“Institutions are the humanly devised constraints that structure political economic and social interaction.  They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights).”  (North 1991:97)

We are easily aware of the “obvious” institutions that are consciously designed by an authority and handed down to us like laws and statutes or religious doctrines that guide our actions, but these “formal” institutions are but a small fraction of the set of institutions that constrain our behavior.

A much larger, and arguably more important, set of institutions are the “informal” customs, traditions, and social mores that we implicitly, and often inarticulably, constrain our behavior.  They emerge simply from everyday interactions from people going about their business, mutually adjusting to each other’s actions, such that certain expectations become ingrained as institutions.  They are, to paraphrase Adam Ferguson (1767), the results of human action but not of human design.

These are the little things like walking on the right side of a path, shaking hands upon greeting someone new, or spending three months salary on an engagement ring.  There are no “laws” that dictate these are the way things are or must be, nobody can trace their origin or explain why they are so oddly specific (why not two months salary?), and yet everyone follows them.  Even more importantly, everyone expects everyone else to follow them, and will punish deviations from these norms with enforcement mechanisms like ostracism, gossip, or disassociation.

One of my favorite examples to drive this point home, and the one that always grabbed the attention of the class was imagining yourself as a guy in the following three scenarios:

1. You walk into the Men’s Room, and there are three open urinals.  Which one do you go to?
2. You walk in and there is one person using the furthest away urinal and there are two open next to him.  Which one do you go to?
3. You’re using the furthest away urinal with the remaining two open, and another man walks in and start using the one next to you.  What do you think of him?

“Man law” dictates that no two men stand next to each other if there are other open urinals that create at least one urinal between two men.  There are some derivative differences, and some people are willing to make exceptions in certain situations.  However, one thing that is clear is that no two men are to make eye contact under any circumstances.

The point is that man law is a spontaneous customary law.  Miller Lite had a hilarious series of commercials where major manly figures sat around an elite table and dictated changes to the sacred man law.

This, of course, never happened and is not the source of man law.  There is no source or enforcement save the men (or women?) that choose to abide by it and enforce it.  They do so because every guy expects every other guy to follow it, and doing so lowers social transaction costs.  There is no governmental body enforcing man law, you cannot take another man to court for using the urinal next to you.  But you can think he’s strange, tell your friends, and avoid him.

Individuals can probably propose new “man laws” – such as the commercial’s idea of waiting six months to date your friend’s ex-girlfriend.  There are new rules implicitly proposed every day in ordinary conversation or action by doing something new.  It will only “catch on” and become an institution if other people adopt the new rule (if it better helps them satisfy their own needs) to such a degree that it becomes widely expected that everyone will follow this rule.  Otherwise, it goes down in history as one more stupid idea.

By the way, for those wishing to test their knowledge of man law in the men’s room, apparently there’s an app for that.

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References

Ferguson, Adam.  An Essay on the History of Civil Society (1767): III-I

North, Douglass C. “Institutions.” The Journal of Economic Perspectives 5(1):97-112

• Research, design, develop, and validate economic models to explain user behavior for all of Valve’s products.
• Design experiments to validate experimental hypotheses for in-game economies.
• Provide insight into short- and long-term behavioral patterns of participants in virtual economies.
• Inform decision-making at Valve by providing quantitative and economic rationale for various lines of inquiry.
• Create new avenues of analysis based on existing economic metrics, as well as generating new domains of data to collect and investigate.
• Collaborate with our business development team to improve the performance of existing pricing strategies and incentives for our customers and partners.

• Graduate degree in Economics or related field
• Advanced knowledge of statistics
• Four years experience with:
  • Econometrics/data-mining or related field
  • Relevant analysis techniques that inform the creation of economic models

• Proficiency in one or more of the following programming languages: C++, SQL, PHP, or equivalent

Well, if I had my MA this year, and were I free, I’d be all over this.  For any of you other Sporder fans with advanced economics degrees and good taste in gaming, have at it.

H/t to Chris Marra.

MIT. Photo: M. Scott Brauer

Essentially, the idea is a (perhaps limited) alternative mode of 3D-printing: simply place a small, model object into the “sandbox,” and the “sand” replicates a life-size version of the model.  And all this occurs in a distributed, sporder-like fashion.  

A heap of smart sand would be analogous to the rough block of stone that a sculptor begins with. The individual grains would pass messages back and forth and selectively attach to each other to form a three-dimensional object; the grains not necessary to build that object would simply fall away.

Assuming that I understand the computer science behind this, the key to this system (and what makes it a sporder), is an algorithm that distributes the intelligence and the processing power among millions of grains of “smart sand,” rather than establishing a central processing unit to micromanages each grain from above.  This is the only way to achieve this complex wonder efficiently – otherwise it would require a gargantuan amount of resources to run.

The ruleset and mechanism that places the spontaneous construction in the hands of the “agents” is as follows:

According to Gilpin-author on the new paper, the grains first pass messages to each other to determine which have missing neighbors. (In the grid model, each square could have eight neighbors.) Grains with missing neighbors are in one of two places: the perimeter of the heap or the perimeter of the embedded shape.

Once the grains surrounding the embedded shape identify themselves, they simply pass messages to other grains a fixed distance away, which in turn identify themselves as defining the perimeter of the duplicate. If the duplicate is supposed to be 10 times the size of the original, each square surrounding the embedded shape will map to 10 squares of the duplicate’s perimeter. Once the perimeter of the duplicate is established, the grains outside it can disconnect from their neighbors.

The beauty of this approach is that it is bottom-up and “consumer”-driven.  People pay for the projects that they are most passionate in, and contribute an amount they are actually willing and able to pay.  In this way, it actually is a very good proxy for actual demand for scientific research.  Standards also have emerged to solve adverse selection and moral hazard problems to ensure that people aren’t wasting their money on some second-rate scientists or con-men who will simply take the money and run.  Petridish vets scientific researchers and their projects are made as transparent to the public as possible when people choose to donate.

Contrast this to the current, largely State-funded science program.  Most research is financed by grants, whereby institutions and scientists petition an agency of the federal government (e.g. The National Science Foundation) for use of taxpayer funds based on some criteria that could be subject to political abuse.  It is not calibrated to the actual demands of society and has no ability to calculate the net benefit (or costs) to society for lack of a feedback mechanism: if it were a business, this would be earning a profit or a loss; if it were a non-profit it would be how much donors are willing to pay to continue financing it.  Grant-writing has also become more of a profession than the actual research.  But I won’t steal Toban’s thunder – read his paper.

Petridish is an innovative, entrepreneurial workaround the stagnating State-science system. It will be interesting to see what scientific research comes out of it.

These army ants are blind, and they each follow pheromone scents of other ants to navigate around the environment.  Since all ants follow this same simple ruleset, it seems that if there’s no ant that knows where it’s going independent of the scent of other ants, there is an unfortunate vicious circle effect: each ant follows every other ant, which in turn is following every other ant, tragically spiralling around until they all die.

Perhaps related, it seems that when displaced from their colony, ants search for the path home in a spiral pattern, navigating in ever-wider circles and occasionally doubling back to their start location.  Perhaps that is what happened here, and there was a critical mass of ants such that all the ants navigational ruleset was overwhelmed by the presence of other local ants (and their pheromones).

It goes to show that not all sporders can yield benefits, and some can be downright detrimental.  We must always fear the naturalistic fallacy that “because it exists naturally, it is good.”  I guess army ants should always stick close to the colony, or at least venture off to far distances only in small numbers.

For inquiring minds, I stumbled across this random-yet-interesting topic from a reddit askscience thread, which are always good.

Language, of course, is a sporder like many others – where we can conceive of individual words as the “agents” that collectively cultivate a vocabulary that emerges among speakers.  Roughly, individual words compete against other words for describing precise ideas, and certain words are collectively selected over time based on their characteristics (length, spelling, economy, phonetics, aesthetics, dialects, etc).

The authors classify their findings under the new empirical science of culture, or “culturomics” as they call it.

Unfortunately, I was unable to find the original journal article with the published findings in Science.

Since then, I came across a mind-blowing paper by Robin Hanson that makes a powerful case for using prediction markets on scientific hypotheses to sharply reduce bias and systemic error from science: Could Gambling Save Science. I highly recommend looking at Hanson’s paper, it’s a very interesting and exciting idea. In light of this, I updated my paper with a section on prediction markets as the best solution we are likely to get.

Read it here: Spontaneous Order, Interventionism, and the Integrity of Science.

A quick overview of AI War stolen from the wiki for the game:

• Cooperative RTS (real time strategy)  game (1-8 players) with numerous unique ship types.
• Challenging AI in 26 styles, 20 additional with the first two expansions; many with unique superweapons.
• Insanely high unit counts: 30,000+ ships in most games.
• Lengthy campaigns featuring up to 120 simultaneous planetary battlefields.
• Different Every Time: 16 billion procedural maps, each with specific units.
• A focus on deep strategy that you don’t get in most RTS games.

This year I have the privilege of helping to run ICES’ High School Economics Workshops.  In doing so, I get to introduce interested students to the economic way of thinking, and take them on a romp through all the various sub-fields, and analyze all the classic economic & policy problems from minimum wages to rule of law.  But the most important and most difficult (at least in my view) lecture is the first one – a cold introduction economics.

I’ve always thought that Principles courses are the most important in undergraduate economics departments – they’re the classes that most students will take (by requirement) and it will be their only exposure to [good] economics, quite possibly in their lives.  Don’t worry about the actual Econ majors – sure they’re important too, but there’s several courses in Micro, Macro, and 3 or 4 field courses for them to hone their skills and beliefs.  I’ve learned from some of my mentors and professors that Econ 101 is really the chance to correct all of the fallacious beliefs that today’s youth have about the world, and replace them with solid, economic thinking.

If we’re being honest, in Econ 101 we’re spreading “good” propaganda to counter all the “bad” propaganda that students have been exposed to their whole lives (and will continue to be overwhelmingly exposed to).  It’s Econ 101 that correctly teaches that protectionism, tariffs, minimum wages, & government regulation tend to be bad, decentralized markets & voluntary cooperation tend to be good, and that we need to restrain ourselves from our overconfidence in forseeing unintended consequences.  It is often the first course (maybe the only course, other than those in philosophy) that actually teaches people to critically analyze their sincerely-held beliefs.

So how do you teach it?  What do you focus on?  What’s the style?  

It’s these questions that have preoccupied me with perfecting the first class.  Sure the successive classes on comparative advantage, supply & demand, the business cycle, money, etc are interesting, fun, and also important, but I’m most worried about the first impression.

I’ve taken at least two attempts at outlining a different style of first class.  There’s three quotes that motivate me:

Economics is primarily useful, both to the student and to the political leader, as a prophylactic against popular fallacies.

-Henry Calvert Simons

 

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

-Friedrich A. Hayek

 

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

-John Maynard Keynes

Several years ago, when I was a hardcore Austrian and somewhat naive, I made some powerpoint lectures on economics, and also wrote my first serious post on my blog called ”In Defense of [Austrian] Economics.” My intentions with both of these were to introduce economics to people unfamiliar and skeptical about the complexity, technicality, and dullness of the subject by vilifying mainstream neoclassical economics and praising an Austrian conception of economics as something interesting, practical, and intelligible enough to the average person that it was common sense.  I’ve changed quite a bit since then intellectually, and I like to think I have a munch more nuanced opinion – I shudder as I think back to some of the things I said those outlets.

This time, I wanted to do it differently – a blended and easy-going approach that doesn’t play on any ideology.  I was far too quick to do that last time.   But the question is – what’s the most important topics to introduce first?  And how do you answer the question that must be answered right off the bat – what is economics?

• Methodology – how we economists view and analyze the world in the framework of rational actors pursuing their own goals?
• Public policy analysis – how we can analyze the consequences of public policies and recommend what is good and what is bad for a free and prosperous society?
• Spontaneous order – the beauty of how individual people, only seeking their own interest, and without governments, are able to fulfill their goals and have everyone gain through market exchange?
• Coordination problems – the wonder of how people are selfish and yet we have solved the massive logistics problem and “the cities get fed”?
• Social Philosophy – how and why it is that human beings cooperate in a stable society instead of exploiting each other in a Hobbesian jungle
• Social Science – how we can describe the way the world works, and why it does better than any other way

So I have a lesson that distinguishes economics from all of the popular misconceptions people have about it, launch into a few sketches at a definition of economics, roughly create a model of human action, describe subjective value, the value of using economics in policy, distinguishing positive & normative economics, and exploring incentives (I have roughly a 30 minute window).

So, to my economist friends, especially those in Grad School with me here, what would you do?

And by the way, anyone (who knows someone) in High School in the Fairfax, Arlington, Northern Virginia/DC-Metro area better (get them to) sign up for our workshops!

 For the most part, the wealthy bust their tail, work 60-80 hour weeks building some game-changing product for the mass market, but at the end of the day they can’t enjoy much that the middle class doesn’t also enjoy. Where’s the fairness? What does Google founder Larry Page have that you don’t have?

Sure there’s a lot wrong with the world, but we should be celebrating our achievements over the past few centuries.  Even those that Occupy Wall Street sport iPhones and sip Starbucks lattes.  That’s not a a jab at their cause, but a recognition that most Americans can enjoy a standard of living with roughly equal access to satisfy both basic human needs and the desire for technological goodies.

The secret, of course, is, and has been markets.  To get rich, one must create a product that people are willing and able to buy – that is, to serve other people and make them better off.  The more people one serves, the more income one gains.  [And income is a result of an action, not a cause.  The rich must earn income by first serving others.]  Businesses do not sell only to rich people, but to the masses, at prices that they can afford.  Otherwise, businesses would rarely reach the size they are today.

While there’s much to be said about the maladies of big business, nobody would have a smartphone if Google and Apple weren’t so massive.  And they could only get massive due to the fact that so many people are happy enough to buy their products.  [Of course, all too often these days fortunes can also be made by using the government to gain legal privileges and extract taxpayer money.]  But only markets and an open social order allowing people to serve each other for their own gain could supply food to the cities (a mind-boggling logistical question), employ billions of people, and accomplish other complex social tasks.

The Model-T, cheap oil, and televisions were made not for the elite’s luxury, but for the average man’s salary; and of course there are a million unintended consequences, new products, and companies that would not have existed if it weren’t for those original innovations.  Kessler echoes this sentiment with his comment that:

 Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve. It’s the Pages and Bransons and Zuckerbergs who have made the unequal equal…

Even the worst off in America still enjoys a higher standard of living than 19th Century kings.  Certainly there are a host of problems, tragedies, and other reasons to help the poor, by and large, “poverty” in America still means access to “air conditioning, cable TV, and a host of other modern amenities.”  And they also seem to enjoy more leisure time than the rich.

Across the world and the span of human history, anyone currently living in America is surely in the 1%.