Darwin in the Financial Markets
July 19th, 2009 8 comments link to (permalink) posted by david
If you can overcome the fact that Niall Ferguson seems to have slowed his metabolism to alter his rate of speaking to avoid any exertion whatsoever in the summer heat that this talk was delivered, then it’s interesting – interesting because it is dull and obvious but wrong.
Darwinian Natural selection takes a minute to grasp and a lifetime to misunderstand, as Ferguson demonstrates – his premise is that markets might be Darwinian. Perhaps the reason he is appears so cautious, is that accepting that greed driven markets are Darwinian is one step away from politically unacceptable Social Darwinism.
Maybe it was for this reason that Paul Kedrosky originally put up the clip with the disclaimer: “I’m skittish about the over-application of neo-Darwinian thinking to everything in sight , but this talk by Niall Ferguson is worth a look”
Since neo-Darwinism refers to a strict interpretation of Darwin’s exact description of Evolution, Niall Ferguson’s market evolution is nothing of the sort – it could equally be saying that markets are Lamarckian and not Darwinian, since successful market strategies are passed on during the lifetime of those who develop them.
This is the problem with applying Darwin to everything. Clearly all order is ultimately self-emergent, it is a meta law that must therefore apply to every collection of interacting systems but unless you describe the mechanism you aren’t saying much.
For example, Darwinism requires a finite environment (creating the constraints for competition), mutation (to create new things to select) and inheritance (to create a cycle for rules of selection to apply). The rules of selection themselves are defined by the interaction of a specific system and specific environment. Capitalist markets are based upon growth markets where supply and demand are elastic and where advantage comes from invention – or ideas. The genes are memes and there is no proof yet that memetic Darwinism is more than analogy.
Ferguson is surprised that when he showed a slide of Dawkins and Gould to an audience of bankers at a conference organized by Goldman Sachs, not a single person could identify them. However, Ferguson may be able to recognize evolutionists and evolution in the colloquial sense but not Darwin and his theory. Understanding the exact mechanism of evolution is the contribution that Darwin made and is often misunderstood because the idea of natural selection is so easy to grasp in a general form.
That markets are Darwinian in the colloquial sense of survival of the fittest, is obvious but unfashionable. That markets are truly Darwinian means that they are not Lamarckian and that a business advantage cannot be transferred during the lifetime of the system that Darwinian rules are operating on – that would be remarkable. Just as there is some debate about whether memes are really Darwinian, its not clear that markets are, but not for the reasons that Ferguson argues.
[ I suspect that memes are in fact really Darwinian and that the way that the Lamarckian problem is removed is to figure out what the equivalent of an organism is for memes.
Organisms themselves are persistent features which remain after all their constituent molecules are replaced through eating and pooping. In this way, organisms are actually like ideas or rather a specific message containing ideas.
In the generalized world of any type of idea or information, memes are ideas contained in messages and memetic organisms are a specific example of a message, for example in the binary encoding of a computer, the pen marks in a letter or a business transaction.
The life cycle that makes this non Lamarckian is the successful or unsuccessful application or transmission of an idea or collection of inseparable ideas from one message encoding to another. This could be from a computer to a print out or even a collection of neurons in someone's head, in every case the message idea is contained within a new message medium.
Reproduction of animals through transfer of an idea of how to build that animal (contained in its DNA) from one animal to its offspring is a specific case of memetic transfer. ]
via Paul Kedrosky