Near the close of his acceptance speech for the Competitive Enterprise Institute’s Julian Simon Memorial Award, Matt Ridley suggests that the total number of people is not the major driver of technological progress:

[W]hat counts is not how many people there are but how well they are communicating. … [I]t’s trade and exchange that breeds innovation, through the meeting and mating of ideas. That the lonely inspired genius is a myth, promulgated by Nobel prizes and the patent system. This means that stupid people are just as important as clever ones; that the collective intelligence that gives us incredible improvements in living standards depends on people’s ideas meeting and mating, more than on how many people there are. That’s why a little country like Athens or Genoa or Holland can suddenly lead the world.

Bryan Caplan takes on Ridley’s argument:

Isn’t the correct position clearly that both population and communication matter?  A two-person world linked by Skype wouldn’t be very creative.  Neither would a world of a trillion people in solitary confinement.  Creativity requires minds to generate ideas, and mouths to share them. …

I agree that we need to consider both population and communication, but there is a third element: quality. Caplan nods to this in his response to Ridley’s statement that stupid people are just as important as clever ones:

This is frankly an absurd leap.  Geniuses are overrated?  Maybe.  Stupid people are “just as important” for progress as clever ones?  Come on.  Question for Ridley: Whose the most creative person alive with an IQ under 100?  Under 80?

Without quality, quantity or connectivity, technological progress of the type we see today would not be possible.

Take an example Ridley uses in the speech – that the internet and mobile telephony had no inventor. True, they were collective enterprises involving many networked people using many accumulated technologies. But what was the average IQ of the inventors of the technology used in creating them? Or the average level of education?

Or consider the comment on Caplan’s post where Ridley notes the success of Athens, Genoa, Holland, New York, San Jose, Singapore and Hong Kong. They do not look like a random sample. They comprise intelligent, educated populations.

Ridley’s agnosticism about whether people are smart is reflected in his recent post dismissing concern about shrinking brains. As I mentioned then, there are few better predictors of a country’s wealth than the IQ of the population. There are significant benefits to a high average IQ.

Finally, connectivity is at least partly a consequence of quality. Higher IQ people are more trusting and more likely to trade. Those with higher IQ are more likely to be connected and share the ideas they have created.

A new NBER paper by Bill Easterly and Ross Levine proposes that a large proportion of global development is attributable to European settlement, even where Europeans formed a small minority of the population. The abstract:

A large literature suggests that European settlement outside of Europe shaped institutional, educational, technological, cultural, and economic outcomes. This literature has had a serious gap: no direct measure of colonial European settlement. In this paper, we (1) construct a new database on the European share of the population during the early stages of colonization and (2) examine its impact on the level of economic development today. We find a remarkably strong impact of colonial European settlement on development. According to one illustrative exercise, 47 percent of average global development levels today are attributable to Europeans. One of our most surprising findings is the positive effect of even a small minority European population during the colonial period on per capita income today, contradicting traditional and recent views. There is some evidence for an institutional channel, but our findings are most consistent with human capital playing a central role in the way that colonial European settlement affects development today.

The authors are agnostic on the reason for the relationship:

[W]e do not identify a single mechanism through which the European share of the population during colonization shaped long-run economic development. We show that European share is strongly associated with human capital and democratic political institutions today, but we do not trace the impact of Europeans on human capital and political institutions over time, nor do we exclude other potential mechanisms through which the European share of the population during colonization might influence economic development.

How does the proposal in this paper fit with Easterly’s usual skepticism about what the West can do for the rest of the world?

I will write a longer post on the paper when I have given it some more attention.

HT Nicholas Gruen

Carole Jahme at the Guardian reports on Richard Dawkins’s proposition that evolutionary science will be the new “classics”:

He explained that whereas classicists have traditionally been assumed to be the scholars most able to branch into any area of research, today – with advances in evolutionary study – it will be those with scholarship in evolutionary science who will supersede classicists in depth, breadth and usefulness.

Dawkins sees his new polymathic course at the New College of the Humanities as part of this trend:

He predicted that those who took his new degree course would achieve a “polymathic status”. He said the course “places evolution at the centre but brings in lots and lots of other subjects such as economics, social science, philosophy, engineering, medicine, agriculture, linguistics, physics, cosmology and history of science.”

Dawkins went into some detail to justify this statement, explaining the relevance of the various disciplines, starting with behavioural economics: “Everything has to be paid for, there is no such thing as a free lunch. You have to pay for whatever you do now in the form of lost opportunities to do other things in the future.”

He claimed that in the areas of sexual selection, parent–offspring relationships and sex ratio theory, economic thinking was “rife” within evolutionary research.

It is interesting that Dawkins intends to let ideas run in both directions between evolutionary biology and other fields, and that he is not engaging in pure evolutionary imperialism. However, I wonder what further ideas economics can offer evolutionary biology beyond those already well entrenched in evolutionary thinking. Are there any more insights or tools that evolutionary biologists should be borrowing from economics?

Project Syndicate has published one of the last pieces by Elinor Ostrom, in which she gives her views on the upcoming Rio+20 summit. The article reflects Ostrom’s wariness of blanket, top-down solutions:

Inaction in Rio would be disastrous, but a single international agreement would be a grave mistake. We cannot rely on singular global policies to solve the problem of managing our common resources: the oceans, atmosphere, forests, waterways, and rich diversity of life that combine to create the right conditions for life, including seven billion humans, to thrive.

Ostrom prefers a more evolutionary form of policy making, and notes that this is occurring in many places.

The good news is that evolutionary policymaking is already happening organically. In the absence of effective national and international legislation to curb greenhouse gases, a growing number of city leaders are acting to protect their citizens and economies.

This is hardly surprising – indeed, it should be encouraged. …

When it comes to tackling climate change, the United States has produced no federal mandate explicitly requiring or even promoting emissions-reductions targets. But, by May last year, some 30 US states had developed their own climate action plans, and more than 900 US cities have signed up to the US climate-protection agreement.

Tim Harford noted in Adapt that for successful evolutionary decision-making, there are two steps beyond experimentation of the type noted by Ostrom. There must be a willingness to decide when policies are failing, and failure must be survivable. Policy experimentation must include a willingness to measure and change.

Harford’s additional steps are particularly important when we note the potential for evolutionary processes to go astray. As I quoted in my last post, Ostrom was aware that evolutionary paths do not always lead to the optimal solution.

Another element of evolutionary policy making worth noting is that for those subject to a new city scale policy, it will not feel as though it is an experiment, and the citizens bear the costs it imposes. Take Mayor Bloomberg’s proposal to ban large soda drinks in New York. It is not a blanket national response and allows for a smaller scale experiment than a national ban would entail. But what might be described as policy experimentation at a national level is top down decree for the residents of the city.

Below are three passages that capture a small part of the evolutionary flavour of the now late Elinor Ostrom’s work.

From David Sloan Wilson:

Lin’s work was like a breath of fresh air compared to the forbidding world of neoclassical economics, which was top-heavy with theory and required assumptions about human preferences and abilities that were manifestly unrealistic. In contrast, Lin’s work was empirically well grounded and her eight design principles were highly congruent with the evolutionary dynamics of cooperation in all species and the biocultural evolution of our own species. Her work might have originated within the field of political science and been applied primarily to common-pool resource groups, but I realized that it could be generalized in two senses. First, it could be placed on a more general theoretical foundation suitable for all human-related disciplines. Second, it could be applied in a practical sense to most human endeavors that involve working in groups to achieve common goals—which means most human endeavors.

From Henry Farrell’s response to Ostrom’s Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel:

Her work implies that both pure marketization and top-down government control can have badly adverse consequences for resource management, because they rob individuals of the capacity to govern themselves, and because they both lead to the depletion of important forms of local collective knowledge. Alex Tabarrok is right to see something Hayekian in Ostrom’s arguments – but it is Hayek against Hayek. Ostrom stresses repeatedly that even the best functioning markets are undergirded by an array of collective institutions which order people’s market interactions, and that in the absence of such rules, self interested behaviour will have highly adverse consequences.

From Ostrom’s How do Institutions for Collective Action Evolve (pdf):

It would be naive to assume that any evolutionary process will always lead to better outcomes. In biological systems, competition among populations of diverse species did lead to the weeding out of many individuals over time that were out-competed for mates and food in a given environment. Evolutionary processes can also lead to equilibria imposing higher costs on some species and eliminating others. The huge investment made by peacocks in their tails is one example. Thus, one should not expect that all locally governed systems will eventually find effective rule configurations. Some will experiment with rule configurations that are far from optimal. And, if the leaders of these systems are somehow advantaged by these rules, they may resist any effort to change.

Since reading Robert Frank’s The Darwin Economy, I have been working through his back catalogue. The original and innovative Passions Within Reason: The Strategic Role of the Emotions is the best of Frank’s books I have read so far.

Frank’s major proposal is that the emotions act as a commitment device. When a dispassionate calculation shows that it is better to cheat, the emotion of guilt can act as a constraint to the “rational” course of action. When a dispassionate calculation shows that it would be better not to incur the costs of punishing someone for cheating you, the emotion of anger acts as a constraint, and prompts you to punish them regardless of the personal cost to you. These emotional responses are particularly important where someone has a high discount rate and give a greater weight to present costs and benefits than those that come in the future.

These emotional traits are able to persist in an evolutionary setting as the “irrational” behaviour allows people to make credible commitments, which then allow them to gain the benefits of increased cooperation or protection from cheating. For example, if you can signal that you are trustworthy and your guilt will prevent you from cheating someone, you are more likely to be able to enter beneficial trades and cooperative arrangements. If someone knows you will get angry and attack them if they cheat you, even though it is not a rational thing to do in that particular instance, they are less likely to cheat you in the first place.

Frank deals well with two of the obvious attacks on this argument: why did such a convoluted way of undertaking these actions evolve; and what might prevent someone faking the emotion to prevent being cheated or so that they can enter into a trade where they can cheat?

On the first, Frank recognises that evolution does not come up with the perfect solution, but evolves responses to the environment over time. There is path dependence. In this case, the mix of high discount rates and emotional constraints to those discount rates were the solution that was found, and not the ability to rationally assess that the short-term costs are worth it for the sake of reputation. If humans are cognitively limited, the other option may not be feasible.

As an example of this path dependence (although possibly not an accurate example), consider the time before the formation of complex societies where there are repeated opportunities for mutually beneficial trade. Then, a high discount rate might have been generally appropriate, with those who cheated being favoured as they incurred no long-term costs when they did. However, when greater complexity of society arose, those with a constraint to their high discount rates did better as they were able to refrain from short-term cheating behaviour and develop reputations for fairness. Rather then tempering those high discount rates, which might still be important in some circumstances, the evolved response was emotions to constrain them in other circumstances. This story might not be true, but it creates a picture whereby opposing tendencies cancel each other out rather than a person evolving the perfect foresight necessary to consider the repeated interactions and how to act strategically.

For the second argument, the prevention of cheating, Frank relies on signalling theory. Frank argues that emotions are not easy to fake, which makes them reliable signals of someone’s intentions. If they could be easily copied, they would cease to be used as signals and the benefits to copying the emotion would disappear. It is the fact that they are hard to fake that leads to them being used as signals in the first place.

There are parts of this argument that trouble me, as the costs to faking emotions seem low. The costs exist, as work by Centorrino and colleagues demonstrates, but there are successful fakers of emotion. Many psychopaths can appear trustworthy despite their lack of trustworthiness. Possibly cheaters do not proliferate because the benefits to faking emotion are low, but if that is the case, why do we put such faith in these emotions as signals? Possibly cheaters are simply found out too often, so despite one successful cheat, their reputation ruins future opportunity. In that case, the signalling role is not as important as establishing reputation.

Regardless, Frank shows that it is possible for mixes of cheaters and honest people to emerge, with the frequency dependent selection ensuring that neither type disappears. If everyone is honest, there is no point signalling honesty or monitoring for cheating behaviour, so cheaters can thrive. If everyone cheats, the few honest people will spend great effort to seek each other out, and reap the benefits from specialisation and trade.

The book is not without its flaws, but given the strength of the fundamental ideas and the way Frank argues them, it feels like nitpicking to mention them. The only one I will note for the moment is that Frank does not give justice to rational behaviour, such as doing the right thing because people will find out. As experimental evidence shows, while humans can act in what seem to be non-self interested ways, people adapt to the probability of being caught cheating and the available rewards. Emotions are a commitment device, but in some cases, rational calculation can do the job. People with higher IQ are more trustworthy, yet I would argue they are not more emotional.

However, that is being pedantic about an excellent book. It is entertaining and interesting throughout. Twenty four years after release, it is still a must read.

One blog in my feed is the excellent synthesis blog, which brings you the musings of Greg Fisher, Paul Ormerod and others. From their about page:

We believe that this new approach, centred on the study of complex networks, has enormous potential to integrate, reconcile, and synthesise the social sciences. Viewing society as a complex network requires us to focus on actual human psychology and the nature of human interaction, rather than some inaccurate abstraction (such as “the rational agent”). We can drill down further and understand that neuroscience can help us to understand the nature of human cognition (the brain being a complex network itself), action, and interaction. Starting from these micro levels we can build a more representative understanding of social groups, including what we understand as the “macro level”. Therefore, complex networks offer a synthesis between subjects that until now have been largely kept apart, such as psychology and economics.

I recommend subscribing to their feed.

Their most recent post is by Ormerod, who asks why Daniel Kahneman’s observations about human decision-making have not been integrated into economic theory.

Perhaps Kahneman’s own work gives us an insight. He distinguishes between System 1 and System 2 thinking. System 1 is when the brain is almost on autopilot. He illustrated this in his talk last night. ‘If I mention the word “vomit”, your brain reacts. If I ask “what is 2 plus 2?”, the answer comes in your mind automatically’. System 2 thinking requires much more effort – most people, he said, cannot multiply 24 and 17 whilst at the same time negotiating a right turn in heavy traffic.

Actually, I guess that most economists could do this. Many of them could even carry out the maths required to optimise a particular function at the same time! In other words, economists are so steeped in calculus, they have performed these mathematical operations so many time, that for them, the maths of calculus has become System 1 thinking.

As mathematics is so ingrained in economists’ minds, when a new problem arises, the instinctive response is to write out the equations as a rational optimisation problem. It is much harder to integrate Kahneman’s insights, which require considerable System 2 thinking. Economists take the easy route.

In Robert Frank’s Passions Within Reason: The Strategic Role of the Emotions (this is another snippet pending my finding time to write a decent review), Frank describes the free riding behaviour of economists in the public goods game:

It is interesting to note that the only group for which the strong free-rider hypothesis receives minimal support in this vast experimental literature turns out to be a group of economics graduate students. In experiments essentially like the ones run by Dawes et al., Marwell and Ames discovered that economics students were significantly more likely to defect that any of the other groups they studied. This findings agrees with the finding of Kahneman et al. that commerce students are more likely than psychology students to make one-sided offers in ultimatum bargaining games.

Frank offers two explanations for these observations. The first is that economists are influenced by economic theory to act in this way, with the “most charitable” explanation being that economists treat it as little more than an IQ test. The second is that certain types of people self select into the field.

Frank suggests it is a mix of the two, and I would tend to agree. However, Frank’s observation reminded me of a class I was in a few years ago, where after learning about the strategy of the ultimatum game, we then played it. A number of people in the class became frustrated that some of the responders were not playing the equilibrium strategy of accepting the pittance they were offered. Those who play the Nash equilibrium strategy tend to suffer against many competitors, as this strategy does not always work against “irrational behaviour”.

Frank also quotes a 1986 piece from The Chronicle of Higher Education, where Robert Solow reflects on an essay by Francis Amasa Walker:

Economists, Walker argued, disregard important international differences in laws, customs, and institutions that affect economic issues. They also ignore, he said, the customs and beliefs that tie individuals to their occupations and locations and lead them to act in ways contrary to the predictions of economic theory.

Walker, Mr Solow said, could have been talking about the economists of the 1980’s.

Economists are not immune from the flawed assumption that everyone else thinks like you do.

In Friedrich Hayek’s magnificent essay The Use of Knowledge in Society, Hayek writes:

It is about this question that all the dispute about “economic planning” centers. This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.

After writing my recent post on Richard Conniff’s article about Irving Fisher’s eugenic leanings, it struck me that a similar framing can be made with respect to eugenics.

The debate about eugenics, apart from being one-sided, is normally framed as to whether there should be centralised planning about who should be able to breed (or not). However, without eugenic decisions from the top, there is still planning about who breeds and who doesn’t. This is in the form of sexual selection, with males and females choosing their partners with the aim of having smarter, more attractive children. The result of this process is that some people do not get to reproduce, despite their wish to, due to the decisions of others.

Accordingly, this is not a dispute about whether planning is to be done to not, It is a dispute about whether planning is to be done centrally, by one authority for the whole population, or is to be divided among many individuals.

In the closing section to Robert Frank’s Passions Within Reason: The Strategic Role of the Emotions (review coming soon – this book was ahead of its time), Frank writes of the failure of critics of the self-interest model of human action to gain traction in their critique.

The difficulty confronting critics is that they have failed to come forward with an alternative theory. None of the evidence they cite against the self-interest model is really new. The experiments with prisoner’s dilemmas date from the 1950s, those with honesty and victims-in-distress from the 1960s. Even Kagan’s recent work on the role of emotional competencies merely provides modern scientific footing for beliefs that were all but universal during the nineteenth century. But as the philosopher Thomas Kuhn has stressed, a reigning theory is almost never displaced by mere contradictions in the data. If it is to be challenged at all, it must be by an alternative theory that better fits the facts.

Twenty four years on, it is still a fair assessment.