Is rationality real?

In financial markets where standard and divisible instruments are traded, it has been shown that rational outcomes are more likely. Even though individuals act irrationally most of the time, the aggregation of individuals, markets in general, tend toward rational outcomes. It appears that this is unlikely to be true in real markets. In a recent experiment in the US, three entities - one from radio, one from TV and one from a powerful position, have been able to create irrational responses from a very large population - perhaps as much as 50 million. All the "broadcasters," had to do is to repeat incorrect information over and over again. This has broad implications for rationality, policy and the future of humanity.

Rationality is not real in non-financial markets. Humans tend to clump, perhaps an evolutionary trait that kept small clans together. Early in homo-sapien progression, identifying and protecting the clan was dominant. Although early humans used more sophisticated attributes, the modern variety seems to have fallen into using surface heuristics such as the color of the skin, eyes, and hair. The fundamental reason three loudspeakers could lead a large population down an irrational rabbit hole is that they used ideas from hundreds of thousands of years ago. This is not something the "intellectuals," understand. It is not that there aren't rational solutions to the problems we face but rather if such choices align with the human brain created much before modern times. 

Real markets cannot assume rationality. Anybody who assumes rationality exists and design campaigns around that is bound to fail.

Next wave of Artificial Intelligence

As Artificial Intelligence matures over half a century, we may be fast approaching the limits of independent developments in software and hardware. Consulting companies seem to have embraced "data science," an ill-conceived and confusing area. Hardware companies, pressured to sell Silicon at any cost, have been creating Pizza sized "smart boxes." and "cognitive networks.". Not to be left behind, companies that specialize in "IoT," things that are on the internet, have been struggling to define how they are different. All of these, aided by massive hype, will likely destroy shareholder value in many ways.

There are two important avenues to make progress in this area. First, the hype created by consulting companies has to be tempered - data scientists do not add value, they typically destroy it. R and Python do not automatically add any value if the users of these somewhat obsolete tools do not understand the problem they are trying to solve. Most of the "new math," has been around for many decades, it is just that fast and cheap computers now have made the incompetent look smart.

It is time to focus on the assimilation of hardware and software to move the field forward. Lack of a theory of consciousness automatically means that humans are better off abandoning the idea of "modeling," the brain. However, we could learn a lot from observing the brain - it is an efficient learning system that gets tired and ages over time. No machine based on conventional computing architecture exhibits these qualities. This means that it is futile to throw more Silicon to a foreign design in an effort to make it act like the brain. In other words, intelligence is never artificial.

Human intelligence, albeit impressive, cannot be the end game. The inability of individual specimens to form a network has substantially restricted their ability to advance. So, replicating the human brain in silicon is not a good idea both because contemporary designs do not allow consciousness and the lack of network capabilities disallow scaling.

It's time software and hardware came together to advance AI.

Individual's optimization problem

A human has a relatively simple optimization problem. Each specimen is expected to be alive less than 30K days,  divided into 3 horizons. In the first 10K days, they rely on somebody else to survive and live. In the next 10K days, they swim on their own to accumulate resources to take care of themselves for the remaining 10K days. This is a relatively simple optimization problem but humans are not generally impressed by simple ideas and solutions. For most of the 8 billion, irrational thoughts govern, such as optimizing beauty, hair, ego, wealth, tenure and research papers. Most miss the cliff and fly off the handle.

The human appears to be unable to optimize, given harsh constraints. Most run and run but never reach their goals. Some kill and pillage in an effort to climb the hill only to get vertigo as they reach the cliff. Most miss the simple objective function they are given and try to redefine it. As science accepts ignorance to be prevalent, as religion begins to recognize crime does not pay, as governments and societies realize the costs of electing crooked leaders, it is important to keep the 30K horizon in mind. How have humans reached this position?

Advanced human societies from 100K years ago were significantly more advanced. Most were not impressed by the color of their skin, hair and eyes. Most wanted to explore out of their comfortable habitats. Most shared resources across clans and societies. Most wanted to advance on their own and not by making others retreat. Most laughed and stopped laughing when they saw somebody else cry. They were humans and it appears that the modern version is not.

What happened to humans? Where have they gone?

Diseases of organizations

Over the last hundred thousand years, humans have been successful in the diagnosis, management, treatment and even the cure of physical diseases emanating from external sources and entities. However, they seem to have largely failed to understand diseases of an endemic origin or those affecting the Central Nervous System (CNS). The latter, underdiagnosed and overtreated, is likely responsible for significant loss of life and mind. As an example, humans lose 1 out of 10,000 to suicide every year. The problem is increasingly better understood in the medical profession but with few identifiable solutions. Life sciences companies, in a rush toward economics, have not put enough focus on broad solutions.

More importantly, we have to also recognize that organizations - countries, companies, religions, and institutions - also suffer from both physical and mental diseases. Physical diseases of organizations, largely understood by executives, consultants, and bankers, are well treated. But diseases of the mind and psyche of organizations are not something that is diagnosed or treated. This is likely more detrimental to the success of the firm for strategies and tactics focused on shareholder value, albeit necessary, are not sufficient. The meager attempt at defining such heuristics as culture has not had any measurable effects.

Early diagnosis of mental diseases is critical for the success of organizations (1). Lack of diversity is an early symptom in this regard. This is driven by a simple internal heuristic that maximizes replication. Driven to the extreme, an organization could seek a sterilized structure, devoid of new ideas. Recent developments in the executive branch of the US are symptomatic of a loss of perspective in a closed system. This can only lead to bad decision-making or worse. An organization without a moral and ethical construct is something that may have entered an advanced mental disease state.  Unlike humans, who could be intervened with chemicals, organizations cannot be pulled back, once there.

Leaders of large and complex systems may have to spend more time on the mental health of their organizations. History tells us that mental health is likely more important than the strategies and tactics leaders mostly focus on.


(1) https://www.amazon.com/Flexibility-Flexible-Companies-Uncertain-World-ebook/dp/B008KZ6T6Q/ref=sr_1_1?keywords=gill+eapen&qid=1569810218&sr=8-1