10 Lessons I Learned from 10 Red Balloons

We were all picking up the pieces after the economy imploded. and skinny jeans under chunky boots were in — — bottle service and were out. It was the year that saw the birth of an ambitious taxi called and the final curtain of the The year was 2009. Avatar no-income, no-job, no-asset (NINJA) mortgages startup Uber “King of Pop.” This was also the year that a quirky research project sponsored by changed my life: DARPA To mark the 40th anniversary of the Internet, DARPA has announced the DARPA Network Challenge, a competition that will explore the roles the Internet and social networking play in the timely communication, wide-area team-building, and urgent mobilization required to solve broad-scope, time-critical problems. The challenge is to be the first to submit the locations of 10 moored, 8-foot, red, weather balloons at 10 fixed locations in the continental United States. The balloons will be in readily accessible locations and visible from nearby roads. they had placed all over America. The MIT team solved the DARPA Red Balloon Challenge in ! DARPA challenged researchers to find the 10 Red Balloons less than 9 hours How did MIT find the 10 Red Balloons so quickly? They promised $2,000 to the first person who submitted the correct coordinates for a single balloon, and $1,000 to whomever invited that person to the challenge. Another $500 would go to the person who invited the inviter, and so on. In other words, they developed a system to reward , but also the — namely, referrals. Put simply, . Through an ad-hoc MIT solved a complex task (Notice that they did so at a fixed cost, too, since each balloon would cost them no more than $1000+$500+$250+$125+… = $2000.) not only the finders of the solution creators of every social graph that contained a solution within its subtree they hacked incentives incentive market, almost magically! I became obsessed with the idea of , and it has guided my research ever since — so much so that when I founded a startup to commercialize my work, I called it . I would like to share with you 10 lessons I learned from these 10 Red Balloons: incentive hacking to form networks and markets nCent Labs . They just do. Get them right and win. Incentives work Get as close to as you practically can. The MIT solution can be shown to be a stylized theoretically optimal incentives Nash equilibrium. There’s a tradeoff between and . Sybil attacks (or copying your identity) could have harmed the MIT team, but the viral speed meant the solution was found before Sybil could derail their objective. maximizing virality preventing fraud A good way to combat fraud is Put another way, design a viral incentive system that directly dis-incentivizes fraud. When you see it work in practice it is a beautiful thing. designing penalties for fraudulent behavior . This is the holy grail. What holds the power of incentive markets back is the problem of . MIT stated a clear exponential value attribution formula upfront. It may seem like simple accounting, but correctly attributing value the incentives to motivate individuals and drive a spirited community. value attribution creates People trusted DARPA and MIT to run a fair, creditworthy program. Credibility is a fundamental building block for individuals to believe the program will benefit them as promised. If this credibility can be formed , without the need for a central authority, the program can achieve . Trust is Dead. Long Live Trust! trustlessly internet scale Solve value attribution, create incentives that are credible, and a . Incentive markets can be much more efficient than firms — and at internet scale market can form they could be unstoppable. We know valuable, private information We know each other’s capabilities, skills, interests and motivations (and even who might be good at finding red balloons!). about each other. Only a small fraction of that information gets online — and an even smaller fraction is put to productive use. could not have solved the Red Balloon Challenge with just their collective online profile information. Facebook You are more than your online profile. Incentive markets are a way to harness our collective talents and ! boost problem solving all everywhere Come build scalable incentive markets with us at . Share in our vision. Help us on our quest to find the “11th” Red Balloon. nCent Labs If you would like to learn more please email me: . kk@ncnt.io To stay in the nCent loop, hear me tweet and join our international telegram channel . Warmly, -KK