The Market Mind Hypothesis, page 76
2 In light of the complicated agency problems in the economic system.
3 Acknowledging the relevance of this interiority for economics disputes, for example, the assumption of equilibrium approaches that instability is only due to exogenous factors.
4 Mind is embodied, i.e. the mind~body. It also includes consciousness, so should be interpreted as conscious mind, unless specified differently.
5 Used in this book as the general term for all market participants and thus refers also, for example, to brokers, dealers, market makers, and traders.
6 While echoing elements of organicism in general, I only specifically use anthropomorphic and bio-centric language to appeal to the reader’s intuitive understanding of complex topics, especially to contrast it against a mechanical view. In other words, I do not claim Mr Market is human.
7 Mainstream economics basically consists of a mix of neoclassical (strictly speaking new classical) and Keynesian economics. For what follows they are strange bedfellows: the new classical view of the economy is basically of a machine that runs by itself and should be left alone, whereas the Keynesian angle sees a need for engineers to ‘fine-tune’ it. In this book economics includes finance, the theory of financial markets and investing (e.g. the Efficient Market Hypothesis), as a nested discipline. See Subchapter 2.3 and Appendix 1-B for more details.
8 Models (including algorithms) derived from this worldview subsequently result in mechanical policies, strategies, and products. Related, besides performativity, is “design economics” whereby economists “not only analyze markets” but “design them” (Roth, 2002, p. 1341). See also Chapter 2.
9 I borrow but reinterpret the terms “economics of stuff” and “economics of stuff happening” from King (2016).
10 A well-known example is Weber’s law.
11 I use the terms material (materialism) and physical (physicalism) interchangeably, although there are differences, with the latter basically being a subset of the former. See also Appendix 1.
12 For more details on metaphysics and markets, see Appendix C2.
13 Technically, it is a form of dual-aspect monism (for details, please see Appendix 1-A2). Speculatively, perhaps the unitary order is some form of ‘market’. I don’t know and this speculation is not further discussed in the book.
14 Other examples include LeDoux who states that “when you’re emotional, your brain has been monopolised [by System 1]”. And Jerry Fodor, referring to its alleged epiphenomenal nature, states that “consciousness ... seems to be among the chronically unemployed”. For more such expressions, please see Appendix 1-A.
15 See Hayek’s “The Use of Knowledge in Society” (1945), respectively Minsky’s Society of the Mind (1988).
16 Still, Pixar’s animated movie Inside Out (2015), involving multiple little people inside a child’s head, is an entertaining and instructive introduction to the human mind for younger viewers.
17 Originally defined by Chalmers (1995). It is also known as the problem of consciousness. From now on I won’t use quotation marks.
18 Consciousness’s ‘easy’ version (i.e. access consciousness) was conveniently ‘translated’ by mechanical economics from “awareness” to its proxy “complete knowledge”.
19 Please also read the quote from Nobel laureate Vernon Smith in Appendix 1.
20 This, in turn, allocates our resources (just like an individual mind allocates attention) and allows us to make selections.
21 To be discussed (also in Appendix 1), but see Clark and Chalmers (1998), Menary (2010b), Newen, De Bruin and Gallagher (2018), and Rowlands (2010).
22 On the impact on real economies, see e.g. Williams and Poehlman (2017). Theirs is the target article in a special issue published in the Journal of Consumer Research.
23 Most aspects and controversies of investment management, like active vs. passive, fees, valuation, and so on apply to ESG as well. However, I will not discuss these here as the message of this note is different.
24 Gardiner discusses the (mental) morals of climate change. Credit to John Normand for this reference.
25 A highly recommended alternative view is from Normand (2022). He advices a complementary but more specific application via consequentialism.
26 For a historic overview of the oil industry’s dubious attempts to influence the climate change debate, see the BBC documentary “Big Oil v the World”.
27 Even if we have access to some trading records these do not provide a complete picture of the market overall.
28 Dynamic Stochastic General Equilibrium.
29 See the October 2012 minutes of the Federal Reserve’s FOMC-meeting.
30 They weren’t perfect, and each had their flaws.
31 Although the focus will be on financial markets, I would like the reader to view Mr Market’s case in the context of the overall success of market dynamics over time, including most recently via open (peer-to-peer) marketplaces.
32 Although I received an invite to attend the conference as a non-speaker, based on my “strong application and interesting research goals”, I respectfully declined via an informal rebuttal of the SFI’s decision.
1 In their Global Wealth Report (2019) Credit Suisse estimates that the richest 11 per cent of the world population holds more than 80 per cent of its wealth.
2 United Artists, 1940. The Great Dictator. [Speech transcript]. Available from https://www.charliechaplin.com/ en/films/7-The-Great-Dictator.
1 Instead of technologies, in certain cultures other species, i.e. animals, form the tools that allow the mind’s extension. The classic example is where human and horse become an intelligent unit, e.g. during a hunt. Specifically, the experience of the hunt is, phenomenally, dependent on the horse as extension.
2 I ignore specifics and variations, like enteroception and proprioception.
3 On cooperation from an evolutionary viewpoint, see Nowak (2006). For an historic overview of economic cooperation, see Seabright (2004).
4 There are numerous interpretations of economics and evolution that inspired this book. For example, for markets as ecosystem, see Lo (2004, 2018). For the implications of evolution as computation, see Beinhocker (2011). For a Darwinian view on economics, see Hodgson (2002). For an example of economic evolution focussed on the human mind, see Loasby (2005). It also includes biological concepts, like bioenergetic cost~benefit analysis and optimal foraging theory.
5 Again, I personally believe ‘portfolio of nature’ is a better concept but, admittedly, people were not familiar with portfolio management in those days.
6 Others who recognised such links include Garrett Hardin (1959, e.g. p. 327), another biologist. Among the economists, see Alchian (1950) and McCloskey (1983, p. 487). Among sociologists, Durkheim offered an early analysis of the division of labour (1893).
7 Which I speculatively suggested to Levin in personal correspondence.
8 Both biology and economics focus on competition and collaboration. They are universal dynamics to coordinate behaviour, with their interaction leading to complexity. Strictly speaking though, this book agrees with Gould and Keynes and thus considers them, first and foremost, to be economic forces.
9 Also see, for example, Gintis et al. (2005) and Galinsky and Schweizer (2016).
10 See Seth (2013) and Clark et al. (2016).
11 See Desimone and Duncan (1995), Kelso (1995), Niebur and Koch (1996).
12 Competition and cooperation coordinate (economic) progress and both operate at the individual and group level. One way to see this is to realise that the oppositional structure embedded in competition does not exclude cooperation if this improves competitive strength, i.e. former hostiles unite against a common enemy. Vice versa, a former partner cheats and/or joins a competitor alliance.
13 Ignoring noise (random disturbance) for a moment, although it could be considered as included in both.
14 See Diamond (1997).
15 The two remain connected at several levels, not the least of which is in our emotional brain which struggles to distinguish between biological and economic threats. This argument echoes, for example, some of the arguments made by the Ecological Dominance-Social Competition model in biology.
16 Now, of course, it is only a shadow of its former self, having lost all disciplinary power and, like other financial markets, having become addicted to cheap money from central banks.
17 See Shiller (2009).
18 Should the financial system collapse, all financial transactions would cease, as would eventually the exchanges of goods. ATMs would not provide cash anymore, shelves in supermarkets would become empty, and electricity supply would be shut down. An orderly society would revert to chaos, a new reality, a new world. In a 2010 BBC interview (http://news.bbc.co.uk/today/hi/today/newsid_8914000/8914062.stm), former Chancellor of the Exchequer Alistair Darling describes how close the UK came to this in 2008. He and others subsequently confirmed this again in the documentary The Bank that Almost Broke Britain. Former US Treasury Secretary Hank Paulson also admitted as much as far as the world overall is concerned. See also Chapter 11.
19 Among those pursuing a revision of the paradigm is the Institute for New Economic Thinking (INET), founded by George Soros. This movement also includes various, often more Keynesian minded economists, like Mariana Mazzucato, Thomas Piketty, and Kate Raworth. Still, none acknowledge, let alone address, economics’ hard problem.
20 As I will argue in Subchapter 2.4.1.2, it is more correct to view (e.g. Arrow-Debreu) securities as forming the market’s physical neural system and “transmitting signals” in the symbolic form of prices.
21 Other early sources include Martin (1920) and Freud (1921).
22 For a critical overview, see Rupert (2011). Sources on specific reflections, like those on shared agency and intentionality, include Tuomela (2007) and Bratman (2014).
23 See also Hayek’s ‘The Sensory Order After 25 Years’, his written contribution to “The Second Penn State Conference on Cognition and the Symbolic Processes” in 1977 held at Pennsylvania State University.
24 For more details, see Appendix 1-C.
25 See also Appendix 1 for a more detailed discussion.
26 Stated at Berkshire Hathaway’s 2017 shareholder meeting.
27 See, e.g., He and Shi (2011).
28 See also Subchapter 3.3.
29 In many cases links to organised crime, basically the central planners of the black markets, have been made. As part of the solution we should be less sensitive to outdated taboos to legalise these markets, thereby largely removing this cancer to the economic system by way of legal market forces. Even the Netherlands (my birthplace), not known for strong men, nor for many taboos, is now suffering from this threat to an open and free society after the murder of journalist Peter R. de Vries, allegedly by organised crime.
30 We can argue about whether some were born as psychopaths.
31 Not to be confused with ideals in the traditional sense, idealism is the view that reality is mental in nature, if only because all that we can experience about objects outside our minds remains inside them, i.e. as knowledge.
1 This is meant, of course, in relative terms: both have material and mental aspects. Still—putting it in sharp contrast to make my point—the economy is about the physicality of (the means of) production combining with the physicality of labour to produce and subsequently consume physical commodities. The market, on the other hand, is about the psychology of their exchange, whereby “the price or money-form of commodities is, like their form of value generally, a form quite distinct from their palpable bodily form; it is, therefore, a purely ideal or mental form” (Marx, Das Kapital, 1867; Chapter 3, Section 1).
2 Readers who wonder why philosophers like Heidegger are relevant for markets should read carefully.
3 Technical aspects, like the distinction between endogenous and exogenous money, will not be discussed here.
4 See also the Economic Note on cryptos in Subchapter 3.5.
5 And, by extension, any dislocation between the market and the economy.
6 Unless, of course, you do think we are robots. But we should avoid falling into reasoning traps. Something like: “Humans have consciousness. Humans are machines. Therefore, machines have consciousness.” In any case, we should make a clear distinction between living biological machines and inanimate ones. As argued in Appendix 1-A, consciousness is a trick Mother Nature played on us for our own good and simply assuming we can replicate it is an insult to evolution.
7 A reference to the subtitle of Michael Lewis’s bestseller The Big Short.
8 For a general discussion on methodological approaches, like internalism, see Chemero and Silberstein (2008).
9 Often expressed in number of units of an imponderable paper or crypto currency. I have more to say about money in Appendix 1.
10 “Pulling the trigger” involves other mental properties, like trust and free will.
11 Soros (1987, p. 46, and 2009). For a detailed cognitively inspired interpretation of reflexivity, including references, see Schotanus et al. (2020).
12 Another market practitioner, Bill Blain, chipped in: “At the moment, the mood feels miserable’. Blain’s Morning Porridge, broadcast on 22 November 2018.
13 It is also known as the New Neoclassical Synthesis. Mathematically speaking, for example, new Keynesian models are similar to the (e.g. real-business-cycle) models of new classical economics. Also, I am not going to distinguish between macro- and microeconomics or other details, unless they are relevant to my arguments. Still, for brief descriptions see Appendix 1-B.
14 Preda points out that already from the 1850s “engineers transfer the vocabulary of physics to the valuation of railway securities. They require observation and analysis in this process. Sheer luck or emotions are seen as irrelevant” (2005, p. 152).
15 Actually, it is rather more Jungian but I will not go into detail here.
16 In Chapter 4 I will use this dubious belief in an epistemological framework and rename objective probabilities as true probabilities.
17 Like raising rates during the Great Depression and bailouts during the GFC. Yes, I’m channelling the late Anna Schwartz here with her criticism of the Fed: “firms that made wrong decisions should fail”.
18 https://www.bloomberg.com/opinion/articles/2018-11-25/the-myth-of-capitalism-exposed (Accessed 4 December 2018).
19 A term introduced by the economist Joseph Schumpeter. See also, e.g. Moules (2015).
20 Based on Michael Lewis’s book of the same name (2010).
21 But see https://www.finra.org/sites/default/files/fda_documents/2014041859401%20Citadel%20Securities%20LLC%20CRD%20116797%20AWC%20sl.pdf (Accessed 12 May 2022).
22 Now you are a cynic when you think that this is why such education is not a priority.
23 For more background, see for example Kauflin et al., 2020.
24 I discuss this, as well as funding efficiency, in more detail in Appendix 1.
25 For example, see quote from Soros on knowledge below, shortly after the Cognitive Note.
26 Apart from prices, distortion can occur in many ways, one of which is via software. For example, Axtell points out, when criticising the Walrasian Arrow-Debreu model, that: “Unfortunately, the embodiment of this ideal type in CGE software, especially when utilised for policy purposes, institutionalises a series of propositions that more behaviourally realistic and decentralised models reveal to be false.” (2005, F209; emphasis added). Others are innocently dressed up as ‘nudges’. In the next section I will give more examples.
27 It may help to think of the constraints during the CVC in that regard. Losing freedom due to a lockdown is generally not beneficial for your mental health. Also, getting infected by Covid itself keeps you homebound or, worse, bedridden.
28 Larry Summers called his interpretation “iatrogenic volatility” (Larry Summers: ‘I’m concerned that what is being done is substantially excessive’ Financial Times (ft.com). [Accessed 12 April 2021].
29 There is one possible caveat/counter argument: if one accepts the (e.g. Kantian) idea that moral status derives from having “intrinsic value”, not necessarily from consequences, then it does not logically follow from my ‘extension’ argument that one should ascribe some moral status to the market mind. This, in turn, questions enacting any well-being laws. Still, I don’t think we can escape eventually having to invite Smith’s impartial spectator, for example, but this discussion is beyond the scope of this book.
30 For an historic overview, see Reinhart and Rogoff (2011).
31 I ignore here the fact that income is generally paid in fiat money. I also distinguish it from income generated from financial assets.
32 In this case I believe it is correct to interpret this both in terms of economic zombie (i.e. “undead except for the debt”) and cognitive zombie (i.e. “lights are on but there is nobody home”).
33 See the section “Preparations” in Appendix 1.
34 What this means for our interactions and rationality was discussed by Gintis from a game theory perspective: “Common Knowledge of Rationality is a powerful and often highly implausible assumption concerning the community of mental representations across Bayesian agents’’ (2009, p. 119). Psychological game theory advances this further into emotions and so on.
35 As an aside: those generated by AI, say via deep-learning, are black-boxed and are not understood.
36 See also Appendix 1-A2.
37 For an interpretation of risk perceptions as qualia, see Olsen (2014).
38 Something along the lines of: “The laws of nature to which objects are subjected do not depend on human thought or behaviour”.
