The Locus of Self

The locus of self and its implications for our understanding of ourselves as well as the society we are a part of is the topic of this article. I have written about this topic in bits and pieces in other articles preceding this. However, the topic is major enough in itself to be explored separately.

At the heart of it, the conclusion is this: we (at least as we seem to know and model ourselves as) are not residents of the brains and the bodies that we seem to be a part of. We are not outside it in a spatial sense (that would be spooky!) We simply do not have a spatial location. We are enabled by the brains and the bodies in turn. However we do not reside there.

Now the explanation. Firstly ‘we’ in the above needs definition. Let us simplify to define the singular of it i.e. I. The self that we refer to using the pronoun ‘I’ is an illusion, convenient fiction, narrative center of gravity and so on (much has been written by others as well as me on this in previous articles). Hence it does not anyway make sense to look for the location of the illusion. Where does the picture of Mona-Lisa belong? In the pixels, at the retina of the observer or in the abstract plane where that arrangement in that specific pigmentation of color for a specific species called humans has some semantic value (beauty, mystic or whatever else.)?

The self is a complex entity – even as an illusion. It is also very high up in the hierarchy. It seems so obviously mundane to us because the ‘us’ observing and commenting on it is also on the same plane as the self. This is the plane of the strange loop that Hofstadter refers to in his book. The plane of this entity is in the motion and arrangement of the hardware – the primeness and chainium being a good illustrator of it (I have written on this separately.) The hierarchy of systematization is as follows. This tree has some branches that do not grow much beyond their starting point.

 •Pre-Energy??

•Energy

•Matter

•Isolated sub atomic particles

•Atoms consisting of sub-atomic particles in a specific arrangement

•Atoms in isolation

•Molecules

•Simple molecules

•Chained carbon based molecules

•Non-self-replicating

•Self-replicating

•Without nervous system

•With nervous system

•With language and complex society

•Social institutions with causal potency

•Static societies with rigid institutions

•Individuals or simple socities without generative language

The continuity of the structure as the primary identifier of the unit

What makes an atom unique? If we tracked the existence of a specific oxygen atom, is the atom supposed to be different after an exchange of electron with another oxygen atom in forming a O2 molecule? What if it returns to the atomic state – and we have no idea whether it is the same electron that it “contributed” while forming the molecule that it got back? We do not ask such questions and some may even (partially correctly) brand them as silly. Why? Because the atom is the specific arrangement of nucleus and orbiting electrons. Till such time that arrangement prevails, there is no question to be asked about the identity of specific constituents. The constituents if you may, are fungible. The structure is the identity. Ship of Thesius if you will!

Now moving up, it is trivially obvious that this applies to simple as well as complex molecules – the atoms that make them can come and go as long as the overall structure of the molecule is maintained. One more level up and we bump into genetic material or simple organisms like Viri. Here too, it is universally acknowledged that the complex molecules that make these systems are fungible even if potent. One level up to complex organisms and we realize that even the specific cells (which themselves treat the specific molecules as fungible) are now dispensable. The higher level arrangement matters more.

With human beings, things move forward to abstractions. This is a crucial jump. It is very evident that we never think twice about someone being the same person after an organ transplant (other than brain that is – but that’s anyway a matter of fiction for now.) Entire organs have been replaced in human beings with little difference to their personality or being.

This individuality is what we need to examine to understand the locus of human self.

Where am I?

It is at the juncture that I would introduce the other inference I have reached (and some others before me have reached too.) It is as follows – it is not that animals evolves into apes that evolved into us as we know them. Instead it is the substrate of life that upgraded gradually through evolution to support more and more complex beings with increasing levels of abstraction. This continues down to the pre nervous system animals too. The Maturana model of animals and their nervous systems is relevant here. The nervous systems evolve in response to the pressures of environment. Some of them evolve sufficiently to enable linguistic domains and language. This language enables complex societies. After the complex societies and language are in place, there is sufficient infrastructure for the emergence of selves on the set. We have arrived, not evolved.

In this sense, we are aliens to the bodies. The predecessors to the bodies did not have less evolved versions of the equivalents of the selves. We showed up relatively suddenly (on the timescale of evolution.)

The Nature of Money and its implications

While in a simplified theory money appears to be a veil and a mere convenience for transactions, nuanced thinking in the matter suggests that money affects the real economy in a very profound way.

At the heart of the matter is the question of redistribution. The presence and persistent use of money in the economy continuously redistributes wealth/purchasing power. Thus monetary economics has an important political underpinning.

There is also the matter of focus of a society. Money through its enabling of financial wealth exerts significant influence over where the society’s resources are used. There is nothing rational or implicitly optimal about this resource allocation – contrary to the dogmatic belief of market theorists. (There is a tautological claim some of them make – the society gets what it deserves, and within bounds of feasibility, what it wants and that there is no need to question that. The problem with this approach is that it generalizes the entire population into a single organism that can deserve or want things whereas in real life the political economy is founded upon distinction amongst individuals within the society.)

Lastly, there is the matter of alteration in the value systems. While economic theory may choose to remain free from any commentary on the matters of value systems, it is prudent to note, without passing a judgment, that value systems of individuals get profoundly shaped by the idea of money as such (not merely as a means to an end.) This in turn reflexively boosts the importance of money in the society. If the aim of economics is welfare, this aspect cannot be ignored. Excessive centralization of our monetary selves into our personality is probably not utility-optimal. In other words, obsession with money for the sake of itself it distorting the way we lead our lives so much that collectively we are probably worse off. A long term aim of policy should then also be to decentralize money from people’s lives. This may not be achievable within the narrow toolbox of monetary policy. However, broader policy framework can use the ‘nudge’ approach to help people realize more diverse aspects of their being and lead more fulfilling lives. This may sound revolting to the opponents of ‘big brother’ or ‘soft paternalism’. However if drug rehabilitation is an acceptable agenda for the state, the monetary rehabilitation is not very different in principle.

Review of neoclassical position on money and its limitations

It is logical to expect that a small group of people transacting among themselves will not be subject to money illusion. Say, 5 people are trading just one good amongst themselves and have differing ‘income’ levels in a toy economy. Suddenly if everyone’s income were to be doubled, the price of the good might have a tendency to double as well. Most neoclassical economists take this simplistic notion too far and declare that there is no money illusion in the real economy as well. Whereas interestingly enough, even in a laboratory experiment, we might be able to detect deviations from fully rational behavior as people take time to get used to the new state of affairs and sometimes do not get used to it at all.

For example, some of them might suddenly decide to start saving. Some others may not want to increase price because of reasons of fairness. Still others may expect the incomes to go back to lower levels and hence play safe. Lack of knowledge, anchoring biases, fairness considerations, uncertainty will all contribute to people avoiding the jump to the doubling of price.

I am reasonably certain that even in the set-ups where knowledge is universal and available (all 5 are told that their incomes have exactly doubled simultaneously) and uncertainty is removed (they are also told that these doubled incomes are permanent and will not reduce), we will still not see the adjustment to double price for a while, and maybe never.

In the real life where below practical deviations occur, this is even more unlikely.

•  Incomes do not rise in tandem. There is differential growth rate across sectors as a norm.
•  Tendency to save is almost an exogenous variable in this picture. Income growth rate and consumption growth rate may deviate.
• There are lots of different goods and services. The prices do not respond uniformly. Averaging camouflages this divergent response.
• Consumers do not adjust their reactions to prices in real time. They react differently to different price increases.

Hence the expectation of prices going up uniformly in line with nominal incomes is a mirage. Of course in a closed economy, since total expenditure has to be equal to total incomes, the increase in nominal incomes will lead to rise in the total value of expenditure – price into volume. If the volume has not grown, prices will grow such that the totals match. The point however is what goes on below the surface, inside the averages and aggregates. The simplifying assumption of neoclassical economics is that everything is uniform. Since things are dealt with either at a single individual/firm level or only in complete economy-wide aggregates, the implicit hypothesis is that everything moves in tandem. On pointing out this extreme assumption, most supporters of the neoclassical theory would say that this is at best a model and we can always refine it using specific phenomena to incorporate the deviations.

That misses the whole point. Starting with a wrong model and theory and then trying to get closer to reality through refinements is likely to be epistemologically wrong. What is worse, it is likely to throw up fairly misleading policy prescriptions.

The model is oversimplified but that can be ignored since refinements will tide over that limitation. A bigger issue is that the model incorrectly models economic participants as REAs with complete knowledge and fully calculated rational responses. This is an assumption that cannot be improved incrementally through incorporating one behavioral bias at a time and one incomplete information point at a time. Wondering about this one comes to a more fundamental question – why do we need to cling to the neoclassical model and then refine it? Why can’t we think of a new model which also models reality but starts with more real assumptions and is likely to need less refinement to achieve the same outcome as regards predictions and recommendations? At the heart of it, the debate boils down to the modus operandi of conducting studies in macroeconomics. There is no right approach. The limitations of the neoclassical model seem to suggest that there is probably a much better way of modeling macroeconomic reality.

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.