Anchoring

In Alex Edmans' great book The Madness of Markets, he writes about how the bookshop Computer Literacy, Inc changed its name.

The store, in 1999, became Fatbrain.com.

But why? What's wrong with Computer Literacy, Inc?

According to Alex Edmans, it was to profit from the dot-com bubble. And it worked.

Fatbrain's stock climbed 36% after the name change.

A Bloomberg article about the name change.

But was the Fatbrain spike in earnings a one-off?

To find out, Cooper, Dimitrov and Rau studied 95 companies that added a .com suffix to their names¹.

On average, companies that made the name change saw their stock jump by 74%.

This phenomenon repeats itself.

In 2017, Long Island Iced Tea (a poorly performing drinks company) renamed itself to 'Long Blockchain'. According to Edmans, "It had about as much to do with blockchain as it did Jenga blocks."

But its stock lept by 380%.

Long Island Iced Tea Becomes 'Long Blockchain,' Triples in Value | Eater

And today, the same is happening with AI.

In January 2023, BuzzFeed announced plans to use AI for content creation, and due to the link with the new technology, BuzzFeed stock increased by 4x in 2 days.

Eventually, like all bubbles, stock returned to normal. But founders often can't resist the bump in earnings that an AI rebrand can bring. Which is why so many brands label themselves as AI-powered today.

Beyond Provocative: How One AI Company's Ad Campaign Betrays Humanity - Roger Wong

But like all bubbles, the trend will eventually burst.

People destroyed the 'friend.com' AI necklace ads with graffiti. The 22-year-old founder loves it: 'Capitalism is the greatest artistic medium.'

Cheers,

Phill

P.S. I've just finished Alex Edmans' brilliant book The Madness of Markets, which is where I got the idea for this newsletter. Check out his book here.

As a behavioural science practitioner, I believe in the peak-end rule.

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