Scale as leverage

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The Devil’s Advocate


In which the curmudgeonly old sod puts the world to rights.

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Zillow executives looked at this state of affairs and said, “well, this state of affairs is bad, we need to grow our market share and make our algorithms more accurate. We are looking to be a first-choice market maker in home-selling, and we can’t do that if our prices are too low”. So they tweaked the algorithms to generate higher prices. Those prices also turned out not to be particularly accurate, but in the other direction. If you systematically bid too low, you will not do many trades, but you will make a lot of money on each trade. If you systematically bid too high, you will lose money on each trade, and also you will do a whole ton of trades. This is much worse.

—Matt Levine, MoneyStuff, Bloomberg, 18 November 2021

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