Friday, 24 September 2010

Emergent cognitive order

As I've mentioned here before, I'm conflicted about Austrian economics. While I disagree strongly with most of its political conclusions, I think it asks many of the right questions - especially in its seminal works, such as von Mises' On Human Action.

Pete Boettke in this post shows that, despite being surprisingly wedded to a narrow, libertarian strand of political opinion, the Austrian movement is still interested in much bigger and more intriguing questions than what the right level of taxes is. His colleague Virgil Storr has been appointed editor of the journal Studies in Emergent Order.

Let me use this opportunity to briefly mention some of my ideas in this area, placing a marker for future, deeper exploration of them.


First: the notion of emergent order is critical to economics. The high level behaviours and structures of many complex systems arise from low-level components that apparently have little in common with them. The human brain is perhaps the canonical example - the thoughts and actions which come out of it appear to have nothing to do with the simple neurons of which they are made. The windows, documents and music which pour out of a modern computer do not share their shape or nature with the silicon transistors on which they are built. And the images that are placed in your head by a great novel or even a mundane blog - just think of a rippling meadow of yellow daffodils, or the aroma of a bacon roll - are completely distinct from the series of ink strokes or pixels which makes the shapes of the letters which describe them.

Some of these high level structures are imposed on their smaller components by an author or inventor of some kind. But those which are not - like the brain - can truly be said to emerge from the natural interactions of the small components. And the economy is one of these emergent systems. Macroeconomic phenomena are natural consequences of the desires of, and constraints on, the millions of individuals that interact in an economy. There is no need for a designer to create the economy. The study of economics is more about discovering which kinds of phenomena will emerge, given the basic rules that people follow.


Second, the emergent behaviours depend not just on the nature of the individual, but also on the individual's relationships to others in the economy. These relationships often do not arise automatically. They are learned over time; they spread through communication; they rise and fall dynamically; and they depend in each moment on the relationships that existed in the moment before. The study of these relationships is often neglected in economics, but the subject cannot be understood without them.

What form do these relationships take? Knowledge. Trust. Laws. Learned preferences. Social groupings and comparisons. Economic institutions. None of these are natural to the individual, nor can they exist solely as properties of a single person. And yet they do exist inside the individual heads of people. They are perhaps best thought of as a shared mental state of many individuals, combined with mechanisms to communicate and confirm that state through language.


Third, the nature of the individual, of the shared mental states and of the language that communicates them are not accidental. Instead, they can be derived from the necessary conditions which a cognitive being must fulfil, combined with an understanding of the kinds of organism that would thrive or survive under evolutionary pressures.

This is the reason why neuroscience is a distraction in economics. All of the important aspects of human behaviour, anything that matters economically, can be derived from first principles without the need for any knowledge of, or experiments on, brain biology. Cognitive biases towards the short term, the status quo and objects currently or recently visible, biases against risk and loss, heuristics which approximate extreme probabilities, and social phenomena like emotions and trust, are natural attributes of any plausible thinking being. The only open question - where neuroscience might have some small contribution to make, but behavioural experiments are much better - is how strong these traits are.


Since the low-level attributes and the high-level emergent phenomena are dependent on each other, modelling them is not an obvious matter. But economics does have some useful tools to help - whatever the weaknesses of simplistic rational expectations and general equilibrium models. A joint derivation of the low and the high level structures is, in fact, the key foundation project of cognitive economics. From that point, a deeper understanding of individual choices and macroeconomic dynamics will swiftly emerge.

1 comment:

Anonymous said...

hey - a good start into a nearly unknown phenomenen.
Emergent order is IMHO the most important changing in minds - in public just a few decades old, but in fact seems to be the driving force starting with the new economy (end of 17.century).
It is hardly understandable, why this phenomenen is nearly unknown and up to now sparcely or not mentioned in studies about economy.
May be, it is the unknown fact, that individualism is quite different from individualiy, maybe it`s the aftereffect of the communism as system (IMHO starting with the late Marx). Or may be, it is the scientics chiraptophobia of the word "empathy", especially the social empathy. And of course something like "free human will", that is feared by them, especially to be seen with Luhmann - a contradiction within itself!
I would appreciate to be contacted (lefsys@web.de), though my english is in need of improvement, I know.

I wrote the article "Emergente Order" in the german Wikipedia with a lot of my own ideas (and others related to the theme like "Gefühlsansteckung")).

Up to now I feel pretty alone over here in Germany! :))

Regards
lef