Eric Beinhocker, The Origin of Wealth, Evolution, Complexity, and the Radical Remaking of Economics, (Boston: HBS, 2006).
p. 11 Three step formula: differentiate, select, amplify – creates the econosphere.
biobabble –
p. 97 – Complexity Economics vs. Traditional Economics
p. 373 – Cooperative Norms also have important effects on both adaptation and execution. In low-trust, low-cooperation environments, interactions between agents must be spelled out in great detail, with numerous rules and little flexibility. … Norms that foster trust and cooperation allow people to use there brains to determine what is best, given the circumstances, creating both better performance and the possibility of experimentation and improvement.
p. 419 – Human beings are neither inherently altruistic nor selfish; instead they are what researchers call conditional cooperators and altruistic punishers. Gintis and his colleagues refer to this type of behavior as strong reciprocity and define it as “a predisposition to cooperate with others, and to punish (even at personal cost if necessary) those who violate the norms of cooperation, even when it is implausible to expect these costs will be recovered a later date.” . . . In essence, people try to follow the Golden Rule, but with a slight twist: do unto others as you would have them do unto you (i.e., conditional cooperation) – but if others don’t do unto you, then nail them, even at personal cost to yourself (i.e., altruistic punishment). People have a highly developed sense of whom they can trust and whom they cannot, to whom they owe favors and who owes favors to them, and whether they are being taken advantage of. As the old adage says, “Fool me once, shame on you; fool me twice, shame on me.”
p. 426 – Government as a fitness function shaper – policies that shape the fitness environment, while leaving Business Plan selection and amplification to market mechanisms.
p. 430 Culture Matters: Grondona – (1) individual behavior, (2) cooperative behavior, (3) innovation.
In the first category are norms related to individual behavior. These include norms that support a strong work ethic, individual accountability and a belief that you are the protagonist of your own life and not at the whim of gods or Big Men. Fatalism greatly reduces personal incentives. It is also important to believe that there is a payoff to hard work and a moral life in this world, and not just in the next. Finally economically successful cultures appear to strike a balance between optimism that improvement is possible, and realism about one’s current situation.
In the second category are norms related to cooperative behavior. Foremost is a belief that life is a non-zero-sum game and that there are payoffs to cooperation. Societies that believe in a fixed pie of wealth have a diffult time engendering cooperation and tend to be low in mutual trust. Consistent with our discussion of strong reciprocity it is important that the culture have norms that value generosity and fairness, but also sanction those who free ride and cheat.
The third category contains norms related to innovation. Deductive-tinkering is much more effective if the deductive part is strong, and thus cultures that look to rational scientific explanations of the world rather than religious or magical explanations tend to be more innovative. Likewise, a culture needs to be tolerate of heresy and experimentation, as strict orthodoxy stifles innovation. Finally, it is important that the culture be supportive of competition and celebrate achievement, since overly egalitarian cultures reduce the incentives for risk taking.
One final norm is important to all three categories: how people view time. Cultures that live for today (or, conversely, are mired in the past) have problems across the board, ranging from low work ethic, to an inability to engage in complex cooperation and low levels of investment in innovation. Why work hard, and invest in cooperation and innovation if tomorrow doesn’t matter? In contrast, cultures that have an ethic of investing for tomorrow tend to value work, have high intergenerational savings rates, demonstrate and willingness to sacrifice shrot-term-pleasures for long-term gain, and enjoy high levels of cooperation.
p. 431 – factors in African culture that have a negative economic impact: excessive concentrations of authority in individual Big Men (who often claim magical powers), and a view of time that focuses on the past and present, but not the future: “Without a dynamic perception of the future, there is no planning, no foresight, no scenario building, no policy to effect the course of events.”
Impact of those who believe the world is a zero-sum game vs. those who it is as a non-zero-sum game.
p. 432 – If your beliefs are biased toward seeing the world as a zero-sum game, then your objective will be to get your slice of the pie. You will view someone else’s gain as your loss, and your proclivity to cooperate will be low. Rather than searching for new, more complex, and wealth-creating cooperative activities, people will invest ther energies in finding ways to capture a greater share of the existing wealth. It is not hard to imagine that theivery, dishonosty, and corruption will be higher in such a zero-sum society. The moral attitudes around such activities will also be different; for example, theft might be viewed as “I’m just taking my fair share” from someone who has more than his or her rightful share.
Now, imagine a population in which some agents think the economic pie is fixed, while others have a non-zerosum view. Overtime, as a non-zero-sum agents find ways to cooperative and create new wealth, they will be attacked by zero-sum agents trying to get their share. This conflict will lower the returns to cooperation, and eventually, the non-zero-sum agents will learn that cooperation doesn’t pay and become zero-sum agents themselves. Non-zerosum attitudes don’t need to be an inherited, hard-wired trait. One could have two populations in which people are born with the same natural distributions of attitudes and predispositions. But in a low-cooperation society, non-zero-sum attitudes are essentially beaten out of the agents over time and they eventually learn to become zero-sum agents. When researches model these dynamics, they often find there is a tipping point: once a society is past a threshold ratio of non-cooperators versus cooperators in a population, it becomes very hard to maintain large scale cooperation, resulting in a “poverty trap.” Such tipping points mean that the vagaries of history can send one society down the low cooperation path into a poverty trap, while another society with the same predispositions to cooperate might bootstrap its way to riches. The dynamic interplay between cooperators and defectors can thus influence the evolution of norms and the level fo trust in a society. Culture is not an immutable force; rather, it coevolves as people in a society interact with each other – culture is a product of history, and history is a product of culture.
p. 434 Overly strong family ties can have a negative impact on development (Karla Hoff Arijit Sen)
In northern European Protestant traditions, families tend to be defined as the immediate nuclear family of parents and children, with weaker ties to grandparents, aunts, uncles, and cousins. In many african and South Asian traditions, the radius of family is larger and stronger, extending to grandparents, aunts, uncles, great aunts, great uncles, cousins, second cousins, and so on . These extended-family societies also have very strong norms on the sharing of economic wealth among fmaily members. Richer family members are expected to help poorer family members. While the wam and fuzzy image of a large, extended family sharing with each other sounds very appealing and may have pscyhological and other benefits, in economic terms, it creates a basic problem. If you get a job, work hard, and accumulate a bit of savings, you will be rewarded by having your no-good, lazy second cousin come live with you, eat your food and generally sponge off your hard-eared wages This is what economits call a moral hazard. Extended definitions of family create incentives for free riding and lower the returns to work and savings. Hoff and Sen argue that not only does the extended family create problems at the individual level, but it can also further retard development as it extends into nepotism in business and government institutions.
p. 431 – A society might have strong norms of tolerance and forgiveness (or attitudes toward authority that aggrandize getting away with breaking rules as long as you don’t get caught) that allow cheating to proliferate, thus weaking its ability to create large-scale, stable cooperation and reducing its economic achievement. But the very same norms might make it a warm, friendly, and even peaceful society.
p. 422 Hayek – epistemological problem with planned economics – The knowledge required to solve the problem of what to produce in an economy lies scattered all over society. It includes information on prferences embedded in people’s heads, as well as information on costs, technologies, and so on. By the time we surveyed the entire population on their preferences for the 1010 SKUs of goods and services in the economy (ignoring the fact that no one could complete such a survey in hir or her liftime), the information would be out of date as soon as it was collected. Same with price.
2. beyond our ability to process. Even if we could collect all the data needed, we would not be able to process it. . . . human deductive rationality is simply not up to the job of understanidng, predicting, and planning in a system as nonlinear and dynamic as the conomy. Perfect rationality is just as unrealitic in socialist there as it is in Neoclassical theory.
3. If we reject perfect rationality and instead rely on deductive-tinkering, then we need something to judge the success of our tinkering against: we need feedback on what are good Business Plans versus Bad Business plans. Without market mechanisms to provide that feedback, we are stuck with Hayek’s knowledge coordination problem. In the absence of actual knowledge of what society wants, and with no mechanism for enforcing a selection of those things, the Big Man hierarch of the state will simply produce whatever it decides to produce. … The natural tendency of Big Man power hierarchies is to do things that serve the interest of the Big Men. Thus, the fitness function in pure planned economices inevitably reflects the interest of the power hierarchies, and not those of society more boradly.
neatly planned utopia vs. mess reality of a complex adaptive system.
same with laws – without input from stakeholders and responsiveness to that input, the system produces rules that only serve the interest of the Big Man in a “managed democracy.”
