Economic theory of value, price and utility

Price is a very sensitive topic in microeconomics. There has been a lot of work done in this domain. Unfortunately most of it is completely misguided by attempts to theorize about price from a normative thinking process of ‘what should be the price?’ or ‘how should a rational individual think about price?’

While going through a lecture on Coursera on Neuroeconomics, I revisited this question again in my head. Partly it was prompted by the idea in the lecture itself – that the ‘value’ something has for an individual has been generally expressed in terms of price or utility in economic theorizing and that the Neuroeconomic approach to it is to start with neuronal firing rate in response to a good/activity and its like reward or punishment value. Interesting and promising approach indeed.

What i was tangentially thinking about was something related but different. I was wondering if the entire framework of answering the question ‘what is something worth to an individual?’ is mistaken. Here’s why.

The conventional attempts at finding out worth of something to someone is generally focused on the utility of the good/service to the person and some estimate of the value of the same. There is an implicit assumption that this is constant across space and time and individuals. All three are faulty assumptions – there are not even good first level approximations. That is the reason behind my question above.

Part of the reason is the dependence of value on location, time and individual. Part is also the very approach of trying to model it like this. When one implicitly assumes that something has an objective value and that just needs to be determined through some observation, one is already committing the folly of creating an imaginary quantity (objective value). One is then likely to fall into the traps of calling something over-valued, under-valued, over-priced and so on.

My view on value and price is as follows.

Value of something is inherently and fundamentally subjective as well as a function of time and place. It is also reflexively dependent on perception, network effects and inference about who else is a consumer.

First of this is simple to demonstrate.

1. Dependence on person: I like QWERTY keyboard phones while someone else values bigger screen. Even at an aggregate product level, someone may like orange juice as a refresher while her friend might prefer a quick call with her fiancé. Given a specific good, different people will value it very differently – I love tea, my wife does not have tea at all and i know of a lot of people who have intermediate levels of liking for it.
2. Dependence on time: Food is valuable when hunger strikes, music adds value to a pub night, cab service is more valuable in monsoon and wee hours etc etc
3. Dependence on place: Mineral water at the top of a mountain is more valuable than in the middle of the city, binoculars are of value in a desert but not as much in a jungle and so on.

Note that if we start without the baggage of goods having a similar price across people, time and place, the above divergence would point us in the direction of a non-unique value and price automatically. Only if we start with the state of the world as it is today that we would attempt to figure out explanations and workarounds to this obvious state of affairs.

Second set of divergences is more subtle. It is also more applicable to modern branded goods than to commodities.

1. Dependence on network effects: An app that my friends use is more valuable than one that nobody uses.
2. Dependence on perception: If Hyundai cars are not perceived to be premium, I would flinch in buying a feature-rich Hyundai car for a high price point.
3. Dependence on inference about who else is a consumer: If everyone is using Ray-Ban shades, I would also join in. Sometimes this also has adverse effect – if everyone (‘the masses’) is using Gucci, i better stop using it (it has become ‘pedestrian’)

The value derived from a good/service is hence a complex function of all of the above factors. Just to be clear, these are not factors that are small deviations around a secular level. This is precisely the mistaken stance conventional microeconomics takes. Most economists would acknowledge the presence of these deviations. However, in the name of tractability and approximations, they would make an undefendable leap of faith that a large proportion of value is independent of this and thus can be thought of as objective.

The other angle often ignored in classical economic theory with regard to price is how the producers determine it. Most often, the over-generalized response of economists is that perfect competition persists in most cases and the producers charge a price that is equal to marginal cost of production. This is again normative. It is demonstrated in real life only in a small minority of cases where a highly uniform commodity is traded in a highly transparent manner (crude oil, steel etc). For most real life cases, price is nearly arbitrarily determined – producers do take into account the cost plus logic but more often than not, the linkage is reflexive. If something fetches good price, its input goods start to reflect that as well through higher pull. It is not only that input good become costlier and thus output good catch up in terms of price.

Just like we don’t know how each specific biological species began its journey on earth, the pricing history of each specific good and service is hard to trace back. Since everything has something or other as input (including labor) which has its own price, it is hard to study the absolute level of price of anything in isolation. However, that should not make us complacent about the origin of price-levels.

A feedback loop exists between consumers and producers as well and it is not simply a matter of a producer looking to offer at a price above a certain minimum and a consumer making sure of a bidding war each time she is looking to buy something. Real life transactions have a lot of influence of behavioural factors as well as institutional factors. Some prices are simply a matter of habit, others of arbitrary anchors and so on. On this base case the consumer producer feedback takes place.

In summary, value is not identifiable in an objective sense. Hence a uniform price for a good/service is an arbitrary imposition of simplicity. I think it is not hard to think about constantly varying prices of goods and services across people, place and time. The efficient market enthusiasts will jump at this suggestion and cry ‘arbitrage’. However, insofar as consumer goods are concerned, it is hard to imagine majority of people engaging in an arbitrage about making someone else buy something or hoarding some stuff because it is cheap at that time.

In some cases this already happens – but it is limited to dependence on place. Convenience stores sell things at a major premium to supermarkets. However, time dependence, situational factors and person dependence is almost never factored in. Even more so, the perception effects, network effects and so on are rarely if ever incorporated into pricing. Even the limited space dependence of the type of convenience stores vs supermarkets is a matter of practice – not entirely explained in economic theory.

Brain as a computer

The big question is – is the brain a computer? (not only like a computer)

Turing et al set up the computational theory of computers. Using those ideas, it seems highly unlikely that the brain too is one computer – however complicated. But then there are others like Dennett that argue that the word computer has been used in a narrow context of a top down machine made of cooperative algorithms. In the wider context that allows computational capability embedded in competing modules, the brain, according to this line of thinking, can be safely thought of as a computer.

The other attack on the idea of brain as a computer comes from the ‘thinking’ side. We as human beings think. Computers don’t think, they ‘mechanically’ carry out instructions. Deep down in the software and hardware of the computer, there are only electrons moving about – as per a pre-determined circuitry and well defined rules of logic. This set up, however complex it gets, remains at heart a deterministic machine that at best simulates the idea that it carries out complicated procedures to solve problems – and these problems are actually solved by the ingenious programming designed by humans from outside.

This is partly correct. The computer is ultimately a collection of electrons moving about and the overall impression it gives of immense computing power is simply the effect of the miniaturization of its circuitry and the consequent space efficiency in managing all that in a small box sized CPU of it.

Where this analogy loses track is in forgetting that the brain being ‘more’ than the sum total of its computational/cognitive circuitry is simply a claim, a matter of faith, an unverified hypothesis if that. So while it’s entirely correct that computer is sum total of its billions of logic gates, the brain can also be thought of – in absence of any compelling evidence to the contrary – as sum total of its billions of synapses. There is of course the matter of being ‘inside’ the brain and being able to ‘experience’ this purposeful behavior of human thinking as against the mere dance of electrons through the logic gates. But this thinking commits the usual twin-sins of anthropocentrism and lack of imagination. 

Anthropocentrism in the sense that when seen from inside the brain, of course it is going to seem magical, purposive and more sensible than the computer. This sense, this feeling of purpose and so on is part of its programming. There is nothing magical about it. But then computers don’t think do they? This is where the lack of imagination comes into picture. We are unable to imagine that the much revered thinking of human beings can ultimately be broken down – with a lot of work sure – into smaller computations that individually are simply signals. Being ‘inside’ this, our imagination does not generally extend enough to allow us to see the trees in the woods of our thoughts.

I imagine thoughts to be computations being carried out inside the brain using the signal processing mechanisms built on the infrastructure of neurons and synapses. Clearly the modern computers differ significantly in their architecture and their very organization from the human brain. However, the fact that individual signals are processed in a huge amount to carry out an overall computational or cognitive task is the fundamental common thread between the two.

Another attack is generally from the qualia camp. We ‘perceive’ things – some are red, some are pungent and some are symmetrical. We do not merely compute and measure these things, we actually ‘experience’ or ‘sense’ or ‘perceive’ them. The image of a desk with a phone, remote and small box is ‘real’ in my mind. It might have been arrived using computation by my brain. But the final product is this distinct image that cannot be explained using computational terms. This is the summary of the qualia argument. I do realize there is some unexplained phenomenological account that is needed of this experience. However to me, when seen from an alien’s point of view and from outside, this qualia problem is more curiosity than a fundamental premise of human mind being non-computational. Clearly human mind’s computational architecture is not fully understood by – well human minds! There could be several things that we do not know yet about the details of the perception process that can explain the presence of qualia. It is a sub-problem in my view.

Stating succinctly, my current thoughts on the computational view – the brain is vast collection of neurons and synapses – which act as the logic gates for computations. There are several systems or modules in the brain. Some are nearly autonomous systems (breathing, digestion etc) while others are learned but semi-autonomous – walking, cycling, language etc. Lastly, there are systems that are equipped to handle highly unspecific situations – which are located mostly in the neo-cortex and are most well developed in humans. These systems are an evolution driven feature to survive in the world using one’s wits – i.e. ability to think on the fly using the inputs from the surroundings and computations about a suitable course of action highly customized to that specific instance. This ability to deal with each situation as it turns out differently requires different mode of computation than say the one that deals with digestion or even locomotion.

Connecting my other thoughts about the self written elsewhere, this system also harbours the socially constructed self. The reflector module is inside this system. It is required by this system only – you don’t need reflection to walk or to digest food. The special place of the reflector module inside this system makes human beings believe that they are different from the ‘dumb’ systems of computation carried out in the silicon based computers. When told more about the modules of digestion and locomotion, most humans would grant that these modules are indeed like the silicon based computers. They will most likely still exclude higher thinking (the ‘self’) from this lowly description. Ask an alien though, and it would simply believe that the ‘higher’ thinking is different only in its details from ‘lower’ thinking and the ‘self’ created by the higher thinking is another module inside the brain of the being.

The way mind is computational is very different from the way the brain is computational. For the mind, the logical reasoning and cognitive processing comes at a very later stage of development. The brain has multiple modules – some mechanical (respiration), some purposive (problem solving). The mechanical modules might resemble the silicon based computer in the processing of signals and information. The higher (or those dealing with less deterministic tasks) modules are unlikely to be computational in this way.

For example, if I am solving 2+3 in a silicon based computer, I would use logic gates that help me solve this. That might have a few of those gates at best which will effectively throw the output. If I am solving it in my brain though, the problem is set up in the world of very high level concepts of 2,3 and +. This makes the neuronal support required for it several orders of magnitude larger than that needed for the silicon based computer. This all fine from evolutional point of view because the need to solve 2+3 came up much later for organisms (if at all it can be said to be a need.) The ability to deal with a complex and ever changing environment is their first priority. For that they need the complex modules dealing with ideas. That same module if pressed into the service of solving 2+3 will continue to use its established methods – which from the computing efficiency point of view are highly inefficient.

Stories, Rhetorical Devices and Making Sense of the World

Reading up on some of my earlier thoughts – especially the one concerning non-linearity, nihilism and the will to act – I realized that I have also been teleologically motivated in the search for stories. In that article I had questioned if non-linearity of human life should prompt us into inaction or lack of interest in any proactive action. I replied with the argument that there are means to some ends and these ends are themselves means to some other ends. Eventually ending up at happiness. Overall, the article sounded positive and life-affirming – almost a pre-emptive strike on nihilistic implications of the non-linearity of life.

This is common of human beings. The search for stories. We look for the narrative, the story, the purposiveness and meaning in actions, projects, desires and wishes. The conceptual glue that binds our observations of self and the rest of the world. Something that tells us that things are happening with some logic – good or bad – and some ‘sense’. The brute meaninglessness of non-purposive quasi-random happenings is deeply disturbing for us. I don’t know why.

This is common also to our more sophisticated theorizing about the world. 'The Selfish Gene' is a remarkable book. So is 'The Universe Next Door'. The Myth of Sisyphus, too, is. But all of them have in common an implicit belief in the existence of order, structure and a hidden presence of purpose. Selfish gene does the best job of baring it but falls short in the follow through. The need for the teleological comfort is too high to do so.

I do not claim to know the real nature of things any more than others that have given the matter some thought. I can present some speculations though. They are as below.

The happenings in the universe – including the subset of human life in it – are quasi-random. There are levels of randomness of course. What drives the relative extent of matter and antimatter at the time of big-bang (or at least the relative extent of what we model to be matter and anti-matter)? What drives the specific values of various constants of nature (as we model them, again!) This is the highest level of randomness known to us. We come to eventually call it the laws of nature. They are so in the context of the lower level observations of the working of the universe. But at their own level, they are just as random.

The next level of matter and energy interacting is moving randomly in most senses but is bound by the regularities imposed by the higher order randomness. So a star on exhausting its fuel will tend to follow one of the three fates (as per our modeling currently) depending on its mass. This classification is no doubt governed by the specific value of constant of gravity. The size of a given star though has nothing to do with this. Stars of various sizes exist within the regime of the same law. The law binds how they evolve post fuel emptying. It also governs how the nuclear reactions and gravity interact to define the size of the star when it is burning. This is just an example. The limited point is – at this level, though some regularities can be found, a lot is still randomly occurring.

At the level of carbon-based life forms, the randomness comes of age. Their very beginning is probably result of a chance occurrence (as we have modeled for now.) Their subsequent evolution is a combination of chance events and their internal building. Stripped of the special status to life vs non-life, the living things can be seen as special agglomeration of matter that process energy in an efficient manner to accumulate more matter and to generate other similar agglomerations. Why they do so is an inaccurate question. There is no why. The living things started to be ‘living’ by chance and evolved further by chance as well.

Things become lot more complicated as humans show up on the scene. They become complicated not inherently but because the author of this article is a human being, a descendant of these early risers. He is too close to the matter to disentangle himself from the ‘subjective’ view. He will give it a try anyway.

Human beings are a fairly complex biological machine that came out as one of the outcomes of evolution along with the rest of the flora and fauna. Is there a grand purpose to such brainy organism to develop? Probably not. Why are there so many species? Because there can be. And because there are. Why do humans have large brains and an ability to think? Because they could and they did. There was no purpose to humans getting big brains. Not anymore than there was to the first living organism getting a gene to replicate its design. Also biological evolution is not a special process going on as the queen of all evolutions – to bring out the grand prize i.e. humans at the end. It is simply a process that is feasible amongst billions of other processes in the known universe. That process led to some sufficiently complex agglomerations of matter to replicate and eventually to grow ‘brains’. There was no purpose to that.

The human society that came thereafter is the most confounding of the lot. By virtue of its complexity. Also by virtue of its closeness to the author’s mental make-up. It is one thing to marvel at the evolution of the cold, non-living universe and even accept the lack of purpose in its evolution. It is entirely another thing to see the culture, language and the whole structure of thought that one inherited as an incomplete and potentially over-teleological construct of a desperate human civilization. The former is of ‘academic’ interest. The latter has far more significance in my limited existence. The former has at best indirect and very abstruse implications for my worldview. The latter has immediate implications for how I live. Hence the difficulty.

Nevertheless, here is my attempt to see that human society and its evolution for what it has been. The social evolution is well documented in terms of its facts and events. However, through the entire narrative there is a remarkable thrust on continuity and purpose. All the actors of history act with some intent and they succeed or fail. Then others take it up from there and continue the intentional actions with success or failure. And so on.

The real history is probably lot more prosaic. What goes on in human society at individual and collective level is too confusing for a single being to fathom and model. Hence we build stories that are consumable at an individual level and revel in them. Over a period of time we come to see these stories as the true representations of reality. Even that is generous. We come to see the stories as truths – the reality itself.

Let us start with the individual. What the individual does is only apparently purposive. When I introspect about a specific decision I made, I am only half-sure of where it came from. Many decisions are follow-up decisions to earlier ones. Some are part of a project, in a manner of interacting with the surrounding once the basic project is defined. But this merely pushes the question to the definition of the project itself. Most projects come about in response to quasi-random stimuli. Granted that most have a specified objective. But the ultimate objective in most cases is down to either an unspecified non-individual institutional set-up (which is then result of quasi-random evolution itself) or furthering happiness of some human(s) or reducing pain of some human(s) or creating cognitive ease for some human(s) (the cognitive ease is similar to but yet different from happiness or pain in that it is not felt with that intensity, although it is quite powerful in its own way.)

Many other actions are reactions to stimuli – bodily stimuli (to eat, excrete or seek shelter etc) or social stimuli (answering phone, responding to a fact based query and such) and so on. Proactive actions are part of a project (explained above) or pursuits of happiness/pain-reduction. As I have noted in an article elsewhere, happiness and pain are now quasi-random in human set-ups. They were useful in evolution for the sustenance and procreation of the organism. In absence of daily threats to life and missing need to procreate in large numbers, the pleasures and pains are now vestiges of evolutional legacy. They are not ‘useful’ in the conventional sense of furthering the organism anymore. But they exist and they are there. In a way, in absence of anything else to drive actions now, they have become yet another driver of proactive action. They share the berth with many other quasi-random drivers though, as noted earlier in this article.

The sum total of the above then is the life of an individual that is prone to quasi-random internal stimuli and drivers and quasi-random social stimuli that come from equally arbitrary set-ups. The individual’s reaction to this is quite curious though. For some reason, maybe evolution linked, the individual seeks to bind the experience together in the form of a story. Each experience needs an explanation. This explanation is of an arbitrarily chosen standard. It probably boils down to cognitive ease. Individuals use a combined approach of themselves working towards such an explanation and ‘buying’ some readymade ones. They do not necessarily stop living in absence of the explanation. But they strive for it. And that shapes their reactions. This striving leads to some major drivers at a collective level for sure. But it would be ambitious to give this striving too much influence over individual or collective matters.

What I wish to draw attention to is somewhat simpler. There is no comprehensive story to our actions – individually or collectively. Lot of random things happen that drive our make-up, our interpretations and our drives. Lot of random things happen that lead to specifics of the various situations we face. There is no doubt some degree of predictability to things and there is no doubt some semblance of limited purposiveness to our actions. However, in its entirety, the grand schemes have no value. Even limited purposiveness is quite prone to specific instances of large random inputs.

We can make stories to make life bearable. Life as we have it is anyway a product of chance events in its origin and subsequent evolution – biological and social. Stripped of the vagaries of life that keep one occupied, the individual like me eventually finds out that the precious life is simply a series of happenings over a few years.

An attempt at summarizing my understanding of postmodern thought

Postmodernism is by definition a very plural worldview. There is no clearly identifiable core per se. However, there are some recurring themes which most of its adherents would tend to agree on. I think that the primary thrust of postmodernism is literary, social, political and historical. It is not directed at sciences or their critique. This took me a while to come to grips with. When I realized this, some confusion went away. 

Postmodernism has often been introduced briefly by borrowing Lyotard’s statement – “postmodernism is the incredulity towards all metanarratives.” Rightly so. If there is to be one one-sentence summary of postmodernism, this would be it (for now.) What does it mean? In short, it levels the field between all competing worldviews. At the same time, it also declares all of them to be ‘untrue’ in some sense. This is a very nuanced point and is often mistaken by naïve critiques of this statement.

The postmodern stance with regards to the earlier worldviews is that they are epistemically partial at best and hollow at worst (not because of any inherent issue but more so because of the very nature of human epistemic apparatus). The worldviews/meta-narratives might contain grains of factual ‘truth’ (using the convention of collective agreement and reproducibility for empirical matters and collective sense of ‘logical’ for a priori matters). Besides these, the worldviews routinely contain articles of faith, belief, opinion, stand etc. The overall construct includes some ‘true’ facts, some ideas, some interpretations and so on. This collective is not necessarily ‘wrong’ or ‘incorrect’ (in fact, postmodern stand is that such a statement has no meaning.) However, competing worldviews are routinely calling each other so (‘wrong’, ‘incorrect’, ‘inhuman’, ‘oppressive’, ‘cruel’ etc.) Postmodernism enters this tournament and tells them that the prize is a hoax.

Let me go beyond the colorful analogy. Postmodernism does not take a stand on right, wrong, just, correct and so on. It has a good reason to do so, which we will come to later. However, in not taking a stand, it also declares that the stands taken by everyone else are also arbitrary. This is not a light charge on the stand-taking in the spirit of “I am not taking the stand because I am confused and hence it is only fair that nobody else should take a stand too.” There is more to it. That is what we come to now.

Postmodernism draws a lot on its critique of the role of language in human life. While earlier worldviews took language as simply a tool to express thoughts and ideas and rarely doubted its neutrality, postmodernism got into the depth of this toolbox itself. The modern stance regarding language is understandable. In fact, that continues to be the stand taken by majority of humanity even now. Language is language. It has a structure, words, grammar and so on. Someone uses it to construct stories, someone else for poetry, yet someone else for a political speech and someone writes erotic novels with it. It is malleable, universal and (while nobody bothers to check it) impartial to all who use it. In fact, we rarely bother to even stop and question this. It is too internal to us. It is a part of who we are. Questioning language is like questioning our nose or liver.

And yet when any sensible person reviews the role played by language in our discourses, it is hard to miss that language does not merely clothe our thoughts, it builds them. Without language, there would be no thoughts in the conventional sense that we experience them. If you do not believe me, try it right now. Hold off reading, close your eyes and try to think without language.

While we think we use language to ‘express’ or ‘articulate’ our thoughts, we always use language to ‘construct’ them. Even if that were true, what of it? One might argue that language used for everyone on collectively agreed principles to communicate thoughts. Where does the ‘incredulity towards all metanarratives’ emerge from this?

Here, we need to take a slight detour to revisit Wittgenstein – in his study of linguistics, the nature of logic and his eventual claim that language simply cannot address some questions. (http://en.wikipedia.org/wiki/Philosophical_Investigations)

Excerpt from Wikipedia entry: He alleges that the problems are traceable to a set of related assumptions about the nature of language, which themselves presuppose a particular conception of the essence of language. This conception is considered and ultimately rejected for being too general; that is, as an essentialist account of the nature of language it is simply too narrow to be able to account for the variety of things we do with language.

What this leads us to is a dead end of sorts. What are we to do if someone asks us – ‘is it right to let one person die to save two?’ We get into ‘rational’ evaluation and get somewhere. We argue vociferously – some would say it is the individual’s ‘right’, others would say it is ‘pragmatic’ to do this and so on. Ultimately, if it came to action, the actor would decide based on a combination of factors, including some situational ones, some unconscious ones and some ideological ones. What Wittgenstein claims is not that this action is irrelevant but that the debate is. Our use of language to address such questions is too ambitious. The structure of language is not equipped to deal with this. Thus our thinking is unable to 'answer' these questions logically. What seems 'logical' is merely a product of some assumptions which are themselves questionable. 

There is more. It is not that we are dumb or our language can be ‘improved’. These questions are simply invalid. They are not in the realm of thinking and evaluation. They simply belong to the domain of activity.

This is the fatal blow to the meta-narratives referred to earlier in this essay. To the extent that a metanarrative has no such statement barred by the Wittgensteinian inference above, it can at least claim to be valid. However, it does not take much to realize that anything amounting to a useful worldview is unlikely to be simple enough to be free from opinion, faith, belief and ideology. Hence all substantial metanarratives are untrue. They are not 'incorrect', they are simply 'untrue'.

Postmodernism does not offer one more metanarrative to replace these. It simply states that any such attempt it based on invalid grounds.

There are three nuanced points here.

1. 1 This incredulity is extended only to metanarratives. The smaller units of discourse such as a logical sentence and a fact of nature are dealt with differently. See below.
2. 2.   Most postmodern thought also includes a conjecture on why these metanarratives came to be in the first place and why they are so visible even when they are manufactured.
3. 3.  The critique of postmodernism on the ground that this itself is a metanarrative misses the point. There are multiple levels of organization of thought and each higher level can make claims about the lower levels.

1.       Naturalism is a metanarrative and so is feminism. The statement that “2+2=4” or that “2 is the only even prime” are not. Postmodernism is raising a question about the credulity of naturalism or feminism. It is not questioning the validity of “2+2=4”. No doubt, it has an attitude towards the latter as well. That is interesting and somewhat liberating. What we consider logical is based on our structure of language and conventions. In a slightly different language of base 3 for example 2+2 = 11. Now if you know a little bit of mathematics, you will say that 2 stands for two instances of something – say two men. Addition stands for combing them while retaining their identities and distinction. Hence when we say, two plus two, we are saying bring two men first and then bring two more and start counting them. What they make as a result is same – referred to as 4 in base 10 (actually in any base larger than base 5) but 11 in base 3.

The postmodern response is not to refute the logic of these claims. It is simply to point out that this is how we construct our language. This is how we build our conventions of it – formal language like mathematics and logic or informal language like English. All of these are systems of rules. Once we take the rules as a given, the ‘truth’ of some claims and ‘falsity’ of some others will follow.

Another example is empirical. In Euclidean geometry, angles of a triangle add up to 180 degree (or two pi radians). For triangles drawn on the surface of a sphere, they add up to more (anywhere between slightly more than 180 degrees to say as high as nearly 540 degrees – think of a triangle with one point at north pole, other two points near each other on equator and the line connecting these nearby points being taken across the globe.) Again a matter of frame of reference or the rulebook. Hence “2+2=4” (or for that matter “2+2=11”) is not fundamentally or a priori ‘true’ as much as ‘internally consistent’ with the rulebook of that particular sign system. Is this a big deal? Have I simply replaced ‘true’ with ‘internally consistent’?

It is a big deal, especially considering the veneration we accord to ‘the’ truth. In our fantasy, ‘the’ truth is independent, self-referential, profound and all such. ‘Internally consistent’ is far shorter a claim. It is a claim of observation. It has no profundity and more importantly no finality. Perhaps the most important aspect of ‘internally consistent’ as against ‘true’ is that it is not unique. There are many ways to construct an internally consistent geometry for example. None of these are true or false. None are fundamentally any better or worse than each other.

To summarize: postmodern claim about metanarratives is that they are not credible. As regard analytical ‘truths’, postmodern stand is that they are products of the language they are constructed in – and are thus ‘internally consistent’ instead of the magnanimous ‘true’. As regard empirical truths, they are simply the latest theory of how things work. (I have not elaborated on this last point, but a quick review of Karl Popper’s falsification principle would explain this with great lucidity.)

2.       At the beginning of this essay I made a claim that the primary thrust of postmodernism is socio-political, historical and literary rather than empirical. I had a reason to say so. Postmodernism arose in reaction to the modern notion of how society should be organized, how new ideas from scientific advances should inform our worldview and how we should view our place in the universe. It is a critique of these human matters rather than any philosophy of science.

Postmodernism came up as a reaction to what seemed like the use of metanarratives for oppression and exploitation. To that extent, postmodernism - for some its adherents - tends to have political under-currents. It seems to prefer an anarchist society and tends to view worldviews and metanarratives as ploys deployed by vested interests to their own ends.

I do agree with the critiques of postmodernism when they claim that postmodernism seems to contradict itself in this sphere at times by taking a political stand. A true postmodern attitude to politics is in fact absence of a recommendation regarding opinion. Hence any opinion could be admitted insofar as it did not have overarching claims regarding where its legitimacy came from.

But therein lies the rub. While fighting the general proliferation of competing metanarratives, it is hard to push through a view of incredulity towards metanarratives without taking a stand. While I referred earlier in an analogy to the tournament where postmodernism enters to declare the prize to be a hoax, in real social discourse, one gets heard only when one has something to say. The construct of language does not allow a well defined postmodern rhetoric to flourish in the current social set up, at least.

Nevertheless, for those that sense what the spirit of postmodernism is, its political implications are simple enough. Postmodernism may not stand a good chance in a social fight outside of the individual. However, within a given individual, it can warn her that all metanarratives are power-plays. The subtlety, (because of which it would fail to gather followers in a popular sense), is that postmodernism has no recommendation regarding how to form your own worldview. In fact, this might be its Achilles’ heel. For a budding intellectual, postmodernism is sterile. If I seriously follow the thought of following no metanarrative, I suddenly find myself unhinged. The postmodern response to it is vague. Different adherents have said different things. Foucault for example says that maximizing one’s own pleasure is a good guiding principle. That seems too narrow to begin with – although that is where a thoughtful journey might end. It also fails to inspire – something that a serious worldview has to do in the context of current cultural and social set-up. A worldview as sterile as postmodernism then is starting out with a huge handicap. But I digress. Coming back to the main point of its political recommendation, postmodernism can be seen as the liberating first step. The second step is then to find out what you would like to use this liberation for.

3.       Some critiques point out that ‘all metanarratives are invalid’ is itself a metanarrative and hence self-contradictory. I would argue that it is not. Firstly I have explained earlier that a metanarrative is different from a statement of logic or empirical finding. Some would say that ‘all metanarratives are invalid’ is a pretty strong ideological stance and has a fair amount of belief in it and this could qualify to be a metanarrative itself.

This is partly true. Hence I am adding a qualifier to Lyotard’s statement. ‘Postmodernism is incredulity towards all first-level metanarratives.’ Is this simply a language-game, where I raise this statement to the second level metanarrative state and thus claim it to be valid? It might seem so but it is not.

Any system of signs does not operate at a single level. For example, when I claim the validity of “2+3=5”, I am using the higher (or lower, whichever, but different) level assumption about what 2,3,+ and = mean. Once this higher level assumption is considered valid, I can gauge validity or invalidity of 2+3=5 and 2+3=7. Without the higher level assumptions or system, the lower level statement cannot be evaluated. A simple demonstration is trying to read a language you don’t know. The symbols don’t mean anything. You don’t have the higher level assumptions.

As regards statements about metanarratives and worldviews are concerned, one can similarly see the relevance of such a higher level system. I would say the following statements are all competing approaches to worldviews/metanarratives (merely an illustration.)

a.       There is exactly one correct metanarrative/worldview. All other worldviews are false.

b.      All worldviews and metanarratives are correct. In their given context, they serve the useful purpose of helping an individual live with the vagaries of life.

c.       All metanarratives are invalid. They are constructed using the language to serve specific purposes of their users.

These are all higher level statements about metanarratives. Say, the first one does not implicitly mean that it itself is that one correct metanarrative. Similarly the third one does not become invalid as a metanarrative in itself.

Seen from the other side, i.e. the contents of the typical metanarratives, this becomes even clearer. Most metanarratives are systems that assume some things, repose faith in some others and follow some ideological stance. These particulars are ‘real’ – in the sense that they deal with human lives. At a core level, a typical metanarrative at the first level does not bother to make too much of a statement about the nature of metanarratives, language and its limitations and so on. Of course, it might contradict another first level metanarrative (e.g. Theism vs Naturalism). But it does not aspire to make too many claims about epistemology and construction of worldviews in the first place. In short, a typical first level metanarrative is generally not self-referential. In fact that is the appeal of most of these. They are seductive for precisely that reason. By avoiding any reference to self, they remain clear of any criticism by followers. A faithful follower of some of the popular first level metanarrative would rarely come across a contradiction in it. These systems tend to be internally self-consistent. (There might be others that did not manage that and thus perished – sort of survival of the fittest logic for ideas!) In precisely this characteristic of these systems lies the means of exploitation. When the Jihdist is sent on a suicide mission, he believes that he is going to meet virgins to copulate after death (not all for sure, many simply do it for the money their families receive.) The constructors of their metanarrative exploit this unquestioning faith. Much less visible and less extreme examples abound in our daily lives. More on that later though.

In summary: first level metanarratives generally serve specific purpose of providing individuals and societies with internally consistent rulebook of living. Second level metanarratives are not very common nor popular. Postmodernism, even if considered as a metanarrative, is a second level metanarrative and is thus not self-contradictory.

Delusion of Agency

Going through the philosophical schools of thought in general, one can’t help but notice two things – the anthropo-centrism and the excessive assumption of agency of human beings for their destiny. The first of these I will deal with separately but the second merits some explanation here.

Our studies of matters concerning ourselves – i.e. ‘humanities’ and social studies – have been afflicted with this limitation since early days. Our notion of self is one of active decision making individual – who acts for better or worse and makes judgment calls, right or wrong, and assesses situations and decides. It is axiomatic and is rarely questioned. There is no doubt the discussion on free will – but that is one-zero. While it captures an important part of this delusion, it still misses the crux of this matter – even if we are free to decide, what we decide matters only so much.

What I am proposing is an alternate view of our selves. We are not the analytical, rational and in-control selves we think we are. We are organic machines that have skills to navigate the world to survive as long as possible and procreate. Our skills make several additional things possible – which eventually brought us wonderful things like language, technology, arts and so on. However our pre-programmed aspiration at the fundamental level is still the same as our ancestors. We of course infuse additional aspirations on the way – driven by our cultural context amongst other things. Nevertheless the end result is a much messier sum of several drives rather than the neat segregation that many psychological models have us believe (e.g. id, ego, superego or rational self and emotive self etc). No doubt such models help us understand ourselves a little better – with the hope that we can use that to advance our innate and acquired aspirations and to avoid pain. However, these are approximations. And given our tendency to long for clarity, we quickly fall in love with these models and start thinking of them as realities rather than the maps (territory and the map again! J)

In my messier formulation, human beings are a combination of constrained, guided and self-willed individuals who are still prone to internal randomness as well external one. They act within the roles partially bestowed/imposed on them by their context and partially conceived and built by themselves. The evolution is itself messy though. It does not progress in a linear manner of input leading to output – of whatever proportion. Instead the output is always a complex function of input from agent, context, and some random factors. The agent then evolves partially by its own will and partially without it. The without it portion need not be in accordance with the own will – it can be neutral or even against.

The evolution within is mirrored on the outside as well. In fact, briefly visiting the excessive anthropocentrism mentioned at the beginning of this article, one may conjecture that ‘outside’ and ‘inside’ is a human-centric view of the reality. In contrast to this, one may take an alien’s point of view and see the continuum which includes some organic life-forms – whose ‘insides’ are merely additional material for study in the continuum, without a special place.

Anyway, the evolution is mirrored on the outside in the sense that the output of an activity in general is a complex function of actors’ inputs and context. Thus over time, both the actor and the context evolve – in complex ways which are very hard to predict. The actor however has the reflective faculty – which models the reality on an ongoing basis. In this reflection the actor may choose to accord a disproportionate share of the outcome of internal evolution as well as evolution of the context to her own inputs. Owing to the complexities of both evolutions, it is quite hard to disprove such delusion. In any case, there is nobody that has an interest in doing so. Also the actor moves forward not so much by accurately describing reality but by surviving as long as possible. In physical matters, an accurate enough description is coincidental with survival – knowing where mountain ends and not trying to walk in air is a good choice for example. In matters more epistemological or philosophical, such urgency is missing. Believing that one controls one’s destiny – or at least one’s internal situation – is hardly a survival handicap. Given the vagaries of life, it may even confer an advantage (refer to Kahnemann’s Engine of Capitalism for a parallel – incorrectly overoptimistic entrepreneurs push forward innovation – thus benefitting the society but not necessarily themselves, at least in a material sense).

Am I saying anything non-trivial? Probably. If we allow for this worldview to create the (admittedly fluid) foundation of our representation of reality, we will probably not even ask many philosophical questions, answer many others differently (at the very least more tentatively) and in the domain of sociology, economics and psychology, frame our research in a manner very different than it is being done now.

Same holds for political science as well as active discourse on politics.

I am proposing combining behavioral school of thought with the awareness of the overwhelming important of context and with the recognition of randomness inherent in evolution within and without human actors.

At a personal level, I use this awareness to find peace and tranquility – although I am quite aware that these are aspirations and not foregone beliefs once I accept the foundation. That is because my inside is also not entirely under my active control and I can only hope to steer it towards this worldview over time as much as I can!

Economics with Fewer Equations

The theme that economics is less like physics and more like biology is not new. However it is more a fringe view than a mainstream one. Even now, I would guess that the general expectation of an economic journal in publishing a paper is what mathematical basis it has and how robust the Econometrics is. Several recent things have pointed to a better direction.

• The economist article on agent based models
• The book – growing artificial societies
• The book – origin of wealth, especially the early sections
• One recent article in Bloomberg by a theoretical physicist 

The essential argument is same. We can’t draw up pretty equations to predict people’s behavior. Generally it is argued that these equations are trying to predict the behavior of only the “model” or average individual or the behavior of the collective. The implicit assumption in the usefulness of this approach is that this “average” study is genuinely the median behavior and the deviation around this median is noisy but controlled. Also it is assumed that the noise is averaging to zero and has no impact on the overall behavior of the economy. 

It is not very different from saying that a ball of steel has electrons inside it moving in all directions. However, at no point is the ball moving anywhere on account of this movement. The diverse directions of movement of the electrons are random and thus cancel each other out at the aggregated level. Similarly it is argued implicitly that in equationalizing economics, individual differences of behavior around the “mean” are random and they cancel each other out. As it turns out, more often than not, they do not.

Some systems in economics may indeed be amenable to a linear model of this sort. However most useful phenomena are non-linear and dynamic and thus do not readily lend themselves to this approach. Imposing this approach on those systems then is bound to yield erroneous forecasts. I have elsewhere argued with the example of the billiards table where the physicist refuses to predict where each ball would be after the first strike. Physics concerns itself with questions like conservation of momentum in each interaction and the inertia and friction and so on. No physicist would try to build a model of the average ball and then hope that some contained linear variation around it would be a good way to explain how the strike leads to the evolution of the table.

Conventional economics is routinely trying to do this. I don’t know how it came to be here. The book 'Origin of Wealth' offers some explanations. Historically Walras and his contemporaries were quite enamoured by the success of physics with equations and tried to use the same in their work. Since then, almost as a historical accident, economics has continued to progress in that direction. The author of origin of wealth even goes ahead and calls this a century long detour. Audacious maybe? But most likely quite accurate description of what has gone on since.

The beer game example in origin of wealth is quite illuminating. (http://en.wikipedia.org/wiki/Beer_distribution_game)

A simple trigger at the customer demand end causes all sorts of fluctuations in the supply chain although after the initial reaction, the variation in customer demand is taken out. It goes to show that in absence of perfect information and strategic gameplay between transacting parties, the supply chain can exhibit very dynamic patterns – which are far from equilibrium. The Growing artificial societies authors call it far from equilibrium economics.

The opposition to the equationalizing of economics earlier was countered with TINA. What do you propose, the proponents would ask. Since the opponents never really had much of a proposal, the conventional equilibrium economics continued. Now in computational economics, complex adaptive systems and agent based modeling, there might be a genuine alternative.

This approach can open up new areas of dynamic modeling which were intractable for analytical solutions. This can also help learn emergent phenomena which are otherwise blackbox to top down modelers.

What are the limitations?

One needs to start somewhere. Where one starts can significantly impact the answers one gets. Hence the approach is somewhat prone to curve fitting. Some intellectual discipline and robustness inducing techniques are required in this case.

The micro leading to macro is an interesting theme and a long cherished dream of economists. However, conventionally the two have stayed separate. The agent based modeling with inclusion of complexity approach can start to make this reality.