Posts Tagged ‘illusion’

About Behavioral Economics: Why Hawks Always Win and Doves Always Lose

Friday, May 29th, 2009

horusThe belief in Rational Decision Making has been the focus of Economic Theory for a very long time.

Although everybody knew that Humans are Highly Impulsive and Emotional, Economists based their theoretical models of the Market on a Rational Human Being who is always able to Calculate the best Alternative possible. This Theory is wrong. The Economic Behavior is controlled by the Emotions.

The current economic crisis shows that the old Rational Theory is not applicable and the attention for alternative theories of Economic Behavior is rising. These theories are called Behavioral Economics.

An important paper in the development of behavioral economics was written by Kahneman and Tversky in 1979 (Prospect Theory, Analysis of Decision Under Risk). Kahneman was awarded the 2002 Nobel Prize in Economics for his research in Prospect Theory.

According to Prospect Theory, Humans attach much greater weight to future losses than to future gains related to their personal reference point. When you expect a certain gain in the future and this gain is lower than you expect the gain is experienced as a loss.

Kahmeman and Tversky became the experts on Cognitive Bias. A Bias is a “not-rational” mostly fast response to a stressful situation. In this case the Human System uses old structures (The Reptile Brain) that were created a very long time ago when the human lived in a completely different environment. The Reptile Brain uses many shortcuts to save time.

Social and cognitive psychologists have identified a number of predictable errors in the ways that humans judge situations and evaluate risks. Biases have been documented both in the laboratory and in the real world. For example, people are prone to exaggerating their strengths: About 80 percent of us believe that our driving skills are better than average.

In 2009 Kahneman and Renshon wrote a paper called Hawkish Biases. It is an attempt to unite the many Cognitive Biases into one Model. The model shows that Humans are highly Confused Predators (Hawks).

As a Predator they protect their Territory with every means possible. They are Confused because they are capable to Observe and Reason about their own behavior and the behavior of others.

Humans need the “Illusion of Control” to sustain their own Identity. Every time something happens they are looking for reasons to believe that they are the Primary Actor in their own context. They don’t want to believe that Other Human Beings are also Active Agents.

If they would believe this was the case their “Unrealistic Optimism” could change into “Realistic Pessimism”. Unrealistic Optimism makes managers, politicians and generals receptive to advisors who offer highly favorable estimates of the outcomes. Such a predisposition, often shared by leaders on both sides of a conflict, is likely to produce a disaster.

When a Human is Depressed by Realism he Loses his Face and moves down in the Picking Order of the Territory.

Humans believe that every other Human is always capable to see their Weaknesses (“the Illusion of Transparency“) just like they are convinced that the intentions of others are always clear to them (“the Fundamental Attribution Error“). To hide their Weaknesses they have to wear a Mask and Play the Strong Leader of the Pack. They have to Keep Up their Appearances.

doveHumans base their theory of the other on inferences about historical behavior and completely forget Situational aspects. When a context is hostile the other must be hostile too. When others behave differently from their expectations they suddenly introduce situational factors to sustain their believe system.

Humans need to sustain their believe-system because this system is the foundation of their personality. Their view on the World has to stay constant because when it changes too fast they will get into big psychological problems. When people get older their believe-system becomes very rigid.

Humans value their own possessions much higher as the possessions of others (“The Endowment Effect”). They even consider possible, imaginary, possessions as real possessions if they are convinced there is an easy way to get them.

If they lose a real or imaginary possession they take tremendous risks to get their possessions back (“Risk Seeking in Losses“). People in general don’t like cutting their losses. They’re willing to gamble on in the hope of recovering them.

Humans simply believe that a Hawk always wins the Game and a Dove always loses. What Humans (want to) forget is that they are living in a group and their In-Group and the many Out-Groups contains many Hawks. They need the confidence that they are “the best” to Survive.

The world of the Human Hawk is a world of Competition (Winner takes all) and therefore highly Stressful. The Sad Thing is that the many faces of Stress are the Major Cause of the Cognitive Bias. When Humans relax and reflect they are much more capable to solve a complicated conflict.

The competitive Hawks always fall in the trap of the Prisoners Dilemma and don’t realize that Cooperation, the Win-Win is the only Certain Way to Leave the Prison.

At this moment another Behavioral Economist, Robert Shiller, is getting a lot of attention. Together with the Economic Nobel Prize Winner George Akerlof he wrote the book “Animal Spirits“.

In the book they identify five distinct elements that blur the theory of the Rational Economy. These elements or “animal spirits” are called: confidence, fairness, corruption; money illusion and the reliance on “stories”of others.

The first three have a lot to do with the “hawk“-theory of Kahneman. The Hawks use the Rational System for their own benifit. They Play with the Rules and invent new exiting possibilities to win more than they ever could imagine.

Sometimes they Play Dirty Games to beat their Opponents. The Doves believe the Economic (Rational) Fairy Tales of the Hawks and are unable to understand the Real Value of their Money.

The Money Illusion is caused by Inflation. Inflation happens when prices Rise but the value of the objects that are priced stays the same. Inflation give people the feeling that they are making money but in reality they are losing money.

The Hawks use Inflation to keep the Doves Buying and Investing. They also use the weapon of Inflation to win the war with the other Hawks.

The Majority of the Human Beings are Doves. They believe the Hawks or are afraid of the Hawks. The Doves are the Workers in the Economy and they make it possible for the Hawks to Hunt.

The Hawks provide the Workers with many things to live an easy life until other Hawks start to Attack the Territory. In this case the Hawks need the Workers to fight and win the War.

Sometimes even the Hawks lose their Rational Capacity. They see a Big Win and become Greedy and Vulnerable. If this happens the Territory is open for other Hawks (The Chinese?) to enter and to take over without any problem.

What has Happened?

The Economic System is just like the Weather System a Cyclic System. When the Economic Cycles and the Weather Systems move UP the Hawks have an Easy Time. Their is enough food for all the Hawks. When the System is going Down Competition starts.

The Hawks forgot to look at the patterns. They did not see or believe that the downfall was approaching. They did not take enough stock to survive the Seven Bad Years. Suddenly the Autumn turned into Winter.

At this moment they are regrouping to create a Powerfull Alliance to take from the other Hawks what they need. They don’t care about the Doves. They always believe the Tales they Tell.

They are afraid of the Other Hawks that are outside their Huge Territory and are Prepared to Fight the Wars that are needed. The Doves will believe them as usual.

LINKS

About Prospect Theory and Conflict Resolution

About Economic Cycles

Kahneman/Renshon, Hawkish Biases, 2009

A Very Long List of Cognitive Biases

About the Prisoner Dilemma in Foreign Policy

An Abstract of the Book Animal Spirits

How the Chinese Networks are Conquering the World

A Review of the book Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof and Robert J. Shiller by Benjamin Friedman

About the Legal System

Saturday, August 4th, 2007

A friend of mine is a well known lawyer. He is writing a book about improving the Legal System. He is thinking out of the box.

His main issue is efficiency. We can save much money and of course save a lot of trouble of innocent victims of the System when we use sound principles of management. I agree with everything he is writing.

I don’t want to think out of the box I want to remove the box itself. Let’s have a try.

Why do we need a law and people that are enforcing the law?

Was there a time in history when Law was not needed?  Law was not needed in Paradise.

What Went Wrong?

The Church is trying to convince us that we were forced to leave Paradise because of Sin. Eve ate an Apple. The Apple was given to her by the Snake and the Snake was Evil. Sin is the cause of the Legal System.

We have to detect and punish all the sinners who are not obeying the Law. When they have confessed their sins in Court they have to pay the price in terms of money and/or years in prison. After that time they can start all over again.

The concept of Sin was invented to give the Power to Judge to the Church of Rome. The Church of Rome was the successor of the Roman Empire. They were the experts in managing the masses (Divide and Conquer, Bread and Games). They were also the inventors of our Law System.

My friend uses many Latin insights like “De minimis non curat Praetor (dont go to court for something small)” to support his arguments. Later the Institutions of the State took over the Power to Judge.

The Church of Rome not only explained why we had to leave Paradise. It also invented a new concept called Heaven. Heaven is Paradise but now we have to obey the law to get there.

Paradise was given to us. To go to Heaven we have to obey. They not only invented Heaven but also Hell (The Jail) and a manager of the eternal Jail called the Devil.

The snake is really the symbol of Consciousness, the power which knows itself. When the human left Paradise he became aware and was given the opportunity to become a co-creator. He became a part of the Whole that is called All-That-Is (Yahweh). He was also given a Free Will because a dependent co-creator is not a creator.

What went wrong?

We were not able to co-create a balanced Earth and time after time All-That-Is was asked to interfere and to create a Law like the Ten Commandments. The first command was “Don’t Kill“. Humans thanked Yahweh for the Law and just went on killing.

What went wrong?

We always find new laws (exceptions) that are more important than the first commandment. We invent them. We are allowed to kill when somebody has killed another person or we are allowed to kill when somebody is trying to kill another or…. I can go on and on giving you very intelligent arguments why killing a human is allowed in a certain situation.

This process of inventing exceptions is called jurisprudence and it creates a very complex system of laws. To judge a situation we need highly educated experts (Lawyer) and highly educated “objective” persons (Judges) to value the law and its exceptions to pass a verdict. By creating experts we created a shortage. The experts in law are not trained to become a doctor or an artist.

In society we don’t discuss this shortage. We hope that the System (now called a Market) will regulate itself. When it is regulating itself we create Laws to stop the process of Self-Organization (also called Consciousness).

The doctors are afraid there will be too many doctors so their price (income) will go down. They organize pressure groups that are influencing law makers and often somebody introduces an exception. This exception increases the Complexity of the System.

What went wrong?

When you need an expert you need money and some people are poor. So we invented a system where there are two types of victims the rich and the poor. The rich are able to win a legal process more easily than a poor person.

Again we created a shortage. The shortage is wealth and we invented a tool to “objectify” wealth called money. Poor people are in need of money and rich people have an abundance of money. We created a system called a Bank to regulate the flow of money. We created systems to regulate Banks. Regulating regulators never stops.

What went wrong?

The rich people have influence by themselves. We try to prevent this but behind the scene people with influence are making deals with the Law. We all know that.

We create Laws to prevent this but as you all know now people don’t like to obey rules. This opportunity was given them when they left Paradise. It was called Free Will. We are constantly trying to control Free Will (Our co-creating Creativity).

What went wrong?

At some point in time the masses became too powerful. They were on the verge of a take-over. To stop this democracy was invented. This went wrong when the masses started to vote for themselves. To prevent them doing this the consumer market was invented. The masses (now called citizens) could vote with their money.

Now the consumers (the masses) are taking over the Power again and the consumer market is destroying Earth (our Paradise).

We are inventing new concepts like Media and Games (Bread and Games) to silence them.

We also create new ways to “divide and conquer” called Sound Management Principles and Compliance but will it help us?

What went wrong?

The main point I am trying to show you that things always go wrong. We are compensating a fatal error with a fatal error.

This is a meta-problem and I can go on phrasing meta-meta-meta questions and in the end things are always are going wrong. Is there something totally wrong behind all this?

We started with the gift of consciousness, the power which knows itself. This power gave us a Free Will and Free Will is Co-Creativity. The Co is very important Co means Co-Operation.

Are we really using the Power to Know Ourselves? If we would know ourselves we would know what was Right and what was Wrong. We would act out of Knowing instead of out of our Impulses. We would not need an outside Law. We would be carrying the Law in Our Selves.

Why are we not using our Consciousness?

People use their Consciousness all the time. It is a voice that is talking in their heads asking them Why?

Why is starting the process of Reflection. To reflect we need a Mirror and the Mirror is the Other. If you were the other, would you like to be treated like You are treating the Other?

What people do most of the time is the opposite of Reflexion called Projection. Projection is telling others not to do what You are doing all the time.

You are a Priest working in the Army. You tell others that they are not allowed to kill but when there is a war you pray to God for help to win the war.

Projection is the cause of all the trouble we are in. Projection is Judging others without starting to Judge yourself.

Ask yourself the question. Is it wrong to ask for food when you are hungry? The Law in the Bible tells you to give shelter, food and care to the poor and the sick.

Why are we not doing this?

We are doing this because when we give money our account is going down and perhaps we need the money later when we are in trouble. But when everybody is helping everybody we don’t need to save money.

We don’t believe others will do this and therefore we are not doing it our selves. This is projection. We are projecting our behavior on others.

Is it wrong to ask for a shelter when you are poor? Again “giving something” causes problems because when we give we are also have to take.W

We think Life is a zero-sum-game.  We are imagining a shortage. Shortage is a fantasy, an Illusion created by our Thinking Process.

Our Thinking is projecting(!) troubles into the future and acts in the Now like they are real. It wants to control something that is still not there.

We have created the Illusion of State, Law, Money, Inflation, Interest, Budget, Time and many other Illusions of Control. They are bothering us now in everything we want to do.

Life is really a non-zero-sum-game when we share and collaborate. The solutions for the big problems in the world are known. We don’t apply them. We are projecting, projecting and projecting. Let’s stop this Evil Game.

Let us start to observe our selves.

Let us use our imagination and create new possibilities.

We don’t have to move far away. Let us start in our own environment, our family, our friends, our colleagues, our neighbors. If everybody is doing this we will solve many problems.

In the end we will still need a Law and a Judge but the amount of Laws, Jurisprudence and Lawsuits will dramatically go down. The System will be very simple and  a lot cheaper. It will cure and clean itself.

Why is the Lady Justice carrying a Blindfold? Because she needs to Introspect!

In the religion of Persia there were two devils called Excessive Control and Excessive Desire.

Are we fighting the right Devil?

Do you want to know how the  System of Law in Ancient Egypt Operated?