Financial Cryptography

How Ideas Evolve as a Shared Resource

Recently, I stumbled across a logical economics space where a decision had to be made and no rational information was available. It wasn't exactly that there was no information, but that there was too much noise, and the working hypothesis was that risky decisions would be made without any rational process being successful or potential, for the average participant. (I defined 'rational' as being related to the needs in some direct positive sense.)

Which led me to ponder how shared memes arise outside any framework of feedback. Is this a sales activity? A hype activity? A long search (ok, surf) brought me to the following list of possibilities. They are scattered, and tangential, and to cut a long story short, I remain irrationally indecisive on this process. I actually don't know where to look for this, so comments are also searched for?!

(Links: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15)

I posted one theory a week back, the Big Lie, and I was somewhat surprised at the heckles raised. In a perverse sense, the response proved one thing, that information and truth can be hidden behind a subject of revulsion (and there are plenty of contempory revulsions with which to hide behind). Coincidentally, the Big Lie also provides one theory on how the shared memes arise, that of the conspiracy by the original big liars. It's a theory, but I'm not convinced it explains the space adequately or even in more than a small minority of cases of the Big Lie itself.

The next thread is what happens when a person knows the truth, and the world ignores him. For example, the case of Tsunami Smith, who warned in 1998 that a tsunami could hit in the Indian ocean; we know now he was ignored.

Another thread is how to extract the info. You could go and ask people, but people don't want to reveal their information. Here's two links (Educated Guesswork, and sharad) on how to extract sensitive information from users. Such games remind me of the old british army technique of the firing squad - 6 privates line up and are handed 5 bullets and one dummy. As none of them know which is the dummy, none of them are totally sure that they were responsible for the death of the victim.

Which leads us to the evolving science of the Ideas market. This is an idea by Robin Hanson whereby many people aggregate their opinions, but there are some tricks to overcome the barriers. Firstly, people get rewarded in some fashion for voting on ideas. Of course, few of us can predict the future, so most of the votes are non-useful. But some of the voters actually know what they are talking about. So, in order to overcome the 'popular vote' effect (which is close to what I'm looking at above), people who vote correctly are rewarded by increased value in their 'shares' in the idea's future, and those who vote incorrectly lose their investment. It's "put your money where your mouth is" time. (I have to of course mention my own contribution, the Task Market where you get to own the results of the choices as well.)

Memes are an idea that have been around for a long time - concepts or ideas that pass from person to person. I know this was a hot concept years ago, but I never paid attention to it. Wikipedia has some good starters on it, but it doesn't answer my question; how do these things arise? I do not know, but Wikipedia has a great example of the most popular net meme of all. If only it were that simple!?

You're probably facing some meme resistance by now. Karl Popper advocated this in the strongest possible terms: "the survival value of intelligence is that it allows us to extinct a bad idea, before the idea extincts us." I liked that quote so much I posted it on my SSL page. The only problem is, I don't know where and when he said it, which probably shows its memity.

The self as a meme - I am reminded of a habit I had (have?) when engaging a particularly stupid idea by someone convinced of same. This habit became known by those punished with it, and replicated. So much so that one day I was sitting beside a woman who did it, without realising where it came from ... No, I decline to document the meme, but those who know will.

This post on Boyd and Military Strategy provides an interpretation of what we are observing in certain security goods within OODA (observation-orientation-decision-action) loops. In brief: Observation has initially failed to reward observers, so alternate strategies are formed within Orientation. As there is insufficient feedback in the loop, the Orientation gets more and more powerful, until it is no longer capable of dealing with Observations. That is, those Observations that are in accord with the Orientation are accepted and trumpeted, and those against are discarded. (Those that are ambiguous are open to misinterpretation!)

And finally, Crowds and Power is a book I am reading by Elias Canetti. The mob ruleth, and I shall report back when I've discovered how to rule the mob. Also on the list is Extraordinary Popular Delusions. With a title like that, it just has to have some secrets hidden within.

Which, all tantalising snippets aside, gets me no closer to understanding how decisions are made when there is insufficient information. Maybe that's the way it has to be...

---

Addendum #1: Adam reminds me to add the Keynesian Beauty Contest:

The Keynesian beauty contest is the view that much of investment is driven by expectations about what other investors think, rather than expectations about the fundamental profitability of a particular investment. John Maynard Keynes, the most influential economist of the 20th century, believed that investment is volatile because investment is determined by the herd-like “animal spirits” of investors. Keynes observed that investment strategies resembled a contest in a London newspaper of his day that featured pictures of a hundred or so young women. The winner of the contest was the newspaper reader who submitted a list of the top five women that most clearly matched the consensus of all other contest entries. A naïve strategy for an entrant would be to rely on his or her own concepts of beauty to establish rankings. Consequently, each contest entrant would try to second guess the other entrants’ reactions, and then sophisticated entrants would attempt to second guess the other entrants’ second guessing. And so on. Instead of judging the beauty of people, substitute alternative investments. Each potential entrant (investor) now ignores fundamental value (i.e., expected profitability based on expected revenues and costs), instead trying to predict “what the market will do.” The results are (a) that investment is extremely volatile because fundamental value becomes irrelevant, and (b) that the most successful investors are either lucky or masters at understanding mob psychology – strategic game playing. “Animal spirits” are now known as “irrational exuberance,” and this beauty contest model is an explanation for such phenomena as stock market bubbles. Contrast this model with efficient markets and present value.

Posted by iang at January 30, 2005 08:14 PM | TrackBack