Can biological/ emotional beings be indifferent in their curves? Rethink Utility theory and Preferences maybe?

It is a humid summer evening in Shenzhen. We are on the bus 43 to Windows of the World (WOTW). It is a theme park where all the wonders of the world have their miniatures on display and helps the innumerable citizens of the middle kingdom an expensive world tour. WOTW is also a metro station, where Ms. Grocery trip lover (GTL) and I will be taking an underground train to OCT loft. A place rife with budding artists in Shenzhen with one of the few Starbucks the city has- a place of refuge from the culture fatigue that can hit an alien any time after the first few months in China.

The 43 from Beijing Da Xue to WOTW left at 5pm. Ms GTL had her lunch at around one pm and her mid- evening snack at around four. A small water bottle kept her distracted till five-thirty pm. I, as usual, am discussing the expanding universe and the role of the Homo Sapien in the macrocosm of the larger order of things. I go on for about a good seven minutes when I realize that Ms GTL has no interest whatsoever in the earth shattering philosophy I have to offer. Despite her highly developed neo-cortex she is not moved by the opportunities of maximizing her utility with my intellectual banter. She has turned absolutely silent, is looking up at the digital ticker announcing the next station. She is fixated on that ticker, registering nothing but still nodding and making incomprehensible approving sounds with her lips sealed.

“Zainab, you are not listening to me!”

“Hmm…Yes. Yes.”

“Zainab!!!” – I raise my voice to get her attention

“Yeah?”

“You are not listening”- I snort at her with a fake angry face

“Umm, Of course I am Frand. You are talking about some, ummm universe thing. Microcosm of macrocosm of the universe and humans and ummm…”

“You find this conversation boring?”

“Uhh no of course not Deer. I am always listening to these things and I love it. I always do. Don’t I?”

“No. Not always. Not when you are hungry. Are you hungry?”

Head thrown down, a puppy face and an endearing voice- “Yes”

Ms GTL seems to not be consistent in her preferences. When asked whether she prefers food over intellectual conversation, she originally responded, obviously intellectual conversation. A few instances like the trip to WOTW and OCT loft revealed that such a preference is not consistently applied over different frameworks. With enough data points over many such trip, it was found that on an empty stomach, the preferences for intellectual conversation is superseded by thoughts of consuming food.*

*Of course there was statistical significance in reaching this conclusion.

Sounds familiar? Yet, does the utility maximization theory allow for such flipping over of preferences? Does it allow for biological factors like hunger into the utility curve?

The metro train moves at its usual pace. With each new passenger, Ms. GTL’s expressions become more entertaining. A frown, grimace, puke face. I see a plethora of emotions flash across her face as people get off and on the train. The digitalized woman voice finally announces OCT loft and the expression of joy in Ms. GTL’s face betray her excitement. The usual pasta in mushroom sauce and a Margherita Pizza. Sated, we decide to check out the vintage clothes’ shops nearby.

“Isn’t this such a lovely shirt, Frand?”

“Frand, this is RED!”

“Yeah and its great right? You think I should buy this?”

“Deer, it is RED! There is nothing else special about it”

“No. Just look at it. It’s got a great fabric and the color…”- My voice trails off as it suddenly hits me

I have a cognitive bias for the color red.

From the age of one, the color has held a strange lure for me. Anything red draws me towards it uncontrollably. The Homo Sapien simply ignores the Homo Economicus.*

*This conclusion too was reached after sufficient data points were gathered and demonstrated statistical significance.

Do I always buy things because they are red? No.

Am I always attracted to things red in color? No.

Then why do I find the color red has some kind of captivating power over me?

How does the utility maximization theory explain this inconsistency in buying behavior?

Neuroscience and psychology may have an answer.

Every time, I find myself uncontrollably drawn to consumer goods either packaged in red or containing red somewhere, I observed another element in the situation. I am distracted. My pre- frontal cortex( center of all decision making and critical thinking) is not active and my primal instincts take over. This has happened due to a variety of reasons. I have been hungry, sleep deprived, exhausted, multi- tasking (like talking about philosophy to a hungry friend), emotionally disturbed or planning something else that engages the Pre- frontal Cortex.

Do our existing utility functions factor in emotional volatility affecting our preferences?

Maybe it is time to rethink the utility functions, we sometime erroneously believe to be the Ten Commandments of economics as a social science. Maybe it’s time to introduce a more interdisciplinary approach to understanding economic decision making. It is really about understanding human behavior and maximizing human welfare, after all. Isn’t it?

Questioning ‘Rationality’ and the myth of Homo Economicus – The case of Amygdala taking over in market crashes and finding answers in NEURO-ECONOMICS

Sir Robert must have patted himself on the back when he installed Mir Jaffar as the Nawab of Bengal in 1757 after killing Nawab Siraj-ud-daulah in the Battle of Plassey.

“What a jolly good day!” he must have remarked as he got dressed on the morning of 24th June, 1757, for this would be a day of celebration from what would become his most remembered military success.

Of course no one really pays attention to the historical footnote that the success of this battle rested not in the brilliance of military tactics or political acumen but on the treachery of Mir Jaffar to his master Siraj. Clive was confident of this characteristic in Jaffar. He knew Jaffar’s Amygdala will drive him to betray his master and to play into the hands of the East India Company- the undisputed pioneers of corporate globalization in at least the Indian Sub-continent. So did Sir Robert Clive make a name in history based on his impeccable application of the Rational Choice Theory, calculating that since Jaffar preferred ruler ship of Bengal over kin, he would be willing to overthrow his own and side with the British businessmen even if it meant nominal leadership, because Jaffar was Transitive in choosing a ‘bundle of goods’. Or did he rely on the emotional response of a human brain to a given a situation where he has a sense of being wronged?

Either way his calculations were pretty much on point and the Crown as well as the ‘House of Commons’ were rather supportive until 1769, when Haider Ali of Mysore captured the fort of Malbagal, St George and eventually the town of Madras. All the executive decisions by the Court of directors and calculations from the Crown regarding Bengal[1] being the most valuable territory from an economic (read extortionist) point of view, sort of fell flat on their face. When the news reached London in the May of 1769, the market crashed. The East India Company faced its Great Crash that summer when stock price fell from 284 to 122 pounds on the London Stock Exchange. All policy decisions regarding recognition of Sovereigns of Indian subcontinent within the British Empire and maintaining “legitimate trading activities without securing the addition of further political and administrative burden” were rendered meaningless in the light of circumstances that Sir Clive and his peers had somehow missed for effective inclusion in their ‘prediction model’. But the markets had responded in what modern day neuro-economists would classify as the most predictable human response to an uncertain situation.

An example for a more recent event in history might better serve us. Most of my generation has only heard of the Great Crash of 1929 and its comparison to the financial crisis of 2008, the horrific aftershocks of which still impact my generation’s decision making. From making career choices to spending patterns (yes, we’d rather spend our hard-earned savings on taking a vacation because who knows what happens to property and youth won’t last forever). The US economy was doing great back then. There was a surplus of agricultural produce, industries especially steel and iron were doubling their returns, and the favorite of many stock market investors, the P/E ratio, of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms. The likes of famous economists like Irving Fisher (famous for his mathematical modelling in financial analysis) had proclaimed, “Stock prices have reached what looks like a permanently high plateau.” And yet when the slide turned into a crash, there was no stopping it. Over the course of modern history, market crashes have one thing in common, PANIC SELLING.

But wait! Why?

Are we not supposed to be rational beings, who make their financial decisions based on careful calculations and deliberation? Is it not sound intellectual practice to weigh the pros and cons of a decision? Should we not compare the Price-over-Earnings ratio of a stock and its market price and make our buy and sell decisions based on the over-valuation and under valuation of a stock? Should we not always prefer to exploit an arbitrage opportunity? Save that $10 while buying a radio worth $35 at a shop nearby which sells at $25 in the neighborhood 20 minutes away but also when buying a television worth $450 in a shop nearby, which costs $440 in the neighborhood 20 minutes away.

Can this be the reason why financial modelers, mathematicians, economists and analysts at large fail to see the bubbles when they are in the making and fail even more terribly at predicting a crash?

Ever heard of Herd Mentality? (Look what I did there!)

A whole new field of economists and financial analysts has taken birth in the advent of an age of frequent market crashes. They have a one word answer for it. Herd mentality. Ever wondered how a herd thinks? I saw that raised eyebrow. Yeah, you are right. They don’t. Quite appropriate for describing the panic stock markets face in crashes right?

This phenomena got its name based on an analysis of empirical data they have gathered from the many market crashes in history. Have a look at this list.[2] But why on earth does someone need to describe human behavior in the markets as akin to beasts in the wild? Why couldn’t someone just figure out an explanation based on transitively consistent choices? Oh wait, how about utility maximization? Maybe, all these panic sellers were maximizing their utility by selling their stocks at a loss? Why does something massively contradictory to sound financial practices, makes more sense than standard finance and economic theory?

Could it be possible that economists got RATIONALITY wrong?

Could it be that Homo Sapiens are simply just that and not Homo Economicus?

To me even the Herd Mentality explanation did not make sense. It seemed like a partial explanation. Where do we get this herd mentality? Is there a way we can overcome this? Many questions bothered me and I delved into New Economic Thinking, exploring unorthodox ways of thinking about economic and social problems that plague the modern, economically and socially hyper-connected world. From Behavioral Finance to Behavioral Economics, to Experimental Economics (I even designed a risk game which showed that people take risks even when there is no extra reward for it- a contradiction to sound rational financial theory of Market Portfolio). It seemed to make only partial sense. I soon began to realize that Economics (god-forbid) was an incomplete science on its own. It needs an interspersion with discourses from other social sciences that focus on the Homo Sapien. I began to seek answers from sociology, anthropology, psychology and even literature. It still seemed like an incomplete story. Maybe economics needs to drink from a bigger cup. I sought refuge in the hard sciences. Little digging into literature and I ran into the criticism economists already face, The Physics Envy. It seemed rather ‘rational’ to me that more math was not helping anyone. Mathematical models seemed to miss the point altogether. The famous Black-Scholes and Myers model missed it terribly[3]. Their mathematical model, very sophisticated and complex had somehow just not been able to factor in the circumstances that led to the military coup in Thailand that year that proved to be a catalyst to the downfall of Long Term Capital Management (LTCM), the profit making center the three mathematicians had established based on their options pricing model.

I turned to the life sciences. Evolutionary biology and Neuroscience. It seemed like another range on the spectrum of answers was opened up to me. This lens made sense when applied to anything I read about human civilization and behavior, in any domain whatsoever. The ideas that Kahneman popularized about the human cognition, naming them System 1 and System 2,[4] had basis in human physiology. The human brain has physical spaces through which emotions are modulated and critical thinking resides in. Below I endeavor to explain in simple language, my infantile attempts at marrying economics with neuroscience, in order to make more sense of the world around me.

Market crashes made all the more sense to me when I understood that the anterior cingulate cortex (involved in emotion modulation) and the pre- frontal cortex (involved in critical thinking and decision making) is overtaken by the amygdala whenever it senses danger in its surroundings. This function of amygdala is rooted in our biology. In the pre-historic era, the human brain’s neo-cortex was still not fully developed[5] and our ancestors relied on sensory inputs from the brain and body to ensure their survival. The brain was trained to be alert to threats from the environment, mostly larger predatory animals. The brain’s system evolved in such a way that made the body more aware of its surroundings by raising adrenaline and cortisol levels in the system, to be able to respond swiftly to impending gloom. That mentality has stayed with us long after existential threats have ceased to hold power over us. So today, even in our culturally crafted environments that present us with no mortal danger, the amygdala in our brain responds in exactly the same way as if the danger was detrimental to our existence, when markets begin to slide. This may seem like a simplistic explanation because it is. There is more to this analysis than meets the eye, but lack of space and the realization that the human brain’s concentration spans on average at about ten minutes, I rest my case for the day.

However, I am not the only one who took this journey through the sciences. Thinkers in economy, philosophy and psychology have made a clearing in the dense forest and enabled the birth of a new discipline, Neuro-Economics. It is a concoction of psychology, neurology, biology, philosophy, history and economics. It seeks to fill that knowledge gap that economics on its own has been unable to. Still, the story is not complete, but with the addition of this vantage point in the repertoire of lenses available to thinkers of the 21st century, we might get rather close to the while picture.

 

[1] Revenue and Reform: The Indian Problem in British Politics 1757-1773 by H.V Boven

[2] http://list25.com/25-of-the-worst-stock-market-crashes-in-history/

[3] https://www.theguardian.com/science/2012/feb/12/black-scholes-equation-credit-crunch

[4] http://bigthink.com/errors-we-live-by/kahnemans-mind-clarifying-biases

[5] https://www.amazon.com/000-Year-Explosion-Civilization-Accelerated/dp/0465020429

The “Imagine- yourself- in- your- grave” therapy for Chronic insomniacs

You are welcome.

Yes, I know you will be eternally grateful to me for sharing this counter-intuitive, customized, grounded in ‘practical philosophy’, personal success story on defeating insomnia. So yes, You Are Welcome.

But before I share this ground-breaking idea (pun intended), I want to put out a disclaimer. It works for a specific kind of insomnia. It must be rooted in anxiety and the need to exert control over circumstances.

Now, doctors might have their own categories of insomnia. It may simply a function of psychological factors or could have a physiological basis, like having an upside down chemical composition in the brain and body. But it can be detrimental to the brain cells of many of us Homo Sapiens to process the language our brothers and sisters from the tribe of medical science commonly use. Henceforth, I proceed to explain the experiential insomnia that many of our species including the very rational, Homo Economicus are often plagued with.

There is a kind of insomnia that experienced by every teenage who has hit puberty and participated in the fated privilege of appearing in board exams. One must collect some A’s and A* or make it to a certain threshold to survive in this modern-day jungle, or one will be doomed to the abyss of abject poverty, destitute living and infernal hell of hunger. If only these gifted hyperbole artists could be honest with themselves, there is no guarantee in the grades. But no one reveals these petty details to teens with crazy hormones armed with zero strategies to deal with their frenzied emotions. Automatically, insomnia is triggered and circadian rhythms badly disturbed. Sleepless nights are accrued to the passion for the fair headed maiden, or the hallucinations of doom and gloom in a cruel materialistic world, lest one learns the rules of the game at the earliest and beat ‘em by before they do. This kind of insomnia can easily be treated with some critical thinking, passage of time and few healthy habits like aptly timed exercise and bed time curfews and curtailment of caffeine intake, which is considered next to the elixir for immortality in those teen days. I do not consider it chronic.

Another commonly experiences insomnia is the one triggered by embracing parenthood. In this situation, circadian rhythms will remain perpetually disturbed for one reason or the other. It could be the selection of peculiar hours your baby has made for his/her sleep and whims, which must be catered of course with 100% success rate. In this situation, there is no counsellor support that can help. Only a change in logistics, a lot of patience, rather resilience or simply being over tired will work. I consider this worthy of sympathy and support and all my heartiest cheers to those brave souls who are persevering under the yoke, including my own set of loyal warriors. Nonetheless, this does not classify as chronic either.

The other acutely excruciating insomniac experience is the one where a chemical imbalance has occurred in your brain and no matter what story you tell yourself there is no talking yourself out of it. Simply, because something is physically wrong with the brain and body and has to be fixed either through medication, drastic change in diet and routine. However, with the right medication, which is highly dependent on the quality of medical assistance available to the sufferer. This quality varies across different countries, based on economic development as well as investment in medical expertise within the economy. Many people in the world continue to suffer from such physiological conditions and are deprived of suitable treatments. This truly classifies as a severely chronic case of insomnia, where specialized help is required.

And then there is another type. Not as chronic and torturous as the one mentioned above, but enough to present challenge to any normal being. And this is where my “should-be-patented” therapy comes in.

If you are suffering from an insomnia because you feel overwhelmed with life and the complexities it presents based on whatever unique set of hurdles and intricacies your mind has been able to conjure, and no amount of exercise, diet change and stories have made a difference, then maybe it is time to tell yourself a new one.

Every night, or evening or morning, whatever time you decide it is enough and insomnia has to go (but preferably from 10 pm to 2 am each day), try this one trick.

Imagine you are in your grave. Six feet under. You can imagine a coffin or simply being in the ground. The scene comes with a glass top coffin or a wooden top, as per your requirements. Now that you are in your grave, imagine that you are actually alive and can hear everyone and everything (this is to keep things realistic because you are not actually dead you see). However, the key to the success of this strategy is to stick to this one principle. Everyone else thinks you are dead, so even if they try to talk to you, you do not have to respond in any way whatsoever.

Let me delve into the logic of this strategy before you shrug it off or become too horrified at the idea. It is simply helping a brain understand that there is absolutely nothing wrong with not being 100% alert all the time because there will eventually come a day when that will not even be possible. That day will come sooner if one is not able to switch off regularly. Therefore, practicing the final destination of a human body, helps relinquish the control we want to exert over our lives by responding to each situation with alacrity and rigour. Just for 6-8 hours every day, you do not need to respond to the situations calling out to you. One can choose which part of the day, one can afford to go into their graves, depending on the logistical arrangements and social obligations one has.

This will work for several reasons:

1) It is a rather realistic story/narrative one can tell their brain

2) It helps put things in perspective and become comfortable with the idea of death, and consequently deals with a lot of other psychological issues

3) Its fun! (I mean fun to let the imagination run wild)

Tremors

Tap Tap, Tap Tap

Drumming on the table

Tick Tack, Tick Tack

Humming on the keys

Drip Drip, drip drip

Tripping on the sidewalk

Raindrops, teardrops

Tripping away at ease

 

Hush hush, Sigh Sigh

Drawing from within

A weary smile, a baited breath

Gnawing clutches akin;

To the wafts in icy winters

The abysmal depths of hades

Shivers thousand years’ deep

Welcome now the sears of sin

There there, thou soothsayer

Thy crony warnings lie bare;

Thy false silver linings, thy faulty stars

Lest you sell some other ware

The fortune tellers, the treasure counters

No one could predict

The tremors of an unbroken heart

Of infernal fires, unlit

Thundering are the crepuscular clouds

Roaring are the raging waves

The yet untainted vessel under the shroud

Quivers inwardly, outwardly raves

The wind laden with zesty life

A vial brimming with potent elixir

Longing, reaching out; rife!

Stroke, Ladle out, spew, stir!

The rocky mantle, the melting core,

The vegetational crust on the surface

The tremors hinting an impending seism

The quivers; a besotted disgrace

Each new day begins afresh

Yet Samuel thy restless ‘seething turmoil’

Bursts forth by mid-day; by end of day

Vanquishes the veneer of calm and coil

Shreds the shroud from head to toe

Spews forth the elixir, potent and prime

Conjures the fantastic on the canvas

Of dreams, vivid, surreal and sublime

Then Toil Toil, thou weary mortal

Sow the seeds of endless pain

Let crack the perfect vessel now

In loss, shall thou now find thy gain

The Tigress in the Sun (From Dreams to Postcards- Chapter: The Whimsical Jukebox)

Over grown grass, brown and dusty  from the baking summer sun, rustled as the wind bristled through the field. The damp shadows from the distant green trees were their own faraway paradise in the full afternoon of a wintry day. The landscape’s surrounding serenity is only a veneer; the prey is being watched from under the canopy of her thick eyelashes.

Her silky mane glistening with the gold of the sun-rays gently falling on her elongated neck and her eyes seem heavy with the drowsiness that comes from a full stomach, basking in the glory of the otherworldly ball of fire. But her graceful body sprawled over the corn-coloured grassy field was anything but slothful. The languid posture on the surface was masking a sanguine vigilance hinting at the thousand passions buried in her bosom. A throttling heartbeat, enough to silence any preachers on nirvana, a fiery gaze fixed on the distance horizon, seeing the yet invisible to the naked eye, piercing through the mirage of existence. A deep breath to calm the qualms of the unseen future, she let the heavy lashes fall on that damp crater above her cheeks and below her eyes. A few watery drops slid down the bends of her cheeks and the blazing glare of the predator in her dissolved within them. For once, she proudly looked down on her on coat, be-speckled with dark spots against the amber stretch of skin across her body and smiled. Closing her eyes again she raised her slender neck, towards the sun. With the orange darkness penetrating her eyes through her tightly closed but not sunlight – proof lids, she replayed the image of her own skin glistening in the sun and smiled with the pride of a goddess who accepts the darkness within her and airs it out in the sun so that the darkness does not mix with the dampness and spoil the glory that she knows she has.

As she opened her eyes, she was on the other side of the horizon, the glistening coat gone, replaced by a fluid fabric, synthetic, processed, reeking of industrialization. The flaxen flowers of the corn-coloured grass were gone and the urban existence reared its face. Yet she looked down proudly on her elongated neck, noticing a single spot near the collar bone, feeling the same assurance she did in the savannahs.

Let it go ( From Dreams to Post Cards- Chapter: The Ruse of the Rooms)

8-let-go-move-on

Those rooms are lost in the mirrors; the mirrors are lost in the room. The quivering of the soul upon that sliver of time between waking reality and the meadows of dreams shakes the foundations of the earth. The sliver is the third dimension of the life of the mind. The un- awakened monster is aroused from its dormant state in that crevice of consciousness in its blaring voice, the reality of being alive. It thunders and rolls the slumber into submission and pulls her back from the portals between the mirrors; the fears of the darkness of the unknown yet to come blaze their brightest; tears flow uncontrollably. There is no sorrow except for that of being alive and being in a body that encapsulates life for a glimpse in eternity. She is enveloped in the longing to escape; to escape through the crevices in time, to a place in between the body and thought. The place where songs fill the air, lights are magical and in the eyes of whoever chooses to see, the clump of trees where lovers unite their spirits and no carnal union is known. The air and breaths mingle in a concoction of sweet fragrance, meant to be present in eternity in solitude of thought alone, enveloping the fears and throbbing hearts and soothing the raging electric currents in the brain.

There is coolness from the deepest oceans and the breeze of the highest peaks, in the veins that carry the restlessness of the waking world. And a presence fills the heated lobes of alertness, cooing softly, “Let it go”.

Let go of the quivering soul’s faintness, let go of the heart’s throbbing pulse. Let go of the current that flows through the veins. Let go of that hate and that disappointment in your bosom. Let go off the self that the body encapsulates. React in a way you never did before. Your actions define you. Change the pattern for actions. Choose a different one every time. Why should anything define you? Let go off the definitions. Let go of the principles that cage your heart; the only principle remaining to self protection and not hurting anyone else. Let it go. Let that claw relax, let that grip loosen. Let it go. Let go off the necessity to feel, let go of the desire to succeed, let go of the want to be somewhere. It will all come back to where you started. Because it is not a road, it’s a capsule, a circular one that meets the end at where it started. All the quivering and the current will be in vain. Let that go. Let that heart ache go, let that hurt pride go, let that expectation go, let that individuality go.

There are a finite number of reactions to a finite number of situations. Why choose trajectory? Why should that be you? You are all of what humanity is, you are the entire universe. Why be unique, why be different, why be you. Be all of it. Live all of it. Why live one life? Live all of them. Be everything, be all of them. React differently every time. Let it go. Be free. Be whatever you can be. Don’t be just one you, be all of those you can be. Be one and be all.

The Dormant Poet to the Silly hermit

Oh thou hermit,

You want too much,

A cost you shall pay for it,

You must come out and play

 

The beast has to be tamed,

The throbbing heart must be maimed,

For being broken is required,

Your bliss poor hermit is not desired

 

Them they crayon smiles on the plastered faces

But your hearty laughter is a prick

Shadow thy face with grime,

For pure sparkly eyes; a crime

The fear of falling asleep

Khwaab chay oh gehrai aye
Jehri jaag chay kadi labbay na

Neender kolon vi dardi haan
Kitay wichon wich dub jawaan na

Te fir kyun akhay kamliye tu
Saari raat akhan taray gin dian

Sikh le dubki doongian wich
Palkan wich neender pain dian…

Blog at WordPress.com.

Up ↑