“The Black Swan”. Advertencias que los imbéciles prefieren ignorar

Quizás ya vio este artículo en algún otro lado, pero de todos modos lo encontré interesante. Nassim Taleb, autor del famoso libro El Cisne Negro, publicó en el Financial Times un decálogo para tener un mundo a prueba justamente de cisnes negros, esos eventos altamente improbables pero que cuando ocurren tienen un fuerte impacto en todo el mundo. Taleb está entre los primeros agoreros que vaticinaron la actual crisis económica, junto con el también famoso Nouriel Roubini, vilipendiados en un comienzo por los “expertos” de Wall Street y que ahora todos quieren escuchar.

Lo interesante es el título que el Financial Times puso al decálogo: “Un Mundo a Prueba de Cisnes Negros”, lo cual debe haber irritado a Taleb, ya que los cisnes negros son en sí, eventos poco probables pero no inevitables. Estoy seguro que antes de Taleb tiene que haber habido alguien que escribió un decálogo para “Un Mundo a Prueba de crisis financieras” y miren donde estamos.

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

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“The Black Swan”  Warnings that the Imbeciles Chose to Ignore

Quotes & Warnings that the Imbeciles Chose to Ignore

Nassim Nicholas Taleb: The Black Swan: The Impact of the Highly Improbable (April 2007)

For the last 12 years, I have been telling anyone who would listen to me that we are taking huge risks and massive exposure to rare events. I isolated some areas in which people make bogus claims –epistemologically unsound. The Black Swan is a philosophy book (epistemology, philosophy of history & philosophy of science), but I used banks as a particularly worrisome case of epistemic arrogance –and the use of “science” to measure the risk of rare events, making society dependent on very spurious measurements. To me a banking crisis –worse than what we have ever seen — was unavoidable and NOT A BLACK SWAN, just as a drunk and incompetent pilot would eventually crash the plane. And I kept receiving insults for 12 years!

Quotes From the Black Swan (written b. 2003-2006) that the IMBECILES did not want to hear

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall.  The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.

Banks hire dull people and train them to be even more dull. If they look conservative, it’s only because their loans go bust on rare, very rare occasions. But (…)bankers are not conservative at all. They are just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events “unlikely”.

There is no way to gauge the effectiveness of their lending activity by observing it over a day, a week, a month, or . . . even a century!

(…)  the real- estate collapse of the early 1990s in which the now defunct savings and loan industry required a taxpayer-funded bailout of more than half a trillion dollars. The Federal Reserve bank protected them at our expense: when “conservative” bankers make profits, they get the benefits; when they are hurt, we pay the costs.

Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

As if we did not have enough problems, banks are now more vulnerable to the Black Swan and the ludic fallacy than ever before with “scientists” among their staff taking care of exposures. The giant firm J. P. Morgan put the entire world at risk by introducing in the nineties RiskMetrics, a phony method aiming at managing people’s risks, causing the generalized use of the ludic fallacy, and bringing Dr. Johns into power in place of the skeptical Fat Tonys. (A related method called “Value-at-Risk,” which relies on the quantitative measurement of risk, has been spreading.)

Please, don’t drive a school bus blindfolded.

Owing to […] misunderstanding of the causal chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance—like a child playing with a chemistry kit.

Nassim Nicholas Taleb

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Lunch with the FT: Nassim Nicholas Taleb

By David Wighton

Published: March 28 2008 20:56 | Last updated: March 28 2008 20:56

I am sure I am going to dislike Nassim Nicholas Taleb. In

his books on the importance of the improbable – Fooled

by Randomness and The Black Swan – he adopts an

unpleasantly sneering tone towards the fools who just

don’t get it. He spreads his contempt around liberally. But

he is particularly dismissive of economists, businessmen,

the French and financial journalists in suits.

As a financial journalist in a suit, I am spoiling for a fight.

I had also been irritated by the chaotic structure of The

Black Swan, which made it hard to read in a hurry the

night before. To cap it all, he’s late.

Having been shown to a corner table in the Lebanese

restaurant in midtown Manhattan he had selected, I sit for

some minutes sharpening my questions. Then I notice

Taleb trying to attract my attention from a table across the

room and realise he must have been there all the time. As I shake his hand he explains that

even though he had not been to the restaurant for years the proprietor, a fellow Lebanese (or

“Levantine” as Taleb would say), insisted on showing him to the best table.

I put my two tape recorders on the table, feebly joking that I want to protect myself against a

“Black Swan event” where one failed to work. He quickly corrects me, saying I have

misunderstood the central idea of his latest book. It is not about events that are merely

improbable and unpredictable. But about those that have a massive impact.

“What would be the consequence of a tape recorder failing? Minimal. We would just have

another lunch,” he says with a smile that makes him look vaguely like a Lebanese Sean

Connery (to whom he has apparently compared himself). I ask him for advice on the menu and

we order a selection of starters followed by a mixed grill for me and a mouloukhieh soup for

him.

For a writer obsessed with the influence of unpredictable events, Taleb’s books have been

strikingly well-timed. Fooled by Randomness was published just before September 11 2001. In

The Black Swan, he returns to the idea that we all, including Wall Street traders, tend to

underestimate the risk and impact of rare events. It came out last year, a few months before it

became clear that Wall Street had underestimated the risk of an unprecedented downturn in

US house prices – with disastrous consequences.

After working on Wall Street for 20 years, Taleb is scathing about its risk management and

forecasting models which are more “therapy” than anything useful. This is because they rely on

past experience, like the Europeans who thought all swans were white until they discovered

black swans in Australia.

Taleb, 48, who has studied at the University of Pennsylvania’s Wharton School and the

University of Paris, goes after some big targets. These include Myron Scholes, the Nobel

prizewinner behind the Black-Scholes model, a cornerstone of mathematical finance. Scholes’

lofty response to the attacks was that he did not want to “glorify” Taleb by refuting what he

said.

When the book came out, Taleb says he got hate mail from some Wall Street traders and

investors who felt under attack. “They said it was garbage. But the world has changed. Now

people say I was stating the obvious.”

Although most attention tends to focus on “bad” Black Swans, there are also good Black

Swans, he says, for instance in scientific research and drug discovery. “There is a lot more

randomness in biotechnology and any form of medical discovery. The role of design is

overestimated. Every time we plan on trying to find a drug we don’t because it closes our mind.

How are we discovering drugs? From the side-effects of other drugs.” Researchers very often

“change their story” when they discover something by accident to give the impression it was by

design. “The biggest discovery in cancer came from a mustard gas accident in Italy, not from

the 130,000 compounds systematically tested by the National Cancer Institute. They were not

looking to improve the lives of older men when they discovered Viagra.”

. . .

As a Wall Street trader, Taleb focused on arbitrage, making money by exploiting tiny pricing

anomalies between different markets. He became convinced that the financial markets

systematically underestimated the risk of big improbable events and says he made a fortune

for his then employer – First Boston – when the stock market crashed in October 1987.

Eventually, he set up his own business to exploit the underpricing of Black Swan risks. This

was not, as has been widely reported, a hedge fund betting on Black Swans. “You can’t say

I’m going to make money every 50 years because you have to pay the bills.” Instead, the

business was mainly selling clients Black Swan insurance, packages of securities that would

rise in value on big market moves.

A hedge fund has now been set up based on Taleb’s ideas. But he has little involvement with

it, having decided to devote himself to being a full-time writer following the success of his book.

Taleb says his scepticism was influenced by the cultural complexity of his childhood. His

parents were Greek-Orthodox, French citizens living in Lebanon, where he grew up during the

civil war. “If you are an Arabic-speaking, Greek-Orthodox going to a French school it makes

you deeply sceptical if you have to listen to three different accounts of the Crusades – one

from the Muslim side, one from the Greek side and one from the Catholic side.”

This triggered a very simple idea that he has been thinking about all his life. “That is that things

in the real world are far messier that in recorded history or in memory.” But we find it hard to

live with such messiness so we tend to look for causes and patterns that do not exist, what he

terms the “narrative fallacy”.

I am beginning to warm to Taleb. While his rather random style of thought can be irritating in

print, it is entertaining in conversation. And the bumptious tone of the book comes across in

person as the enthusiasm of someone hungry for knowledge.

His heroes are “erudites”, those who want to know more. “The people I go after are the false

experts, those who do not accept the limits of their knowledge. My book is a footnote on

Socrates.”

So what has he got against the French? “Nothing. It’s a joke,” he says, but then rather spoils it

by claiming that the French “can’t think outside the box”.

And journalists? “Lots of my friends are journalists,” he says with a straight face. But they are

under constant pressure to clarify a chaotic world.

The real villains are those whose refusal to admit the limits of their knowledge can cause

serious damage. These include economists “predicting 30 years of social security deficits when

we don’t know what we are going to have for lunch tomorrow” and the doctors who thought

they knew more than they did and killed their patients. “Until the 20th century, the risk of dying

was increased by going to a doctor, particularly in a hospital.”

. . .

Some of his critics have claimed that, taken to its logical conclusion, Taleb’s scepticism would

lead to a kind of passive nihilism. Not so, he says. He is not arguing that all forecasting is

pointless, for example. “I am saying that we should first know the error rate and then make the

prediction. Because the error rate is far more relevant that the prediction.”

I ask how his views have shaped his life. The key is to separate “the domain of the empirical

and the domain of the sacred” he replies. “I select a very small number of things to be

sceptical about, such as markets, and on these I am hypersceptic. But I want to be fooled by

randomness in art. I want the ceremonial of religion, we are made for it.”

Taleb is conducting experiments to test his theory that we can only cope with so much

scepticism and that people who are sceptical about religion are gullible in other ways. “Most

people are sceptical about the wrong things and gullible about the wrong things.” He admits his

extreme scepticism can lead to extreme conservatism. “I believe it is dangerous to mess with

complex systems and traditional things, such as religion or the environment.”

As we finish our coffee I ask Taleb, who lives with his wife and two children in New York,

whether he has any family in Lebanon. His face lights up. “Do you want to see a picture of my

house?” he asks, as he reaches into his bag to retrieve his laptop.

He shows me some beautiful shots of Mount Lebanon and his home village of Amioun.

“Sixteen out of 16 of my great-great grandparents are buried here. And this is where I am

going to be buried,” he says pointing to a church. “I can see it from my window.” I was going to

ask whether his heritage was important to him. But the answer seems obvious now.

By this stage I have been completely won over if not completely convinced. But I still have a

bone to pick about The Black Swan.

I pay the bill and, as we walk out, I ask about the messy structure of the book. “I deliberately

made it impossible to speed read. I wanted to surprise the reader with stories. I was playing

with the narrative fallacy and using the randomness card.”

It sounds suspiciously like self-justifying nonsense. But after our lunch I can’t help giving him

the benefit of the doubt.

David Wighton is the FT’s New York bureau chief

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The Samaritan Paradox

If we live in a dog-eat-dog world, then why are we frequently so good to each other?

By Ernst Fehr and Suzann-Viola Renninger

Like many members of the animal kingdom, people will readily lend a hand to immediate family and relatives. But humans alone extend altruism beyond kin, frequently helping perfect strangers for no obvious personal gain. Whether we live in large or small groups, in the global network of the New Economy or in the most isolated Yanomami reservation along the border between Venezuela and Brazil, human cooperation in the absence of family ties is widespread across cultures.

On what is this largehearted behavior built? Does each of us possess an inner samaritan who is selfless and community-minded, as philosophers have sometimes proposed? Or–as many sociobiologists have suggested–are actions that are seemingly done for the benefit of others really motivated by veiled economic calculations and selfishness or by egoism, with an eye to the very long term?

Some of the most fundamental questions about our evolutionary beginnings, social relations and the origins of society are centered on such issues of altruism and selfishness. Recent experiments show that current gene-based evolutionary theories cannot adequately explain important patterns of human altruism, pointing toward the importance of theories of both cultural evolution and the coevolution of genes and cultures.

The idea that selfishness can contribute to the rise and maintenance of a cooperative society is a long-standing topic of political philosophy. At the beginning of the 18th century, in an essay called “The Fable of the Bees,” Dutch-born English doctor and philosopher Bernard Mandeville maintained that “private vice” rather than “virtue” was really at the root of all “publick benefit.” Morality and the public welfare, he reasoned, were based purely on the egoism of the individual. Further, if each member of society pursued his own best interests consistently, the greatest possible good would result. Mandeville concluded that government would collapse if egoism ceased to motivate our actions.

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Whether we live in the New Economy or in an isolated reservation, human cooperation in the absence of family ties is widespread.

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In an era when ecclesiastical authority imposed religious values, philosophers vociferously rejected Mandeville’s ideas. But similar notions were put forth over the subsequent three centuries. Charles Darwin’s 1859 On the Origin of Species posited that any organism that is less than completely engaged in the struggle for food, sex and territory lessens its chances of passing on its characteristics to offspring. In 1874 Darwin wrote that a tribe that collaborated “would be victorious over most other tribes; and this would be natural selection.” Nineteenth-century economists and social scientists constructed a theory of Homo economicus, according to which Homo sapiens strive exclusively to maximize their own advantage.

In 1976 British evolutionary biologist Richard Dawkins reopened the public discussion dramatically with his best-seller The Selfish Gene. He argued that molecular genetic material uses its host–whether it is an amoeba, hippopotamus or human–as a “vehicle” to maximize its own propagation. “We are survival machines–robot vehicles blindly programmed to preserve the selfish molecules known as genes,” Dawkins wrote.

Following those precepts, altruism becomes a form of disguised egoism. Philanthropy is less the expression of a love of humankind than of the cool calculation of the entrepreneur who seeks to ensure future profit by clever public relations. For example, according to the sociobiology theory of reciprocal altruism, people are most likely to help one another if frequent contact is expected in the future: “I’ll scratch your back if you scratch mine.” The giver assumes that his generosity will be reciprocated at a later date. Reputation theory, which explains another form of altruism that results in personal gain, proceeds from the assumption that it is generally advantageous to establish a reputation for benevolence and impartiality through the use of well-targeted good deeds. The result is to enhance one’s image and improve the potential for long-term profits. Homo geneticus is closely allied with Homo economicus.

Rising above Nature

But can we simply explain away loving, selfless behavior with such an all-encompassing model? Aren’t there countless examples of people coming to the aid of others–even when it is to their personal disadvantage? What about volunteers who risk their lives to help perfect strangers after an earthquake or other disaster? Such self-sacrifice does not follow the rules of evolutionary biology. If the immediate family does not profit and if neither reciprocal aid nor aid aimed at improving reputation promise future advantage, then selflessness gains nothing. Worse, it is costly in terms of resources, health or money. By this logic, there really should not be any good samaritans. Yet they clearly exist.

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Altruism is costly in terms of resources, health or money. By this logic, there really should not be any good samaritans. Yet they clearly exist.

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Humans appear to be a special case among animals–a finding supported by a significant number of laboratory experiments conducted by economists and social scientists over the past several years. The experiments come from a relatively new branch of research called experimental economics. The field uses methods such as “punishment” games, which show that many people–even when facing high monetary stakes–are willing to penalize others at a cost to themselves to prevent unfair outcomes or to sanction unfair behavior.

We conducted one such experiment with 240 male and female students at the University of Zurich. Each person sat at a computer terminal in a sort of compartment isolated visually and acoustically from everyone else. Network connections linked groups of four, who played the game together. None of the players knew with whom they were playing, because their various partners were identified only by numbers on a computer display. After each of six rounds, the approximately 60 groups were randomly reconstituted.

A Free Ride?

At the beginning of a round, all participants received a virtual sum equivalent to $20 as start-up capital; they would be able to convert their virtual currency into real money at the end, so they were motivated to consider carefully how they played the game. The players in each quartet could choose to invest all or part of their money in a common project that consisted of some public good. Economists define a public good as any social institution or service from which everybody profits, even if everyone does not contribute to it. In the experiment we never told the participants exactly what constituted the public good; they were to infer this from what ensued.

After every round, the chief investigator increased the total sum pooled by each group of four by 60 percent and distributed the proceeds evenly among all four members, regardless of the amount of each individual’s contributions. In the best-case scenario, all four players invested their entire initial capital, and each then received $32 ($12 profit plus the initial capital) for the round. If the test subjects contributed a total of only $40 to the public good, this amount was then increased to $64, and each participant got back $16. In this case, a person who paid nothing, called a free rider, received the same $16 profit as everyone else. A player who invested $10 netted $6. Someone who invested his entire wad of $20 ended up an exploited dupe; he lost $4.

For the individual selfish actor behaving rationally, it would be unwise to invest so much as a single cent under these conditions, because each dollar invested in the public good returns a mere 40 cents, a net loss of 60 cents. In other words, a player who invests nothing is guaranteed at least her initial $20, plus her share of the proceeds (assuming, of course, that the other players are willing to cooperate and trust in the process). The dilemma for the test subject was that if no one else invested in the project, she took home only her initial capital.

Up to this point, the setup is similar to the classic public-good experiments that economists have done for close to 20 years. But our trial went one crucial step further. After each of the four members had made their investment decisions, we told them how much the other three players had paid in, and we gave them the option of punishing free riders by reducing their profits as much as they deemed just. If a player decided to penalize the free riders, the chief investigator reduced his assets. Applying a fine of $3 cost the punisher $1; a docking of $6 cost $2, and so on.

The results will surprise proponents of the Homo economicus model: far more than 80 percent of participants penalized another player at least once during the six rounds, even though doing so cost them and they gained no immediate advantage. More than 30 percent meted out punishment during each round. The free riders suffered the most. The less they contributed to the common project, the higher the penalty they received. And participants who invested more than an average amount in the public good were far more likely to penalize others.

To get a better understanding of the effects of such sanctions, we carried out a variant of the experiment. The procedure was identical, except we gave no provision for punishment. Almost 95 percent of the participants invested considerably less than we had observed in the earlier game. In fact, during the last round, 60 percent contributed nothing to the public good, compared with three quarters of the players who ponied up $15 or more when a penalty was at stake.

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An egoist in a group inhabited by altruists was probably punished by altruists who did not care whether they derived personal advantage.

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How can we explain such results? It is clear that in the first version of the experiment, the threat of penalty was not the only reason for the surprisingly high level of cooperation. The actual penalty was important as well: castigated free riders invested an average of $1.50 more in the public-good project during the next round. Rebuke for unfair behavior thus led to improved cooperation in subsequent rounds.

The only players who derived no advantage were those meting out the punishment. They got nothing from correcting the behavior of the free riders, because they were not in the same quartet during the next round. The punishment benefited some other, unknown players. In other words, those who made cooperation possible by threatening sanctions acted altruistically and apparently without considering personal advantage. Sociobiologists call this behavior strong or true altruism to differentiate it from the weak or false altruism of nepotism or actions that anticipate later payback. The strong altruist is one who does good out of motives other than mere nepotism or strategic gain.

Evolutionary theorists have sometimes argued that strong altruism is maladaptive, a kind of evolutionary carelessness. At its core, this argument states that an altruistic behavior that may have been appropriate and successful at one time has become disadvantageous in changed circumstances. The forebears of Homo sapiens lived in small, largely isolated groups and were extremely dependent on one another. Uncooperative group members who behaved unfairly would have been excluded from rewarding group activities or even punished. In this situation, free riding did not pay. Encounters with outsiders, which are typical in modern societies, were rare. As a result, there was little evolutionary pressure to differentiate between these two social situations. According to the maladaptation argument, a person living in today’s world who demonstrates true altruism in an experiment may in fact be unable to make this crucial differentiation.

Seen from this perspective, strong altruism is merely a kind of habit–the experiments’ participants had not internalized the fact that the members of their quartet would be shuffled after each round. As a result, they behaved as if they would always be dealing with the same people. Their altruism was based on considerations that, though apparently inappropriate to the situation, were nonetheless strategically plausible for survival–that is, they were selfish.

To test this hypothesis, our team conducted a third experiment, in which the composition of the groups remained unchanged for 10 rounds. If the maladaptation argument were correct, the test subjects should have acted exactly the same as when the groups were changed after each round.

But the results did not support this hypothesis. In the groups in which the players got to know one another, payments to the common project rapidly increased after the first round by an average of 50 percent more than those in the groups whose members were shuffled after each round.

Rise of Altruism

Now that we know that a body of evidence supports the notion that Homo sapiens is the only species capable of strong altruism, the question becomes, How did this characteristic arise? Natural scientists always consider the possible genetic basis for altruistic behavior. In so doing, however, they quickly find themselves contradicting the selfish-gene theory. In the final analysis, if genes caused their “vehicle” to engage in disadvantageous behavior, that vehicle would soon self-destruct. And then the egoists would have the world to themselves.

A possible way out of this dilemma might have been that altruists exclusively populated some early communities. Such communities could have flourished because the altruists would not have been exploited by free riders. An aspect of evolutionary theory called group selection could support such an idea, and therefore also the development of altruistic behavior. In this model, groups compete for resources just as individuals do and are equally subject to selection. If one band is more successful than another because of some special characteristics of its members–such as a greater capacity for selfless cooperation–then it seems reasonable that their chance of long-term survival should be greater.

But group selection has been anathema to sociobiologists for the past 40 years, because the conditions under which it might operate are almost never met empirically. The biggest problem for group selection favoring altruistic societies is posed by the infiltration of egoists. As soon as any egoists gain entry, their chance of survival becomes much greater than that of the altruists, because they do not bear the costs of the public goods whose benefits they enjoy just the same. This means that they would tend to have the opportunity to reproduce more abundantly than their altruistic neighbors and thus would increasingly push them to the margins. After some time, communities that had previously been dominated by altruists would no longer differ from others, and group selection would no longer be effective.

Cultural Evolution

Anthropologists Robert Boyd of the University of California at Los Angeles and Peter Richerson of the University of California at Davis propose another hypothesis, which may support differences between groups during the early stages of human development. This idea is based on the theory of coevolution, in which nature and culture intertwine and interact in the formation of genetic and cultural characteristics. The capacity of human beings to learn is crucial for such a hypothesis to take hold. As they put it in “Cultural Evolution of Human Cooperation,” a chapter in Genetic and Cultural Evolution of Cooperation, edited by Peter Hammerstein (MIT Press, 2003): “We believe that the human capacity to live in larger-scale forms of tribal social organization evolved through a coevolutionary ratchet generated by the interaction of genes and culture. Rudimentary cooperative institutions favored genotypes that were better able to live in more cooperative groups. Those individuals best able to avoid punishment and acquire the locally relevant norms [of behavior] were more likely to survive.”

When an egoist immigrated to a group inhabited by altruists, he was probably punished for his actions by the altruists who did not care whether they derived personal advantage from their action. As a result, the egoist’s behavior brought him only disadvantage, and in all likelihood he sooner or later began to imitate the predominant selfless behavior. This effectively put a stop to the damaging infiltration of the society by egoists, enabling the group to prosper. No well-established analytical or population genetic models yet support this hypothesis. But using computer simulations, Boyd and his colleagues have demonstrated that such a scenario is plausible. Some combination of cultural and genetic factors may preserve and perpetuate these altruistic tendencies through the subsequent generations.

Richard Dawkins once challenged readers “to teach generosity and altruism, because we are all born selfish.” We argue that this well intended advice can now be reframed. We still should promote tolerance, generosity and altruism, but educators will find encouragement in current research that suggests not only are we capable of altruism, it is possible that our genes even guide us toward such behavior. Perhaps we are born with the potential to be selfless.

In an age of enlightenment and secularization, scientists such as Charles Darwin shocked contemporaries when they questioned the special status of human beings and attempted to classify them on a continuum with all other species. Humans were stripped of all that was godlike. Today biology is restoring to them something of that former exalted position. Our species is apparently the only one with a genetic makeup that promotes selflessness and true altruistic behavior.

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PREDICTIVE MODELS IN ECONOMICS: BLOWN OFF COURSE BY BUTTERFLIES

In the 1980s, it seemed that computers held the key to economic forecasting, writes John Kay. With large models and sufficient processing power, predictions would become more and more accurate.

This dream did not last long. We now understand that economies are complex, dynamic, non-linear systems in which small differences to initial conditions can make large differences to final outcomes – the proverbial flapping of a butterfly’s wings that causes a hurricane.

CPI and GDP

So economic crystal ball-gazing remains unscientific. The trend is the forecaster’s friend. Extrapolation assumes that the future will be like the past, only more so. We project current preoccupations – the rise of China and India, global terror, climate change – with exaggerated speed and to an exaggerated degree.

We forget that our preoccupations change. The people who worry about these issues today would 20 years ago have worried about the coming economic hegemony of Japan and the cold war. These issues were resolved in ways that few predicted.

It is a safe prediction – and the only one I shall make – that the topics that grab our attention 20 years from now will differ from those that consume us today and, if anyone has guessed what they are, it is only by accident. The future is unknowable. As Karl Popper observed, to predict the creation of the wheel is to invent it. To anticipate a new political force or economic theory, or even a new product, is to take the main step in bringing it into being.

If extrapolation is the forecaster’s friend, mean reversion is the forecaster’s crutch. Much of the time, you can predict that next year’s figure will be somewhere between this year’s level and the long-run average. But mean reversion never anticipates anything out of the ordinary. Every few years, out-of-the-ordinary things happen. They just have.

Still, you might think there would be large rewards for those who succeed in anticipating these events. You would be wrong. People who worried before 2000 that the “new economy” was a bubble, or warned of the terrorist threat before September 11 2001, or saw that credit expansion was out of control in 2006, were not popular. They were killjoys.

Nor were they popular after these events. If these people had been right, then others had been blind or negligent, and the latter preferred to represent themselves as victims of unforeseeable events. As John Maynard Keynes observed, it is usually better to be conventionally wrong than unconventionally right.

Copyright The Financial Times Limited 2008

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