The Green Gap

In the Cold War, we feared a Missile Gap was a strategic weakness. Nowadays, we must awaken to the fact that the Green Gap is true strategic weakness: the nations whose economies will thrive in the coming years will not be those with the biggest factories, but those with the most sustainable, efficient, and ecological markets. What we require is a Strategic "Green Reserve" of ecological design to weather the coming changes that both climate and resource scarcity will force on the international economy.

Sunday, 7 July 2013

It Wasn't Me

In Halifax, November 1998, one Mr. Richard Marriott and Ms. Gail Stone were shot in an as-yet-unsolved double homicide. They were common-law partners, and owned substantial real estate investments. As you may know, both marriage and common-law unions give spouses extremely powerful property rights: as soon as I die, my spouse automatically inherits everything I own. When there is a double homicide of this nature, to put it morbidly, who dies last, wins. Ms. Stone died four days after Mr. Marriott, and therefore her estate inherited everything. Now, if you're in a loving and equitable relationship, and you've done your wills together, and you make certain both sides of the family are taken care of in either will, then you hope that there will be no fighting over the spoils... but quite frankly, every single will in existence has probably been perceived as unfair by most beneficiaries of the estate. In this case, there was a fight over the properties, and during said fight, some interesting facts popped up.

You see, Mr. Marriott was a drug dealer, and his cars and bling and houses were proceeds of crime. Proceeds of Crime statutes exist in pretty much every jurisdiction around the world (possession is 9/10ths of the law, after all!) and they all say more or less the same thing. If a gain is ill-gotten, it don't belong to you. If you get an ill-gotten gain from someone else, it's still ill-gotten. Just because you didn't cap someone's ass and steal their prize-winning pet Japanese Carp to sell on the black carp market, doesn't mean it's not a hot carp any more. The carp's still stolen - it's just now in possession of someone who didn't otherwise commit a crime. As a matter of fact, a person who purchases (for example) a hot carp - even if they had no knowledge of the fact it was stolen - may still be charged for being in possession of proceeds of crime. One key mitigating factor in sentencing is typically the amount of "due diligence" a buyer does before purchase. If a judge asks the question "ok, you had no knowledge that the carp was hot, but how hard did you try to find out whether it was hot or not?" then you'd better have done some searching and legitimately come up with nothing. It's like the typical "but she told me she was 18" defence: if you didn't try to verify the facts, you're still guilty. And a dipshit.

What happened to the properties? Well, they were subject to some pretty serious court wrangling. For those of you whose eyes glaze over at the very sight of legalese, I'll save you the pain and duress. This case was an appeal of an earlier decision that awarded - in the eyes of the Crown - too much to the estate of Ms. Stone. Specifically, the estate had somehow managed to claim one of the houses in its entirety when all money used to purchase the house, except the down payment, was a proceed of crime. The court eventually sided with the Crown, indicating that the house would be forfeited and the deceased's estate would receive the amount of the legitimate down payment. Justice was done, and Her Majesty the Queen of Canada slept well that night, after tucking in all her corgis.

The nice thing about this case is that we can all understand the essential issues of justice surrounding it. If you do something bad, you should not gain because of it, nor should anyone else gain from anything ill-gotten. It's not about the person who possesses the ill-gotten gain, it's about the ill-gotten gain itself. If I come to your house, surrounded in police, and wave a forged title deed in front of your face and have you forcibly evicted, I have uttered a forged document (Criminal Code s. 368) and gained by it. If I die and pass that property on to my squeaky-clean volunteers-in-an-old-folks-home patriotic-to-a-fault rescues-animals-from-shelters always-buys-a-crate-of-girl-guide-cookies-and-gives-them-to-the-homeless son, the property is still ill-gotten. No matter how good a person my son is, he's now in possession of the proceeds of crime: YOUR rightful house! I doubt you'd consider him a particularly good person unless he gave it back to you. His claims of "but *I* didn't steal the house!" would likely (and rightly) fall on deaf ears. We all understand the basic justice in this. It's simple. In the terms of our tradition of English law, it's "Natural Justice": fair and unbiased application of law in the spirit of procedural fairness. Property rights have been an essential part of our laws for centuries.

It's for this reason that we can now, potentially, look at this news story, regarding the use of Beaver Lake Cree land by oil companies, through the lenses of the same justice. When corporations are able to use properties that impinge on the rights of anyone to the rightful use of their own property, they cannot make the "but *I* didn't confiscate the land" defence. When the judiciary of Canada makes a decision that the rights of the Beaver Lake Cree Nation under Treaty 6 could be violated by current oil extraction, we can understand through the lens of Natural Justice that the claim (and the finding) is sensible and right. Whether a corporation says "she told me she was 18" or "we didn't knowingly violate Treaty rights", the result should be the same: under our system of law, in the eyes of our own idea of justice, and in the spirit of Natural Justice, the Beaver Lake Cree have a claim that must be heard. Whatever the final decision, they certainly deserve a hearing.

I didn't come here to talk about some random drug dealers, obviously. When I speak to my (non-First Nations) friends about First Nations issues, many routinely counter the arguments by saying "why are they blaming me for something I didn't do?" Well, it's correct that none of us took First Nations' lands, none of us violated the Treaties directly, we are not in any way directly responsible for the situation almost all First Nations find themselves in... but some among us are benefiting from the proceeds of crime. While that does not mean we are bad - it cannot change our ethical essence - it means we may be in possession of something that isn't rightfully ours. We need to understand that no matter how good we are (and most of us are good), no matter how generationally removed we are from the Treaties, the First Nations are not telling us "you did something wrong", they are saying "some among you are benefiting from the wrong done by others".

I'm a product of British Isles stock and a third generation Canadian. There isn't a drop of First Nations blood in my body (any First Nations peoples reading this will likely add the ellipsis "...that you know about"). I look at things through a distinctively European lens, and my capacity to comprehend the First Nations' worldview is particularly weak - but I do understand the philosophical concept of Justice, as do you. Next time you hear about a First Nations issue, please - PLEASE - use your empathy. I'm not asking for you to give up everything you own, put on a hairshirt, and self-flagellate for the rest of your life. I just ask you, I beg you: please have empathy. Please listen. Please understand that the First Nations are simply trying to claim what is their right under the Treaties the government signed with them. If I took your house by the use of a forged deed and passed that house on to my son, you would still try to get your rights back. Your quarrel is not with my son, but with the rights I passed to him.

I would fight for your rights to your property under law, firstly because it's the right thing to do, but also because protecting your right to your property strengthens my rights to my property. Our approach to our First Nations brothers and sisters should be no different. Protecting their rights to their lands under the Treaties strengthens our own legal claims to our legitimate property. We should seek justice for all. For Canadians like us, it's only natural.

Tuesday, 2 July 2013

Subverting the Global Economy through Local Action Part 2

[part 1 here]

For a while, I had intended to write this post all by myself and make it a masterpiece of bloggery, so I started looking around for inspiration and links.

And I found others have already mastered this topic.

So I'm not going to write an article, post, diatribe, or paean: I'm going to stop right here and link to others' works that cover the topic far more thoroughly than I could in a single article. The overriding thesis: we don't need to do anything particularly organised to overturn the current economic order. All we need to do is reduce our overall need for money. That can be done through sharing, gifting, cooperation, crafting, making, and swapping - all of which is fun and builds community, which is far more useful than money. But don't take my word for it:

The concept of Earthship Village Ecologies links ecological concepts by creating work and resource flows rather than currency flows, and creating community instead of economy.

This is a good core article on the economic underpinnings of the Sharing Economy, and how we can resuscitate it for the modern age.

The Creative Commons is a global open-source style movement that gives a legal basis for sharing IP without giving corporations or individuals the opportunity to monetise or acquire the rights to an idea, product, or piece of work. A good example is this website for the sharing of free designs for 3d printing, in this case featuring designs for how to print an entire flying quadcopter. It's quite simply a fact that IP stifles small-scale economic development and in many cases is counterproductive. The people who realise this can share their concepts and code through these above movements so that their ideas serve the greater good of the community and allow small-scale economic development to expand.

The anti-colonial and anti-enclosure movement rising in (primarily) the third world seeks to defend cultural legacy from corporate patents.

The Transition Towns movement seeks to create regional and local economic autonomy and development from the "great powering down" that is starting now. The link is a practical primer on how to get local research to assist in economic development on a local level.

This is just the tip of the iceberg, but countless groups are looking at a less cash-intensive future that is more community-based, sustainable, and happy. Less money can mean less security in these cash-intensive times, but less need for money means greater security, more community, and in the end, more happiness for all concerned (except the bankers, who might actually have to learn to work for a living).

Tuesday, 9 April 2013

Subverting the Global Economy through Local Action, Part 1

It's a common and nonetheless sad story that, no matter where or who we are, we assume that the only way to change our lot in life is to rally behind a figure who, inevitably, betrays his or her ideals once in a position of power. The politicians who win elections can bend but won't act, and those who won't bend and would act: don't win. Leaders are, on the whole, incapable of NOT doing what the system is set up to make them do. In a democracy, politicians appeal to their base with stirring rhetoric to get elected, and once in power, must compromise and please the majority. That's the democratic system. On the other hand, authoritarian concentration of power comes greater need to offer power and wealth to the people who support you, and no matter how benevolent the despot, his innate sense of entitlement and ability to rationalise make it impossible for him to resist the trappings of power and reject its substance. So much for leaders.

So what have we got to rely on? First, we must take power over ourselves. Power over oneself is the greatest of powers, but we just happened to have become acculturated to giving this power up to authority to the point that we don’t know that it’s gone. Next, realise that there’s a lot more in this society than just governments and individuals. We're not only talking about ourselves, but the communities that we left behind to inhabit our soulless suburbia. Building on a few of my previous articles, I wanted to talk about how to use your personal power to make the world a better place. No, this isn't intended to be some kind of self-help or inspirational article. This is a blueprint for a peaceful and insidious revolution that just happens to be inspiring.

The global economy has made many goods very affordable. The more globalised we become, the cheaper everyday items seem to get. Economies of scale, container ships, and big box stores are efficient: they are able to produce the most amount of widgets for the lowest price. Efficiency is exactly what the global economy is about. Companies can move production of widgets to the countries with the lowest-cost workforce, countries that provide the most favourable tax laws, or countries that subsidise corporate inputs. Given the smorgasbord of potential options for cost externalisation (fancy language for how corporations make other people pay for the stuff they use) and arbitrage (fancy talk for simultaneously exploiting the margin in price between two regions for profit), companies can naturally make their homes in locations that offer them lowest cost for their operations.

The problem with this efficiency is that it means one thing: concentration. Profits become concentrated when corporations operate in an environment where they are free to reduce or externalise their costs. As much as I believe in the free market, I believe that everything from lower salaries and cheap electricity to favourable tax legislation and undervalued currencies are externalities naturally produced by the current way of doing business. My definition of a truly free market is as free of these corporate advantages as it is free of hindrances. All externalities must be internalised to create a truly free market. Economies work best when all actors have an even playing field. When the field is uneven, groups can effectively arbitrage (for example) the high-currency consumer power of country A with the low currency and tiny salaries of country B. There are plenty of multinationals that would be unable to survive if it wasn't for these arbitrages and externalities. In my opinion, they shouldn't survive: they are poster-children for unfair business practices and unsustainability... but I also understand that, when the only goal of a corporation is to expand share value, they will naturally act amorally to achieve these ends.

The WTO (formerly GATT) has facilitated a kind of corporate wonderland where corporations (through their governmental proxies) can take countries to court for throwing up trade barriers. Trade barriers, in this case, can mean even something as simple as health legislation (where the US forced the EU to accept hormone-laden beef that has been linked with increased risk for cancer) or environmental protection legislation (where Venezuela forced the US to allow them - effectively - to sell more polluted gasoline on the US market than extant EPA legislation allowed), or indeed human rights legislation (where Massachusetts was forced to deal with Myanmar even though they had made legislation that disallowed them to deal directly with despotic regimes). This is simply in their nature: corporations act to increase share value. They will use all tools at their disposal to grow, and prying open other markets is one of the things necessary for growth past a certain point. It is no surprise that GATT became the WTO and the WTO may likely expand to the TPP. It's a natural evolution. Predictable, really.

We need a way for economic proverbial Davids to compete against proverbial economic Goliaths. The purpose is not to abolish the WTO, throw out the multinationals, eat the rich, and establish a dictatorship of the unions. That can't be done, especially not through any kind of direct conflict. No, the purpose is to make the people in your immediate area able to compete against money. Not simply against this company or that company, or this product or that product, but against the fundamental underpinnings of the entire neoliberal economy: money itself. 

More in the next instalment. Read this for a taste of the direction we're going. A shout out to The Valhalla Movement, a step in the right direction.

Influencing Behaviour

It is easiest to get someone to do something when you make it in their own best interest to do so.

If it is in their own best interest to do something and they do not do it, perhaps they suffer from a lack of information.

If they have adequate information about something in their best interest and they do not do it, perhaps they lack the capacity.

If they have the information about and the capacity to do something in their best interest and they do not do it, perhaps you have miscalculated the priorities of their interests.

Sunday, 17 March 2013

More farming issues

A few links for you:

The era of cheap food may be over (overview)
If the World Bank's projections are anything like accurate, further massive productivity gains from agriculture are going to be needed over the next two decades. There will be an extra 70m mouths to feed every year, which will result in a 50% increase in demand for food by 2030. Meanwhile, the amount of arable land per person will continue its long-run downward trend.

Britain's farming crisis: 'People don't realise how tough everything is' (cost of feed due to scarcity)
So they had to turn to higher volumes of concentrates than usual, where costs have shot up too, because of grain price rises on the international markets. "Feed has gone up by £50 or £60 a tonne." With each animal consuming a couple of tonnes of concentrate a year, that's a major cost. "As a result, the milk price is still below the cost of production because of the cost of that feed."

UK farmers face disaster as 'perfect storm' strikes (environmental pressures)
Farming faces a perfect storm. Appalling weather – 2012 was the second wettest year on record in England – has coincided with disease in livestock, including bovine TB and Schmallenberg in sheep, which causes birth defects. On top of this there are commercial pressures, with retailers driving prices down because of the state of the economy, combined with the cost of animal feed needed to replace poor quality silage due to the weather, shooting up by 40%.
This summer is probably going to be pretty expensive to shop for food.

Wednesday, 20 February 2013

Predicting Future Economic Behaviour: The Price of Food Will Rise

Pretty lame, isn’t it? I mean, pretty much everyone knows that the price of food is already rising. It’s really quite a do-nothing hypothesis when you think about it. “The price of food will rise”. Is that it? Stating the obvious? Does that kind of statement make a guy some kind of economic wizard? No. But I must say this, on the anniversary of Copernicus’ birthday: stating the obvious worked for him.

The reason why the simple statement “the price of food will rise” is so important is not the statement itself. Saying “the earth rotates around the sun” is not, in itself, earthshaking. It’s what follows thereafter. All of a sudden the orbits of the inner and outer planets make sense. When you see the obvious, sometimes other facts that are difficult to reconcile become reconcilable.

The Price of Staples Will Rise

We all know that the price of food is rising, but we’re also hearing about droughts causing crop losses in the US and now Russia is feelingthe pinch, too. With the world’s biggest corn producer and the world’s biggest wheat producer putting out fewer crops, economists have already been able to project that beef, for example, will likely be more expensive toward the middle of this year due to the raising price of feed grain. With more droughts happening lately, the pressure on staples will be constant, and while we can’t necessarily say that the base price of staples will go up, it will fluctuate higher and, on average, be more expensive. When this happens, the meat downstream becomes more expensive by extension. Keep it in the back of your mind now that Russia has shut its doors to grain exports – likely until June – and many previously self-sufficient countries (I’m looking at you, China) are no longer self-sufficient. India is another case where, while they appear to have food under control, the per-person consumption of food calories is lower than in many other food-importing countries and I fear that lowering these calories-per-person is simply not something the Indian market can absorb. Americans can stand to eat fewer calories. Indians may not be able to. Will feed lots be profitable anymore if grain becomes too pricey? Perhaps there will be a rise in grass-fed cattle, which will increase demand for range land. Either way, the meat gets more costly and land gets more scarce. Mid-term result of grain no longer flowing from Russia? The Maghreb, one of the main importers of Russian grain, may have even more unrest to deal with. Watch Egypt.

Inflation Will Rise

The majority of the world spends the majority of its pay on food. North Americans and Europeans are something of an anomaly that way. I’ve already mentioned that inflation in China is on the rise, and when I left China, inflation was high – until they changed the proportions of goods in the grocery basket used to calculate inflation. In effect, inflation in China is a shell game: they don’t want the official number to be too high, so they change the make-up of the products it’s based on. The items they reduced in the basket: food. Sadly for the central government, the people know what’s going on, because they are spending most of their pay on just that. Salaries are going up to cover food price increases. Workers would not go back to the factories after the economic crisis for the same pay they worked for prior. Workers are desperate for enough cash to pay for food – and I’ve already argued that food determines the base price of the workforce. If the cost of food goes up, the cost of work goes up, and food-importing countries will be impacted more. This is one place where the First World worker has the advantage: we can absorb a price rise in food. Others cannot. In the long run, scarce food may start to make us more competitive than we currently are.

Trade Imbalances Will Shift and Potentially Reverse (eventually)

The Chinese have a long memory, and the Opium War is almost a current event on the time scale of that ancient civilization. To oversimplify the reasons China and England became embroiled in this one-sided conflict, we can say that there was a massive trade imbalance between the two countries. In effect, China grew tea and England bought it for gold. The natural problem being that tea can keep growing forever and gold is finite. In order to reverse the flow of bullion, England started assisting opium dealers in trading a different plant product for precious metals. This made the Chinese angry, and they started burning things. That gave the British the opportunity to go in and blow things up, and make the Chinese take the opium – illegal or no. To sum up, trade imbalances make people touchy. Currently, the Chinese hold a trade imbalance against the US which – to a degree – works in both nations’ favour. The Chinese are building an enormous pile of US dollars (not having learned anything from the Opium War, I suppose), and the US gets cheap goods and an endless supply of loans. Once food becomes more expensive, however, the flow of those dollars will slow. This will not require gunboat diplomacy, drug running, or any other kind of shenanigans. It will occur naturally as a consequence of more expensive staples. While there will be volatility in the staples market as the US and Russia have alternating bumper/poor crops (this hurts only the farmers, though – everyone else is more or less unscathed, but farmers start killing themselves when prices do this), eventually the average price of staples will rise. China will be unable to increase its own internal staple production to meet its needs due to overuse of chemicals, lack of groundwater, and desertification. With the relaxing of restrictions on domicile imposed by the hukou system, farmers will start moving to the city in droves. Who once were productive farmers will become consumers in the food system, and leaving large tracts of land to be turned into real estate deserts. I contend China’s food production will never rise in a meaningful way unless a miracle happens and they all of a sudden have a Green Leap Forward. Not bloody likely, but I remain open to serendipity.

This means there are implications for Chinese productivity. Its growth once predicated on cheap unskilled labour, the cost of hiring in China will rise with the price of food. The same kind of production will become untenable in China. Foreign investment – already seeking alternative places to flow such as Vietnam and the Philippines – will threaten to dry up. What may this mean? It may make China blink on monetary policy. One option would be to allow the Yuan to float, the other option would be to unilaterally have the Yuan to rise in value against the dollar. Trade imbalance is going to force changes in monetary policy one way or the other, but this one thing I will say: do not underestimate the power of the US dollar. While its value is more or less based on the fact that it is the global fiat currency for petrol purchase (and the reserve currency for many other international transactions), even in an era of decreasing oil demand due to high price, the USD will retain value because we’ll be buying grain with it – or at least the Chinese will be.

Will there be a grain war? A more exciting reporter than I might say “maybe”. I say “no”. Will there be very boring high-level discussions about monetary policy amongst the grand high mucky-mucks of the Chinese Communist Party and Indian Cabinet? Yes. They may even get into heated arguments. I know. Perish the thought. We live in such turbulent times.

And then There’s the Death and Famine

Oh yes, I forgot. The over billion people that live on between one and two dollars a day will go hungry in droves. This will not have an economic impact on you. I guess you can decide for yourself whether this issue matters to you or not.

The Copernican Economic Shift

So once the economic shift begins, several bets are off. One may be the direction in which trade imbalances begin to flow. Another will be the ability of China to retain its growth in manufacturing centres. Will China shift its monetary policy? Will arable land become a highly desirable asset class? I think there are strong chances of these things happening, if only moderately, in the coming years. One thing I think is a certainty is the increase in the cost of arable land due to interest not only from investors but other states scrambling for the single most important strategic resource in any nation’s arsenal: food. As the old yarn goes, “buy land – they ain’t making any more of it”.

Saturday, 9 February 2013

Part 3: Irrationality does not exist because of data

Part 1 is here.
Part 2 is here.
A very strong contender for an actor most similar to the schizophrenic is an investment or venture capital firm (or trader). Both receive large amounts of potentially specious data and must interpret it in order to predict the future – a high-entropy proposition. All finance and investment relies on complex models and practices. All these models and practices are false: if one was true, there would be no such thing as a failed investment. All these same models are, to at least some degree, descriptive of what the market does, because they would not be used if they did not have some kind of predictive power. It remains to be seen whether this is because the models evolve with the market or the market evolves with the models. The issue here is data: I can’t guarantee you that my interpretation of market data will be accurate or not, but I can guarantee you that I have far less market data than an investment firm. Leaving entropy completely out of this, because we are all victims of high entropy when trying to predict the future: who will do better at reading the market, the person with less or the person with more data? In general, the odds would favour the person with more, and that is our last nail in the coffin of irrationality.

Hindsight is 20/20 they say, and failed investments eventually make sense when fully analysed. The problem is that they have to fail in order to determine holes in the model. The humans who developed the model have to have the humility to make necessary changes to the model to preclude such failures in the future. The model must be disseminated accurately and applied appropriately to have a chance of improving its predictive capability. Do these things happen? Occasionally. Normally, the same well-worn model tends to go back out into the field; its shortcomings described as a 1-in-100-year anomaly or a failure of interpretation. Is this rational? Depends on the environment – how many times had the model succeeded before? Depends on the entropy – was bad data entered into the model? Depends on the data – was there enough to give the model a chance of success? Indeed, hindsight is 20/20, and what was a rational investment choice is now seen, in the light of new data, to have been “irrational”. But was it? With just a little more data, the benefit of hindsight (low entropy), and the ability to understand the whole environment, we can certainly say the decision was wrong, but was it irrational? Not at all.

Environment, entropy, and data can actually be boiled down into one simple concept: information. Environment is the source of all data; entropy is the factor that affects an actor’s interpretation of data; the concepts of data and information are more or less the same. We can truthfully say that “all actors are rational depending on their information”. As an illustration, consider what happens to you after you die. In reality, it doesn't matter what you think, what matters is that you realise you are dealing with a situation in which the information has high entropy. You can easily agree that many people who see these words will believe something different than you about the topic. They will, if they disagree with you, consider your views irrational, and you theirs. If you reflect back on the reasons for which your views are rational, you can see the environment in which you were brought up, the experiences that reinforced the ideas you hold, and the data that you inserted into your mental model of how the world works in order to come to your rational conclusion. You can also transpose that experience directly to all the other people who come to this page and disagree with you. While the result is different, the information was not; while the end decision is rational to everyone who reads these words, it is not, necessarily, right.

Part 2: Irrationality does not exist because of entropy

Part 1 is here.
Another actor who often finds themselves tarred with the classical epithet of irrationality is the schizophrenic. The condition of schizophrenia gives a person access to a new source or sources of data to which others may not have access. This data may or may not be perceived as “real” by the schizophrenic. The condition of schizophrenia may, over time, make the sufferer so suspicious of all data that they become less capable of separating accurate data from the physical world and the data derived from other sources. Information Theory, which considers data not by its content, but by its simple existence as a quantum of communicable information, is the best lens to view this type of “irrationality”. Specifically, the concept of entropy in Information Theory provides a key to one part of the puzzle.

Entropy is the probability of being able to predict the content of a piece of data. It is less probable for me to predict the winning lottery numbers than it is to predict the outcome of a coin-flip. The result of a coin flip is a piece of data. The winning lottery numbers are also, taken together, a piece of data. Entropy tells us that one is easier to predict than the other because there are more potential results for one piece of data than another. While this sounds like straight probability, be warned: Information Theory started in the 1920s and gave you such wondrous toys as the Voyager space probe and the CD. We’ve only just come to the mouth of the rabbit hole on this topic, and this paper isn’t long enough to go too deep.

Experiences that are a product of a schizophrenic’s environment produce interesting results. When a person hears voices or sees things that he is unable to differentiate from the simple physical reality others perceive, his world is no longer bounded by the same rules. Some of the data he receives is unbounded by physical laws. This may or may not help him in trying to sort the physical from the perceived. If a vision or sound accords with the laws of physics, a schizophrenic may be forced to determine whether or not this seemingly real data is truly real. This is akin to flipping a coin and seeing a heads – but not knowing whether the result is due to the actual coin toss or simply due to one’s own perception. There is greater entropy in a schizophrenic’s life because even if he receives data, he must still determine whether it is “real”. In such a high-entropy environment, it is very difficult to discuss rationality simply based on environment. Whereas the environment is the source of sensory input to the actor, the high entropy of the data received from the environment changes the very nature of that data. Environment plus entropy yields potential uncertainty, and that uncertainty can lead to what might be called “irrationality”. Still, if a person is schizophrenic and is acting in a high entropy environment, they are simply making the best choice available to themselves under the circumstances. That is a perfectly rational action, and while the schizophrenic deals with high entropy all the time, everyone experiences a moderate level of entropy because our perception is imperfect.

Part 3 here.

R.A.M.ifications: the Failure of the Rational Actor Model

The Rational Actor Model (RAM) is one of the principal foundations of Game Theory. It assumes that an actor, be it individual or corporate, will always act in its own self-interest when faced with a decision. Self-interest is taken to be objectively interpreted: there is a “best choice” in any situation that can be mathematically proven. Suboptimal choices are considered irrational. The concept of rationality itself is the very first problem with the RAM, as I will argue that there is no such thing as irrationality, and therefore rationality is a red herring. RAM tends to place all actors in the model on the same level in terms of environment, entropy, and data. This renders the model nondescriptive, as RAM cannot apply when actors come from different environments, have different weights assigned to their experiences (entropy), and have different levels of data about a situation. Data gaps are a fact of life and “perfect” data is an anomaly. These three ideas spell the death knell of the current RAM as a descriptive assumption. The only way to save RAM is to rid ourselves of the concept that there is such a thing as “irrationality”.

Irrationality does not exist because of environment
A poster child for the classical concept of irrationality is North Korea. Of the states in the world, few are more erratic, and none so erratic are so disruptive. The problem with analysing North Korea is that it can be seen through numerous lenses, and many of those lenses are not objective, but based on values judgements. Anyone who asks a question of Korea that starts with the words “why don’t they just…” and then recommends a course of action simply hasn’t put the time in to understanding North Korea as a rational actor. If anything other than the perpetuation of the regime was North Korea’s sole interest, such speculation would be potentially instructive. As it stands, we have a nation of some 20 million people which supports a tiny oligarchy – the only people who truly have “skin in the game” – in their chessboard of internal politicking. Internally, the Kim clan must assure dominance over the other petty power brokers, and externally, North Korea must milk the international community for aid while never truly allowing one state to become their sole interlocutor. Erratic acts – such as powering down the Yongbyon reactor only to power it up again secretly, kidnapping Japanese citizens and then releasing them some decades later, and sinking the occasional South Korean patrol ship then denying such activity on the world stage – serve to draw close and then alienate states each in their turn. So long as one state can give it aid and begin to make headway in the Hermit Kingdom, North Korea can afford to push away another for its own internal ends.

North Korea acts erratically, but not irrationally. Time and time again, results have proven to North Korea that such continuous games of “he loves me, he loves me not” get it the results it desires. Like a spoilt child, rewarded for his tantrums, so is North Korea a classic enfant terrible of the global stage. If such action is calculated to produce a desired result, and if such action is based on previous experiences of success, then how can it be called irrational? The best way to understand an actor like North Korea is not to ask “will North Korea react rationally to this offer”, but “what is the environment in which this action could be considered rational?” In the case of Korea, its experiences dictate that these actions will produce a desired result. The actions taken are erratic, but calculated; to consider North Korea anything but a rational actor in such a situation likely betrays an ideological presupposition on behalf of the interpreter.

In order to understand North Korea’s actions, we require access to data regarding its previous decisions and the results thereof. Environment is key – even applied Game Theory teaches us this. For example, in a 2005 paper (“Investigation of Context Effects in Iterated Prisoner’s Dilemma Game”), Evgenia Hristova and Maurice Grinberg detailed predictive strategies for cooperation in iterated Prisoner’s Dilemma games, finding that cooperation was not simply based on the games being played with the current opponent/partner, but all previous partners. Based on reading I had done in University, I determined that I would attempt an experiment myself that came out of Post-Modernist critique of the RAM through discourse analysis. I had a class of MBA students in a Business Strategy course divide into two teams. The professor of the course explained the rules for iterated Prisoner’s Dilemma in extremely competitive terms. For example, we made certain he said “opponent”, “beat”, “compete”, and “win”.  When I explained the rules, I used extremely cooperative terminology: “partner”, “resolve”, “cooperate”, and “participate”. The results were definitive, at least to me: In one-off games, the competitors always won. In iterated games, when cooperators were paired with cooperators, they by far scored highest. Any other pairing was so affected by the existing discourse – or became so disenchanted by their “partner’s” lack of cooperation – that they were dominated by defections. The history, the environment of each player, was a factor in their strategic choices. Those strategic choices were preordained by our simple choice of words. Were those choices irrational? No. They were purely environmental.
Notes on Game Theory and human choices: