THE TRUE VALUE OF THE INTERNET OF THINGS FOR THE - THE IMPACT OF IOT, ARTIFICIAL INTELLIGENCE (AI) AND INFORMATION ASYMMETRY ON COMPETITIVE ...
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The true value of the internet of things for the The impact of IoT, artificial intelligence (AI) and information asymmetry on competitive financial markets
Contents Introduction
The IoT
Acknowledgments
Aleksander Poniewierski
2
04
06
Authors
Author
Coauthor
| 3
traditional
small incremental improvements in the
uncertainty, risk and asymmetry of
| 5
The IoT 6
Think
Communicate
Sense IoT
Act
IoT devices variations
Connectivity Store and analyze Sense Actuate or visualize
T
C
S
A
T
C
S
A
T
C
S
A
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Statistics as the
foundation for
4
4
8
| 9
’
• Knowledge
• Understanding is contained in
• Data
• Wisdom
• Information is contained inLow
learning Wisdom Statistical
process Evaluated ? approach
understanding
Insight and
understanding
Why?
Knowledge
How to? Know-how
Information
Who? What? Where? When? How many?
Data
Symbols that represent objects
High
|information
(knowledge)
understanding
(wisdom)
(knowledge)
information
Therefore, if all entities have similar– – –
|5
(PHYD) and
6
6Behavior and place factors
High complexity Low complexity
High speed Low speed
Speed
low medium high
“The relationship between speed and accidents on rural single carriageway roads,” .
|TradCo
Insurance cost=Constant
Insurance cost (Ic)
The total cost of claims
Ic1=0 Ic2=1k Ic3=2k Ic4=7k Ic5=10k
Client cost (Cc) Cc1=4k Cc2=4k Cc3=4k Cc4=4k Cc5=4k
Year 1 The total cost of
insurance per year Average
Client
distribution
Basic characteristic:
As TradCo has less information about its customers than they do (at an individual by individual level), it is basing its
insurance premiums on historical data and statistics. The result is that the premiums don’t vary that much from person
to person. Asymmetry of info: Client info > Insurance provider info.
Simple math behind Icx Ccx
change decission –4k –3k –2k 3k 6k
if Icx Ccx
Clients' change, else stay
That was a good year. I had
decision Hey wait! I paid US$4k but an accident and they paid me
made no claims and so US$10k in compensation,
received no settlement cash. but I only paid US$4k for the
I need to Change company! Staying with TradCo!
Change! Change! Change! Stay Stay
Clients
Insurance cost (Ic)
The total cost of claims
Ic10=10k Ic9=7k Ic8=2k Ic4=7k Ic5=10k
Year 2
Client cost (Cc) Cc10=4k Cc9=4k Cc8=4k Cc4=4k Cc5=4k
The total cost of
insurance per year Average
Client
distribution
Mostly lemonsNewCo
Insurance cost=Flexible
Ic6=0k Ic7=1k Ic8=2k Ic9=7k Ic10=10k
Cc7~0 Cc7=0,5k Cc8=1k Cc9=5k Cc10=9k
Average
Basic characteristic:
Total population As NewCo has equal (or even more) information about its customers than they do (at an individual by individual level), it is basing
of drivers its insurance premiums on near real-time data and a dynamic pricing algorithm. The result is that the premiums can be
Icx Ccx
0k 0,5k 1k 2k 1k
Lucky me! No accidents this Oh darn, NewCo is no
year! And even if I would have good! They gave me
had an accident, my annual cost US$10k in compensation
of insurance is almost nothing for my claim but I paid
US$9k for my cover. I can
staying with do much better if I Change
NewCo. to TradCo.
Stay Stay Change! Change! Change!
Clients swap
due to decisions
made
Ic6=0k Ic7=1k Ic3=2k Ic2=1k Ic1=0k
Cc6~0 Cc7=0,5k Cc3=1k Cc2=0,5k Cc1~0
Average
Total population
of drivers
Mostly cherries
|• •
Cherry Lemon
Risk aware Risk taker
– – –
Market expected valu expected value
Key to symbols: Claims distribution Entire market rad New
|I do not know
what is inside —
lemon or cherry?
I know How much
what’s inside! Market should I offer?
$
Lemon Cherry
price price
Seller US$1,000 US$2,000 Buyer
Info Limited info
Average price
US$1,500
Asymmetry of information
•
•
|Initial market
Cherry Lemon
Seller
price US$2,000 US$2,000 US$1,500 US$1,000 US$1,000
The price of US$1,500
is great. I'm staying in
The price of US$1,500 Average the market.
is too low. I'm leaving market price
the market.
US$1,500
Cherry Post collapse market condition Lemon
Almost only lemons available
Seller
price US$2,000 US$2,000 US$1,000 US$1,000
New average
market price
US$1,166
22| 23
A-B-D17 km A-B-D17 km
A-D 10 km A-D 10 km
A-C-D25 km A-C-D 25 km
B B
A D A D
C C
A B D
24A-B-D17 km A-B-D17 km
A-D 10 km A-D 10 km
A-C-D25 km A-C-D25 km
B B
A D A D
C C
A D A C D
| 25other areas
• Mortgage loan valuations and real
state of the construction status of
•
•
• The
26| 27
IoT applications in this neural networks) can introduce
area are limited to control functions
•
•
IoT applications in
Information asymmetry actions taken affect the functioning of
is potentially due to differences in
The decision
IoT applications in this area are, in
a (non-disruptive) reduction of the
•
•
The decision mechanism
fundamental changes resulting from
IoT applications will take place in this
28Sense Sense
Chaos
Act Sense Sense
| 29NewCo NewCo
Indirect
real-time data or direct real-time data
of accidents on client of accidents
and History of Navigation on client and History of
claims claims
T
A
AI IoT
History of
model claims
on client
TradCo
Chaos
|32
•
•
market,
•
•
| 3334
References
V3 website,
Cisco Global Cloud Index: Forecast and Methodology, 2016–2021 White Paper,
Re-Creating the Corporation — A Design of Organizations for the 21st Century,
The Quarterly Journal of
Economics,
The Quarterly Journal of Economics,
Informs.org
xponential Organizations: Why new organizations are ten times
better, faster, cheaper than yours (and what to do about it),
Big Data: A Revolution That Will Transform How We Live, Work, and Think,
IBM Systems Journal,
zerohedge.com website
wikipedia.org website,
wikipedia.org website,
| 35You can also read
