The irrational world of Daniel Kahneman

May 26, 2013

Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations.

 Which alternative is more probable?

a)  Linda is a bank teller.

b) Linda is a bank teller and is active in the feminist movement.

If you answered b), then you have fallen victim to the conjunction fallacy. Answer b) may have an air of plausibility about it, but it is a clear violation of the laws of probability – every feminist bank teller is a bank teller; if you add a detail, you must lower the probability. However, if you did get the wrong answer, you are in good company. 85% of students at Stanford’s Graduate School of Business got the answer wrong. This is the academic crème de la crème of the United States. What’s more they must have had extensive training in probability. I tried it on one of my classes and two out of three got it wrong.

Welcome to the world of Daniel Kahneman, an Israeli-American psychologist who won the 2002 Nobel Memorial Prize in Economic Sciences. The 79-year-old is famous for his work with Amos Tversky on the cognitive basis for common human errors which arise from heuristics and biases. He is currently a psychology professor at Princeton.

Kahneman was born in Tel Aviv in 1934, where his mother was visiting relatives. However, he spent his childhood years in Paris, France, where his parents had emigrated from Lithuania in the early 1920s. Indeed, they were in Paris when it was occupied by Nazi Germany in 1940. They all managed to survive the war except his father, who died of diabetes when Kahneman was ten. The family moved to British Mandatory Palestine in 1948, just prior to Israel’s independence.

Today I want to look at his most recent book, Thinking Fast and Slow, which came out a couple of years ago.  I have recently finished reading it and wanted to share some of its insights with you.

How we think

In the book’s first section, Kahneman describes the two different ways the brain forms thoughts. System One operates automatically and quickly on a more emotional level, whereas System Two is slower, more calculating and conscious, working on a more rational level. These systems do not reside in specific areas of the brain. It would be more accurate to think of it as a metaphor for the way we think. For example, 2 x 2 = 4 is System One, while 23 x 35 = 805 would be System Two. Both are necessary – problems occur when you use the wrong system. In particular, we have a tendency to use the error-prone System One instead of the more reliable System Two. Why is System One in charge? According to Kahneman it is because System Two is lazy; activating System Two is costly in time and also in calories. Thinking is hard work, and so we try to economise on thinking.

Now I am going to look at what can go wrong when System One is not up to the job:


Kahneman coined the acronym WYSIATI, which stands for what you see is all there is. This is how when we are forming a hypothesis we take it for granted that we have enough information. Margaret Thatcher used to say that she could judge a person within just ten seconds of meeting them. I have a colleague to thank for this wonderful anecdote about the rugby player Victor Ubogu. The former England prop had the following exchange with the Bath coach Jack Rowell:

VO: “Why do people take an instant dislike to me?”

JR: “Because it saves time.”

You do indeed save time. Taking these short cuts enables us to think fast and make sense of partial information in a complex world. Much of the time what we perceive is close enough to reality to allow us to make reasonable decisions. But it can lead to terrible mistakes.

The Priming Effect

This is when exposure to a stimulus influences a response to a later stimulus. The most curious is an experiment by John Bargh, a psychologist at New York University. One group of college students were asked to arrange brief sentences including the words Florida, forgetful, bald, grey, or wrinkle. The other half were presented with none of these words. On completing their task, the students were told to walk down the corridor to another room. The experimenters recorded the time the students took to walk this short distance. Surprisingly, the students in the first group walked more slowly than those in the second group. This has been dubbed “the Florida effect.” The unconscious association of terms commonly associated with being old actually had an effect on the students’ walking pace.

The Halo Effect

This is the belief that because people are good at doing A they will be good at doing B, C and D. This can be for both positive and negative attributions. Imagine that we meet a woman called Joan at a party and you find her friendly and easy to talk to. What we tend to do then is to extrapolate this information to conclude that Joan would be generous if a charity asked her to contribute even though you know virtually nothing about her generosity or lack thereof. And now believing Joan to be generous, we probably like her even more than we did before, because now we have added generosity to her appealing traits.

The Anchoring Effect

This refers to the human tendency to rely too heavily on the first piece of information offered – the “anchor” – when making decisions. This information can have absolutely nothing to do with the question in hand. My favourite example from the book is with some German judges who had more than fifteen years of experience on the bench. They were first provided with a description of a woman who had been caught shoplifting. They then rolled a pair of dice that were loaded so that every roll would result in either a three or a nine.  First the judges were asked whether they would sentence the woman to a term in prison greater or lesser, in months than the number showing on the dice. Then they were asked to give their specific sentence; the judges who had rolled a nine proved stricter – their average sentence was eight months, whereas the average of those who rolled a three was just five months.

The book does make you a bit sceptical about the judicial system. If you ever end up in jail, you would definitely want to have your parole hearing straight after lunch. Kahneman cites a study showing that prisoners’ chances reached about 65 per cent after the judges had eaten a meal, but by the time the next meal was due they were close to zero Kahneman’s explanation is rather sobering: judges who were tired and hungry were less likely to grant parole because they didn’t have the energy to make decisions.

The Framing Effect

This is the way in which people react differently to a particular choice depending on whether it is presented as a loss or as a gain. In one experiment subjects were asked whether they would opt for surgery if the “survival” rate was 90%, while others were told that the mortality rate was 10%. The first framing increased acceptance, even though the probability was no different.


Kahneman puts our difficulties with statistics under the microscope. A group of researchers were investigating what a made a successful school. They found that smaller schools tended to have more impressive results. For instance, of 1,662 schools in Pennsylvania, six of the top fifty were small, which is four times the number there should be. This led the researchers to conclude that smaller schools are better than larger ones. However it was the smaller number of pupils at these schools which skewed the numbers. If the statisticians had asked about the characteristics of the worst schools, they would have found that bad schools also tend to be smaller than average. The truth is that small schools are not better on average; they are simply more variable. My favourite example of how a small sample size can skew data is the average starting salary of students of Cultural Geography at the University of North Carolina – it was well over $100,000. This might sound like the perfect degree until you realise that one of the students was Michael Jordan.


Kahneman criticises the tendency of the business media to lionise successful companies and their CEOs. A study of Fortune’s Most Admired Companies found that over a twenty-year period, the firms with the worst ratings went on to earn much higher stock returns than the most admired firms. In statistics this is known as regression to the mean, the tendency of outstanding but lucky results to return to statistical norms over time. CEOs’ actions can make a difference, but the statistics reveal that their effect is much less than the business media would have us believe. Being generous, the correlation between the success of the firm and the quality of its CEO might be as high as .30. Thus, if you were to compare two firms, a correlation of .30 implies that you would find the stronger CEO leading the stronger firm in about 60% of the pairs, which is just 10% better than tossing a coin. Does this really justify the hero worship of CEOs we so often see?

Loss Aversion

In economics and decision theory, loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Some studies suggest that losses are twice as powerful, psychologically, as gains. It was Kahneman and Tversky who first   demonstrated this bias. It was first proposed as an explanation for the endowment effect – the fact that people place a higher value on a good that they own than on an identical good that they do not own. Loss aversion is also at play when it comes to the difficulty we sometimes experience with cutting our losses. This is because cutting our losses – though it will be the best option for avoiding bigger losses in the long run -entails taking a hit in the moment, which is tough for System One. The thought of accepting the large sure loss is too painful, and the hope of turning it around is so appealing.


I think that it’s a fascinating read. Kahneman has said that his work is a challenge to libertarianism. That may be the case, but government bureaucracies are run by humans too, they will have their own biases too. I may look at that question next week. Kahneman is actually sceptical about his ability to make better decisions:

I have made much more progress in recognizing the errors of others than my own.”

I am also reminded of one of Nassim Nicholas Taleb’s aphorisms:

The characteristic feature of the loser is to bemoan, in general terms, mankind’s flaws, biases, contradictions, and irrationality without exploiting them for fun and profit.

A couple of videos

May 26, 2013

Here are a couple of videos related to this week’s topic:

When all else fails, read the instructions

May 19, 2013

Captain Rumpelstoss: But… how will I learn to fly, Herr Colonel?

Colonel Manfred von Holstein: The way we do everything in the German army: from the book of instructions.

Those Magnificent Men in Their Flying Machines


The Antikythera mechanism is an ancient analogue computer with a series of 37 interlocking dials that was used to calculate astronomical positions. It was crafted with the precision and complexity of a Swiss clock, but it was actually made in 150 BC. Such craftsmanship would not be seen for another 1,000 years. Recovered in 1900, from a shipwreck off the Greek island of Antikythera, the mechanism had initially baffled scientists, who had no idea what it was used for. They tried reverse engineering it. Fortunately they were helped by script etched on the Antikythera mechanism’s wooden housing. This could be considered the world’s first instruction manual. Deciphering it must have been a complex task, and I certainly don’t want to take anything away from these experts. But today’s manuals also present a massive challenge. Modern-day instructionese sometimes feels like Ancient Greek to me. Trying to understand it is one of life’s more frustrating experiences. Indeed for some it can lead to read rage. Today I will be looking at instruction manuals and why they can be so exasperating.

Why are instruction manuals so hard to understand? There are linguistic challenges. Languages deal with and describe reality but this is so complex that any individual attempt to represent it comes up against an important obstacle – actions are, by their very nature, indescribable in words. We can only ever approximate reality.

A typical manual will include instructions for the setup, normal usage, programming maintenance and troubleshooting of your device. In the past manuals would include detailed repair information. However, with the increase in products’ complexity and functions, this information has been disappearing. The fact is that many devices are so cheap it’s just not worth repairing them.

We need to analyse the manufacturers and their products. Many companies seem to assume that the user will know all the technical terms about their product, and do not bother explaining them. I think many of the problems originate in the design. Good design of the products and the user interface is not prioritised. They have lots of engineers, but few or no human factors designers. Designs seem to be feature-oriented rather than task-oriented. The attitude is one of adding more and more features rather than trying to think what the customer will want to do with the device. I have noticed this with DVD players, especially the cheap ones. They tend to have lots of buttons making them really hard to use. On the other I have a Phillips which has fewer buttons. I am not a big Apple fan, but they do make many of their interfaces intuitive. A really well designed product wouldn’t need an instruction manual.

The quality of documentation can also leave a lot to be desired. Many manufacturers do not hire enough technical writers. To save money they will create a single manual for all international markets. So you end a massive booklet, but only a few of those pages are in your language. They will also use one manual for many different models, which can make it more difficult to find the information relating to the particular model we have bought. They want to keep these manuals as compact as possible and so the type-size of the text is a problem for those of us who are in our late 40s.

You get the feeling that many of the writers did not have the product to hand when preparing the manual. However I wouldn’t want the actual designers writing the manuals. They are too close to their creations and tend to make assumptions about what the users will know.

And when it comes to texts originally written in another tongue the problems multiply. Products can now be made all over the world and the meaning can be lost in translation. Many firms evidently do not bother to get their translations checked by a competent English speaker. In instructions this is especially problematic. As precision is so important poor language can make it difficult or impossible to understand what is meant. Do they consumer test new instructions?

We are also partly to blame. We can be lazy. I often think that life is too short to wade through these manuals – they are not exactly compelling reading. If I can get by, I tend to avoid the instructions at all costs. It also depends on our motivation. When I am interested in something, I will make that extra effort. I suppose the people in tech support will come at this from a different perspective. Indeed they have an acronym RTFM, which stands for “Read The Fucking Manual”. There is even a website,, where they dish out some practical advice:

If you believe that you may be one of those who, for some strange reason cannot get your product to work, then this is the site for you. Each time you experience a problem installing or using a product, please come to this site to read the following advice, and what do you know… IT’S FREE OF CHARGE! And another thing… It may even work!:


If you follow this advice, probability is that up to 8 times out of 10, you can solve your own problem right there and then, without any hassle and frustration, and without having to call the manufacturer. The manufacturer will tell you to RTFM anyway!

I think that today many product manuals are generally much better than they were in the past I particularly like the quickstart guides, which are so useful for getting quickly accustomed to the basic operations of the product. But there is still room for improvement. It would be nice if companies stuck with simpler designs. I remember a Sony Television I used to have. It had a reversible remote control – one side was for dummies with just the most common buttons, while the other was for the more sophisticated users. The internet is a wonderful tool if you have a problem with a product that the manual can’t solve. You can search the company’s website and look online for solutions from other users of the item that’s giving you trouble. Those how-to videos are especially useful. I like the amateur stuff. It is written by people like us who understand our difficulties. Maybe there really is light at the end of this particular technological tunnel.

A couple of videos

May 19, 2013

Here is a classic ad for the Sony Betamax:

And then we have this Norweigan sketch:

Martin’s quirky movies # 2 Waking Life

May 11, 2013

Who needs Class B drugs when you’ve got this film?

This is the question The Guardian critic Peter Bradshaw posed in his review of Waking Life, one of the most thought provoking films I’ve ever seen. I first saw it on DVD seven or eight years ago, and since then I haven’t been able to get it out of my mind. The film’s unidentified hero, played by Wiley Wiggins, wanders from one and place to another, meeting people who espouse their theories about the nature of existence and reality. Wiley seems to be in a dream, and complains that although he knows it’s a dream, he just can’t wake up. This complaint alludes to a phenomenon known as “lucid dreaming”, where you dream while being aware that you are dreaming. Its practitioners seek to control and guide their dreams, discovering things beyond their capacity to understand in their awake state. For some New Agers it is an essential tool for self-improvement and personal growth.

Distinguishing between dream and reality has engaged writers, philosophers and filmmakers. The dream argument posits that we have no way of determining conclusively at any moment whether or not we are dreaming. For Descartes this mere possibility was sufficient to undermine knowledge. This has been a popular subject for popular entertainment. Open Your Eyes and Inception are two examples. And we shouldn’t forget the ninth season of Dallas, which was revealed to have all been a dream of Pam.

The director of Waking Life, Richard Stuart Linklater, was born in Houston, Texas. He attended the Sam Houston State University but dropped out midway through the course to work on an off-shore oil rig in the Gulf of Mexico. While working on the rig he did a lot of reading and on land he loved going to theatre and cinema. He realized he wanted to be a filmmaker. Using the money he had saved, he bought a Super-8 camera, a projector, and some editing equipment, and moved to Austin, where he enrolled in the community college to study film in the autumn of 1984. Since making It’s Impossible to Learn to Plow by Reading Books in 1988, Linklater has made another 18 films including Slacker (1991), Dazed and Confused (1993), Before Sunrise (1995) School of Rock (2003), Before Sunset (2004), Bad News Bears (2005) A Scanner Darkly (2006) Fast Food Nation (2006) and Me and Orson Welles (2008).

Waking Life took just three weeks to shoot cameras and another three to edit. But that was not the end of the process. It took a team of 30 animation artists 15 months to animate the film; they spent up to 250 hours to make one minute of animation. They used a technique called rotoscoping, in which animators trace over footage, frame by frame. The animators’ initial brief had been to interpret the scenes literally, but they went beyond this – painting pictures of what the people were saying. The result is beautiful, unlike anything I have seen before or since; the rotoscope effect lends each shot an ethereal and unreal touch. Though it was a very labour-intensive, the film was a bargain compared to a typical Disney or Pixar production, which might cost ten or fifteen times more. This enabled Linklater to take more risks. He ended up making a surreal cartoon that explores adult subject matter, something that Hollywood seems to shy away from these days. And that’s what I want to look at now – the ideas that Wiley Wiggins, encounters on his journey. There are so many it is impossible to do justice to them all. I can only give you a flavour of the film.

Wiley attends a philosophy lecture by philosophy professor Robert Solomon, at the University of Texas at Austin. Solomon wants to challenge our preconceptions about existentialism, presenting it as a philosophy of freedom. After class Solomon explains his rejection of postmodernist philosophy. The view that humans are merely social constructions is a cop-out; we are ultimately responsible for who we are and what we do.

Kim Krizan, a screenwriter discusses the nature of language as a system of signs. What she finds incredible is not that we are capable of creating words for tangible things such as trees, but how words convey abstract concepts such as love or frustration. For Krizan when we create them we have a kind of spiritual communion. This feeling might be transient, but it is what makes life worth living.

Eamonn Healy, a chemistry professor at Austin states that we are beginning a new kind of evolution, which is much faster. Healy is a cyber-optimist whose ideas seem similar to the concept of technological transcendence known as the singularity that has been proposed by Ray Kurzweil among others. Some suggest that we will be able to upload our minds into cyberspace.

Ethan Hawke and Julie Delpy reprise their role in Before Sunrise. Jesse and Celine talk about recent studies of the brain activity of sleeping or dying people which show that a lifetime of experiences can be condensed into a few actual minutes of activity. They also discuss the notion of collective memory, a view articulated by Rupert Sheldrake, which involves a large pool of knowledge that we all draw from. Jesse states that this would explain seemingly spontaneous world-wide innovative leaps in science and the arts, prompted by people working independently of each other.

UT Austin philosophy professor David Sosa doesn’t allow much room for free will.  His deterministic view posits that there is no place for free action in a world governed by physical laws. Since human beings are physical entities they must be subject to these same laws.

Talk show host Alex Jones is one of America’s most famous conspiracy theorists. Recently he claimed that the Boston Marathon bombing had been staged. Here he is driving through the city and ranting through a PA system mounted on his car. He urges us to reclaim our freedom. It is up to us.

English professor Lisa Moore sits in a restaurant with author Carole Dawson discussing the problem of human identity over time. They discuss a theory by Benedict Anderson that we need to construct a story in order to connect, for example, a photograph of ourselves as an infant with who we are now.

The monkey in the classroom expresses the views of Steve Fitch, a photographer and musician. According to Fitch, art is the language that humans created to distance ourselves from our empty and degraded human past and reach for a new world.

UT Austin philosophy professor Louis Mackey argues that the gap between the average person and Plato is greater than the gap between the average person and chimpanzees. Due to our inherent laziness true genius is rarely achieved, largely because of human laziness.

Poet Timothy “Speed” Levitch states that self-awareness consists of discovering that you are a protagonist in someone else’s dream.

 The last encounter in the film is with a man playing pinball, played by Linklater himself. He discusses a theory by the great science fiction writer Philip K. Dick, from a speech called “How To Build A Universe That Doesn’t Fall Apart Two Days Later”, that time is just a distraction.  It’s really 50 AD, but there’s an evil spiritual force is trying to make us forget that the kingdom of God is around us .

Waking Life asks fundamental questions about life. It does not provide definitive answers. Some ideas are outlandish. I love the way the film blends such differing views of the world. I am a sceptic, but I have always been fascinated by how we can come to such startlingly different interpretations of how the world works. I devour conspiracy theories and pseudoscience. I don’t buy Rupert Sheldrake’s collective memory or the singularity. I am fascinated by the border between science and pseudoscience. Alfred Wegener was ridiculed for his theory of continental drift. I don’t know what to make of superstring theory. It can be difficult for a layman yo distinguish the two but there is a nice maxim in science: extraordinary claims require extraordinary proof. As usual Carl Sagan has an apposite quote:

But the fact that some geniuses were laughed at does not imply that all who are laughed at are geniuses. They laughed at Columbus, they laughed at Fulton, they laughed at the Wright Brothers. But they also laughed at Bozo the Clown.”

Many of the problems raised in Waking Life haven’t been solved in more than three and a half millennia of philosophical investigation. If there were any real answers, someone would surely come up with them by now. I have no difficulty embracing doubt and uncertainty.   And I can recommend the journey.

Waking Life quotes

May 11, 2013

Here is a selection of quotes from the film:

Bill Wise: It’s like you come onto this planet with a crayon box. Now you may get the 8-pack, or you may get the 16-pack…but it’s all in what you do with the crayons, the colors that you’re given. Don’t worry about drawing within the lines, or coloring outside the lines; I say color outside the lines, you know what I mean? Color right off the page. Don’t box me in!

Robert Solomon: The reason why I refuse to take existentialism as just another French fashion or historical curiosity, is that I think it has something very important to offer us for the new century. I’m afraid we’re losing the real virtues of living life passionately in the sense of taking responsibility for who you are, the ability to make something of yourself and feel good about life. Existentialism is often discussed as if it’s, a philosophy of despair, but I think the truth is just the opposite. Sartre, once interviewed, said he never really felt a day of despair in his life.

Kim Krizan: Creation seems to come out of imperfection. It seems to come out of a striving and a frustration and this is where I think language came from. I mean, it came from our desire to transcend our isolation and have some sort of connection with one another. And it had to be easy when it was just simple survival. Like you know, “water.” We came up with a sound for that. Or saber tooth tiger right behind you. We came up with a sound for that. But when it gets really interesting I think is when we use that same system of symbols to communicate all the abstract and intangible things that we’re experiencing. What is like… frustration? Or what is anger or love? When I say love, the sound comes out of my mouth and it hits the other person’s ear, travels through this byzantine conduit in their brain through their memories of love or lack of love, and they register what I’m saying and they say yes, they understand. But how do I know they understand? Because words are inert. They’re just symbols. They’re dead, you know? And so much of our experience is intangible. So much of what we perceive cannot be expressed. It’s unspeakable. And yet you know, when we communicate with one another and we feel that we have connected and we think that we’re understood I think we have a feeling of almost spiritual communion. And that feeling might be transient, but I think it’s what we live for.

Eamonn Healy: So, you produce a neo-human with a new individuality, a new consciousness. But, that’s only the beginning of the evolutionary cycle because as the next cycle proceeds, the input is now this new intelligence. As intelligence pods on intelligence, as ability pods on ability, the speed changes. Until what? Until you reach a crescendo. In a way, it could be imagined as an almost instantaneous fulfillment of human, human and neo-human, potential. It could be something totally different. It could be the amplification of the individual…the multiplication of individual existences, parallel existences, now with the individual no longer restricted by time and space. And the manifestations of this neo-human type evolution could be dramatically counter-intuitive; That’s the interesting part. The old evolution is cold, it’s sterile, it’s efficient. And, its manifestations are those social adaptations. We’re talking about parasitism, dominance, morality, war, predation. These will be subject to de-emphasis. These will be subject to de-evolution. The new evolutionary paradigm will give us the human traits of truth, of loyalty, of justice, of freedom. These will be the manifestations of the new evolution, and that is what we would hope to see from this, that would be nice.

Celine: … about reincarnation and where all the new souls come from over time. Everybody always says they are the reincarnation of Cleopatra or Alexander the Great. I always want to tell them they were probably some dumbfuck like everybody else. I mean, it’s impossible. Think about it. The world population has doubled in the past 40 years, right? So if you really believe in that ego thing of one eternal soul, then you have only 50% chance of your soul being over 40, and for it to be over 150 years old, then it’s only one out of six.

Ethan: It’s like there’s this whole telepathic thing going on that we’re all a part of, whether we’re conscious of it or not. That would explain why there are all these seemingly spontaneous worldwide innovative leaps in science and the arts, you know, like the same results popping up everywhere independent of each other. Some guy on a computer figures something out, and then almost simultaneously a bunch of other people all over the world figure out the same thing. They did this study where they isolated a group of people over time, you know, and monitored their abilities at crossword puzzles in relation to the general population, and they secretly gave them a day-old crossword, one that had already been answered by thousands of other people, and their scores went up dramatically. Like 20%. So it’s like once the answers are out there, people can pick up on them. Like we’re all telepathically sharing our experiences.

David Sosa: So, you might be saying, “Well wait a minute, what about quantum mechanics? I know enough contemporary physical theory to know it’s not really like that. It’s really a probabilistic theory; There’s room; It’s loose; It’s not deterministic, and that’s going to enable us to understand free will.” But, if you look at the details, it’s not really going to help because, what happens is, you have some very small quantum particles, and their behavior is, apparently, a bit random; They sort of swerve. Their behavior is absurd, in the sense that it’s unpredictable and we can’t understand it based on anything that came before. It just does something out of the blue according to a probabilistic framework. But, is that going to help with freedom? I mean, should our freedom just be a matter of probabilities, just some random swerving in a chaotic system? That starts to seem like it’s worse. I’d rather be a gear in a big deterministic physical machine than just some random swerving.

Alex Jones: What a bunch of garbage; liberal, democrat, conservative, republican. It’s all there to control you! Two sides of the same coin. Two management teams bidding for control, the CEO job of Slavery, Incorporated! The truth is out there in front of you, but they lay out this buffet of lies. I’m sick of it, and I’m not going to take a bite out of it, do you got me?

Lisa Moore So, you pick up this picture of this two-dimensional image and you say, “That’s me.” Well, to connect this baby in this weird little image with yourself living and breathing in the present, you have to make up a story like, “This was me when I was a year old, and then later I had long hair, and then we moved to Riverdale, and now here I am.”  So, it takes a story that’s actually a fiction to make you and the baby in the picture identical….to create your identity.

Carole Dawson: And the funny thing is, our cells are completely regenerating every seven years. We’ve already become completely different people several times over, and yet, we always remain quintessentially ourselves. 

Chimp: Art was not the goal, but the occasion and the method for locating our specific rhythm and varied possibilities of our time. The discovery of a true communication was what it was about, or at least the quest for such a communication: the adventure of finding it and losing it. We, the unappeased, the unaccepting, continued looking, filling in the silences with our own wishes, fears, and fantasies, driven forward by the fact that no matter how empty the world seemed, no matter how degraded and used up the world appeared to us, we knew that anything was still possible, and, given the right circumstances, a new world was just as likely as an old one.

Louis Mackey: The most advanced technologies and craftsmanship bring us, at best, up to the super-chimpanzee level. Actually, the gap between, say, Plato or Nietzsche, and the average human is greater than the gap between that chimpanzee and the average human. The realm of the real spirit, the true artist, the saint, the philosopher, is rarely achieved. Why so few? Why is world history and evolution not stories of progress, rather this endless and futile addition of zeros? No greater values have developed. Hell, the Greeks 3,000 years ago were just as advanced as we are. So what are these barriers that keep people from reaching anywhere near their real potential. The answer to that can be found in another question, and that’s this: which is the most universal human characteristic: fear or laziness?

Guy Forsythe: I had a friend once who told me that the worst mistake that you can make is to think that you are alive, when really you’re asleep in life’s waiting room. The trick is to combine your waking, rational abilities with the infinite possibilities of your dreams, because if you can do that, you can do anything. Did you ever have a job that you hated, worked really hard at? Long, hard day at work, finally you get to go home, get in bed, close your eyes….and immediately you wake up and realize that the whole day at work had been a dream. It’s bad enough that you sell your waking life for minimum wage, but now they get your dreams for free.

Timothy “Speed” Levitch: We are all co-authors of this dancing exuberance, for even our inabilities are having a roast. We are the authors of ourselves, co-authoring a gigantic Dostoevsky novel starring clowns.

Will Bitcoin make the world go round?

May 4, 2013

The Bitcoin tribe is still a small one, and consists mainly of computer geeks, drug-dealers, gold bugs and libertarians. From the Economist Apr 13th 2013

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence. I only talk from skin-in-the-game. If I had money in Bitcoin, I would have reported it. But I don’t yet. I am waiting to understand it better, not with my brain, but with my experienceNassim Nicholas Taleb

Money is:

1. A unit of account

2. A store of value

3. A medium of exchange

Right now, Bitcoin is none of those things (in any serious sense).  From a tweet


A couple of years ago I heard An EconTalk podcast about a new electronic currency called Bitcoin. To be honest I found it all rather baffling and didn’t really think much about it until recently. However the Cypriot banking crisis has put Bitcoin in vogue. On Saturday March 16th Nicos Anastasiades, the Cypriot President announced a rescue strategy for the country’s banks that involved confiscating money directly from every single bank account in the country. The following Monday, the price of the Bitcoin rose from $45 to $55 on the major exchanges, and by Wednesday it had reached $65 dollars. There does seem to be a link between the events on the Mediterranean island and the performance of Bitcoin. In Spain the number of Google searches for Bitcoin has been increasing. Although the plan for Cyprus was eventually modified, the interest for Bitcoin remains. I was just looking at the exchange rate online one Bitcoin is now worth nearly 117 dollars. Has its time come?

Bitcoin is virtual currency that was introduced on January 3rd 2009. It is a cryptocurrency, a type of digital currency that is based on cryptography, making it difficult to counterfeit. Bitcoin is not the only virtual currency around – gamers on Second Life, a virtual world, pay with Linden Dollars. Their emergence shows that the creation of money is not, nor has ever been, a government monopoly. I have always found money and its creation one of the most challenging areas in the study of economics. Anything people come to view as money can serve some of money’s functions without any governmental authorisation. The classic example is the use of cigarettes in prisons as a medium of exchange.

Paper currencies have been accepted as money even when they no longer had government backing. When the first Gulf War concluded in 1991, dinars that had been withdrawn by the government of Saddam Hussein were used in Kurdish-controlled northern Iraq. They became known as “Swiss dinars” because they were printed with plates from Switzerland. Curiously, this illicit currency was soon worth far more than the government-backed dinars that Saddam was printing like there was no tomorrow. Swiss dinars would serve as northern Iraq’s fiat money for some ten years until a new national currency was brought in.

There is a strange mystery at the heart of Bitcoin. Who is John Galt? In Ayn Rand’s Atlas Shrugged that was the question. With the cryptocurrency we have a new question: Who is Satoshi Nakamoto? Bitcoin’s creator was a hacker(s) going under the pseudonym of Satoshi Nakamoto. From now on I will refer to him in the singular. Nakamoto no longer seems to be actively involved in the project but at the beginning he was behind much of the innovation. In 2008 he posted Bitcoin: A Peer-to-Peer Electronic Cash System on the internet, the foundational text of this virtual currency.

There have been a number of journalists seeking to unmask Nakamoto. The New Yorker named Michael Clear, a graduate student at Trinity College, Dublin, who is knowledgeable about economics, cryptography and peer-to-peer networks. Nakamoto’s. He is allegedly said to have said this to a journalist: “I’m not [Nakamoto], but even if I was I wouldn’t tell you.”

Fast Company’s investigation brought up circumstantial evidence that indicated a link between an encryption patent application filed by Neal King, Vladimir Oksman and Charles Bry. CNBC’s Rick Santelli says that many believe that it is Grigory Perelman, the eccentric Russian mathematician, who famously turned down the million-dollar Millennium Prize 4 he had won for resolving the Poincaré conjecture. Business Insider believes that it is “a small group of quants from New York or London, who are all experienced software developers. Whatever the truth may be, Nakamoto does not appear to be actively involved in the project. In April 2011, he told a Bitcoin contributor he had “moved on to other things.”

Gavin Andresen, the Chief Scientist at the Bitcoin Foundation, has described it as an attempt to bring back a decentralized currency of the people. It is not administered by a single authority and the currency is not subject to inflationary moves by a central bank. It enables instant peer-to-peer transactions all around the world, bypassing banks altogether. Unlike our beloved banks, there are low or zero processing fees. As it is stateless it is hard to tax, freeze or trace this money.

Bitcoin fluctuates like any other currency – its value is determined by supply and demand in the market. One Bitcoin can be divided to eight decimal places. 50 Bitcoins are created every 10 minutes. As such, this currency behaves much like gold and other precious metals. With Bitcoin, miners use special software to solve mathematical problems and are issued a certain number of Bitcoins in exchange. This is how one Bitcoin one website describes the system:

“Mining is an important and integral part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure.” The idea is to mimic digging gold out of the ground. In the beginning you find a lot, but then you work harder and harder, and go farther and farther, less and less to find. The rate of growth will gradually be scaled down, with a final limit of 21 million Bitcoins.

There are a number of problems that I can see with this cryptocurency. The number of people who accept Bitcoins for products or services is fairly small. It is growing every day as the system becomes more popular, but getting enough people to trust it is complicated. They are in a catch-22 situation. Merchants don’t want to accept Bitcoins till more people are using them, and people don’t want to use Bitcoins until more merchants and other people are accepting them.

The currency has been criticised as a tool of speculators and money-laundering.  Could it be another Ponzi scheme or a speculative bubble, like the mania for tulip bulbs in 17th Century Holland? There are also important security issues with the ever-present danger of hacking. I am suspicious of central government. There are many examples of governments debasing their currency or deliberately provoking inflation. However, are the alternatives going to turn out worse? I am not sure I would want to trust in the mysterious Satoshi Nakamoto,

According to philosopher John Gray Bitcoin represents a kind of cyber-anarchism.   Its proponents hope that internet will help them free themselves from government. Bitcoin’s users put their faith in the laws of mathematics. However, a virtual currency will never be able to escape the dangers of the real world. It is not difficult to envisage a number of negative scenarios. Bitcoin may crash and burn, be replaced by rival virtual currencies or be banned by governments because it is actually doing too well. For Gray, the freedom Bitcoin promises is illusory – the dream of finding some kind of technofix that can shelter us from power and crime and protect us from each other.

Having said that, I think that it is a worthy experiment. Anything that challenges the banks is a good thing. We do need new forms of money for the 21st century. However, I don’t think I’ll be putting my millions in there just yet. I can’t really get my head around it. I tend to be a late adopter with a lot of technologies. Indeed, I have never used PayPal. But I will be following this experiment closely. It’s going to be a fascinating ride.

A couple of economics videos

May 4, 2013

Here are a couple of videos from the Learn Liberty website:

Why Do We Exchange Things?

Does Government Create Jobs?