Money and happiness

15 11 2009

Mind of the Market, by Michael Shermer, is by far the most complex and in-depth book I’ve ever read. I talked a little about it in my earlier post – Folk Numeracy. Now that I’ve finished reading it I have more to say.

As I mentioned in my other post, Mind of the Market talks about the evolution of the markets from hunter-gatherer to consumer-trading. All through the book, he tries to explain how human brain has evolved to work in hunter-gatherer system since ages but is required to operate in consumer-trading culture today and how this affects and shapes the markets. He also makes it a point that both markets and minds are moral.

The author talks about, among other things, free markets, libertarian paternalism, trust, happiness, money, science, rules, virtues, evil etc.  At some point, he even explained how a fMRI scanner works, the technical details of which escaped me the first few times I read those passages.

From the myriad of topics discussed in the book, I found the chapter -Why Money Can’t Buy You Happiness the most interesting. In that chapter, Michael Shermer addresses the question and analyzes the emotion of happiness. Though most of us agree, at least intellectually, that Money is not everything, we see people doing crazy stuff for money and the power it brings. We came to  view money and the comforts and thereby status it brings as a sign of ultimate success and most of the times pursue wealth in order to gain more happiness.

But as all wise people realize and say, money can’t buy you happiness and it’s been proven time and again. Studies show that despite the increase in absolute wealth people in America are no more happier than they were half a century ago.

Michael states that happiness is often equated with pleasure and the pursuit of pleasure is what makes people land on a hedonic treadmill. According to Hedonic treadmill theory, as a person makes more money, expectations and desires rise in tandem, which result in no permanent gain in happiness.

Like all other emotions, happiness is also a proxy to deeper instincts and needs and the author defines happiness as:

Happiness is an evolved emotion that guides us to find meaning in the simple social pleasures of interacting with our immediate family and extended family, friends and social circle, and to direct us to find joy in the meaningful purposes of life that most directly involve helping ourselves, our family, our friends, and our community.

An observation I found intriguing is that we all have our own set point for happiness set by our genes and tweaked by the environment and we usually return to our set-point within certain time after a happy or sad event.

Corporate scandal

9 11 2009

Much has already been said and written about Enron. And probably everyone in the world knows about the great scandal since ages. But much to my chagrin, I haven’t heard about it until recently. As per my understanding, a huge accounting fraud took place where executives hid billions of debt and eventually brought the energy company to bankruptcy. Reference to this shaking event keeps coming up in various books/articles I read, whether the subject is business or economics or corporate culture or markets or technology or even evolutionary psychology. A few of such interesting unusual contexts are:

  1. Michael Shermer, in his latest book Mind of the Market on Evolutionary Economics, says that the corporate culture Jeffrey Skilling brought with him is the main reason. He believed that the cutthroat competition leads to efficiency and success and implemented a policy called Peer Review Committee system, which resulted in steady cut down of jobs and personal humiliation for the relatively low performers. In the course of time, this led to mistrust, low employee morale – selfishness and greed. The author was trying to demonstrate the power of situation to draw out the better or worse angles of our nature. The other extreme is of course Google.
  2. Laurence Gonzales too mentions Enron fleetingly in his social psychology book, Everyday Survival where he observed that when the top executives were arrested once the company fell in disgrace, police handcuffed them with their hands behind them, even though they are not violent criminals. The author was explaining the significance of hands in our evolution and how we see bound hands as ultimate loss of status as humans.
  3. Malcolm Galdwell, the bestselling author of Tipping Point, Blink and Outliers, has spoken out his mind in his latest interview with Lou Agosta of BeyeNETWORK after his talk at the Discovery 2009 conference and Innovators’ Summit in Chicago. While I know nothing more about the actual presentation of Gladwell except that he opined that the Enron scandal was the “canary in the coal mine” – an early warning – for the September 2008 financial meltdown. In the interview, he explains that in the modern day, there is just too much information. While Jeff Skilling was sent to prison for 24 years for withholding information, Gladwell points out that the information has always been there – accessible to public but the thing is – the huge amount of data hid the lack of integrity and made company operations a mystery. In other words, it was utterly incomprehensible for non-experts and made it difficult for them to draw correct conclusions in a timely manner. Gladwell also mentioned that according to some of the best financial minds, Enron’s disclosures were perilously close to being legal. The main point is of course that the information overload increases receivers’ responsibility.(For anyone interested to read the full interview, click here. But you might need to register on the website in order to view the full article.)

Certainly an event can be viewed and analyzed from various perspectives. And Enron scandal is a kind of historical event which people would never forget.

On a different note:

Indians, especially Andhrites, can immediately relate Enron scandal to the recent Satyam fraud. Exactly same thing happened- manipulation of accounts. In this case, funds were transferred to subsidiaries owned by the family. This scandal too has shaken the Indian corporate world and cast shadows of doubt by the first world nations on the integrity of the Indian outsourcing industry. Much is being said and analyzed about Satyam too. Here is an interesting viewpoint of Gurucharan Das: On the difficulty of being good.

It only seems natural that Satyam is being referred to as Indian Enron!

Folk numeracy

16 10 2009

According to Michael Shermer, who coined the term, Folk numeracy is our natural tendency to misperceive and miscalculate probabilities, to think anecdotally instead of statistically, and to focus on and remember short-term trends and small-number runs.

For more explanation, read his article “Why Our Brains Do Not Intuitively Grasp Probabilities” on Scientific American.

Well, this looks like heavy stuff and in a way it is. This term doesn’t seem to be a very well-known one and googling it will only point you to the Michael Shermer’s articles on Scientific American and his book The Mind of the Market. Then, how and where (and why) did I come across this term? This was brought up by my instructor in the BI/DW class. To be frank, I didn’t see the connection then and have difficulty to comprehend the association even now. 🙂 My best guess is that he might be referring to the enormous amount of data involved in a BI project, and our incapability to accurately gauge it.

Anyways, I duteously read the recommended articles and even got a copy of The Mind of the Market from the library. I felt drawn to the concept and immediately became curious to know more. So, I’ve started reading the book. I have to admit that I’m actually struggling through the book, trying to understand the heavy economic and evolutionary jargon, supplementing my mission with inputs from the wikis to make myself familiar with such concepts as liberalism, conservatism, capitalism, mercantilism etc. Despite the huge effort, I’m persevering in the hope that the read would be rewarding in the end. Now, after reading 3 chapters, I must say I’m glad that I stayed on course. Obviously some of the stuff is above my head but reading such a complex work is a new experience for me.

Till now, he talked about how the evolutionary and economic systems are similar in that they are both driven from the bottom rather than from the top. In  Nature, evolution is caused by the natural selection (the actions and interactions of the nature and life) and not by some designer at top. Likewise, the economy is driven by the consumers and not by the producers/government. Michael Shermer is clearly pro-Adam Smith and pro-Darwin. As you all know, Adam Smith is often regarded as the Father of Economics. His most notable contribution is ‘The Wealth of Nations’, in which he argued against mercantilism and for barrier-free trade/market.