The Market Mind Hypothesis, page 77
39 Niche construction is the feedback process whereby a population spontaneously modifies its environment to its own benefit, but then adapts in turn to this modified environment, leading to follow-up modifications. The result is a reflexive co-evolution of the population and its environment. Its relevance here is the problem that our environment is increasingly mechanically modified for us by men-of-system into a mechanical one to which we struggle to adapt and/or feel constrained by.
40 According to Gigerenzer (2007) Markowitz uses the 1/N rule to equally allocate his cash across assets in his personal portfolio.
41 See MacKenzie (2008) who, from a performativity perspective, analyses the effect of the theory of options and of similar derivatives upon the market for such derivatives. He notes how the Black-Scholes model only started to show the implied volatility skew after the crash of 1987.
42 It has always been thus. As Jung (1916, Para 30) explained, we can keep from a child all knowledge of earlier myths, but we cannot take from him the need for mythology.
43 Ignoring the stock versus flow argument.
44 Admittedly, options have existed since early Greek times, and in the sixteenth century loans were already bundled into ‘tranches’ and sold to investors.
45 Even though some properties are ignored/not considered relevant (see the previous section, for examples).
46 Admittedly, this will be difficult to establish exactly, certainly compared to the other variables.
47 Albeit often digital.
48 Basically, for investors ‘Apple’ is its stock. Many of the narratives are told as hero tales, like monomyths (Campbell, 1949). On a separate note, there is also a flourishing business in collectable historic securities, like (expired) bond and share certificates, particularly those ‘with a (rich) story’.
49 Even if an individual investor trades on their private information (which, by the way, may be illegal), this would have a negligible impact on prices (assuming there is no cornering of the market).
50 For an overview of collective cognition from a complexity perspective see Palermos (2016) as well as the references therein.
51 As well as other derived data like volume, open interest, returns, flows, etc. Still, the 80/20 rule applies here, in the sense that prices probably make up 20% of the data in markets but likely contain 80% of the information.
52 For details, see Appendix 1.
53 In fact, we can access those consciously, but traditional static analysis fails to make those ‘come alive’ like relived memories in the human mind. See also Chapter 9.
54 Ignoring, for the moment, my earlier comments about disappearing consciousness due to mechanisation.
55 Arguably, this challenges cases which consider the market to be static minded (i.e. rational only, e.g. Rubinstein, 2001) or, worse, mindless because one explains consciousness away by assuming mindless agents (e.g. Gul and Pesendorfer, 2005).
56 E.g, “people have to be treated both as if they had feelings and as if the feelings and attitudes of the person who is attempting to influence them also made a difference” (Knight, 1925a, p. 389, 390; emphasis added).
57 Of course, in case of bad news this can turn into a panic whereby the market enters a flight-freeze mode, driven more by the unconscious rather than by conscious engagement.
58 Similar findings have been reported, for example, by Schwager (1995), Koppel (1996), Zaloom (2006), and Coates (2012). This also highlights the difference to thought experiments about collective minds, like the China Brain (Ned Block, 1978), in that market mood, as a phenomenal manifestation, is intersubjectively felt by investors. In other words, it is not just assumed, functionally, to be ‘out there’. It actually is and there is data available to support it.
59 In the spirit of Von Foester (2003).
60 In turn, Capra was particularly inspired by Bateson, Maturana, Prigogine, and Varela.
61 Early economic reflections described man’s economic struggle as one of having scarce physical and mental resources (e.g. commodities, respectively knowledge) while having to ‘deal with’ abundant physical worldly challenges, respectively the omniscience of God(s). In the Jewish/Christian traditions this is viewed as a consequence of original sin. Such ‘dealing’ is infused with uncertainty, whereby true uncertainty remains unanswered by the various modern economic approaches. Still, as I mentioned, there is pretence of knowledge. Keynesian economics suggests appointing a homunculus (i.e. a central planner) to achieve an ‘optimal state’ of the market’s mind~body. New classical economics similarly implies knowledge to achieve its assumed equilibrium, namely via a Laplacian Demon in the form of predetermined models.
62 See Kuhnen and Knutson (2005).
63 See Steenbarger (2003).
64 See Cymbalista (2002b).
65 See Hayek (1967) and Kelso (1995).
66 See Dehaene (1997) and Butterworth (1999).
67 The original instance of the terms I just mentioned to emphasise the active dynamic of price discovery, “it’s the verb, not the noun”, was contained in Schotanus (2022, p. 103). Independently Arthur raises this to a higher level with his “Economics in nouns and verbs’ (2023) by connecting it to the mathematics (to be) used.
68 Similar but earlier critiques include those by Castells (2000) and Capra (2002).
69 For those readers who are gamers, think Warhammer’s “Cult Mechanicus”.
70 For a deep dive, see The Question Concerning Technology and Other Essays by Heidegger (1977). For an additional modern view see, e.g., Lanier (2010).
1 There are often various interpretations of each theory, so I only discuss their main characteristics. There are also other theories that could potentially be considered, but are not mentioned here, including the critical brain hypothesis, harmonic brain modes, quantum approaches to brain and mind (e.g. Atmanspacher, 2017), recurrent process theory, and philosophical doctrines like panpsychism (e.g. Seager, 2020). For an overview of specifically consciousness theories, see Seth and Bayne (2020), especially their Table 1.
2 Also known as the Extended Cognition Hypothesis or Extended Mind Thesis. Other sources include Dunbar, Gamble and Gowlett (2010), Menary (2010), and Rowlands (2010).
3 Often referred to as the “embodied mind” (Varela, Thompson and Rosch, 1993). This can involve other organisms as well. Recent research (Sampson et al., 2016) has shown that gut bacteria seem to play a role in Parkinson’s disease and autism.
4 Sources include Dror and Hamad (2008), Huebner (2014), Palermos (2016), and Sloman and Fernbach (2017). Other topics of relevance to the collective aspect of EMT include distributed agency, social ontology, and collective intentionality.
5 Although anonymous, if you read carefully it’s kind of obvious who it is, but it is not my place to reveal this.
6 Hopefully you now see, for example, why I use the investment concept of ‘discounting the future’ for the mind-as-market. Also, as I mentioned, Knight subsequently expanded on these reflections in his 1925 papers which the economics profession largely ignored.
7 This is related, for example, to “supra-consciousness” (Hayek, 1967), “macroscopic intelligence” (Sornette, 2003), and “cognitive non-conscious” (Hayles, 2014). See also Subchapter 8.2.
8 Although more commonly known as Predictive Processing (PP), I used the abbreviation PPT for consistency with the abbreviation of the other theories. Main sources include Clark (2013a) and its responses, as well as Friston (2003), but it also has roots in the work of Geoffrey Hinton, David Knill, and Alexandre Pouget. Colombo, Elkin and Hartmann (2021) offer a critical view. Related are the Free Energy Principle (Friston, 2010), Active Inference (Constant et al., 2020), as well as Predictive Coding which is the computational approach of PPT, using simulations to replicate the workings of the brain (see Kwisthout, 2014).
9 Here I will ignore the role of introspection, next to perception and action. Also, the aim to reduce surprisal should be distinguished from the urge (or need) to discover, leading to the desired internal surprises we call insights (e.g. A-ha/Eureka instances). This will be discussed regularly in the book.
10 Some readers will wonder where the priors originated from, i.e. if there is a chicken and egg situation here. In general, PPT is silent on the question of innateness (e.g. see Clark, 2013b).
11 A posterior is called a conditional distribution because it conditions on the newly observed data.
12 Again, this statement would likely be endorsed by Mises, for example.
13 See particularly Tononi (2015), Tononi and Koch (2015), Tononi et al. (2016), while Aaronson (2014) gives a critique.
14 A more detailed discussion of its mathematical framework in general, and Φ in particular is beyond the scope of this book, so I refer to the literature.
15 This makes it closer to the original meaning of informare in Latin, namely ‘to give form’.
16 Again, I’ve drawn primarily from their work, particularly Baars (1997a), Baars (1997b), Baars (2005), Dehaene (2014), and Dehaene and Changeux (2011).
1 For a thorough introduction to epistemology, see the work by Duncan Pritchard, in particular Pritchard (2005), Pritchard (2006), Pritchard (2010), and Pritchard (2016). This subchapter references regularly to his work (but any errors are mine). For a different view on “varieties of risk”, see Ebert, Smith and Durbach (2020).
2 Nobel laureate Robert Aumann is one of the few modern economists who has dealt with epistemology for many years. His interpretation of Interactive Epistemology is based on game theory and focusses on knowledge and belief when there is more than one agent or ‘player’.
3 If nothing else, it was embarrassing because it exposed the hubris of the earlier outrageously overconfident claims by (i) the most celebrated economist that the “central problem of depression-prevention has been solved” and (ii) by the most powerful central banker that problems in the sub-prime housing sector would be “contained”.
4 If all this sounds very abstract, you are right: all the while we are forced to largely operate in REH’s self-proclaimed ‘as if’ environment where shifting goal posts almost make it impossible to target criticism.
5 Again, to keep it simple I don’t make a distinction here and will use them interchangeably.
6 Those who argue that model simulations can provide such evidence obviously miss the point. In fact, there is empirical evidence that, at times, the economic conditions have been worse than at the depth of the GFC, despite bigger interventions since then.
7 In spirit it is consistent with the instrumental methodology, favoured by Milton Friedman who preferred the narrow “predictive power” of a theory above the realism of its assumptions. Although freely interpreted one could consider his positive economics—which suggests testing of assumptions/beliefs is valueless in evaluating theories—to be an extreme case of practical rationality.
8 Ignoring other potential causes, etc.
9 Under certain circumstances one can see epistemic rationality as a special form of practical rationality. I will not go into this here.
10 To emphasise: discussing the truth of these beliefs is different than discussing the truth of the belief in the homo economicus! In other words, there is a difference between beliefs from the model and beliefs about the model.
11 Arguably, this makes them psychological twins in the cognitive world.
12 Usually with a mean equal to zero.
13 For example, in reference to Sargent’s comment in Appendix 1-B2, since he puts God into the REH-model, and God surely knows the objective distribution, we can infer that this belief is held by the architects of the REH.
14 This also counts in case any imagined end-user of the model, like a policymaker, has been included in the model. Her behaviour in the model will be similarly constrained like Paul’s in terms of not interfering with the outcome of the expectation as true.
15 This subchapter is to a large extent adopted and amended from Pritchard (2016). Any errors are mine.
16 Although I did not extrapolate this here, it can also be applied, for example, to extreme market events.
17 Strictly speaking, also assuming that markets are complete, etc.
18 Some readers will recognise the link to the Grossman-Stiglitz Paradox.
19 Available from https://www.dallasfed.org/ research/papers/2019/wp1906.
20 This will be discussed in more detail in Chapter 9.
1 https://fraser.stlouisfed.org/files/docs/publications/arfr/1920s/arfr_1923.pdf (Accessed 12 August 2021).
2 In particular, the Danish, European, Swedish and Swiss central banks which had already introduced negative rates.
3 Note that Lois Lane does not know Clark Kent is Superman whereas investors know Jerome Powell is the Fed Chair. That difference in knowledge does not make a difference in them forming similar type of beliefs. Even if Lois Lane does know, as possibly hinted at in the above quote, it arguably still makes no difference to her beliefs.
4 Interview “60 Minutes”, CBS, 6 December 2010.
5 See also my quote from Hayek at the start of Subchapter 7.1.
6 Jung identified good alchemists as those who show “visible mental struggles’ and labelled those who do not express such modesty as “charlatans”.
7 Echoed by Roger “Verbal” Kind, in the movie The Usual Suspects.
1 Good introductions include Holland (2014), Miller and Page (2007), and Dodder and Dare (2000). An early economic perspective is by Hayek (1967), an interim view is by Buchanan and Vanberg (1991), and a modern update is by Arthur (2005). Johnson, Jeffries and Huil (2003) discuss complexity of financial markets. For a more general view see Mitchell (2009). Finally, a rich source of research is the Santa Fe Institute: http://www.santafe.edu/research/.
2 While I will continue to use this term, I would argue that we need another variation which we may call complex intelligent system (or CIS). This is particularly applicable when consciousness is involved. See my points below.
3 I will not discuss here of what type this emergence is.
4 Another closely related field is network science (for a general overview, see Havlin et al., 2012; for an economics overview, see Kenett and Havlin, 2015). On producing novelty from an evolutionary perspective, see Witt (2003).
5 Also known as the Gödel-Turing-Post framework (see Markose, 2005), which sometimes is extended to also include Lucas and/or Church.
6 Hayek actually calls this “meta-consciousness”. As an aside, I will not discuss the potential of contemplative practices, like meditation, to increase our understanding of mind, but see my comments in the Introduction.
7 My interpretation, but see in particular Markose (2003) and Markose (2005) and the references therein. See also Witt (2003).
8 Interview with Greg Ip in the Wall Street Journal, 21 June 2008.
9 Jung (1964, p. 66).
10 To be clear, what I am interested in here is not the substance or form of these agents but their strategies: intelligent agents execute strategies (or fulfil mandates).
11 These surprises are not by definition immediately positive or optimal: they include mistakes and errors. I would also include, for example, fantasy and slips of the tongue.
12 My translation from the Dutch original.
13 Ignoring possible fraud which, by the way, is usually aimed at keeping the hype going.
14 Like some form of symbolic interactionism (see MacKinnon, 1994), whereby its focus on language is judged as too limited/limiting. For a classic work on symbolism, especially myths, see Campbell (1949).
15 Whereby we always risk being “fooled by randomness” (Taleb, 2001).
16 The Ecological Dominance-Social Competition (EDSC) theory emphasises the role of competition and cooperation in the evolution of human intelligence at the social level.
17 For a specific view of language and symbols, see Clark (2006).
18 To be complete: metaphysically the zero stands for the unified order or reality underlying the material and mental worlds according to monist and dual-aspect worldviews. See also Bateson (1972), to be quoted in Subchapter 7.2.
19 Cue: Hofstadter (2007).
20 I basically equate the phenomenal (e.g. A-ha) sensation as the culmination of the tension between the unconscious and the deliberate. The dynamics between these three “mentalities” is a continuous self-reflexive (i.e. discovery) process, akin to an Ouroboric loop, that sustains the mind as a complex adaptive system. Still, I acknowledge that some readers may not like this interpretation of the first three stages of the Axiom of Maria.
21 “What we properly call instincts are physiological urges, and are perceived by the senses.” (Jung, 1955, p. 58).
22 The resolution means that the condition where the symbol initially becomes known (in S2) is promoted to where it (particularly its meaning/outcome) is felt (S3). Until then it is “devoid of any quality” and, whatever potential gem it may be, remains in the null state, or zero. That is, unknown, not even unconscious.
23 Arguably, apart from first person qualia the quality of consciousness as a shared experience, i.e. intersubjectivity, also escapes reductionism. See elsewhere in this book.
1 This chapter is inspired, among others, by Knight (1921, particularly pp. 198–201), Popper (1979, particularly p. 344) and Shackle (1972).
2 In one particular sense, true uncertainty is about supernatural cognition: only God knows the future. Then again, while we do not know the future, we are—via actions, imagination, etc.—shaping it and thus may have an inkling.
3 This includes issues like mental causality and unknown (e.g. unconscious) mental events.
4 Because partnering S1 and S2 concerns engaging the (external) environment, you can think of the A-ha experience (in S3) as the orgasm from the mind’s intercourse with the world/universe, with the discovery’s content as their baby. In neural terms, it is enjoyed via the reward system. See also Mlodinow (2012).
5 See Appendix 1-A4.
6 Although this quote is usually attributed to Gregory Chaitin, I could not find an original source, whereas Davies does not credit Chaitin when stating it.
