Social Proof of Work
On why many intellectual jobs are pretend jobs, why pretend work is actually a valid way of assessing real work, ponzi schemes and imposed structure.
Graduate recruiters & Team JUST
When I arrived at Cambridge in 2011 I was immediately approached by hordes of corporates trying to sell me (a clueless teenager) a vision of what I should do after university. Law firms, investment banks and consultancies spend a large amount of money getting clueless students to go to career events. All you have to do is listen a bit to what it is they do and you’ll get some booze and food in exchange. You go there and listen to some strange corporate mumbojumbo, a secular equivalent of sitting at Latin Mass. You should join our company because it is different from other companies. In the same way the United Methodist Church is clearly different to the Free Methodist Church. The HR person is followed up by someone that clearly has more important things to do, but is evangelising to boozed up teenagers out of a sense of duty. They are here to sell a vision, a structure of reality.
Many years later in 2018 I sat in front of my laptop, exploring the rules of FOMO3D. The name stands for “fear of missing out in 3 dimensions”. FOMO3D is a ponzi scheme thinly disguised as a game, but it is testament to human beings’ ingenuity: it is a self-enforcing contract on the Ethereum blockchain. In theory, nobody can stop it or alter the rules. With some simplification, the rules are the following: if you put money in the communal pot, and nobody else puts money in the pot for 24 hours, you win the pot. Once you’ve put money in the pot, you get a paid percentage of what others put in the pot after you (a dividend). You also get rewards for recruiting others into the scheme. As of writing, over 40m dollars of Ethereum have been paid into the contract, the pot is worth more than 10m dollars. There is no ambiguity: it isn’t creating wealth, you’re merely hoping that you won’t be the last sucker (or that you’ll be the very last sucker). It is a shameless Ponzi scheme, a pyramid game hosted on a website called exitscam.me and made by Team JUST (where being “justed” is slang for losing money). The structure of the game is clear and immutable.
Career events are more ambiguous at first. Nothing much is actually said at these events, so you discuss things with fellow students, and with some helpful prodding of the HR person you come to understand what is expected from you. First of all, you need to get a short internship (I think they called it a summer insight back then) in your first year, a summer internship in your second year, and hopefully by the end of your internship you should have a job offer which is conditional on having good exam results in your last year. It’s all nice, structured and familiar. The same way you have to jump through structured hoops in school (i.e. extracurricular activities, good grades, etc. etc.) to get into a good university, you have to jump through hoops to get into a Graduate Programme at one of these companies. All your friends are doing it too! In fact, your friend’s brother is already working at a bank and can recommend you (he gets a small bonus for that). You slowly start to FOMO.
FOMO as a value indicator
What’s worse than missing an opportunity? Missing an opportunity while others around you don’t. Neighbours of lottery winners are more likely to go bankrupt. FOMO is real, powerful and also useful. It is useful because wealth and value, particularly in societies of comfort as ours, are inherently social constructs. At the end of the day, things are worth what people are willing to exchange for it. What’s the intrinsic value of the paper bank note in your wallet?
Some time ago, paper money could be exchanged in a bank for gold or silver. Not anymore. The paper money in your wallet, the bytes representing your money in your bank account, they have value imbued in them only by social consensus. Homo Deus and all that. It’s what other people will exchange for them that makes them valuable. Value is ambiguous, often determined socially, hence if others consider something valuable chances are it is valuable. There is increased competition for valuable things. You can also increase the value of things by increasing the perception of value and scarcity. Every second rate salesman or marketer knows this. “Buy this! There’s only one left!”
At the career events I heard that I might be at a leading university, but getting a job at J.P. Morgan, McKinsey & Goldman Sachs isn’t as easy as getting into a good university (which is of course only easy in hindsight). It is quite competitive. You have to read up on these companies and what they do. You have to pass tests. Practice interviews. All your friends are doing it, including that annoyingly perfect guy that always gets the best grades and does University level sports and just does everything perfectly and nothing wrong. You push yourself and have dozens of interviews in London (or some other big city) and write many cover letters and get advice from people on what to do. It’s hard to get, therefore it must be valuable. The value of the job creates competition and the competition adds value to the job, but it also makes life difficult for recruiters. How do HR people select between dozens of detail oriented young adults from top universities who are dazzled by the promises of money and prestige? Ignoring the fact that a lot of it is luck, the only reliable way to get in is to expend significant effort in a recognisable way, that is to engage in Social Proof of Work.
What is Social Proof of Work?
Given that value often derives from a social consensus, there needs to be a way in which we can coordinate this consensus. Otherwise we’ll never agree on what is valuable. A consensus mechanism is “fault-tolerant mechanism that is used in computer and blockchain systems to achieve the necessary agreement on a single data value or a single state of the network among distributed processes or multi-agent systems”. Proof of Work is a consensus mechanism famously used by Satoshi Nakamoto as the foundation of Bitcoin.
The essence of Proof of Work is engaging in a task that is hard to do but once it is done it is easy for third parties to verify that it has been done correctly. In Bitcoin, this means that the computers underpinning the network are trying to guess a “correct” number, a bit like solving a Sudoku puzzle. Once they’ve guessed the right number, they get rewarded and all network participants can easily agree that the puzzle has been solved correctly. This helps everyone stay on the same page in terms of the state of the network. Today there are millions of computers humming along, spending more electricity than small countries, mining bitcoin, all because of the demands of Proof of Work. All the effort and competition in mining for bitcoin, coupled with its innate scarcity, adds value to it. Yet the idea behind Proof of Work was not invented by Satoshi Nakamoto. In fact, the basic concept has been understood since times immemorial by parents, bosses, teachers, University recruitment specialists and authorities everywhere, and has been used to solve a problem much older than digital cash.
Definition : Social Proof of Work protocols are social signalling mechanisms whereby humans can easily verify that another human has invested significant effort into a task.
Social Proof of Work is often employed in tasks where:
Results are ambiguous (e.g. performance of an academic)
The relationship between an individual’s work and the results are ambiguous (e.g. long iteration cycles or joint contribution of many people)
Results are based on their social recognition (e.g. artwork)
Examples of social activities that can be Social Proof of Work:
Forcing your child to become an athlete with the sole purpose of gaining admission to the right school.
Exams where the sole purpose is to show that the examined individual has made a minimum of effort to prepare for the exam. These include academic exams where the text contains a statement along the lines of “If x then y” and the question is “if X then what?” as well as compliance training examinations (e.g. your colleague Johnny did something blatantly illegal. Do you tell your superiors or pretend it didn’t happen?).
Emails sent by employees working at corporations sent early/late/on the weekend to show you are working early/late/on the weekend.
Spending hours preparing a stupid powerpoint/spreadsheet/poster nobody will look at.
Most multiple choice exams and rote memorisation exams.
University Education. See The Case Against Education.
Getting into a graduate programme at a law firm/consultancy/investment bank.
Completing a graduate programme at a law firm/consultancy/investment bank.
Buying flowers for your girlfriend.
Dressing like a banker/lawyer/consultant/surgeon.
Talking like a banker/lawyer/consultant/surgeon.
Why use Social Proof of Work?
The problem is ubiquitous: as an individual you want to follow an optimal strategy, i.e. a strategy that maximises your chances of achieving your goals, be it becoming a billionaire, getting a Nobel Prize, teaching a classroom of children or completing a marathon. The problem is that the relationship between the optimal strategy and the observable results is not clear in the real world. If you get results (i.e. achieving goals or sub-goals), is it because you are doing the right things, or is it because you are getting lucky? Conversely, if you aren’t getting results, is it because you aren’t doing the right thing or are you simply unlucky? This is a complex problem in itself, but there is an added layer of complexity when you have to evaluate the work of others, mostly because you know less about what others do than what you do yourself. Consider that many would agree with the following heuristic: in a large company 80% of the useful work is done by 20% of the employees. Why don’t corporations, profit hungry and happy to cut costs, just get rid of 80% of employees (the useless ones)? This suggests it is hard to tell useful employees apart from useless employees.
Why? We’ve mentioned that observed results often have a non-obvious relationship In some cases the relationship is linear: the more time you spend chopping wood, the more wood you will have chopped. In other cases, particularly with rare but highly profitable rewards, the relationship is far less linear. For example, pharmaceutical companies spend a fortune on research and development, but it is impossible to predict when a profitable drug will be found. Compared to chopping wood, research and development has a long iteration cycle. In areas with long iteration cycles, evaluating results within a short time frame is foolish. As a thought experiment, let’s say you require surgery to remove a tumour. You have a choice between two surgeons, Abdullah (successful 60% of the time) and Billy (successful 50% of the time). Let’s say you have to settle for one, but you do not know which one is best. If you observe both Abdullah and Billy perform 1000 surgeries, it will be fairly clear that Abdullah is better. However, if you can only observe two surgeries every two years, you’ll die before you can be certain which surgeon is best. Keep in mind, this is a simple example with constant success percentages, but in the real world it is entirely possible that the success percentages change over time (Billy gets better, Abdullah’s hands start shaking due to alcoholism) or circumstances (Abdullah may be operating on the easy patients with shoulder tumours, while Billy might be operating on harder brain tumours). In sum, it is difficult to judge performance merely by observed results.
Another problem is that observed results are often ambiguous. In the previous example we have an unambiguous result (patient died/ didn’t die). Most often however we do not have such clear binary outcomes. How do you evaluate the performance of a teacher, a UI designer or a compliance lawyer? Managerial culture has tried to come up with an objective way of doing so. They are called Key Performance Indicators. In the book the Tyranny of metrics Jerry Muller argues that as soon as a metric becomes a performance target it will begin to inform the strategies of the employees. But because most metrics are imperfect, the optimal strategies for the employers are suboptimal for the system as a whole. This is well known to everyone that has worked in a place where you have KPIs . The entire industry of Search Engine Optimisation is just about gaming Google’s metrics. If the surgery success rate becomes the surgeon’s KPI, Billy will stop doing brain surgery and will start working on liposuction. KPIs may be initially good indicators of success and results but their introduction as targets distorts the original strategies. Models are simplifications out of necessity, and our decisions need to take this into account. You cannot be too attached to a spreadsheet model.
Given that results are sometimes hard to evaluate, Social Proof of Work can be useful to evaluate performance because past behaviour is a good predictor of future behaviour. If an individual has a history of investing a lot of effort on a useless task (say they’ve written an 80 thousand word thesis on Norse poetry in the 11th century) you can assume they will invest a lot of effort in whatever it is that you want them to do, even if you cannot measure it well. In sum, it is more convenient to evaluate effort instead of results.
So how does one evaluate effort? People in positions of authority want to make sure people working for them work as much as they can, but often it is difficult to actually check up on it. From a teachers point of view, sometimes it is easier to test whether you studied than to test your unobservable knowledge. From a recruiters point of view, does an applicant actually want to work for the Equity Research desk at Credit Suisse, or did she just change a few words in the cover letter she sent to McKinsey? You could spend hours with your subordinates, observing their work, questioning your students, calling your recruitment candidates to ask questions. But there is a limited amount of time. You want to be able to check effort, but you want to be able to do so easily. Recruiters often talk about “cultural fit”. This can mean “is the person pleasant enough to work with”, but it also means: “does he/she talk the talk”. It is important for consultants and bankers to talk like consultants and bankers. It is evidence that they’ve invested effort in finding out how consultants and bankers talk. It is Social Proof of Work.
Hacking Social Proof of Work
In any profession, 90% of people are clueless but work by situational imitation, narrow mimicry & semi-conscious role-playing […] Nassim Taleb
In practice most evaluations of human performance are a combination of looking at heuristics for both observable results and Social Proof of Work. They are both imperfect measures, but together they do a relatively good job at separating performers from non-performers. Nonetheless, unlike Bitcoin’s Proof of Work protocol, Social Proof of Work can be hacked and often is, both by people whose performance is evaluated and by those who are ostensibly evaluating performance. Moreover, it also creates some paradoxical situations which are familiar to anyone that has worked in a large organisation, such as that the more absolute amounts of work get done, the lesser the percentage of useful work.
Why is there so much useless work in competitive environments? In a competitive Social Proof of Work situation (e.g. doing a 6 month long internship at a Prestigious Institution or a postdoc position at a Prestigious University) there is an ever increasing amount of effort that needs to be expended in order to stay ahead of the competition. However, often there is a limited amount of useful work to do. Of course, an enterprising individual can always find more useful work to do, but at a certain point the usefulness of the work overall decreases. This is particularly true for organizations where the output of your work can be throttled by bureaucratic . Hence the increased amount of work done due to competition reduces the proportion of usefully expended effort. The more competition, the more useless work. There is empirical evidence for this. In the highly competitive field of academia, where academics are measured by KPIs that ostensibly aim to measure scientific output, but rely on publication quantity and quantity, Ioannides estimates over half the published scientific are false. In themselves false findings aren’t necessarily evidence of useless work, but their predominance is. This is an example of individuals hacking the system, evidenced by the fact that people that do nothing useful whatsoever can thrive in this environment.
But not only employees can hack the Social Proof of Work protocol. So can employers. Competitive Social Proof of Work tasks allow employers to lower their employment costs by creating social wealth and making probabilistic payment possible.
How does one create social wealth? Success in social competitions leads to prestige, which is another way of saying social wealth. Every year there is intense competition to be admitted to university to become a medical doctor in Hungary, even though doctors are grossly underpaid. The same is true for PhD positions across most of the UK. You can get away with paying your employees less if you increase the social status of the job you are offering. The best example of this are the “feel good” moralising human rights/climate change NGOs that can literally get away with not paying their entry level employees (interns) because of the social prestige and intense competition attached to the job.
Probabilistic payment is another way in which you can reduce the cost of your employees. You offer your employees the chance of a large reward, be it monetary (e.g. “you might make it to partner at our firm!”) or social (e.g. “you might become a tenured professor!”) or some combination of the two (e.g. " you’ll live like a king on your salary as a development expert in this undeveloped country"). Of course, you then only give a small percentage of your employees the rewarding role, but only after years of highly competitive, underpaid (and possibly useless) work. It is analogous to a lottery, except instead of buying lottery tickets employees work for them. The aim, for the employer, is to pay less in the lottery prize than it would have cost to buy the work outright. This can be done by creating artificial scarcity (e.g. hire 5 interns to audition for 1 job opening or train 25 PhD’s for 1 professorship). In fact, if you are cheeky enough you don’t even have to pay the prize, a friend of mine worked 100 hour weeks for six months as an underpaid intern at an investment bank only to be told that “although you were the best intern, there are currently no openings”.
Probabilistic payment is dangerous to employees because it alters the rules of the game. The Social Proof of Work is no longer being used as an imperfect method of selecting the best performing individual, but rather is running a lottery where individuals pay with their work. If you claim you are selecting people based on skill, but are actually running a negative sum lottery (for the employee), you have little incentive to put effort in selecting on skill.
Life in times of Social Proof of Work
Social Proof of Work arises out of situations with ambiguity where visibly expended effort is used as a proxy for results. Ambiguity is unavoidable, we live in an uncertain, complex world and there is nothing we can do about it. In fact, the more complex our world becomes, the more ambiguous the relationship between work and results become. The results of hunting and foraging are less ambiguous than the results of the work of a marketing data analyst. Hence, Social Proof of Work is probably inevitable as well, and that is not necessarily a bad thing. It is useful to be able to show that one has spent effort without necessarily having to show results, precisely because we live in an ambiguous world where the relationship between effort and results is opaque.
This opaqueness can lead to all sorts of problematic situations. One is when there are no consequences for consistent failures to produce results, such as in academia, where many fields have stopped producing value and are engaged in situational imitation, narrow mimicry & semi-conscious role-playing, (a.k.a. A cargo cult) in other words, in a vicious cycle of useless Social Proof of Work. This is clearly unsustainable. Peter Thiel has long held that the higher education sector in the US is a bubble. In terms of outcomes, a bubble is not much different from a Ponzi or a pyramid scheme. The last ones in are left bagholding.
But why are we so attracted to these pyramid schemes? It is not just greed, in fact I would argue it is mostly ambiguity. Humans do not like ambiguity, and crave structure. Because we live in a complex world, whenever a clearly defined structure exists it exists because it has been structured. And if it has been structured, it has been structured by someone, and whoever structured it can’t help but to structure it in their best interest. Structure salesmen include religious prophets, university recruiters, graduate recruiters, political ideologists, academics and Team JUST. Some structures are fairly innocuous: driving on a particular side of the road makes travelling safer. But other structures clearly benefit some more than others, such as the vision that you must go to a prestigious university, then move to a large city where you work long hours, pay high taxes, spend hours commuting and pay a large part of what is left of your income to someone that got into the property ponzi before you did.
In a complex world ambiguity is unavoidable. As long as your life has a social component to it, Social Proof of Work is probably unavoidable too. But it is important to be aware of it. If you are not, others will be and you’ll end up making the career ending mistake of working hard instead of visibly working hard in an industry that favours the latter. Structure is desirable and can help overcome difficulties with ambiguity. Yet it is best to create your own structure, or at the very least to be aware of what the structure is and who constructed it. Team JUST, graduate recruiters and HR directors do not have your best interests at heart.
UPDATE: The first round of FOMO3D has finished.
An enterprising person (or team) has won the first round of FOMO3D, winning 10500 ETH (approx 3m USD). How did they win FOMO3D? Apparently they exploited a few properties of the Ethereum blockchain and spammed it so no other transaction could get through. Some games can only be won if you game the metrics, cheat, or you set up your own game.