The Market Mind Hypothesis, page 57
I prefer to call this the dual realisation of information. What the MMH adds and underlines—by viewing it as a cognitive market via the MM Principle—is that the mind~body produces and consumes information. Specifically, whereas the former mostly occurs unconsciously, it is the latter that we experience as phenomenality, raising (self)awareness.
Combined collectively in an overall (albeit dynamic) market state, the concrete physical realisation of information is via (e.g. electronic) parts of the market’s body (see Subchapter 2.4.2). It culminates, for example, in the coloured price quotes on investors’ screens (some of whom will have contributed to their discovery). Its phenomenal realisation, on the other hand, is about prices’ impression, meaning, sense, etc., culminating in the market mood that accompanies the physical realisation of information.
The above distinction between the quantitative and the qualitative aspect of mental returns is consistent with and part of this. In addition, information is not just about content or type (quantitative/qualitative) but also concerns process, like frequency and prominence (which, in neuronal terms, involves ‘valuation’ by the reticular brain system). As are consequences in terms of other market forces, like supply and demand for information. Via active management of the mind~body portfolio consciousness aims at “actively maximizing key parameters relating to self-structuring of information flows” (Clark, 2011, p. 216; emphasis added). Because of its reflexive (inter)subjectivity this influence is a second order non-linear effect.
On that note, a conscious return is a noticeable rate of change that beats some nonconscious threshold. This is close in spirit to Bateson’s “difference that makes a difference”, here interpreted as impression.42 Specifically, we seek experiences (by paying attention to events, objects, people, etc.), just like investors seek yields (by paying money to events, objects, people, etc.) In both cases, this fuels the expectations that lead to the positioning of the respective portfolios. And, obviously, a return can be negative while a series of returns can be volatile, reflecting the flip-side known as risk. The similarities further include storage of some information for later retrieval (e.g. memories), (e.g. Bayesian) optimising of portfolios, etc.
As some readers have probably inferred, portfolioism offers an alternative explanation for qualia. Instead of atomistic and granular sensations, qualia form part of portfolios of psychurities which, like their financial cousins (securities) offer “relevant affordances that move us to act in ways that improve our situation in the world” (Kiverstein 2016, 121). Depending on their ‘returns’ qualia can dominate these portfolios, at other times they get dominated or ‘hedged’ away. Qualia (singular: quale) or “raw feels” are considered the characteristic intrinsic qualities of experiences, i.e. what they feel like. Examples are the redness of a tomato, the brightness of sun light, the sharpness of pain, the salty smell of a sea breeze, and the crispy sound of a clarinet. Our cue comes from philosopher William Seager. Qualia, he says, “are what makes up the way it feels to be alive and they are, I am sure, the ultimate source and ground of all value” (Seager, 1999, p. x; emphasis added). Via portfolioism I am going to build on this, mindful of the reflections by Simmel and others on value. First, there is no ‘intrinsic quality’ to experiences, just like there is no ‘intrinsic value’ to assets at the individual level. As Hayek points out in his 1974 Nobel speech, it was already recognised by “Spanish schoolmen of the sixteenth century” that such value “depended on so many particular circumstances that it could never be known to man but was known only to God”. Another Nobel laureate, Eugene Fama, one of the founders of the Efficient Market Hypothesis (the EMH; see section B3), agrees: “in an uncertain world the intrinsic value of a security can never be determined exactly” (Fama, 1965, p. 56). Returning to our cognitive setting, all one can say is that any value is in the eye (ear, skin, etc.) of the beholder and is part of the overall value of “I”s portfolio. Second, portfolioism takes ‘richness of experience’—the standard label that usually gets attached to qualia—literally in economic terms. Combined this means qualia are (simply?) your personal valuations of ‘collective’ scores in the dual realisation of information. These valuations, while distinguishable by kind or factor, are derived from numbers and thus remain numerical in essence. “What it is like” thus becomes “what it is worth”, a subjective value judgement on underlying objective ‘price’ moves. In sum, qualia are relative not only subjectively but also in terms of the exchange that resulted in their value (as return). That is, the exchange involves paying attention in return for something else, underlining the relativity of the resulting value. In contrast, when there are no ‘price’ moves (no news, trades and so on) then no attention is being paid, which is of no value. The mind’s ‘market’ is then flat, that is, you are unconscious or otherwise unaware. To further clarify, let’s compare this (admittedly, somewhat bluntly) to physical things: the exchange between Newton’s apple and the earth, as mutual gravitational attraction, results in a relative value of weight which quality is therefore not intrinsic.
In general terms, an M~B Portfolio’s overall behaviour primarily depends on inside and outside information. In the latter case, it is news from the outside world which includes others’ M~B portfolios. It also involves information asymmetries, at multiple levels. Specifically, the differences between perception and reality, between expectations and outcomes, drive this behaviour. It is aimed at neutralising those surprisals and surprises, closing the gaps, either mentally (e.g. by adjusting expectations) or physically (e.g. via action). All M~B portfolios consequently engage in physical and mental exchanges which ultimately involve the production and consumption of information. Some information makes a real impression, ‘moving’ you and your portfolio. Whatever happens after its consumption are processes like digestion (e.g. storage of ‘lasting impressions’ into memories) and recycling (e.g. retrieval of memories). Let me give an example by combining it with the consumption, production, and digesting of food. Internally my experience of hunger makes me visit your bakery to grab and eat a slice of cake which I enjoy so much that I do it every morning. Externally, my order makes you a profit, informs you to bake another cake for my visits next week and leads you to order ingredients from your suppliers. Internally, eating the cake tells me that I am working on satisfying my hunger.
Information is simulcasted within and between M~B portfolios, as well as with the wider outside world. Let’s strip this down to its core essentials. Information is made up of bits. A bit is the base difference in binary arithmetic (0/1) and was popularised by John Wheeler in his “It from Bit” (1990). It was originally developed by Leibniz who, in turn and allegedly, was inspired by the yin~yang concept in the I Ching, the Chinese “Book of Changes”.43 As I mentioned earlier, the payoff (either 0 or 1) for a pure security is contingent. Until then it retains the possibility of both states, like Schrödinger’s cat, offering optionality. It takes a number of bits, and thus a portfolio of pure securities, to generate a return significant enough to make an impression: an experience unfolding in the M~B Portfolio as the information is realised both physically (return quantity) and phenomenally (return quality). Stated differently, what the M~B Portfolio’s payoff amounts to is not just the magnitude of information but also its meaning. The former meets the requirement for physical realisation (e.g. size of impression), whereas the latter meets the requirement for phenomenal realisation (e.g. sign of impression). Exchange and simulcasting mean that the information is (close to) simultaneously shared within an individual (e.g. between multiple senses) and/or throughout a collectivity (e.g. between individuals). In the former case, the experience is subjective, whereas in the latter it is intersubjective. Also, such simulcasted information needs dual-aspect conduits (e.g. neurons in the brain, respectively securities in the market) in order to carry both its functional/quantitative aspects and its sensational/qualitative aspects.
In brief, humans invest their resources to pursue strategies in their encounters with the world. In doing so, they make bets on outcomes. Outcomes are uncertain and involve surprises, i.e. news. Minimizing losses (i.e. prediction errors) is a central element of their strategies, as it saves effort (required attention) to compensate (correct) them. Being conscious of the unfolding outcome is discounting its information. Specifically, the simultaneous physical and phenomenal realisation of it generates a return, the conscious experience. From a complexity point-of-view (see Chapter 6), notions like ownership, trust, and ethics fill the gaps in incomplete and inconsistent markets. Similarly, or rather at its basis, consciousness of these mental values fills the gaps of the incomplete rational and the inconsistent intuitive mind. So, although realised information is not necessarily consistent, complete or otherwise properly knowledgeable at each level, it does make an impression that sufficiently beats the minimal benchmark. Over time the M~B Portfolio enjoys a series of cumulative multi-psychurity returns that result in its overall development in general and beliefs, expectations, memories, etc. in particular. At each moment it performs relatively to the world, particularly versus other M~B portfolios.
Finally, consciousness makes the Batesonian difference to the Bayesian brain. We call an experience meaningful if it is worth it in terms of doing the sensemaking. In that case the phenomenal realisation, in a way, dominates the physical realisation. In portfolio terms, the return quality receives more weight, so is valued more, than the return quantity. Again, value is in the eyes of the beholder. It is subjective. For example, when I asked my youngest daughter why she prefers her Teddy (£20) to her Doggy (£40), she replied “Because he is fluffier and likes me more”. Obviously, this is not about rationality. The point is that her valuation is deeply subjective because it is derived from the qualities of experiencing a toy, i.e. consuming the information of a cuddle.
As I will explain, for our purpose discoveries are exemplary experiences in that regard. It starts with the “birth of agency” in an infant when it “suddenly realises” the self (see quote Subchapter 7.1). They are powerful impressions to close (e.g. knowledge) gaps, acting as internal surprises in response to external ones.
Background Consciousness
Let me discuss consciousness more generally. We can study it indirectly from a third person perspective, or directly experience it from a first person perspective.44 In general, the difficulty of explaining the nature of consciousness is called the mind~body problem, psychophysical problem, or simply “hard” problem. The particular challenge lies in explaining how (and why) our physiology gives rise to our psychology (especially, phenomenality). In simple terms, the “hard” question is how consciousness is cooked up from (unconscious) material ingredients. Simmel raises this issue as part of the philosophy of money:
The most heterogeneous objects we know, the two [dualist] poles of the world view which neither metaphysics nor science has succeeded in reducing to each other, are the motions of matter and the states of consciousness. The pure extension of the one and the pure internality of the other have not so far allowed any point to be discovered that could plausibly be regarded as their meeting ground. (Simmel, 1907, p. 130)
Apart from “states”, it discretely concerns the peculiarity of consciousness as experience: what it is like to have or undergo an experience. This impression is also known as phenomenality which follows from our sentience.
The mind~body problem exposes the explanatory gap I mention in the Introduction. In more general dualist terms, the explanatory gap is the epistemic boundary between matter and mind, the outside and the inside worlds.45 Occasionally we cross that boundary by way of a discovery when consciousness dually realises the information contained in the insight. Importantly, the MMH emphasises that the explanatory gap is not limited to the traditional mind~matter distinction but reaches further. As discussed in Chapter 7, via markets we extend and connect our minds, making discovery in the economic system a reflexive chain: we share our discoveries, turn them into innovations, and then collectively value those novelties in markets which, for example, can help fund new discoveries. All in all we cross the boundary together. Also, any assumption I make about another mind, e.g. in an exchange, is based on my explanatory gap and related metaphysical stance. The key assumption I need to make, in that regard, is about the other person’s metaphysical stance. Specifically, the assumption of rationality is a false consensus: what is rational for a dualist may be irrational for a physicalist (because we don’t know the metaphysical truth).
Systems 1, 2, and 3
If one really wishes to be a master of an art, technical knowledge of it is not enough. One has to transcend technique so that the art becomes an “artless art” growing out of the unconscious. D.T. Suzuki, Zen Buddhism
Dualism exists in various forms although in modern times it generally excludes substance dualism. In the Western tradition Descartes was an early pioneer. Variations, including dual-aspect monism, were developed by James, Jung-Pauli, Russell, and Spinoza. From the East we have Buddhism’s yin~yang principle (via the I Ching,) and Hinduism’s chakras philosophy. More recent contributions to dual-aspect thinking are by Chalmers, Nagel, and Velmans.
I raise this here because it forms the rich background for the dual-system (or dual-process) theories that dominate behavioural economics (see also Appendix B-4). They basically state that human mentality, particularly in terms of thinking, either originates from:
An unconscious “System 1” (S1), responsible for “thinking fast”;
Or from a deliberate “System 2” (S2), responsible for “thinking slow” (Kahneman, 2011).46
While I am not a fan of this simplified framework, I will continue to use its terminology because it has become the norm in behavioural economics and investment management. However, I would urge you to think of these systems with your portfolioism glasses on. In other words, see S1 and S2 as markets and/or portfolios. What happens within and between these systems is akin to market dynamics, consistent with the Market Mind Principle’s mind-as-market.
An overview of some of the psychological functionality involved in both systems47 is provided in Table A.1
Table A.1:System 1 versus System 2.
System 1 (S1) System 2 (S2)
Unconscious (subliminal)
Fast: processes information quickly
Nature: older (innate)
Prominent in animals and humans
Holistic assessment
Based on intuition (hunch)
Hypothetical reasoning
Undetermined
Large capacity
Unrelated to working memory
Effortless and automatic48
Weak intentionality
Informed by internal past data, e.g. emotions/memories
Implicit/associative
Follows/likes patterns
Deliberate (cognisant)
Slow: processes information sluggishly
Nurture: younger (developed)
Prominent only in humans
Reductionist assessment
Based on analysis (examination)
Logical reasoning
Pre-determined
Small capacity
Related to working memory
Effortful and controlled
Strong intentionality
Informed by external past data, e.g. events, time series
Explicit/propositional
Follows/likes rules
However, there are a few peculiarities about this distinction. For example, not all decisions are split-second. In fact, many investment decisions, like those on asset allocation, take quite some time, involving research and analysis. But this does not mean that those decisions are not informed by emotions. My point is that separating these systems based on duration (fast versus slow) is too simple. This is particularly relevant if we include the time it takes to receive the verdict on the quality of decisions, as I will explain in a moment. Moreover, on closer inspection, S1 and S2 do not exhaustively describe human mentality. What is missing is the impression these systems make, the experiences they yield.49 These are distinct and of different kinds which seems required to differentiate and identify them in the first place. In other words, an emotion feels different than a thought. Stated differently, (what it is like) being emotional is distinct from (what it is like) being rational. This plays out in our mentality regarding risk:
feelings about risk are largely insensitive to changes in probability, whereas cognitive evaluations do take probability into account. As a result, feelings about risk and cognitive risk perceptions often diverge, sometimes strikingly. (Loewenstein et al., 2001, p. 268)
It doesn’t stop there. First, these systems are not separated. Rather they interact which, in turn, contributes to the impression. There is competition: trying to contain your emotions by thinking slow feels like a struggle, for example. Moreover, based on the consensus view that S2 is somehow ‘superior’ to S1 the danger is that:
the quality of decision making suffers when affective inputs are suppressed by having decision makers think systematically about the pros and cons of a decision. (Loewenstein et al., 2001, p. 268)
