Sunday, October 5, 2008

The informed judgment of economists…and the neurobiology of confidence

This week, The Economist publishes a survey of economists’ views on the economy, especially the American economy.

It is, we are told, “not, by any means a scientific poll of all economists” since only 142 of 683 research associates in economics responded.

The Economist asks, “Does their opinion matter?” and answers it by saying that “economists opinion should count for something because…most of them approach policy decisions in the same way. Their assessment of the [presidential] candidates’ economic plans represents an informed judgment …” I take it they mean that most of them use the same facts and use the same, or similar, brain processes to reach their judgment.

What did they find? Well, here it is:

that “Our respondents generally agree the economy is in bad shape, that the election is important to the course of economic policy and that the housing and financial crisis is the most critical issue facing America”

I would have loved to have heard Charlotte Green read this as a news item on radio.

Popular opinion which, of course, is not usually well informed could not have agreed more with the “informed judgment” of the economists, at least on this occasion.

This morning, on the BBC World Service, two highly eminent economists were interviewed. One of them said that this was the worst, most unprecedented, crisis that America had faced in years, that the short term outlook was miserable…or words to that effect. The other said that all things were marvellous, that far from being a crisis, the present situation created new opportunities for, among other things, “moral hazards”. “Moral Hazards”? Well, I am almost sure that I heard it correctly, but I don’t know what the term means. I am not an economist.

The thing that puzzles me about economic advisers is their sense of certainty – communicated in the assurance with which they utter their opinions. Where does this certainty come from? There must be some neural mechanism which weighs all the evidence and reaches a conclusion. But a conclusion must be subjected, I suppose, to another mechanism, one that weighs the extent to which the conclusion is reliable and the extent to which it must remain in doubt. Let us call this mechanism X. Mechanism X could, in turn, be in one of two broad states: call them C for confidence and D for doubt.

Do you suppose that, given how economic advisors have blown it big time on this occasion (according to object criteria), their factor X was not operational? Or that only the C part of it was operational, while the D part was switched off?

Is factor X inoperative in us all when we, on occasions, are certain of a conclusion that turns out to be seriously wrong? What is it that turns off factor C or D?

Subject for future studies. Meantime, we can all put our own confidence either in economists who say that the picture is rosy or those who say that it is gloomy. Does it much matter? Events seem to take little notice of them.

4 comments:

Halewyn said...

You may use "¡!" for "C" and "¿?" for "D".. ;-) -to look at it in a more visual way-, and if you assign the following value for "X" : X = "risk" = R

..then you can formulate this simple ecuation:

R = On / Off = (¡! x ¿?) / Off

Which expresses a propotional relation between R with “On”, while an inversely proportional with “Off”; meaning that the mechanism mentioned in the article would switch "On" when economic factors translate to a risky market situation and vice versa.

The reason why.. or why economists tend to polarize their judgement (mechanism switch to “On” gradually –of course-) is [I think] the same reason why the public in general tend to choose strong -or at least in appearance- leaders (eg.polititians or political parties) that look at things with the Black-Or-White glasses instead of the Black-And-White ones, more comfortable (or fashionable) for times where R is sufficiently low to consider the mechanism “Off”.

As a resume.. economy, like our own lifes, has to do with two main cycles that define a time for Action and a time for Thinking, where in the first the important thing is to choose a direction (even if it’s not the rigth one), while being the opposite for the second case.

Why action is associated to risk and thinking to lack of it may not need explanation because it is easy to see that our ancestors (which lived in a more risky environment -eg.lions-) had a preference for action and not for thinking.

Manuel Fontoira Lombos said...

Hello, Professor Zeki.

I was reading "The asynchrony of consciousness" (Zeki and Bartels, 1998), felt curiosity, and wrote Semir Zeki on the "Google searcher" and found this blog of yours.

I´ve thought for years about that asynchronycity you´ve written about and eventually came up with a possible and probable explanation for the property of subjectivity. Most of this explanation is in spanish in my blog (I´m spanish), but I´ve wrote this short version for the english readers:

http://neurofisiologia-clinica-fontoira.blogspot.com/2008/07/provable-hypothesis-about-possible.html

I wrote it several years ago and published it recently on the blog (which is recent too).

Your work has helped as an insipiration (just take a look at the first reference in the bibliography).

Thank you for your time.

Yours truly,

Manuel Fontoira, MD.

Michael said...

>"Moral Hazards"? Well, I am
>almost sure that I heard it
>correctly, but I don't know what
>the term means. I am not an
>economist.

"Moral Hazard in financial markets is the risk (hazard) that the borrower might engage in activities that are undesirable (immoral) from the lender's point of view because they make it less likely that the loan will be paid back."

I don't know in what context that term was used, but maybe the guy was being ironic, alluding to the bailout that wasn't - all that money being used for purposes not intended, such as bonuses and luxury retreats for executives, and for buying up rivals; good times, indeed - for bankers!

Anyway, that definition came from Frederic S. Mishkin's book "The Economics of Money, Banking, and Financial Markets". Mishkin is professor of Banking and Financial Institutions at the Graduate School of Business, Columbia University. His book is an excellent introduction to financial markets.

Finally, I stumbled upon your name after reading a London University research paper about consciousness. I did a google search and found a number of papers/articles you've written - ones accessible to the layman. They are very interesting and illuminating. I've ordered a copy of your book, "Vision of the Brain", and hope you will write more articles that are comprehensible to the layman.

I find it odd, though, how some scientists can be so certain consciousness can be explained when consciousness is not a physical phenomenon. I wonder whether these scientists are themselves conscious. Their dogmatic belief that everything can be unravelled by science seems to have blinded them to how hard consciousness is to explain and what it is that actually needs explaining.

(I've read numerous books on evolution, but I still remain agnostic. If there's no creator of any kind, surely nothing should exist. However, there is something - so what upholds existence?)

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