The invisible head

I will try to make a very difficult point, and I'm not sure I will do a good job at it. Please bear with me if you find this a little obtuse.

Adam Smith talked of the 'invisible hand', which guided the economy. What he really meant was that millions of individuals, acting in their own selfish interest, would promote the common good, through a systematic process that is not easily visible or definable.

With new knowledge coming from behavioural economics, we now know a little bit about what he meant. The human being has three minds (all parts of one brain): limbic mind, social mind and human mind. The limbic mind is animal-like, standard in construction and unchanging - not able to learn. It's the most powerful and shuts down the other minds when it speaks up. Issues like self-preservation, ego, etc., are embedded here.

Then there is the social (monkey) mind, which is part of the sub-conscious. It herds us together and we imbibe communication at the sub conscious level. We have a different personality in groups than we have when we are alone. And even this aspect has shades of grey and varies across small groups to mobs to markets. The social mind is more complicated and nuanced than the limbic mind but still relatively standard in construction and predictable in operation. Both these minds are very visible in markets. In fact, we rarely see anything else.

And then there is the human mind, the conscious awareness that makes us Homo sapiens. It's capable of logical processing and emotional processing, from the left and right hemispheres, respectively. This mind is capable of unique thoughts, which process often independent perspectives that come from different circumstances. It was this 'humanness' that Adam Smith assumed, which led to the famous 'rationality assumption' - the assumption that we have different and sometimes unique perspectives/interests which we can recognise and articulate and then pursue very logically with the right emotional intelligence.

Almost nothing in that last sentence is true of most of us most of the time. It was much later that we learnt, through the neurosciences, evolutionary biology and anthropology, that we are really still animals in most of our behaviour at the sub-conscious level and it took an effort of will to even get the human brain started. That will is called character, and many of us either don't have it (buried under societal pressures that taught us to conform, it never woke up) or we don't know how to use it. The latter became the subject of behavioural economics.

This attribution that classical economics made of the Homo sapiens - that he could process both logic and emotions - was a gigantic mistake, which rendered most of these 'rational' models flawed and unusable in the real world. What made matters worse was this fantastic claim of what these models could do, how they could run the world (or at least, figure it out). Not knowing its limitations has been the biggest crime of classical economics this last century.

Then came behavioural economics, which pointed out the three minds, which have caused all this confusion. That we did have a rational mind, but it was the least dominant of the three minds that we had. One would think that with the spread of this new 'education', more and more people would start to use this rational mind. Unfortunately, the world seems to be going in entirely the opposite direction. Thanks to Facebook/ WhatsApp, there's a convergence of thought processes that was earlier not possible. Sheer access and standardisation of communication is turning the minds of most of humanity to limbic and monkey minds. And all that the human mind can do is being taken over by artificial intelligence and the machines.

Now just imagine the power of Facebook/WhatsApp, which can deliver messages to the most limbic minds on the planet, maybe even with graphic images.

But back to economics. Through similar means, there is a 'dumbification' of relatively less incendiary ideas that are just bad for your financial health, rather like a can of sugary cola has been held out to be your route to 'happiness'. All this is called 'business' and the money exchanged for such foolishness is actually counted as GDP. And then we get worried when this foolishness is not growing any more.

Nowhere is this more evident than in that amphitheatre of systematic insanity, where pin striped suits go around believing that in some way, the world is richer for their existence. Markets somehow bring out the most basic of our personalities, even as they pretend to be forecasting machines that are the barometer of the underlying economy and have pre-empted for themselves the role of the asset allocator.

So Adam Smith's idea of the invisible hand ignored the idea of the 'invisible heads' (or minds), which give a vicious spin to the processes by which markets allocate resources. Yet markets are known to sometimes work, even without regulation. In a world where technology is binding together human thoughts and coalescing them into an agglomerated, limbic mass, the distortions to economic behaviour can only increase. From selling sugary drinks as your 'road to heaven' to the vehicle (Facebook, WhatsApp) itself, you are increasingly left with little of the free will left that is needed to even make choices.

Will it be surprising then if more and more businesses start to lock into our limbic minds and that becomes the measure of success of a business. Flipkart tried (it seems unsuccessfully) to get you hooked onto online shopping, luring you by crazy discounts, hoping that one day, you would pay for what right now was available free.

This is especially pernicious in finance and markets. One day, not very far off, you will have apps that will allow you to lose your shirt at a click. With no law decreeing that you should only use your non-functioning human mind, you will have the broking platforms count their turnover as GDP, and this will be called progress. This Russian roulette will be called a business.

The author teaches, trades and writes at spandiya.blogspot.com