Fernbach are correct, providing future voters and customers with more and better facts would hardly solve the problem. So what’s the alternative? Sloman and Fernbach don’t have a solution. They suggest a few remedies like offering people simple rules of thumb (“Save 15 percent of your income,” say), educating people on a just-in-time basis (teaching them how to handle unemployment immediately when they are laid off) and encouraging people to be more realistic about their ignorance. This will hardly be enough, of course. True to their own advice, Sloman and Fernbach are well aware of the limits of their own understanding, and they know they don’t know the answer. In all likelihood, nobody knows.

5 innovations transforming the travel industry

The 21st century consumer is very different from previous generations. We are tech savvy and not only do we expect service quality, we want an experience to go with it. Given our unlimited access to information, we know what the gold standard is, and more importantly, we are open to sharing our experiences on social media and review platforms.
Although the travel industry is booming, with over 1.1 billion international global travelers in 2014, I haven’t met one person who has not complained about an experience they have had while traveling. So how can the industry make the experience more pain-free? There are obviously factors that are beyond the control of the industry, such as the weather, but like most other industries, there is room for innovation.
While many people are aware of some of the interesting innovations that are changing the way we experience travel, many are still under the radar:
  • To share or not to share: The most obvious change in the last few years in hospitality is the sharing economy. The face of this movement is Airbnb, which is now valued at $25 billion, but there are many other companies that are playing the game, such as Couchsurfing, Feastly, Knok, Vayable or even Wimdu. While there are some regulatory issues around this new consumer model, it is providing accommodation to travelers who may not otherwise be able to afford it.
  • Keep track of your bag: My biggest concern when I travel is losing my suitcase, and being left stranded for a business meeting whilst in sweatpants. But new innovations are changing this. Why, if we have smartphones, can’t we have smart suitcases? Well now we can. Different players are looking at different solutions. While airports like Las Vegas’ McCarran Terminal 3 are starting to attach a radio frequency identification chip to suitcases to ensure they don’t get lost, Bluesmart has created a carry on suitcase which can be controlled and tracked using an app on your phone.
  • Let’s stay connected: We live in a hyperconnected world, where in-flight Wi-Fi was bound to happen – and it did. Although a number of airlines offer internet to passengers, it is not a perfect science and it is most definitely not free. But we have a choice which we didn’t have a few years ago. Airlines are also adding power outlets so that passengers can charge their devices throughout their flights and not arrive at their destination with a “dead” phone.
  • Do it yourself: Today, I barely talk to anyone when I go through the airport. With the available technology, I am able to book my flight online, have my boarding pass on my phone, check in with machines, go through automated clearance gates and even validate my boarding pass to board the plane. These innovations have made navigating airports much more efficient – if you are tech savvy. Still, given that security is front of our minds, gate and security agents are present to make sure travelers can have a seamless experience.
  • Guiding your experience: Guidebooks like Lonely Planet used to be the traveler’s bible – but have now become irrelevant in a world of websites and crowdsourcing sites which provide us with advice and reviews on hotels, tours and restaurants. Traditional online Travel Agencies like Expedia and Priceline have provided alternatives. But new players are on the market too: Peek puts a tour guide in your phone, while HotelTonight is a last minute hotel booking tool. Other players are also thinking differently about the issue, such as AnyRoad, which helps us connect to incredible guides and avoid travel agencies.

Mark Zuckerberg: The end of smartphones and TVs is coming

It's no secret Mark Zuckerberg is pinning Facebook's prospects on augmented reality — technology that overlays digital imagery onto the real world, like Snapchat's signature camera filters.
At this year's F8 conference, taking place this week, Zuckerberg doubled downon the company's ambitious 10-year master plan, which was first revealed in 2016. According to this timeline, Facebook expects to turn artificial intelligence, ubiquitous internet connectivity, and virtual and augmented reality into viable parts of its business over the next decade.
The Facebook 10-year road map, first revealed in April 2016.Facebook
Image: Facebook
To accelerate the rise of augmented reality, a big part of the plan, Zuckerberg unveiled the Camera Effects platform — basically a set of tools for outside developers to build augmented-reality apps that you can access from the existing Facebook app's camera. That would theoretically open the door for Facebook to host the next phenomenon like "Pok√©mon Go."
While this announcement seems pretty innocuous, make no mistake — Facebook is once again putting itself into direct competition with Google and Apple, trying to create yet another parallel universe of apps and tools that don't rely on the smartphones' marketplaces. As The New York Times notes, Zuckerberg has long been disappointed that Facebook never built a credible smartphone operating system of its own.
This time, though, Facebook is also declaring war on pretty much everyone else in the tech industry, too. While it'll take at least a decade to fully play out, the stuff Facebook is talking about today is just one more milestone on the slow march toward the death of the smartphone and the rise of even weirder and wilder futures.

Why buy a TV?

Zuckerberg tipped his hand, just a bit, during Tuesday's Facebook F8 keynote. During a demo of the company's vision for augmented reality — in the form of a pair of easy-to-wear, standard-looking glasses — he showed how you could have a virtual "screen" in your living room, bigger than your biggest TV.
"We don't need a physical TV. We can buy a $1 app 'TV' and put it on the wall and watch it," Zuckerberg told USA Today ahead of his keynote. "It's actually pretty amazing when you think about how much of the physical stuff we have doesn't need to be physical."
That makes sense, assuming you're into the idea of wearing a computer on your face (and you're OK with Facebook intermediating everything you see and hear, glitches and all).
But it's not just TVs. This philosophy could extend to smartphones, smartwatches, tablets, fitness trackers, or anything else that has a screen or relies on one to work. Zuckerberg even showed off a street art installation that's just a blank wall until you wave the Facebook camera app over it to reveal a mural.
For Microsoft, which has already dipped its toe in this area with its HoloLens holographic goggles, this is a foregone conclusion. HoloLens boss Alex Kipmanrecently called the demise of the smartphone the "natural conclusion" of augmented reality and its associated technologies.

War of the worlds

The problem, naturally, is that a huge chunk of the world's economy hinges on the production of phones, TVs, tablets, and all those other things that Facebook thinks could be replaced with this technology.
Even Zuckerberg acknowledges it's a long road ahead. That said, this Camera Effects platform, should it succeed in attracting a bunch of users, could go down as a savvy move. The apps that are built for the Facebook Camera today could wind up as the first versions of the apps you'd use with those glasses.
In the short term, Facebook's play for augmented reality is going to look a lot like competing with Snapchat — and in a meaningful way, it is. Facebook needs developer and user love, so it needs to keep offering fun and funny tools to keep people from moving away from using its apps.
In the long term, though, this is Facebook versus everybody else to usher in an age of a new kind of computing — and pretty much every tech company out there will get caught in the crossfire, as Apple, Google, Microsoft, and more rush out their responses to this extremely existential, but still meaningful, threat.