Till the 17th century, you were educated if you thought that the earth was flat. Through the ages, we have carried distorted views of Reality, reinforced by Education. As Psychology enters Economics, another worldview bites the dust. Recounted below are my Notes on the debate. At the end, I discuss how this fish-eye of our independence, creates a systematic distortion in how we perceive the evolution of prices.
Declaimer: This article was originally in June 2019, and some of the data points may be outdated
Explain The Political Libertarians
Political Libertarians talk about freedom from government intervention, while Libertarian Free Will could cover anything from Political Libertarians, laissez faire to socialists. They believe that mankind is born to freedom. Hard Determinism is the belief that every effect has a cause, and nothing other than what does occur COULD occur. In other words, Cause & Effect.
At first sight, you might believe that both are possible. Turns out, you can’t rationally hold both views…..The Principle Of Alternate Possibilities: Libertarians have defined an action as free only if the agent could have done OTHERWISE. So truly free actions need OPTIONS. But Determinism opines that every action is driven by, and dependent on, a previous action.
Libertarians say that the decision to eat oatmeal for breakfast was generated by an independent thought. They distinguish between Event Causation and agent Causation. In Event Causation, no physical event can be caused without having been caused by a previous physical event. So the physical world IS deterministic. But Agent Causation is not Deterministic, i.e., an agent, being propelled by a mind, can start a whole chain of causality that wasn’t caused by anything else. So a physical ball has to be hit, but a person can unilaterally decide to hit the ball.
But Determinism looks deeper and finds that most of our so-called actions are BOUND by other rules. The whole flawed worldview of Libertarians exists, just because it FEELS like we’re free. This is very true in economic behavior, which is mostly driven by Greed and fear, the Dopamine- Cortisol/ Adrenaline combination. And as usual, our brains live in this distorted Virtual Reality, which gives us a Fish-Eye view of the world. When economics goes into the reason for such supposedly independent actions, it finds that they have causes, and hence are Deterministic.
Libertarians argue that we shouldn’t discount the legitimacy of our own personal, subjective experiences. If we think we’re free, we must be. This has a certain intuitive appeal, but if you can’t come up with an argument to defend a feeling, then good philosophical reasoning (a.k.a. Common Sense) dictates that you reject it. Further, this is a highly flawed assumption for an Economic model. And you cannot assume Rationality if you cannot assume Free Will.
So let’s now look at the Hard Determinists, in the left corner. They say that EVERYTHING is the inevitable result of what came before, including what we do. Humans and our actions are just part of the physical world and its laws….in other words, we’re just animals, physicochemical machines that have NO FREE WILL.
The determinist’s Reductionism
The Determinists talk about Reductionism: the belief that all parts of the world, and our own experiences, can be traced back- or reduced down- to one singular thing. You see your mind as being capable of making FREE decisions. You think that what goes on in your head when you make a choice is not at all like hitting bats & balls. But the Mental States are Brain States, which are biological. And that is a physical state, which is Deterministic. The only problem with accepting this contention is that it FEELS like we’re free….somewhat like how the Earth still FEELS flat when you stand on the seashore to watch the sunset.
Libertarians are right that it’s very difficult to disregard the FEELING of Freedom. The difference between the causes of human actions and the causes of physical actions (like the hitting of a ball)- is that our actions have all sorts of invisible causes that happen in our brains. Like a car that runs, but until we look under the hood, it FEELS like magic…! When Beliefs team up with our Desires & our Temperament (propensities), you get Human Action. Hard Determinists argue that just because we can’t pinpoint the exact factors that lead us to action, we could, in theory, isolate them- if we knew enough about all the beliefs, desires, and temperaments swirling around in our brains. So all decisions are just a bunch of beliefs, desires, and temperaments combined in a specific way.
And this is where Behavioural Economists have a different fish-eye lens to view the unfolding history that we see in markets. If we could figure out the Beliefs, Desires, and Temperaments of the market participants, we would be able to find the DETERMINISTIC path that markets tend to take. Under certain conditions, this tripod (of Beliefs, Desires, and temperaments) gives you a clear picture of how things can be expected to unfold.
We can take this very far. If we just flip a coin or get someone to choose our breakfast, the decision to take those decisions is itself Deterministic. There’s no escaping it, just like the Earth IS round, get used to it. If you’re getting angry right now because I am telling you that you’re not free, then that too is Determined. If you’re confused, or bored, so too is that Determined. If you are going to stop reading this, that too is Determined. Or if you choose to read till the end, that too. Determinists feel that you cannot help but feel the way (frustrated) that you’re feeling right now.
HARD DETERMINISM is tough to refute, and it has some uncomfortable implications. It means the deeply held feeling that we all have of our own Free Will, is just a figment of our imagination, no different from how the Earth FEELS flat. We’re all just cogs in a machine, doing what we were meant to do, with no independent volition. Once you take this philosophical position, you’re in a better position to tweak the rules that drive your own volition.
The Universe operates rules
Compatibilism believes that like Hard determinism, the universe operates with hard rules, whether visible and comprehensible to us or not. But they also think there’s something different about some human actions- that some of the actions we take are Free. This is Soft Determinism. It takes an effort of will, which is internal and conscious. It can be developed and can change over time. If you’re pushed into a swimming pool vs you jump, the event couldn’t NOT happen, but when the action of an agent is self-determined, it should be considered free, i.e., we are morally responsible for our actions. Frankfurt Cases are choices that we have made, even when we didn’t know that we had no choice. Cutting our positions at the bottom of the market (Capitulation) is one peculiar version of the Frankfurt Case.
A group of friends pressuring you to drink may be an external factor, but your desire to conform is an internal factor. If we can’t separate internal and external factors, Compatibilism says that actions are more or less free. The degree of freedom is, of course, dependent on how much our decisions are internally driven.
We can’t help but assign responsibility to people for their actions, even though they may not be fully in control of them. Instead of asking “Am I free?”, we should be asking “How much control over my decisions do I have”. This is especially true in markets. The more control we have, the more responsibility we have. Feeling Free = Having More Control. But we should be Deterministic, strong believers in NO FREE WILL.
Determination to think through and modify our actions goes against the above axiom of Life. It may not meet the puritanical standards of Determinism, but it does translate into a superior way of Life.
Eventually, turning into a diehard Determinist is the equivalent of turning into a Rationalist in your economic Life. And then using determination to EXTRACT Free Will from your terministic circumstances, is the key to a superior Life. To view markets as Deterministic, will allow you to locate the Beliefs, Desires, and temperaments of people during their weakest, most sub-conscious moments (which is about 95% of the time). And when you locate and fight against those basic impulses at every step of the way, you will find yourself evolving into a superior being.
