The Hindu Business Line : Economics isn’t dismal

Does the world seem bleak on your crystal ball? Is all hope for a gushing economy ominously getting lost in the dreary desert sands of depressing politics? Take heart. “In the long run, no dictator, demagogue, priest, president, or any other pretender to power will be able to control the Googlification, Wikification, eBayification, MapQuestificaiton, YouTubification, MySpacification of information, knowledge, geography, personal relationships, markets, and the econom y.”

Thus forecasts Michael Shermer in The Mind of the Market ( www.landmarkonthenet.com ), a new book sub-titled, ‘Compassionate apes, competitive humans, and other tales from evolutionary economics.’

Chinese bureaucrats can attempt to put all the firewalls and controls they want on a billion potential Chinese Web surfers, but they will never be able to prevent knowledge, products, and people from finding their way to those who seek them, because freedom finds a way, Shermer boldly declares.

In the prologue, enchantingly titled ‘Economics for everyone,’ he presents his view that the theory of Homo economicus or ‘economic man’ — the bedrock of traditional economics — is often wrong. “It turns out that we are remarkably irrational creatures, driven as much by deep and unconscious emotions that evolved over the eons as we are by logic and conscious reason developed in the modern world.”

In a chapter devoted to ‘the extinction of the economic man,’ the author wonders if the brain is a collection of specialised modules like a Swiss Army knife, or ‘a more general operating system running the show — analogous to Microsoft Windows Vista or Macintosh OS X.”

The latter is the case, explains Shermer, citing fMRI (functional magnetic resonance imaging) experts. For instance, “When you are engaged in thinking about money, there’s a network of several different areas involved in communicating with each other in a particular way.”

Economics is anything but dismal, cheers the author. “Rich trans-disciplinary hybrids are emerging to breathe new life into an old science, such as evolutionary economics, complexity economics, behavioural economics, neuro-economics, and what I call virtue economics,” he adds.

The first principle of ‘virtue economics’ is the genetically embedded reflex of reciprocity, outlines Shermer. “When someone gives us something, we feel that we should give something back.” Also, we are greatly shaped by our perceptions of others, especially our perception of what others think of us, he reasons. “We care about our reputation and status. This is why reputation metrics have arisen so quickly on the Internet as a self-organised emergent property of trust.”

But what can be the reason behind ‘hanging on to losing stocks, unprofitable investments, failing businesses, and unsuccessful relationships’ while, instead, acting rationally, ‘we should just compute the odds of succeeding from this point forward, and then decide if additional investment warrants the potential payoff’?

Alas, we are conditioned to overvalue the status quo, observes Shermer. By putting much value on what we already have, we can tend to overvalue it — “to the point that the sunk cost blinds us to the value of future losses that we will sustain if we do not switch to something that we don’t already have.” Cognitive dissonance thus drives people to rationalise irrational judgments and justify costly mistakes, the author bemoans.

Consequently, playing the stock market by buying and selling individual stocks on a regular basis is little different from gambling at a casino, cautions a chapter on ‘minding our money’. Even professional investors and market analysts rarely perform as well as an indexed mutual fund in the long run, adds Shermer, quoting studies.

He concludes on a buoyant note — that consciousness should be raised for freedom, ‘to open the world to all people,’ and make all knowledge accessible to everyone everywhere.

There is, however, a caveat: “Given our dual disposition to be both good and evil, and the power of the environment to elicit one or the other, we must choose freedom, then create circumstances in which it can be realised, and then defend it once it is achieved.”

A stimulating excursion into economics.

D. MURALI

http://BookPeek.blogspot.com

More Stories on : Economics | E-Dimension | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Wheat Turmoil 2008 — Resurrection of the farmers’ movement

Warming up

Taming sovereign wealth funds

Is India falling into the Malthusian trap?

Central Government Health Scheme — Sheet anchor of staff morale

Profiting from business intelligence

Economics isn’t dismal

Bank reforms

Inflation