What Is Signaling?

Noah Smith complains about people like me:

There’s a fad in the economics world that annoys me. The fad is to describe every human action as “signaling.” This has to stop, people. … It’s become fashionable in the economics world to label any and every human social interaction as a form of signaling. The most enthusiastic promoter of this way of thinking is GMU economist Robin Hanson. Fashion isn’t self-expression — it’s signaling. Leisure isn’t about fun — it’s about signaling. And so on.

The problem is, this notion of “signaling” isn’t really what Spence had in mind. Spence’s signaling model was about proving yourself by doing something difficult — something so difficult that someone who didn’t have what it takes wouldn’t even bother. But most of what Hanson is talking about is just communication, not Spence-style signaling. Even if hipsters wax their moustaches in order to prove their hip-ness, that doesn’t mean there are a whole bunch of wannabe hipsters out there who just didn’t have what it takes to wax their moustaches. Communication, like signaling, is costly. But it’s not a matter of jumping through hoops to prove yourself. (morefollowup)

Let’s distinguish three different kinds of messages I might send with my waxed moustache:

1) “I have thick shiney hair.” This message is verifiable. Soon enough, others can just directly check if it is true. So I don’t need to pay costs to send this message, though I may pay costs to create the nice hair.

2) “Hipster is one of my interest areas.” If you and I are going to talk anyway, but must pick a conversation topic, we may share a sufficient common interest in finding talk topics of mutual interest. In such a context, it can be enough for me to just tell you about my interests. You can just accept my claims for the purpose of picking a talk topic. Technically, this is a “cheap talk” message.

3) “I am especially devoted to the hipster ethos” or “I especially embody hipster ideals.” That is, I am especially willing to identify myself as a hipster, and my personal features are an especially high quality match to ideal hipster features, including having a creative and contrarian yet attractive and coherent personal style that fits with current hipster fashions. These messages are hard to verify, and the interests of observers and I conflict. While observers want to accurately rank me relative to others, I may want them to estimate me as having maximal devotion and quality. Since verification and cheap talk won’t work here, I have to show, not just say, my messages.

To show my hipster devotion, I can choose an appearance that is sufficiently off-putting to ordinary people at work, home, church, etc.. By paying the cost of putting off possible associates, I show my devotion to hipsterism. To show my hipster features, I can pay to track hipster fashions and to continually search in the space of possible styles for a combination that simultaneously reflects current fashions while being creative, coherent, and showing off my best personal features. Not being a hipster, I don’t know how exactly that works for them. But I do know, for example, that since lipstick and tight clothes make some bodies look better while making other bodies look worse, they are costly signals of the quality of lips and body shape. There must be similar factors for showing off hipster qualities.

More generally I call a message “signaling” if it has these features:

  1. It is not sent mainly via the literal meanings of words said.
  2. It is not easily or soon verifiable.
  3. It is mainly about the senders’ personal features, perhaps via association with groups.
  4. It is about sender “quality” dimensions where more is better, so senders want others to believe quality is as high as possible, while others want to assess more accurately. Such qualities are not just unitary, but can include degrees of loyalty to particular allies.

Cheap talk cannot send a message like this; one cannot just say such a thing, one must show it. And since it cannot be verified, one must show it indirectly, via how such features make one more willing or able to do something. And since willingness and ability track costs, these are “costly” signals.

When weighted by how much the messages matter to us, and by how much effort we put into adjusting them, I’d say that most of our communication is “signaling” of this sort. Most of the private value, if not most of the bits.

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Ranking The Sacred

Consider four possible acts:

  1. Eating Twinkies
  2. Watching Gilligan’s Island
  3. Fighting cancer
  4. Working for racial justice

Now consider pairwise comparisons of value between these acts. You might say which you prefer, or which matters more, or is more important or admirable.

It seems to me that we don’t mind ranking #1 vs #2. We might think the exercise silly, but we’d still be comfortable expressing an opinion. It also seems to me that we don’t mind puffing up our chest and intoning very seriously that either of #3,4 are more noble and admirable than either of #1,2, and looking sadly down on those who might say otherwise. But if asked to rank #3 vs #4, we are much less comfortable. In this case we could be seen as saying something against an act many find important and admirable. That isn’t the sort of thing we like to be quoted on. We don’t like to speak against the sacred.

Because of this, we end up sharing less info about relative rankings among the acts we most admire. Which, alas, are the acts most valuable to rank. We learn what others think of the relative ranking of silly tv shows and minor foods, but not about our most important choices. Silly humans.

I’m fond of this classic question pair: “What is the most important research question in your discipline?” followed by “Why aren’t you working on it?”

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Who Wants Thick Democracy?

Last night I heard the author talk on this book: The Business of America is Lobbying: How Corporations Became Politicized and Politics Became More Corporate. The audience was mostly DC policy wonks and related academics. The talk and responses to it made me realize that most policy folks, and most ordinary people as well, don’t actually like democracy that much. Let me explain.

In a democracy, candidates run for office, and the ones with the most votes win. Winners set new policies and oversee government agencies that set more policies. Prior to the vote, a limited number of issues come to the attention of voters, including candidate positions on future acts and incumbent past acts and related outcomes.

A basic fact about modern governance is that the number of issues that can gain salience in elections is only a tiny fraction of the number of policy decisions governments make. So a key question about democracy is whether and how voters can influence that vast dark matter of unseen policy decisions. How can voters, who see only a few dashboard knobs, effectively control the vast complex machinery that is a modern government?

In a “thin democracy” the answer to this question is “They can’t.” Instead, many government officials have a lot of what Bryan Caplan calls “slack.” Such officials make choices according to personal preferences, constrained mainly by physics, budgets and the choices of other officials. Here it is the set of people willing and able to take government jobs that control most of the dark matter of government policy. Government is good or bad depending these people, their cultures, and the institutions they use to organize themselves.

In contrast, in a “thick democracy” many voters collect themselves into complex organizations to monitor and lobby government actions. Such “interest groups” collect detailed preferences from members, study government acts and plans in detail, advise officials in person on preferred act details, and advise voters on candidates to reward or punish in elections. Such organizations let voters escape personal limits on how much detail they can manage.

Because thick democracy requires voters to join complex organizations managing detailed info, this scenario is subject to big agency failures. Many things can go wrong between voter input and pushing particular policies to particular officials, and agents in the mess in the middle tend to make things go wrong in their favor. Some organizations will thrive and others collapse due to basically random factors.

More importantly, we have little reason to expect that different kinds of people with different kinds of issues would have remotely similar influence through this process. In a thick democracy, influence depends greatly the complexity of your issue, the ease of monitoring relevant actions and outcomes, the trustworthiness of your agents, the quality of your members, the incentives that members can impose on each other, and the availability of preexisting organizations to build on.

Today the strongest best organized kinds of groups in our society are firms. They can impose strong incentives on members, they are already arranged to minimize agency failures, and the issues they care about are especially simple and easy to monitor. So thick democracies give firms big advantages over other interest groups. In fact:

Corporations and their trade associations now spend about $2.6 billion a year in reported [US] lobbying. … That … is about 34 times the total lobbying spending for all labor unions and groups representing public and consumer interests. (more)

Maybe one could find ways to greatly suppress this firm advantage. But that would hardly give everyone else equal influence. Because influence in a thick democracy depends on complex management of incentives and info, it gives big advantages to those who happen to be better organized.

One might hope for a third approach of “compressed democracy”. In this scenario, we would find ways to compress most of what we care about in the high-dimensional variation of government policy into a small number of summary statistics. These few summaries might then fit into the small set of issues that voters can notice in an election, letting voters control government without complex interest group organizations.

This might work via “retrospective voting”, if voters would just focus on reelecting incumbents only when their personal lives had gone better than expected, and if incumbents cared about little else besides reelection. This approach might also work via agreeing on and measuring a “national welfare” number, such as I proposed in futarchy. But so far voters have shown little interest in such approaches.

At the meeting last night, it seemed to me that most policy wonks and related academics preferred the thin democracy status quo wherein people like them and the students they train have most of the power over the dark matter of hidden policy. And I’d guess that most voters mostly agree with them. Yes, a few “activists” are eager for a thick democracy fight, seeing themselves as especially well organized for such fights, at least without “unfair” corporate competition.

But most people can’t be bothered, and aren’t particularly optimistic about what a thicker democracy would produce. Voters already get lots of status via appearing to be in control. Thicker democracy might create an orgy of rent-seeking activity, and for what? Not that voters would fight it if it were the status quo. But they see the current mostly-thin democracy status quo as reasonable. Just as we accept priests deciding most detail in religion, docs deciding most details in medicine, soldiers deciding more details in war, and teachers deciding most details in schools, we accept government officials deciding most details in government. If the rest of us get bothered enough about something, we can demand to have it done our way. But for everything else, we let someone else figure it out.

I’m not saying that this status quo is in fact the best form of government. I’m just saying I can understand why we see little inclination to change it.

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Financial Status

At a finance conference last year, I learned this: Instead of saving money directly for their own retirement, many workers have their employers save for them. Those employers hire in-house specialists to pick which specialty consulting firms to hire. These consulting firms advise employers on which investment firms to use. And those investment firms pick actual productive enterprises in which to invest. All three of these intermediaries, i.e., employer, consultant, and investor, take a cut for their active management.

Even employees who invest for themselves tend to pick at least one high fee intermediary: an active-management investment firm. Few take the low cost option of just directly investing in a low-overhead index fund, as recommended by academics for a half-century.

I’ve given talks at many active-management investment firms over the years. They pay speakers very well. I’ve noticed that (like management consults) they tend to hire very visibly impressive people. They also give big investors a lot of personal quality time, to create personal relationships. Their top people seem better at making investors like them than at picking investments. One math-focused firm said it didn’t want more investors because investors all demand more face time and influence over investment choices.

Since 1880 the fraction of US GDP paid for financial intermediation has gone from 2% to 8%. And:

The unit cost [relative to asset income] of financial intermediation appears to be as high today as it was around 1900. This is puzzling. Advances in information technology (IT) should lower the physical transaction costs of buying, pooling and holding financial assets. Trading costs have indeed decreased, but trading volumes have increased even more, and active fund management is expensive. … Investors spend 0.67% of asset value trying (in vain on average, by definition) to beat the market. … While mutual funds fees have dropped, high fee alternative asset managers have gained market share. The end result is that asset management unit costs have remained roughly constant. The comparison with retail and wholesale trade is instructive. In these sectors … larger IT investment coincides with lower prices and lower (nominal) GDP shares. In finance, however, exactly the opposite happens. … A potential explanation is oligopolistic competition but … the historical evidence does not seem to support the naive market power explanation, however. (more)

Our standard academic story on finance is that it buys risk-reduction, and perhaps also that we are overconfident in finance judgements. But it isn’t clear we’ve had much net risk reduction, especially to explain a four times spending increase. (In fact, some argue plausibly that those who take more risk don’t actually get higher returns.) On overconfidence, why would it induce such indirection, and why would its effects increase by such a huge factor over time?

Finance seems to me to be another area, like medicine, schools, and many others, where our usual standard stories just don’t work very well at explaining the details. In such cases most economists just gullibly plow ahead trying to force-fit the standard story onto available data, instead of considering substantially different hypotheses. Me, I try to collect as many pieces of related puzzling data as I can, and then ask what simple but different stories might account at once for many of those puzzles.

To me an obvious explanation to consider here is that we like to buy special connections to prestigious advisors. We look good when bonded to others who look good, and we treat investor relations as especially important bonds. We seem to get blamed less for failures via prestigious associates, and yet are credited for most of our success via them. Finally, we just seem to directly like prestigious associations, even when others don’t know of them. And we may also gain from associating with others who share our advisors.

To explain the change in finance over time, I’ll try my usual go-to explanation for long-term changes in the last few centuries: increasing wealth. In particular, social bonds as a luxury that we buy more of when richer. This can explain the big increases we’ve seen in leisure, product variety, medicine, and schooling.

So as we get rich, we spend larger fractions of our time socializing, we pay more for products with identities that can tie us to particular others, we spend more to assure associates that we care their health, and we spend more to visibly connect with prestigious associates. Some of those prestigious associates are at the schools we attend, the places we live, and via the products we buy. Others come via our financial intermediaries.

This hypothesis suggests an ironic reversal: While we usually play up how much we care about associates, and play down our monetary motives, in finance we pretend to make finance choices purely to get money, while in fact we lose money to gain prestigious associates.

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SciCast Contest

SciCast is holding a new contest:

We’ll be offering $16,000 in prizes for conditional forecasts only made from April 23 to May 22.

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Stock Vs. Flow War

When our farmer ancestors warred, they often went about as far as they could to apply all available resources to their war efforts. This included converting plowshares into swords, ships into navies, farmers into soldiers, granaries into soldiers on the move, good will into allies, and cash into foreign purchases. When wars went long and badly, such resources were often quite depleted by the end. Yet warring farmers only rarely went extinct. Why?

The distinction between stock and flow is a basic one in engineering and finance. Stocks allow flows. A granary is a stock, and it can produce a flow of grain to eat, but that flow will end if the stock is not sufficiently replenished with every harvest. A person is a stock, which can produce work every week, but to make that last we need to create and train new people. Many kinds of stocks have limits on the flows they can produce. While you might be able to pull grain from a granary as fast as you like, you can only pull one hour of work from a worker per hour.

Natural limits on the flows that our stocks can produce have in the past limited the destructiveness of war. Even when war burned the crops, knocked down stone buildings, and killed most of the people, farmland usually bounced back in a few years, and human and animal populations could grow back in a few generations. Stones were restacked to make new buildings. The key long-term stocks of tech and culture were preserved, allowing for a quick rebuilding of previous professions, towns, and trade routes.

Future technologies are likely to have weaker limits on the conversion of stocks into flows. When we have more fishing boats we can more quickly deplete the stock of fish. Instead of water wheels that must wait for water to come down a stream, we make dams that give us water when we want. When we tap oil wells instead of killing whales for oil, the rate at which we can extract oil grows with the size and number of our wells. Eventually we may tap the sun itself not just by basking in its sunlight, but by uplifting its material and running more intense fusion reactors.

Our stronger abilities to turn stocks into flows can be great in peacetime, but they are problematic in wartime. Yes, the side with stronger abilities gains an advantage in war, but after a fierce war the stocks will be lower. Thus improving technology is making war more destructive, not just by blowing up more with each bomb, but by allowing more resources to be tapped more quickly to support war efforts.

This is another way of saying what I was trying to say in my last post: improving tech can make war more destructive, increasing the risk of extinction via war. When local nature was a key stock, diminishing returns in extracting resources from nature limited how much we could destroy during total war. In contrast, when resources can be extracted as fast and easy as grain from a granary, war is more likely to take nearly all of the resources.

Future civilization should make resources more accessible, not just to extract more kinds of slow flows, but also to extract fast flows more cheaply. While this will make it easier to flexibly use such stocks in peacetime, it also suggests a faster depletion of stocks during total war. Only the stocks that cannot be depleted, like technology and culture, may remain. And once the sun is available as a rapidly depletable resource, it may not take many total wars to deplete it.

This seems to me our most likely future great filter, and thus extinction risk. War becomes increasingly destructive, erasing stocks that are not fully replenished between wars, and often taking us to the edge of a small fragile population that could be further reduced by other disasters. And if the dominant minds and cultures speed up substantially, as I expect, that might speed up the cycle of war, allowing less time to recover between total wars.

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Beware General Visible Prey

Charles Stross recently on possible future great filters:

So IO9 ran a piece by George Dvorsky on ways we could wreck the solar system. And then Anders Sandberg responded in depth on the subject of existential risks, asking what conceivable threats have big enough spatial reach to threaten an interplanetary or star-faring civilization. … The implication of an [future great filter] is that it doesn’t specifically work against life, it works against interplanetary colonization. … much as Kessler syndrome could effectively block all access to low Earth orbit as a side-effect of carelessly launching too much space junk. Here are some example scenarios: …

Simplistic warfare: … Today’s boringly old-hat chemical rockets, even in the absence of nuclear warheads, are formidably destructive weapons. … War, or other resource conflicts, within a polity capable of rapid interplanetary or even slow interstellar flight, is a horrible prospect.

Irreducible complexity: I take issue with one of Anders’ assumptions, which is that a multi-planet civilization is … not just … distributed, but it will almost by necessity have fairly self-sufficient habitats that could act as seeds for a new civilization if they survive. … I doubt that we could make a self-sufficient habitat that was capable of maintaining its infrastructure and perpetuating and refreshing its human culture with a population any smaller than high-single-digit millions. … Building robust self-sufficient off-world habitats … is vastly more expensive than building an off-world outpost and shipping rations there, as we do with Antarctica. …

Griefers: … All it takes is one civilization of alien ass-hat griefers who send out just one Von Neumann Probe programmed to replicate, build N-D lasers, and zap any planet showing signs of technological civilization, and the result is a galaxy sterile of interplanetary civilizations until the end of the stelliferous era. (more)

These are indeed scenarios of concern. But I find it hard to see how, by themselves, they could add up to a big future filter. Continue reading "Beware General Visible Prey" »

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My Two May Em Talks

You are invited to attend two unusual conferences where I’ll speak in May:

1. INSTED: Agitate! Los Angeles, May 2, 10am-10pm. $25 if you act fast. I talk at time TBD:

The Age Of Em: Envisioning Brain Emulation Societies

Tired of all the wining and boasting on the latest tech & politics trends? See it all shrink to insignificance as we contemplate the next revolution on the scale of the farming and industrial revolutions. The Age of Em will start sometime in the next century; in it, brain emulations could change almost everything. (video)

2. Building The New World Conference, May 28-31, Radford University in Virginia,  $375 for 4 days includes food & room. I talk at 3:30pm May 30 on:

When Men Become Machines: Meaning, Identity, and Ethics at the Advent of a Trans-Human Era and Emulation-Based Singularity.

The three most disruptive transitions in history were the introduction of humans, farming, and industry. Another transition lies ahead: Artificial Intelligence in the form of whole brain emulations – “ems” – sometime in the next century. We will explore the upcoming Trans-Human Era, which will include ems, using a broad synthesis of standard academic consensus, and we will outline a baseline scenario for this “Singularity.” Lastly, we will consider not only the economics of this new world, but also the meaning and identity that human residents will experience during this unprecedented shift.

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Perfect Bits

Did you know that your phone, pad, and laptop are all “computers” wherein all relevant info is stored in “bits”? And did you further know that you can get tools to let you very easily change almost any of those bits? Since you can change most any bits in these devices, you need never tolerate any imperfections in anything that results from those bits. Thus you should never see any disagreeable screen or menu or feature or outcome in any app in any of those systems for more than a short moment. Same for books, music, and movies. After all, as soon as you notice any imperfection, why you’ll open your tool, change the bad bits, and abra cadabra, the system will be perfect again. Right?

In Mind Uploading Will Replace the Need for Religion, “Award-winning #1 Bestseller Philosophy & Sci-Fi Visionary” and Transhumanist Party presidential candidate Zoltan Istvan applies the same penetrating insight to future ems:

Being able to upload our entire minds into a computer is probably just 25-35 years off. … As people begin uploading themselves, they’ll also be hacking and writing improved code for their new digital selves. … This influx of better code will eliminate … stupidity and social evil. …

In the future, we may all have avatars—perfectly uploaded versions of ourselves … [who] will help guide us and not allow us to do dumb or terrible things. … Someone trustworthy will always be in our head, advising us of the best path to take. …

This is why the future will be far better than it is now. In the coming digital world, we may be perfect, or very close to it. Expect a much more utopian society for whatever social structures end up existing in virtual reality and cyberspace. But also expect the real world to radically improve. Expect the drug user to have their addictions corrected or overcome. Expect the domestic abuser to have their violence and drive for power diminished. Expect the mentally depressed to become happy. And finally, expect the need for religion to disappear as a real-life god—our near perfect moral selves—symbiotically commune with us. (more)

Well there’s a few complications. Humans don’t always take advice they are given. And since brains were designed by evolution, we expect their code to be harder to read and usefully change than the device app code written by humans. But surely those are only small bumps on our short 35 year road to utopia. Right?

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Light On Dark Matter

I posted recently on the question of what makes up the “dark matter” intangible assets that today are most of firm assets. Someone pointed me to a 2009 paper of answers:

IntangibleShares

[C.I. = ] Computerized information is largely composed of the NIPA series for business investment in computer software. …

[Scientific R&D] is designed to capture innovative activity built on a scientific base of knowledge. … Non-scientific R&D includes the revenues of the non-scientific commercial R&D industry … the costs of developing new motion picture films and other forms of entertainment, investments in new designs, and a crude estimate of the spending for new product development by financial services and insurance firms. …

[Brand equity] includes spending on strategic planning, spending on redesigning or reconfiguring existing products in existing markets, investments to retain or gain market share, and investments in brand names. Expenditures for advertising are a large part of the investments in brand equity, but … we estimated that only about 60 percent of total advertising expenditures were for ads that had long-lasting effects. …

Investment in firm-specific human and structural resources … includes the costs of employer-provided worker training and an estimate of management time devoted to enhancing the productivity of the firm. … business investments in firm-specific human and structural resources through strategic planning, adaptation, reorganization, and employee-skill building. (more; HT Brandon Pizzola)

According to this paper, more firm-specific resources is the biggest story, but more product development is also important. More software is third in importance.

Added 15Apr: On reflection, this seems to suggest that the main story is our vast increase in product variety. That explains the huge increase in investments in product development and firm-specific resources, relative to more generic development and resources.

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