I will try and make a very difficult point, and I’m not sure I will do a good job of it. Please bear with me, if you find this a little obtuse. Adam Smith discussed the ‘invisible hand’, which guided the economy. What he meant was that millions of individuals, acting in their selfish interest, would promote the common good, through a systematic process that was not easily visible or definable.
Declaimer: This article was originally in April 2018, and some of the data points may be outdated
With new knowledge coming from Behavioural Economics, we now know a little bit about what he meant. The human being has 3 minds (all part of one brain). First, the Limbic Mind is animal-like, standard in construction and unchanging, not able to learn. It’s the most powerful, shutting down the other minds when it speaks up. Issues like self-preservation, ego, etc are embedded here.
Then there is the Social (Monkey) Mind, which is part of the subconscious. It herds us together, and we imbibe communication at the subconscious level. We have a different personality in groups, than we have when we are alone. And even this has shades of grey, from small groups to mobs to markets. It’s more complicated and nuanced than the Limbic Mind, but still relatively standard in construction and predictable in operation. Both these minds are very visible in markets, in fact, we rarely see anything else.
And then there is the Human Mind, the Conscious Awareness that we call a Homo Sapien. It’s capable of logical processing and emotional processing, from the left and right hemispheres respectively. This mind is capable of unique thoughts, which process often independent perspectives that come from different circumstances. It was this ‘human-ness’ that Adam Smith assumed, which led to the famous ‘rationality assumption’, the assumption that we have different and sometimes unique perspectives/ interests, which we can recognize and articulate, and then pursue very logically with the right Emotional Intelligence.
Almost NOTHING in that last sentence is true of most of us, most of the time. It was much later that we learned, through the Neurosciences, Evolutionary Biology, and Anthropology, that we are still animals in most of our behavior, of standard construction (at the sub-conscious level) and it took an effort of will to even get the human brain started. That will is called character, and many of us either don’t have it (it never woke up, buried under societal pressures that taught us to conform) or don’t know how to use it. The latter became the subject of Behavioural Economics.
This attribution that Classical Economics made of the homo sapiens, that he could process both logic and emotions, was a gigantic mistake, which rendered most of these ‘rational’ models flawed and unusable in the real world. What made matters worse was this fantastic claim of what these models could do, and how they could run the world (or at least, figure it out). Not knowing its limitations has been the biggest crime of Classical Economics, in this last century.
Then came Behavioural Economics, which pointed out the 3 ‘minds’, which have caused all this confusion. We DID have a ‘rational’ mind, but it was the most pansy-ish of the 3 minds that we had: it rarely woke up, it barely spoke up and it was the first to shut down when the other 2 (minds) so much as even coughed….!!!
One would think that with the spread of this new ‘education’, more and more people would start to use this ‘rational mind’ that came with the package, but which has never been opened and doesn’t seem to have an Operating Manual. Behavioral Economics took upon itself this onerous task of laying out an Operating Manual.
Unfortunately, the world seems to be going in entirely the opposite direction. Thanks to FB/ WhatsApp, there’s a convergence of thought processes that were not possible earlier. Sheer access and standardization of communication are turning the minds of most of humanity into their Limbic and monkey Minds. And all that the Human Mind can do, is being taken over by AI and the machines.
Just think of the appeal offered by a Heaven that consists of 72 virgins, just waiting to be deflowered. And compare it with the Heaven offered, say, by my religion, which offers you ‘freedom from the cycle of birth and rebirth’, whatever that means. Who wants to hang out in outer space, somewhere between an asteroid and a black hole, when you can be romping around with the much more palpable pleasures offered by those virgins? To a particular kind of gullible mind, obsessed with projecting his ‘selfish gene’, there is simply no deal. Who would exchange such carnal pleasure for some philosophical (and nebulous) state of existence?
Now just imagine the power of FB/ WhatsApp, which can send such messages to the most Limbic minds on the planet, maybe even with graphic images. Who wants to think, when there is a battery of Kingfisher girls just waiting to be taken?
But back to Economics. Through similar means, there is a ‘zombification’ of relatively less incendiary ideas that are just bad for your financial health, rather like a can of sugary cola has been held out to be your route to ‘happiness’. All this is called ‘business’ and the money exchanged for such foolishness is counted as GDP. And then we get worried when this foolishness is not growing anymore.
Nowhere is this more evident than in that amphitheater of systematic insanity, where pin-striped suits go around believing that in some way, the world is richer for their existence. Markets somehow bring out the base of our personalities, even as they pretend to be forecasting machines that are the barometer of the underlying economy, and have pre-empted for themselves the role of the asset allocator.
So Adam Smith’s idea of the ‘invisible hand’ ignored the idea of the ‘invisible heads’ (or minds), which give a vicious spin to the processes by which markets allocate resources. Yet, markets are known to sometimes work, even without regulation. In a world where technology is binding together human thoughts, and coalescing them into an agglomerated, limbic mass, the distortions to economic behavior can only increase. From selling sugary drinks as your ‘road to heaven’ to the vehicle (FB, WA) itself, you are increasingly left with little of the free will left that is needed to even make choices.
Will it be surprising, then, if more and more businesses start to lock into our Limbic Minds and THAT becomes the measure of the success of a business? Flipkart tried (it seems unsuccessful) to get you hooked onto online shopping, lured by crazy discounts, hoping that one day, you would pay for what right now, was available free.
This is especially pernicious in Finance & markets. One day, not very far off, you will have apps that will allow you to lose your shirt at the click of a smartphone. With no law decreeing that you should only use your non-functioning human mind, you will have the booking platforms count their turnover as GDP, and this will be called progress. This Russian Roulette will be called a business.
The vocation of teaching people to use their dormant minds, will, however, be limited to the columns of this magazine. Which is not doing much for the GDP, I need to speak to the Editor about getting a raise.