An algorithmic corporation is a company that is managed by software, instead of traditional human management.
An algorithmic corporation allows investors to profit from computational processes, instead of the decisions of people, that make decisions and deploy operations to generate revenue.
For example, Morgan Stanley’s Process Driven Trading arm ( which is currently being spun-off from Morgan Stanley because of the Dobbs-Frank Act) is a trading desk that uses rigorous scientific investigation and algorithms to unveil inefficiencies in the financial market to develop real-world trading strategies that earn consistent profits surpassing market returns (so far, about $4 billion). Process Driven Trading, along with billionaire Ken Griffen’s Citaldel and many others, were the foundation of the new algorithmic corporations which will be completely managed by software, instead of mostly.
Currently, LawLab (a collaboration between Harvard & MIT’s Media Lab Human Dynamics Group, along with other “industry partners”) have begun early-stage experimentation of the possible capabilities of algorithmic corporations. Already, a law has been passed in the state of Vermont which formally allows the formation of algorithmic corporations. Now that the law is passed, investors in algorithmic corporations can trade algorithmic corporation-backed securities. These special securities could potentially allow individuals to buy securities which allow them to visually see the security’s minute-to-minute value, plus its potential value in case of certain conditions… like an earthquake occurring. (LawLab co-director John Clippinger mentioned to me after this was posted that this example was “a bit out there right now”.) But, let’s have fun with the imagination for a bit, and go “out there” for a while… If an earthquake occurs, there are some securities that will gain in value, while others will lose in value… algorithmic corporation securities’ inherent benefit is that the algorithmic corporation can compute how much it will be worth in the case of almost any event, thereby allowing the shareholders to make buy/sell decisions more efficiently.
If algorithmic corporations emerge and become commonplace, the most valuable ACs (algorithmic corporations) will be the most efficient ones… the one’s that account for the most factors and have the smartest algorithms to determine the meaning of the data, make predictions based on that data, and then execute decisions based on that data. Amazon, Google, Apple, and other big data companies are currently poised to thrive in an economic market led by the added value from cross-market efficiency through computation of ACs.
Harvard’s John Clippinger describes ACs as an “entrepreneurial platform” that can “scale quickly” creating a “reputational currency” that are convertible into securities. The reputational currency (something of a credit-score) of the AC would be based on how well that corporation faired in the market compared to the most efficient corporations. Once an AC made an investment in a company or security, that AC’s new asset (the company or security it acquired) could receive a premium and be worth more (or less) automatically to other ACs based on the algorithms of the other ACs and human-run companies…
The implications of this span all the way to purchasing a water bottle. If the value of the dollar increases in the global market the day after I bought a water bottle, then I paid too much for the water bottle the day before. If an algorithm paid for the water bottle for me at 0%-interest, and then waited for the day when the dollar’s value was highest, it could save me money. A percentage of the money that the algorithm saves me is given to the AC, generating revenue for the AC, thus making the securities backed by the AC more valuable… depending on how efficient the algorithm is.
Not much else is known about algorithmic corporations at this point. I have reached out to Harvard’s John Clippinger to learn more about his Lawlab initiative and the real-world effects of ACs in world economics. [Clippinger connected with me shortly after this post, and the link for the follow-up on ACs will apear here once I’ve posted. Stay tuned.]
This could be interesting.