Huh

I’ve started this post eight different times, each time I tried a different tact and each time I gave up. Over the past year I’ve gained a real interest in Complexity theory. I’ve read multiple books, papers, blogs… on different aspects of Complexity, Chaos, Emergence and related topics. In fact, in some of these posts I’ve referenced Complex Adaptive Systems (I’m using John Holland’s nomenclature) yet I’ve never adequately defined my terms. So, this week I decided to reread and do some additional reading to actually define my terms since, and I’m ashamed to admit this, I wasn’t completely sure what I mean by complexity. It turns out, from what I can tell, no one else is sure what the definition should be either. So, in the spirit of arrogance that comes so naturally to blogging I’ve decided to lay out some definitions below in the hope that people will want to comment and help me refine them. Actually, even if people don’t comment I’ll probably refine them. Anyway, here goes, my definitions for Complexity, Atomic Part (I might want to change that) Emergence and Complex systems.

Complexity: the the measurement of an ideal observer’s ability to predict the outcome of the interaction of a system’s atomic parts.

Atomic Parts: The arbitrarily chosen component parts that appear irreducible, when compared against each other at some arbitrarily chosen level.

Complex system: A system that can not be reduced to the sum of it’s parts. Effectively it is a system that is greater than the sum of it’s parts or as Stuart Kauffman would say, “a system that gives you something for nothing.”

Emergence: The observed qualities (or perhaps regularities) as perceived by the ideal observer that were unpredictable when said observer was given a complete description of the observed system’s atomic parts.

Caveats:

1) You’ll note in an effort to simplify my understanding of these concepts I’ve (temporarily) discarded the notion that complexity or emergence exist with out an observer. I don’t like making this assumption but I’m having trouble finding any way around it.

2) The use of an “ideal” observer is meant to do away with the argument that the unpredictability of a system is a factor of ignorance on the part of the observer. I know there are mathematical proofs that appear to prove some class of systems as complex given near infinite computational resources but I must admit I don’t have the expertise necessary to evaluate said proofs.

3) When speaking of the arbitrariness of component parts or chosen level, I’m enforcing my belief that there are in fact “levels” of a system that are internally cohesive when judging whether parts of the system are irreducible. Example, if one were to look at a human society one could just as easily argue that humans are the component parts as that human brains (or organs) or atoms are the irreducible component parts. I suspect that a part is irreducible if if possess a high enough (any?) level of complexity but, for purposes of this discussion, it seems it circular to argue this point.

4) Given the above definitions, Complexity can be an emergent property of a system, though I’d argue, that complexity will not necessarily emerge. If complexity doesn’t emerge, I’d call the Birthing System a Final Complex System and the Emergent System would be a Simple System. However, as I write this I wonder if any system is ever final since, depending on where you look, it would seem that it will birth some form of complexity even if not at a different level. Example, the interaction of ants is a complex system, the resultant ant hill is a simple system but future ant hives that come from the original ant system will, of course, be complex systems.

5) I’m still wrestling with whether complexity is a qualitative measurement, a quantitative measurement or both. In other words we can argue some system is more or less complex based on, potentially, how many complex systems it births, how many atomic parts and kinds of interactions said system starts with, how hard it is to predict Emergent phenomena…

So there it is, my first take on this issue. In my next post I’ll give some fuller descriptions of complex systems and why they’re of interest.

In a previous post I argued for the idea of regulation within an economy. Today I want to take one example from the current economic crisis, of a types of regulation I think are beneficial. First a quick overview of the economic crisis. For those interested, I’d point to some good podcasts on the issue: Fresh Air’s show with Michael Greenberger and This American Life’s show, called “Another frightening show about the economy” both of which give a more in depth discussion than this blog. And, while both shows utilize overlapping sources, I’ve found other resources echo their conclusions. With that out of the way, here we go.

The first point I want to make, the overarching point, is the ability to trade across political boundaries, the use of information technology and financial engineering has resulted in both more prosperity and more risk. We are all connected in a real time complex adaptive system which can change direction quite quickly and without any predictability.  Credit default Swaps are the nexus of the current economic crisis and highlight the advantages and disadvantages of our current global economic system.

In the late nineties companies started offering Credit Default Swaps (CDS) as a form of insurance to buyers and sellers of corp. bonds. A CDS is basically a contract wherein a buyer gets insurance from a seller against a third party’s default on a bond. Kinda like house insurance where I insure my house against burning down by paying the insurance company money each month in exchange for them promising to make me whole if disaster should strike. So far so good, but a CDS can also be used for speculation, in other words, I can buy insurance against your house burning down even though I don’t have any ownership stake in your house whatsoever. Kinda strange, I know, but here’s the thing, if I have a hunch your house is going to burn down it would be cool to make money on my hunch. But, what if I’m not 100% convinced your house will burn down? No problem, I turn around and sell a CDS to someone else, this way I’m covered. If your house burns down someone pays me and I pay someone else, if it doesn’t burn down then while I’m paying the premium on the first CDS I’ll be collecting revenue from my sale of the second CDS. If I’ve done it right, my hunch came earlier than someone else’s, my premium being paid out will cost me less than the premium I’m receiving. These latter type of transactions, where everyone “netted” their trades (both a buyer and a seller of risk) was the rule rather than the exception. In fact, of the $5 Trillion in corp. debt there is an estimated $62 Trillion in CDSs. In other words, for every $1 of corp debt there is approximately $10 of speculation. That’s what’s called leverage and it’s all interconnected. As you can guess, if one party fails to pay off their obligation it will ripple and multiply throughout the system. On the other hand, if leverage works, it means credit is easier to get, more things are built, more investment is made, more jobs are created…

In 1998 regulators started arguing the CDS market should be regulated. The counter argument, made by both the Clinton administration as well as Phil Gramm Republicans, was the buyers and sellers of these products are sophisticated consumers, and, as such, let the free market work. In 2000 Phil Gramm slipped an amendment into an omnibus bill making it law that CDSs would not be regulated. As I understand it, not one senator (Democrat or Republican) opposed the amendment. But here’s the rub. The economy is situated within a larger interconnected system. If there is a disruption because of these financial instruments then a large number of “innocent bystanders”, people who had no part of the transaction, will be harmed. Meaning, there’s a role for government to at least regulate this market enough to know if harm is coming and to minimize some of the chances for harm.

Not allowing these instruments is draconian and counterproductive. Insurance has a long history of being useful in capitalist economies, it encourages risk taking and provides people with a partial shield against bad luck. Even the kind of speculation involved in CDSs where the owners of the bond were not involved has it’s advantages. It encourages the spreading of information and the interconnection of agents that allow for more leverage.

However, historically insurance as an industry has been regulated. Companies have to have a certain amount of capital reserved in case they are forced to pay off insurance policies. Further, there is a certain amount of transparency in the transactions so other players can adequately gauge risk and reward. These are the kind of regulations that should have been in place for the CDS market. As written right now, a CDS is a private contract between two consenting parties. There is no way for anyone to see how much was paid for a CDS or even how many players own or sold CDSs. Further, there is no mechanism to make sure the sellers of a CDS are adequately capitalized.

These last three points are key, without a transparent pricing system, if there’s a shock to the system (like the sub-prime crisis) there’s a lack of trust in the marketplace. No one knows who’s balance sheet is real, further due to the interconnection of all these transactions a bank failure in Indonesia can hurt an American hedge fund six steps removed. The lack of a central clearinghouse means no one knows where these, as Buffett called them, “financial weapons of mass destruction” are located. The govt. has no idea how bad things can or will get and neither does anyone else. Finally, because CDSs were not regulated there was no way of making sure a seller was adequately capitalized and it encouraged more players into the market thus increasing the likelihood there would be this kind of a crisis.

Which brings me back to regulation. In a complex adaptive system, like an economy, regulation must allow for changes, growth and the death of individual agents but minimize the risks of the whole system suddenly going through a radical reorganization. Not because radical reorganizations are neccesserily bad in and of themselves but because humans and human society needs time to react and adjust. Further, regulation should minimize some of the more extremes of group psychology (like panic) while also combatting harmful concentrations of power and knowledge.  In retrospect, we can only wonder if things in the CDS market would be as bad if pricing was transparent, purchases were registered with a central clearinghouse and sellers were forced to be adequately capatilized.

Free markets are the best means for efficiently allocating society’s economic resources… except when they’re not. Given the U.S.’s current economic morass I thought I’d blog a little about why a free market needs regulation.  First off, it’s worth noting an economy is a complex adaptive system. Meaning, it consists of interactions by a large number of semi-independent agents all focused on their individual goals. Via this complicated web of interactions, larger patterns, emerge, merge and perish. Alternatively one could view these patterns (read: organizations, businesses, relationships etc.) as going through evolutionary algorithmic searches for optimal solutions to their current environment.  The whole becomes greater than the sum of it’s parts. Companies get built, resources get leveraged and, overall, economic progress lurches forward.  So why is government regulation desirable? Why isn’t the libertarian view of unfettered free markets the right approach. I can think of three reasons, each residing at a different scale within society.

1) Humans can not be consistently counted on to be economically rational.

2)  The potential problem of “Increasing Returns” as identified by the economist Brian Arthur.

3) The Economy resides within a larger social political system.

Behavioral Economics is the branch of economics studying how humans make (sometimes irrational) choices. Some of the findings suggest humans are quite susceptible to heuristic biases and framing. Heuristic biases can be thought of as “rules of thumb”, an example might be, if someone I perceive as a leader does X then I should do X as well, even if I’m not sure why I should do X or if X will get me anything. Framing describes the ability for human choices to be swayed by how options are presented to them. My current favorite example (typically given regarding morality) is the oncoming train question. If there is a train track that branches into two tracks. Down track A five people are working while down track B one person is working. An out of control train is hurtling down the track, you can do nothing and the train will go down track A, killing five people or you can pull a switch and send the train down track B killing one person but saving the other five. Will you pull the switch. Most people say they would pull the switch thus, saving five people while killing one person. But, if you frame the question differently, and tell them five people are working on a train track below you. You see an out of control train hurtling down the track and you know if you push the obese person next to you, onto the train tracks, it will stop the train, save the five workers but kill the obese person. Would you push fatso onto the tracks. Most people would say no, even though, the economics of the question are exactly the same in each case.

So what’s the problem? As companies get more and more sophisticate in their marketing efforts, their ability to override an individual’s rationality becomes stronger. If people are not making choices based on maximizing their own self interest, the philosophical underpinnings for arguing the ethical advantages to free markets disappear.

A second problem can be found in the study of group psychology. As Keynes (quoted by David Ignatius) notes: “It is of the nature of organized investment markets . . . that, when disillusion falls upon an over-optimistic and over-bought market, it should fall with sudden and even catastrophic force,” he wrote. “Once doubt begins it spreads rapidly.” In other words, when your mother asked you if you would jump off a bridge just because your friend did, the honest answer is: “Sometimes”.

2) Increasing Returns describes the idea of markets becoming dominated to such an extent that the winner will continue to win just because they won previously. Increasing Returns are sometimes illustrated through “the Network Effect”, the example usually given is the dominance of the PC. Once everyone starts using a specific technology, it will make sense for the individual to choose that technology not because it is necessarily superior to its competitors, but because barriers to entering the network are too costly without the “winning” technology. Now, its true that over the long term the network effect can be overcome through the introduction of a “game changing” new technology, but its also true that the system can reach a state of equilibrium where innovation is permanently stifled and the system lodges in an evolutionary cul de sac.

3) The Economy resides in a larger Social Political system: In order for any economy to work right it must reside within a society of laws. Contracts must be enforceable, property rights respected… For the rule of law to be respected there must be some mechanism for enforcement, punishment and redress. Mechanisms of this sort require a concentration of power. Concentrated power invites corruption and secrecy. Without mechanisms for insuring fairness and the rule of law a free market cannot hope to stay free.

Further, there must also be mechanisms in place to minimize negative externalities and the ability of larger entities to socialize costs while privatizing profits. You know, like if an industry got into trouble so everyone was forced to give money to bail out said industry without the givers getting equitable compensation for their forced largess. I’m sure there’s an example of this issue though none come immediately to mind.

In short, I do not believe, given society’s current level of technological sophistication and interconnectedness that a free market is even possible, let alone desirable. Having said that, I am quick to acknowledge economies as complex adaptive systems. Too much regulation can send the economy into a state of equilibrium, effectively killing the goose that lays the golden egg. But, that argument will be made in a future post.

Steve Grand wrote a book I just love, called Creation: Life and how to make it. Steve’s the creator of Creatures a popular computer game, kinda a cross between the Sims and Spore. In his highly readable book he posits

Dr. Frankenstein’s Creed:

“Life is not the stuff of which it is made – it is an emergent property of the aggregate arrangement of that stuff. Even the stuff itself is no more than an emergent property of a still smaller whirlpool of interactions. Living beings are high-order persistent phenomena, which endure through intelligent interaction with their environment. This intelligence is a product of multiple layers of feedback. An organism is therefore a localized network of feedback loops that ensures its own continuation.

Intelligence cannot be abstracted – we have to build a whole organism. Nether can intelligence exist in a vacuum – it has to be embedded in a self-consistent environment. Life is the sum total of all the feedback within the organism, and between the organism and it’s environment. The division between organism and environment is not a real boundary, but a convenience dreamt up by our own brains – the universe is really just a single jumble of interactions.

A computer cannot be intelligent or alive, Nor can a computer program. But a computer can be used to create a cyberspace. Inside that cyberspace we can construct first-order objects and use algorithms to emulate their behavior. These objects are not alive or intelligent either, but they can be pieced together to build a second-order assemblage that is. Our task is not to program in intelligent behavior, but to enable such behavior to emerge from simulated objects that embody the cybernetic properties from which life emerged in the natural world.

To complete the picture, we must ensure that the recipe for this emergent phenomenon is not hard-wired but is able to be passed on from generation to generation and modify itself in order to persist on longer timescales, as the environment changes. Our creature will be fully alive and intelligent only if its future lies in its own hands, and to give it this autonomy we must relinquish direct control of its design. In short, the plans for how to assemble our creatures should be coded in its genes.”

Now I know some will argue this is not formalized enough to be meaningful but to them I respond. “It’s a creed for god’s sake, get over yourself”. What blew me away, are the twin concepts of evolution and emergence in the first two paragraphs. Note: I have issues with the last sentence in the second paragraph since the issue of subjective vs. objective “reality” is not at all clear to my way of thinking. But put that aside. To think, the average human has 35K genes, you could almost look at them as lines of code and with these 35K worth of genes you get not only all the variety of the human race (this concept first struck me at my local grocery store; the same pool of genes created him, her and me? Get out of here!) But, more importantly, those genes having been and still being selected by evolutionary pressure, resulted in the human brain, perhaps the most complex entity known to, well, the human brain. Further, without evolutionary pressures there wouldn’t be intelligence, let alone the human brain. But of course, it’s not just humans that evolved, only because of competition, because the evolutionary landscape is constantly changing from the perspective of any one individual “persistent phenomenon” is there life.

So I got a myriad of questions but a couple come to mind.

Why do the patterns persist? I mean wouldn’t it be easier to just not struggle. Where does that universal urge to survive come from? Becasue, without the urge to survive, to reproduce, make more of oneself, the whole damn system falls apart. Now I know, one could say, “Well, the will to persist is there because it defines success. All the other approaches (the will to not persist, the will to watch lots of television, eat cheetos and never move) didn’t do so well. Only the results of the the will to persist are around to be seen. Okay, fair enough but here we get into emergence. There seems to be a movement towards complexity throughout the Universe. This movement is not only seen in entities with “will” but in non-willfull agents. Why? Where does that come from?

My friend Richard Nantel (check out his blog here) argued I have a moral duty to blog. His theory seems to be, the world is full of big problems, the only way things are going to get better is if we put our heads together and share what we know. Frankly, my gut doesn’t completely buy it but what the hell, why not give it a try? So I figured for my first post I’d offer a sense of what I’m trying to do and why.

I want to use this blog to explore things that make me say; huh? or huh! or huh. And I’ll probably even write about some things that made me say huh but now make me think, Ha! In short, I’ll throw things out there and see what sticks. I would LOVE for you to let me know what you think sticks and what you think stinks. Even better, please let me know WHY you think it sticks or stinks.

Things I intend to explore include; Complexity Theory, Emergence, Evolutionary Psychology, The craft of writing, Politics, Economics, Literature, Physics and Metaphysics. Of course I reserve the right to add any topic that makes me say Huh.

Finally, you may note above, I’ve a link for my writings. Not much there at the moment but eventually I’ll be publishing fiction that has been inspired by the above topics. I’ll sign off for now so I can actually  start writing some of this stuff. Hopefully this blog will encourage you to say, in the best possible way, “huh”.