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Spontaneous order and aggregate behaviour September 9, 2006

Posted by Sharath Rao in economics, ideas.
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or should it be aggregate order and spontaneous behavior !

Chris Anderson, the author of “The Long Tail” that rubbishes the popular 80/20 rule wonders :

“Why are the three most powerful forces in our world—evolution, democracy and capitalism–so controversial? Hundreds (in the case of democracy, thousands) of years after they were first understood, we still can’t quite believe these three phenomena work.

He then goes on to offer an interesting (and I suspect a potentially controversial) explanation.

Our brains aren’t wired to understand the wisdom of the crowd. Evolution, democracy and capitalism don’t work at the anecdotal level of personal experience, the level at which our story-driven synapses are built to engage. Instead, they’re statistical, operating in the realm of collective probability. They’re not right–they’re “righter”. They’re not predictable and controllable–they’re inherently out of control. That’s scary and unsettling, but also hugely important to understand in a world of increasing complexity and diminishing institutional power (mainstream media: meet blogs; military: meet insurgency).”

I tend to agree with this assessment. An example is how many of us start off as idealists, ( more on idealists – read this ) believe in and seek order, control and predictability, seek hierarchies and hope that someone out there is taking care of us and in control of our situation even if we ourselves arent making an attempt. It probably is also an offshot of being in a protective environment in our early years and when we leave for college, we are supposed to be entering the ‘big bad world’. At college we realize that its not quite that bad afterall and that tag of an evil-world-out-there shifts to our first job.

Another example is how I felt that we have problems grasping statistical phenomenon even if we understood the math – remember how we blindly applied the Bayes Theorem in probability theory ! We had ( and some still do have ! ) difficulty understanding Darwinian evolution and by extension – genetic algorithms. “Survival of the fittest” would be interepreted in the simplistic sense of people who die if they cant cope thus focusing on the entity that dies rather than the favorable effect on the group that survives. I guess it takes some time and accompanying maturity to comprehend self-organising systems and their stable equilibrium.

While most aspects of democracy to me did seem rather intuitive ( or so I think ! ), capitalism was quite another thing. It takes some thinking to accept the fact that we are better off with minimal control from the government i.e. somebody to ‘take care of us’ and that there is no need for a central planner to micromanage the economy, however big and complex it be. Like for example, my friend Sadiq who I blogged about here, asked me the other day – “How do it [America] manage man ? Such a big country and seems so orderly and devoid of turbulence ! Who controls all this ! “. Its much like the Soviet official touring a London departmental store asking – “Who is in charge of the supply of bread to London?” In my opinion, both Sadiq’s and the official’s questions probably accept “nobody” & “everybody” as correct answers.

The point infact is that the more complex systems get, the harder it is to manage ! In another era I might have argued that autonomous units wont work in sync and that its more efficient to have the economy coordinated ( at the highest level this is still true i.e. I dont advocate abolition of the government ! ) and conducted like an orchestra. I now think that I merely choose the wrong metaphor ! I should instead have compared it to a skating rink ! Or if that is too complex, how about the driving on the road, where the incentives are reasonably clear. As the skating rink article says –

“Looking out for myself, I promote my interest in avoiding collision with you.

…..If I collide with you, then you collide with me. And if I don’t collide with you, you don’t collide with me. In promoting my interest in avoiding collision with you, I also promote your interest in avoiding collision with me.”

How else do you summarize free-market capitalism ?

Three things have expedited this process of appreciation of ‘wisdom of the crowd’ or “spontaneous order”, a phrase made famous by 1974 Nobel Laureate Fredrik Hayek ( no relation to Selma Hayek ! ). In order of increasing profoundness and decreasing fuzziness, they would be :

(a) my academic interest in statistics and AI algorithms.
(b) my stay in America
(c) reading popular economics blogs.

More on those another day.

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