The quantum theory of economics (QTE) seems to have provoked people (because I provoked them lol) . So I need to explain what motivated me to work on QTE, and why in my opinion contemporary microeconomic models are not working.
Well..it’s a long story…because they are wrong in so many ways!
But let me start first with other testimonials. I’m far from being alone in thinking that current economic theories are poorly created. Besides having met several natural scientists who mock economics as a pseudoscience, many economists themselves are skeptical about the predicting power of today's theories. Every year the Swedish academy of Science hands out a Nobel prize in economics, indicating that it should be as much a science as physics or medicine. Yet Noble laureates of economics are never invited together with the other Nobel prize winners to the annually televised discussions about humankind’s future, opened by the king of Sweden, …and I used to wonder why that was so. As a young business student I was rather annoyed about it.
Of course the Nobel prize in economics is not an actual Nobel prize, since it is funded by the National bank of Sweden (and not the Nobel foundation) and it is actually called Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne, but on the other hand it is decided by the same academy that makes decisions about the other prizes. So you would expect that it would have the same prestige. Yet many have opposed it, like the famous Swedish economist Gunnar Myrdal or the long time Swedish minister of finance Kjell-Olof Feldt. Even one of the Nobel prize winners, Friedrich Hayek, said in his acceptance speech that if he had been asked whether there should have been a Nobel prize in economics at all, he would have voted against it, because he didn’t think economics was a ”proper science”.
Well distinguished gentlemen...I am sorry to say, but I think you are wrong! There definitely should be an award for economics similar to those for physics or medicine. Economics is a huge part of our lives and defines, just as well as the natural sciences or medicine, how our societies and wellbeing work. I would just like to see them fund their particle colliders or neurosurgical equipment without some economic apparatus working in the society that enabled them to build their gizmos in the first place. So the study of economics is a science...or it should be at least.
But I can understand why they were critical. Both the macroeconomic and microeconomic models are so far from reality that for many they seem completely useless. Like to me for instance. I participate in business life on a daily basis and need to deal with prices, valuations and how they are being calculated in real life. I never use any microeconomic models, couldn’t use them because they model something that isn’t real or useful for me. They deal with ”rational agents” playing ”utility” games in a more or less linear world and the agents usually have no feedback between each other and with the system itself. But in real world where actual people negotiate or try to beat ”the system”, emotional as much as rational agents are interacting with each other and the environment to make individual deals.
Yet all sorts of microeconomic models are used everyday to create convincing predictions about the future valuations of all sorts of things…and not the least about stocks and other investment instruments. But they work really poorly. For example, NY Times organized the famous experiment with a chimpanzee as a stock analyst in the early 90s (I remember reading about it then and being tremendously impressed – it might even have affected my career choice). The chimp was blindfolded and made to "invest money" by choosing a portfolio of stocks by throwing darts at the Wall Street Journal’s list of stocks. Then the reporters asked several tens of financial analytic companies and financial advisors to recommend a portfolio, using the same amount of money. It turned out that the chimp had beaten 40 % of the professional analysts who were using the latest software based on the latest numerical models. I remember thinking: wow! There is something interesting going on here :-)
That was of course almost 20 years ago, but I doubt the models have gotten essentially any better. They are still faulty in the same ways. They model only hypothetical laboratory cases, which do not apply to the real world.. Of course one could suspect that the same should be true for physical models, but I don’t think so. I very much doubt that anyone builds technology with a physical model that is already known in advance to be insufficient or outright faulty! I would guess that rather than go straight ahead building quantitative numerical models and equations, a natural scientist would spend her time tuning the qualitative description of the model until she believes that it is taking all the phenomena, which she knows the system should exhibit, into account satisfactorily. Of course this might not be true every time a natural science theory is created, but as far as I have understood, that’s how it should go in principle. A natural scientist tries to understand the qualities of the system first, then build the model accordingly, and then test it. And if the empirical results don’t match, the description of the model is revised first and only after that the quantitative numerical model fixed.
But in economics it doesn’t seem work like that in practice. Economic models are typically polynomials of the form: Property (for example price) P = A + Bx + Cx2 +.. Then if the model does not work at some point, an economist just changes the values of coefficients A,B,C... or adds higher order terms (eg. Dx3) If the economist has read more mathematics, she might get fancy and use polynomials with differentials of the variable x instead…but it wouldn’t make the process methodologically any better. Adding coefficients just fix the previous erratic model by adding new terms based on experience, that is based on “knowledge” which is acquired fundamentally by induction, without necessarily understanding what is truly happening in the system. She would not really understand how the system should be actually described qualitatively and then using deduction what could happen within the boundary conditions the system has in real life.
What if after time T the system’s equilibrium changes so that the whole variable x gets thrown out of the window…there would be no way of knowing what will happen to property P, and what’s worse, even the whole system change would not be predicted by the model…and that’s exactly what happens practically all the time and everywhere current economic models are being used in practice.
Physicists and technologists usually are not caught that easily I think. That’s because their method is to try to build knowledge about their system by understanding everything that happens qualitatively in the system. Then through deduction and by understanding boundary conditions, make the model. Only after the model is made would they then make decisions about which details are essential and which details can be left out to simplify the numerical model, especially if it turns out to be too complicated to solve.
I’m not sure if I am able to convey my idea or if I am too idealistic about how physical modeling is used today in practice…but I’m convinced that the people creating technology would never approve the same inaccuracy and lack of realism in their physical models when they are designing their gadgets and gizmos, in the same way that financial analysts approve known unrealistic assumptions in their economic models. I have referred previously to Nicholas Nassim Taleb and his works….I recommend him again. He makes the same point much more eloquently than I ever could. I think Robert Lucas was also an early critic of the same fallacy of creating “knowledge” and economic models through induction (but he was talking about macroeconomics only) [1].
I also think that a "quantitative model driven" way of creating theory leads to a funny phenomena, that quantitative models create qualitative concepts! Since many of the economic models are created by first building polynomials based on inductive experience, the coefficients N of the new terms Nxn that are added in order to “improve” the model, are given attributes like “utility” or “indifference” or “intrinsic economic value”. Of course the attributes need to be credible sounding enough so that the users of economic models could justify their fallacy ;-) But more often than not, I am unable to relate them at all to real life business practices. And at the end the day it is in these practices that prices and economic valuations are formed in real life, isn't it?
So why do we do it?! How can we be so mistaken and let ourselves create fantasy (imaginary properties in microeconomics) from models rather than create models that would try to imitate reality? Taleb or Lucas were not at all the first ones to notice this error. For example philosopher/mathematician and the other writer of Principia Mathematica, A.N. Whitehead noticed:
It is very arguable that the science of political economy, as studied in its first period after the death of Adam Smith (1790) did more harm than good. It destroyed many economic fallacies, and taught how to think about the economic revolution then in progress. But it riveted on men a certain set of abstractions which were disastrous in their effect on the modern mentality. It dehumanized industry. There is only one good example of a general danger inherent in modern science. Its methodological procedure is exclusive and intolerant, and rightly so. It fixes attention on a definite group of abstractions, neglects everything else, and elicits every scrap of information and theory which is relevant to what has remained. The method is triumphant provided that the abstractions are judicious. But however triumphant, the triumph is within limits. The neglect of these limits leads to disastrous oversights… The methodology of reasoning requires the limitations involved in the abstract. Accordingly, the true rationalism must always transcend itself by recurrence to the concrete in search of inspiration. A self satisfied rationalism is in effect a form of anti-rationalism. It means an arbitrary halt at a particular set of abstractions. [2]
Well…that’s quite a mouthful =). I got this quote actually from Seneca Quandry and he kindly popularized it a bit:
We commit the ‘fallacy of misplaced concreteness’ when we treat our models as more real than the phenomena they are intended to represent. When natural resources don’t appear in economic models (sometimes they don’t, sometimes they do) economists may be tempted to ignore their significance. When economists do this, they are committing Whitehead’s fallacy. [3]
--- So that’s why I came up with QTE. It would an attempt to build abstractions to economy from phenomenology and empiria rather than fall too much in love with our computer models.
If I get around to it, I would also like to study the concept of “utility” in more detail. For some reason I like it even less than many other dubious concepts in economic theories. I think the invention of utility is often accredited to philosopher John Stuart Mills, but I think it is probably mathematician Daniel Bernoulli, who used it first in order to find a solution to the St Petersburg paradox. I think he failed at it though, and so has the whole concept of utility failed, at least in economic theory….but that’s another story...to be titled "What’s wrong with the contemporary economics, Part II" ;-)
Cheers for now
Quintessential
References:
[1] internet page March 30th 2009, http://en.wikipedia.org/wiki/Lucas_critique and the references therein
[2] Whitehead, A.N. 1929. Process and Reality. New York: Harper Brothers.
[3] Quandry, S. March 26th 2009, private communication
PS As before I publish this a way too prematurely, as an almost unreadable draft….but again I’m too eager to wait the 10 proof reads that I need to do always! So sorry for that.Q
PPS Edits done on April 2nd. Million thanks to Elia Scribe for help!Q
måndag 30 mars 2009
måndag 16 mars 2009
Quantum theory of economics
Pretty neat title huh? :-)
I had in mind that naming this theory as a "quantum theory" would reflect a quest for a new micro- or even microscopic economic theory based on discrete individual events. Referring to the previous writing, “what’s the right value” (see the blog below), I just think a new economic theory is needed...
Without further ado let’s start:
I would first propose to empty your minds from all of the previous economic theories, all postulates about intrinsic values, laws of demand and supply or concepts for market value, since when an individual transaction occurs I think none of those really matter…except only as mental reference points in the minds of the buyer and the seller.
Let’s just look at what happens in the real world when a “thing” T = goods, service, user right, option or whatever a person or an organization can legally own, changes ownership that is a transaction occurs. Let’s also assume that the ownership is defined legally unambiguously and both the buyer and the seller have enough credibility in each other's minds so that they trust each other to keep their end of the contract and that they in fact are worth the trust.
A transaction takes place if
1) Buyer B and Seller S agree on the price P of T.
2) B will pay the agreed price P as cash equivalents and S gets T or whatever documentation assigns the ownership of T to her possession
I suppose that’s enough, don’t you think?
In order to study when does the first condition 1) get satisfied, we should investigate what are the things that actually affect S’s and B’s opinions about the right value for P when they negotiate the deal? In the order of importance imo, For S there should be at least
- The need or wish to sell. What is S’s negotiation target price M and what is it based on? Would S be ready to give T away for free in some cases, or would she be very unwilling to sell even double the expectation for whatever is quoted as market price?
- B's ability to negotiate the cheapest possible price that makes S to sell T to B
- External valuation factors that affect S's opinion about the value of M, such as
o Reference prices from previous similar type of deals
o The projected market price based on expected future availability and valuation of T
o In case it would be possible to earn money with T, the expected future income enabled with T
o Any goodwill (such as strategic value) S thinks B should assign to T
o Aesthetic or emotional values that S has assigned to T
o …what else?
Similarly for B it should hold
- The need or want to buy. What is B’s negotiation target price N and what is it based on? How much would B be ready to pay (Nothing or all of his money or perhaps even borrow some more?)
- S's ability to negotiate the highest possible price that B is willing to pay for T
- External valuation factors that affect N, such as
o Reference prices from previous similar type of deals
o The projected market price based on expected future valuation and availability of T
o In case it would be possible to earn money with T, the expected future income enabled with T
o Any goodwill (such as strategic value) B holds for T
o Aesthetic or emotional values that B holds for T
o …what else?
By now it seems to get rather complicated doesn’t it? But the bottom line is that unless the price is strictly regulated by some authority - which it never can be, since as you know, even in the most regulated economies there is always black market valuation – the actualized prices are always a subjective agreement between the seller and the buyer.
But in order for the transaction to get completed by the satisfying the condition 2) there is also an upper limit on how much the buyer can afford. The transaction does not occur if T costs more than what B is able to pay. Let’s denote that value as A. But defining A is not simple either. One could think that B has only as much money that he has liquid assets, but of course he could also borrow more. And since the amount that B can get in debt is again based on the subjective valuation of her credit and other assets or even future looking commitments there is in principle no upper limit for A. But since, of course, the higher the price (P), the more improbable it becomes that B is able to raise all the money and in practice A should be finite. At least it can’t be more than all the resources in the world that can be assigned an ownership legally.
Now here is my quantum theory based on the individual deals Q as discrete quantums of economy:
I claim that a Market value V(T) for a thing T is the expected value calculated over the sum of all the prices, P, of all the possible individual deals, Q, between Buyers, B, and Sellers, S, that could commence and consequently produce a sets of individual deals Qi with prices Pi. it would be a “quantum theory” since individual deals are discrete, and the term the deals Qi would be the “quantum” incidents of economy that you could correspond to the quantums in physics terminology.
So in order to calculate V(T), I should be able to write a sum/integral over the probability distribution for individual deals, Qi, so that the V(T) is an integral over all possible transactions over pricse P(Qi) = Pi. Individual Pi's in turn are defined as P(Qi) = P(MN), where M and N are the probability distributions or “wave functions” representing buyer’s and seller’s negotiation prices. If M = N then the Price P = M =N, but if they differ, price P(MN) will be an integral from 0 to A over the convolution (I guess :-)) of the probability functions M and N, where A is the maximum sum of money a buyer can get.
Or something of the sort =)
Unfortunately I have no integral sign or a summing sigma available for this blog so I have a good excuse not to write down the equations! But I would think that the people skilled in the art of dealing with probability spaces or better yet the quantum mechanical formalism should be able to get the idea. Thus I would leave it as homework to write down the equations (…and then solve them for a case of European car industry! Lol)
But hand waving theorizing does not end here!…to further continue the analogy to physical quantum mechanics, the equation for Price as P(Qi) = Pi(MN) could perhaps be understood as a Hamilton function or something like that. Wouldn’t it then be possible to use also statistical mechanics to calculate macroeconomic values based on the market values for V(T) ?
Well...if given something close to an infinite amount of time, I might perhaps be able to device some credible looking equations with a standard mathematical notation used in probability theory. Mathematicians are interested usually only about the theoretical description of things and proving them. Once I had written down the statements and equations and checked that they are formally right…I would be done. But physicists have the apparatus to actually calculate something with actual concrete numbers (which unfortunately I don’t). So in order to use the quantum mechanical tools, I would need to ask help from physicists…as bitter as it might be =) And with physicists helping I might get easier acceptance for the cool title “quantum theory of economics”.
One more addition: Wouldn’t it be cool if it were possible to use Feynman graphs to describe the interaction between Buyer and Seller. One could use the solid lines for things and wavy lines for money maybe. Think about it!
I don’t think I am even close to being the first to take the microscopic approach and propose a theory based on integrating over individual deals, yet I might be the first who is arrogant enough to call it a quantum theory and draw parallels to the physical theories as carelessly, even in a tongue-on-cheek blog… but it’s intriguing isn’t it? Unfortunately making a proper theory is way beyond me. Both in terms of my time and capacity as a mathematician….so I would plead for help: If there are people who are interested in this, let me know. I spend an unbelievable amount of time in SL and PH so finding me or someone who knows me shouldn’t be that hard. In fact I have thought of proposing a collaborative effort around this. It would be a very interdisciplinary study, since our M and N “wave functions” would be based on individual people’s wants, needs, valuations, credit limits and every human aspect that makes them buy or sell things.
That’s all for now
*winks*
Q
PS This whole thing is not very thoroughly proofread yet, so I might correct small obvious errors and make the writing more readable afterwards. But the idea should be there already.
PPS first corrective edition done on March 17th
PPS Second revision, March 27th (thanks Strider!!!)
I had in mind that naming this theory as a "quantum theory" would reflect a quest for a new micro- or even microscopic economic theory based on discrete individual events. Referring to the previous writing, “what’s the right value” (see the blog below), I just think a new economic theory is needed...
Without further ado let’s start:
I would first propose to empty your minds from all of the previous economic theories, all postulates about intrinsic values, laws of demand and supply or concepts for market value, since when an individual transaction occurs I think none of those really matter…except only as mental reference points in the minds of the buyer and the seller.
Let’s just look at what happens in the real world when a “thing” T = goods, service, user right, option or whatever a person or an organization can legally own, changes ownership that is a transaction occurs. Let’s also assume that the ownership is defined legally unambiguously and both the buyer and the seller have enough credibility in each other's minds so that they trust each other to keep their end of the contract and that they in fact are worth the trust.
A transaction takes place if
1) Buyer B and Seller S agree on the price P of T.
2) B will pay the agreed price P as cash equivalents and S gets T or whatever documentation assigns the ownership of T to her possession
I suppose that’s enough, don’t you think?
In order to study when does the first condition 1) get satisfied, we should investigate what are the things that actually affect S’s and B’s opinions about the right value for P when they negotiate the deal? In the order of importance imo, For S there should be at least
- The need or wish to sell. What is S’s negotiation target price M and what is it based on? Would S be ready to give T away for free in some cases, or would she be very unwilling to sell even double the expectation for whatever is quoted as market price?
- B's ability to negotiate the cheapest possible price that makes S to sell T to B
- External valuation factors that affect S's opinion about the value of M, such as
o Reference prices from previous similar type of deals
o The projected market price based on expected future availability and valuation of T
o In case it would be possible to earn money with T, the expected future income enabled with T
o Any goodwill (such as strategic value) S thinks B should assign to T
o Aesthetic or emotional values that S has assigned to T
o …what else?
Similarly for B it should hold
- The need or want to buy. What is B’s negotiation target price N and what is it based on? How much would B be ready to pay (Nothing or all of his money or perhaps even borrow some more?)
- S's ability to negotiate the highest possible price that B is willing to pay for T
- External valuation factors that affect N, such as
o Reference prices from previous similar type of deals
o The projected market price based on expected future valuation and availability of T
o In case it would be possible to earn money with T, the expected future income enabled with T
o Any goodwill (such as strategic value) B holds for T
o Aesthetic or emotional values that B holds for T
o …what else?
By now it seems to get rather complicated doesn’t it? But the bottom line is that unless the price is strictly regulated by some authority - which it never can be, since as you know, even in the most regulated economies there is always black market valuation – the actualized prices are always a subjective agreement between the seller and the buyer.
But in order for the transaction to get completed by the satisfying the condition 2) there is also an upper limit on how much the buyer can afford. The transaction does not occur if T costs more than what B is able to pay. Let’s denote that value as A. But defining A is not simple either. One could think that B has only as much money that he has liquid assets, but of course he could also borrow more. And since the amount that B can get in debt is again based on the subjective valuation of her credit and other assets or even future looking commitments there is in principle no upper limit for A. But since, of course, the higher the price (P), the more improbable it becomes that B is able to raise all the money and in practice A should be finite. At least it can’t be more than all the resources in the world that can be assigned an ownership legally.
Now here is my quantum theory based on the individual deals Q as discrete quantums of economy:
I claim that a Market value V(T) for a thing T is the expected value calculated over the sum of all the prices, P, of all the possible individual deals, Q, between Buyers, B, and Sellers, S, that could commence and consequently produce a sets of individual deals Qi with prices Pi. it would be a “quantum theory” since individual deals are discrete, and the term the deals Qi would be the “quantum” incidents of economy that you could correspond to the quantums in physics terminology.
So in order to calculate V(T), I should be able to write a sum/integral over the probability distribution for individual deals, Qi, so that the V(T) is an integral over all possible transactions over pricse P(Qi) = Pi. Individual Pi's in turn are defined as P(Qi) = P(MN), where M and N are the probability distributions or “wave functions” representing buyer’s and seller’s negotiation prices. If M = N then the Price P = M =N, but if they differ, price P(MN) will be an integral from 0 to A over the convolution (I guess :-)) of the probability functions M and N, where A is the maximum sum of money a buyer can get.
Or something of the sort =)
Unfortunately I have no integral sign or a summing sigma available for this blog so I have a good excuse not to write down the equations! But I would think that the people skilled in the art of dealing with probability spaces or better yet the quantum mechanical formalism should be able to get the idea. Thus I would leave it as homework to write down the equations (…and then solve them for a case of European car industry! Lol)
But hand waving theorizing does not end here!…to further continue the analogy to physical quantum mechanics, the equation for Price as P(Qi) = Pi(MN) could perhaps be understood as a Hamilton function or something like that. Wouldn’t it then be possible to use also statistical mechanics to calculate macroeconomic values based on the market values for V(T) ?
Well...if given something close to an infinite amount of time, I might perhaps be able to device some credible looking equations with a standard mathematical notation used in probability theory. Mathematicians are interested usually only about the theoretical description of things and proving them. Once I had written down the statements and equations and checked that they are formally right…I would be done. But physicists have the apparatus to actually calculate something with actual concrete numbers (which unfortunately I don’t). So in order to use the quantum mechanical tools, I would need to ask help from physicists…as bitter as it might be =) And with physicists helping I might get easier acceptance for the cool title “quantum theory of economics”.
One more addition: Wouldn’t it be cool if it were possible to use Feynman graphs to describe the interaction between Buyer and Seller. One could use the solid lines for things and wavy lines for money maybe. Think about it!
I don’t think I am even close to being the first to take the microscopic approach and propose a theory based on integrating over individual deals, yet I might be the first who is arrogant enough to call it a quantum theory and draw parallels to the physical theories as carelessly, even in a tongue-on-cheek blog… but it’s intriguing isn’t it? Unfortunately making a proper theory is way beyond me. Both in terms of my time and capacity as a mathematician….so I would plead for help: If there are people who are interested in this, let me know. I spend an unbelievable amount of time in SL and PH so finding me or someone who knows me shouldn’t be that hard. In fact I have thought of proposing a collaborative effort around this. It would be a very interdisciplinary study, since our M and N “wave functions” would be based on individual people’s wants, needs, valuations, credit limits and every human aspect that makes them buy or sell things.
That’s all for now
*winks*
Q
PS This whole thing is not very thoroughly proofread yet, so I might correct small obvious errors and make the writing more readable afterwards. But the idea should be there already.
PPS first corrective edition done on March 17th
PPS Second revision, March 27th (thanks Strider!!!)
lördag 14 mars 2009
What's the right value
Now that the value of world economy is shrinking, the valuation of things has been a topic of discussion in PH, too - what is the economic value of goods, services and even money itself actually based on? Do things have some fundamental intrinsinc economic value or are all values defined by the markets? Adam Smith and Anders Chydenius where the first to understand that demand and availability create an equation, that define a value in general market, but then you could ask, what is demand and availability based on int turn? Karl Marx was looking at the availability side of things and thought that the producing goods has always some properties that are intrinsinc in terms of value, such as the amount of work put in producing things and raw material cost. That idea might have worked in stable demand conditions and assuming the products will always remain the same (In Marx’s time during early industrialization it might have appeared that way) but Marx did not really properly take into account the development of needs and wants and thus development of markets. And production cost and material cost are always based on market value, too, so the intrinsinc value theories are really hard to defend.
One approach is that Economic value would somehow tie with our basic needs and other values in life, such as aesthetic values or the kind of experiences we appreciate. Mao in China tried a system where he tried to ban the appreciation of any individual values of life and allowed individual people to satisfy only the needs that they need for sustaining life, like basic food and clothing. But that kind of life didn’t seem to be very fulfilling in most people’s opinion. Now I think many contemporary theorists, such as Broome (thanks Seneca!) have tried to theorize links how it would be quantitatively possible to assess an economic value of things in respect to our life values. Currently there seems to be many contemporary economic value theories, that are typically formulated so that there is a long differential equation, that has a series of terms that should somehow take into account of the effects of presumed market conditions, individual valuations, market conditions and risks.
When assessing a value of company one usually needs to take into account also the company's ability to produce future income. Then you expected value based on some discounted income from the future. From an accounting point of view, a company has substance value, which is the value of all assets that should realistically reflect the true market value if the assets were sold right away so then the company’s expectation value should be substance value + the expected future income. But a company can also have a “goodwill” value, which can be based on some strategic expectations like removing competition or getting new technology, skills or contacts that has value only from the buyer's point of view. These type of valuation’s should somehow be linked to what is the “correct” value of a company also in the stock market, but but….
I have started to doubt that none of the contemporary economic theories give sufficent picture about what’s going on in real life. They are at best very crude approximations - but too crude in my opinion. I doubt that anyone who has been following economic news for some time can list several examples, where the price of a transaction event has been completely disconnected from any valuation principle that the classical or even contemporary theories would suggest should have been the correct value. I could list probably a few hundred such cases, but I just mention three here, because when I read about them, they stopped me to think that our economic valuation theories really don’t tell anything what could happen in real life.
Case 1) Malevich’s black square
Russian Avantgarde painter Kasimir Malevich made a series of four completely black paintings, that were roughly the size of a m2 square. He painted them in early 20s during the first years after Russian revolution. (In that time he could still do that kind of decadent bourgeois formalist art without being sent immediately to labor camps). The paintings went missing for several decades after Stalin tightened his power but they surfaced again in the 90s when Sovietunion collapsed. I remembered reading in a newspaper (perhaps Financial Times or something) in Milan airport that now one of the paintings was for sale for 50 Million US$! The state of Russia was asking that price and some people were obviously considering buying…can you imagine?! An old canvas, painted completely black. How can that kind of an asset be valuated to 50 MUS$? Certainly the materals or amount of labor don’t justify that kind of value. Black paint can’t have been that expensive even in the soviet of the 20s - Since Malevich made even 4 paintings, I rather doubt that black paint must have been on sale – neither can it be based on the amount of labor. Malevich can’t possible have worked more than one hour on each black painting. Probably 10 mins would have been enough….ok then there are of course other things that create value. Aesthetic value, rarity, etc…but even those are kind of hard to understand. A completely black painting! Come on….
Example 2) Boo.com Internet clothing shop
During the techno bubble of the late 90s on of the most gross examples of unjustified valuation imo was the internet clothing shop Boo.com in Sweden, that advertised that they have new fancy "technology" that helps the customer to see how clothes look like using a 3-d modelling system. A little like what you can do in Sl, but with real clothes that you could then buy. The customer was supposed to be able to get a better view how the clothes look like and then make the purchase via internet. This was in the late 90s when Amazon was already established and worked well, but most internet services were rather dysfunctional…(surely you remember those times?) Well, the internet clothing shop was particularly non-funfunctional. It basically worked somehow (very slowly) with a very high speed connection, but at that time most people were still using modems. In fact only a few had satisfactory connections to really open the pages. let alone do any actual shopping there…yet the company was at some point valuated up to several million US$ by some investors, including big investment banks!!! Think about that, a service that no one could use, which had not particularly original technology and no own products or anything…just promises and rhetoric. Well of course it went bankrupt as soon as the investor's cash was used and the value of the company went down to zero. Now in this case one could hardly talk about any aesthetic value or rarity value. The valuation was most likely based on nice presentation about expected income values, discounted back to present from some future reference point…but even then it should have been clear to any sane person the fairy tale stories that any expected future value could have possibly be based on.
Case 3) Berlin wall vs. World Trade Center
Berlin wall collapsed in November 1989. Since then people have collected scrap pieces of the wall and there are still pieces for sale even today in the internet: http://www.berlin-wall.net/orderform.htm . A 2x3 inch piece seems to cost 55$ and 3x4 inch piece even 275 $!!! The pieces are obviously just pieces of concrete that you could find in any construction site for free, but of course they are from Berlin wall, a scene of a historical event.
But the collapse of World trade center in 2001 was a historical event too. And the twin towers were historically significant constructions, some of the best known buildings in the world history probably. Yet the scrap remnants of those buildings have not been valuated to anything. On the contrary the cleanup has probably cost a lot of money. I remeber reading that the scrap was shipped to Chennai in India, where the metals were separated manually from the rest of the debris, so the total value of the scrap has been only the selling price of the metals that were recycled to the world market. The glass and concrete scrap was probably costly rather than valuable. Kind of surprising, isn’t it? Of course you can create the stories around the pieces of scrap and that obviously the story around a concrete brick from Berlin wall is probably millions of times more valuable than the story around an equivalent concrete brick from World trade Center. But then in order to find out what’s going on here you would need to analyse, what is it in the Berlin wall story that makes exactly similar practically worhless material from recycling point of view to have a market value difference that is in the order of millions if not billions?
I think it is the microscopic angle that is wrong with value theories today. The economic models are all more or less macroscopic theories, describing economic valuations from top down. But in fact the actual value of a thing is always defined in individual transactions and regardless what the “market expects", the value of each transaction is ultimately based on the subjective valuation that both the buyer and seller have in mind. If they agree on the value the transaction will take place, and the the target of the exchange will get it’s historical value, which then can be used as a reference for accounting purposes... Because that’s what we should be looking after. One of the ultimate questions in the "economic theory of everything" is how do we assign values in accounting so that our balance sheets and future looking budgets reflect “reality” as well as possible. I think this is a huge issue, since all of our societal planning is based on these valuations.
Of course there are game theoretical approaches, which do look transactions and pricing from microscopic point of view. But as far as I know they are all still based on the presupposition of a “rational agent”. But when us people value things we are oftentimes far from rational. We might even end up buying things more expensively if we just happen to “like” the seller. Negotiation theories make a bit more compelling case in my mind based on the idea that in practise you get the price that you can negotiate. I think taking that subjective element into account is a key factor to any valuation theory that tries to realistically model what’s going on in real life.
I have been thinking about some ideas about hown to postulate a microscopic theory around this which I will post here soon.
...to be continued
Cheers
Q
One approach is that Economic value would somehow tie with our basic needs and other values in life, such as aesthetic values or the kind of experiences we appreciate. Mao in China tried a system where he tried to ban the appreciation of any individual values of life and allowed individual people to satisfy only the needs that they need for sustaining life, like basic food and clothing. But that kind of life didn’t seem to be very fulfilling in most people’s opinion. Now I think many contemporary theorists, such as Broome (thanks Seneca!) have tried to theorize links how it would be quantitatively possible to assess an economic value of things in respect to our life values. Currently there seems to be many contemporary economic value theories, that are typically formulated so that there is a long differential equation, that has a series of terms that should somehow take into account of the effects of presumed market conditions, individual valuations, market conditions and risks.
When assessing a value of company one usually needs to take into account also the company's ability to produce future income. Then you expected value based on some discounted income from the future. From an accounting point of view, a company has substance value, which is the value of all assets that should realistically reflect the true market value if the assets were sold right away so then the company’s expectation value should be substance value + the expected future income. But a company can also have a “goodwill” value, which can be based on some strategic expectations like removing competition or getting new technology, skills or contacts that has value only from the buyer's point of view. These type of valuation’s should somehow be linked to what is the “correct” value of a company also in the stock market, but but….
I have started to doubt that none of the contemporary economic theories give sufficent picture about what’s going on in real life. They are at best very crude approximations - but too crude in my opinion. I doubt that anyone who has been following economic news for some time can list several examples, where the price of a transaction event has been completely disconnected from any valuation principle that the classical or even contemporary theories would suggest should have been the correct value. I could list probably a few hundred such cases, but I just mention three here, because when I read about them, they stopped me to think that our economic valuation theories really don’t tell anything what could happen in real life.
Case 1) Malevich’s black square
Russian Avantgarde painter Kasimir Malevich made a series of four completely black paintings, that were roughly the size of a m2 square. He painted them in early 20s during the first years after Russian revolution. (In that time he could still do that kind of decadent bourgeois formalist art without being sent immediately to labor camps). The paintings went missing for several decades after Stalin tightened his power but they surfaced again in the 90s when Sovietunion collapsed. I remembered reading in a newspaper (perhaps Financial Times or something) in Milan airport that now one of the paintings was for sale for 50 Million US$! The state of Russia was asking that price and some people were obviously considering buying…can you imagine?! An old canvas, painted completely black. How can that kind of an asset be valuated to 50 MUS$? Certainly the materals or amount of labor don’t justify that kind of value. Black paint can’t have been that expensive even in the soviet of the 20s - Since Malevich made even 4 paintings, I rather doubt that black paint must have been on sale – neither can it be based on the amount of labor. Malevich can’t possible have worked more than one hour on each black painting. Probably 10 mins would have been enough….ok then there are of course other things that create value. Aesthetic value, rarity, etc…but even those are kind of hard to understand. A completely black painting! Come on….
Example 2) Boo.com Internet clothing shop
During the techno bubble of the late 90s on of the most gross examples of unjustified valuation imo was the internet clothing shop Boo.com in Sweden, that advertised that they have new fancy "technology" that helps the customer to see how clothes look like using a 3-d modelling system. A little like what you can do in Sl, but with real clothes that you could then buy. The customer was supposed to be able to get a better view how the clothes look like and then make the purchase via internet. This was in the late 90s when Amazon was already established and worked well, but most internet services were rather dysfunctional…(surely you remember those times?) Well, the internet clothing shop was particularly non-funfunctional. It basically worked somehow (very slowly) with a very high speed connection, but at that time most people were still using modems. In fact only a few had satisfactory connections to really open the pages. let alone do any actual shopping there…yet the company was at some point valuated up to several million US$ by some investors, including big investment banks!!! Think about that, a service that no one could use, which had not particularly original technology and no own products or anything…just promises and rhetoric. Well of course it went bankrupt as soon as the investor's cash was used and the value of the company went down to zero. Now in this case one could hardly talk about any aesthetic value or rarity value. The valuation was most likely based on nice presentation about expected income values, discounted back to present from some future reference point…but even then it should have been clear to any sane person the fairy tale stories that any expected future value could have possibly be based on.
Case 3) Berlin wall vs. World Trade Center
Berlin wall collapsed in November 1989. Since then people have collected scrap pieces of the wall and there are still pieces for sale even today in the internet: http://www.berlin-wall.net/orderform.htm . A 2x3 inch piece seems to cost 55$ and 3x4 inch piece even 275 $!!! The pieces are obviously just pieces of concrete that you could find in any construction site for free, but of course they are from Berlin wall, a scene of a historical event.
But the collapse of World trade center in 2001 was a historical event too. And the twin towers were historically significant constructions, some of the best known buildings in the world history probably. Yet the scrap remnants of those buildings have not been valuated to anything. On the contrary the cleanup has probably cost a lot of money. I remeber reading that the scrap was shipped to Chennai in India, where the metals were separated manually from the rest of the debris, so the total value of the scrap has been only the selling price of the metals that were recycled to the world market. The glass and concrete scrap was probably costly rather than valuable. Kind of surprising, isn’t it? Of course you can create the stories around the pieces of scrap and that obviously the story around a concrete brick from Berlin wall is probably millions of times more valuable than the story around an equivalent concrete brick from World trade Center. But then in order to find out what’s going on here you would need to analyse, what is it in the Berlin wall story that makes exactly similar practically worhless material from recycling point of view to have a market value difference that is in the order of millions if not billions?
I think it is the microscopic angle that is wrong with value theories today. The economic models are all more or less macroscopic theories, describing economic valuations from top down. But in fact the actual value of a thing is always defined in individual transactions and regardless what the “market expects", the value of each transaction is ultimately based on the subjective valuation that both the buyer and seller have in mind. If they agree on the value the transaction will take place, and the the target of the exchange will get it’s historical value, which then can be used as a reference for accounting purposes... Because that’s what we should be looking after. One of the ultimate questions in the "economic theory of everything" is how do we assign values in accounting so that our balance sheets and future looking budgets reflect “reality” as well as possible. I think this is a huge issue, since all of our societal planning is based on these valuations.
Of course there are game theoretical approaches, which do look transactions and pricing from microscopic point of view. But as far as I know they are all still based on the presupposition of a “rational agent”. But when us people value things we are oftentimes far from rational. We might even end up buying things more expensively if we just happen to “like” the seller. Negotiation theories make a bit more compelling case in my mind based on the idea that in practise you get the price that you can negotiate. I think taking that subjective element into account is a key factor to any valuation theory that tries to realistically model what’s going on in real life.
I have been thinking about some ideas about hown to postulate a microscopic theory around this which I will post here soon.
...to be continued
Cheers
Q
onsdag 4 mars 2009
Happiness Part 2. Discussion with Lokifluff Clarity
Quintessential Sorbet: Hi Loki and welcome to my blog!
Lokifluff Clarity: Thank you Quin, delighted to be here and I must say I like how you have decorated the place. These orange headers on a white background really do work. The orange reminds me of your hair. Not sure about the shade of blue at the top though...
QS: I’m really grateful that you found the time for this interview. Our last discussion in PH gave me a lot of perspective about the things that bothered me with the movie “how happy can you be”. But at the same time it made me think even more questions. As a psychotherapy professional let me start first asking you, how would you define happiness.
LC: Nice to see you start with an easy one then! Happiness is... erm... um... (twirls with her hair and looks vague). This is really not easy. There is happiness the concept, which is used a lot when we talk about happiness, and happiness the emotion, which is something experienced, in a moment and in context. There is also contentment, which many also call happiness. There is also... (is this a PG rated blog?!)
QS: Happy people perform better I have heard people say. Do you think it’s true? Are there other benefits for trying to be happy?
LC: Well I guess if you are entirely unhappy and considering slitting your wrists then sure, there would be a benefit to being happy... living for example might count as one. As for drawbacks... well if you are really happy you might not notice if someone else is slitting your wrists.
QS: Can a pursuit of constant happiness be harmful or even dangerous in some respects?
LC: Absolutely. To pursue constant happiness is an illusion. An impossibility. A futility even! If you experienced nothing but happiness, then how would you know you are happy? You need something other than ‘happy’ to be able to compare ‘happy’ to in order to know that you are indeed ‘happy’. Happy?
QS: The film made several claims about how we could increase our happiness. You recognized quite rightly that the claims are based on the paradigms of positive psychology movement. What is your view about that movement?
LC: Pleads the fifth.
QS: I see people in business building careers and striving for different things. Oftentimes these things are something that should change their life circumstances, but according to the filmthis would not be actually very efficiently spent time in order to become happier…so are many, perhaps most of us in fact living our lives totally wrongly? Being busy with things that actually contribute very little to our happiness?
LC: It depends on how you see it. If you gain your happiness from the journey, from the struggle, from the sense of mucking in and doing things, then the happiness you will experience will be a result of the journey rather than the destination. If you are only focussed on the goal as your source of happiness and not the journey then you are constantly in a state of unhappiness, because you are not where you want to be! However, if you struggle through something (which makes you decidedly unhappy) there is a sense of joy and happiness associated with coming out of it the other side. The point here though, is that happiness occurs in a moment, at particular points in time, not as a constant throughout. Also, to peg one’s happiness in such a way as “I will only be happy if...” means that you will always be unhappy.
QS: I must say that one thing that came into my mind is that since “happiness” should make us more productive and efficient, it occurred to me that the positive psychology movement might have ideological connections. Not necessarily to any specific political movement, but in general to things like consumerism or progressing economical activity just for it’s own sake. What do you think, could there be parallels or is this an overinterpretation ?
LC: Pleads the fifth again. However, what I will say, is that consumerism these days taps into the ‘wants’ of humanity. This has occurred in part because of the contributions of people such as Edward Bernays (Freud’s nephew, PR/advertising guru) who managed to change the way products are sold into something that is less concerned with what we ‘need’ and more concerned with what we ‘want’. Adam Curtis in his documentary “The Century of the Self” highlighted how this has meant that what is desirous in itself has also been changed (as advertising changed and sold us stuff that fits in with a concept of a lifestyle and also possible lifestyles we might desire that advertising products would match). So, returning to your question, if we have a vision of what our ‘happy’ lifestyle looks like, is that something that we have bought into because an advertising guru has devised it or because it holds true with our own personal values? I.e. are we trying to get others to like us because of a particular lifestyle we are working towards (which thinking positively can help us achieve) or are we associating with people who like us for who we are (warts and all)? Is the point of us all being here to be ‘productive and efficient’ for the ‘economy’ or someone else?
QS: One thing that bothered me a lot in the film was that couldn’t unhappiness be also a motivating force. Or at least a force that forces us to take a realistic view on how things should be developed. In business I see often too optimistic thinking to make people to belittle risks and underestimate the time and resource requirements, sometimes with catastrophic consequences. And if business goes badly, shouldn’t people in fact feel unhappy ..in order to work getting things on the right track again. I would assume same applies in people’s personal lives too?
I’m kind of trying to outline an idea that wouldn’t unhappiness be a necessary feeling to be able to reflect with correct feedback from the environment?
LC: We’re in a car... it is heading down a hill at full throttle towards a cliff that is looming up in the distance... the brakes are gone... but hey! Let’s think positively about this...! One needs to be realistic when it comes to happiness I think. And I agree with you, unhappiness can be a great informer of things that are or are about to go wrong. Unhappiness sounds useful to me. What is the point of discarding it? Is it really possible to discard it? I think not.
QS: Another thing that bothered me even more in the film is that is it actually ok to try to actively remember just positive things and forget unpleasant ones? What if we have some unresolved knots in our personality? Problems that we have not dealt with…it does not seem right to me that we should just try to ignore the bad things that have happened to us and try to forget them by being overly active in order to pursue a constant day to day happiness?
LC: I cannot remember that time when I was an absolute git on vodka. I am going to repeatedly drink vodka as a result of this because I think when I have vodka I am wonderful. My friends don’t seem to agree with me and now I have no friends. Oh well... let’s forget about friends then. Where does it stop? We learn from our mistakes, trials and tribulations. Integrating them, owning them, and using them, is a fundamental part of being human.
QS: I suppose happiness should contribute to having a “good life”, but what else is there? Or in other words, when can we say we have had a fulfilling life, is being happy enough?
LC: A good life is something you look back on, not something you can see moving forward. As for the goal of life being a good life? I am not convinced. Goals change all the time throughout life and I believe this reflects how we change ourselves. What is good when you are twenty does not seem so good when you are eighty. With whose eyes are you looking forward to when you imagine a ‘good life’? The eyes of the 20 year old or the eyes of the 80 year old?
QS: I have to ask this…Do you think happy people irritate other less happy people and why? And if so, should we hide our happiness in order not to make others even more miserable :-)
LC: Depends on what time of the month it is.
Lokifluff Clarity: Thank you Quin, delighted to be here and I must say I like how you have decorated the place. These orange headers on a white background really do work. The orange reminds me of your hair. Not sure about the shade of blue at the top though...
QS: I’m really grateful that you found the time for this interview. Our last discussion in PH gave me a lot of perspective about the things that bothered me with the movie “how happy can you be”. But at the same time it made me think even more questions. As a psychotherapy professional let me start first asking you, how would you define happiness.
LC: Nice to see you start with an easy one then! Happiness is... erm... um... (twirls with her hair and looks vague). This is really not easy. There is happiness the concept, which is used a lot when we talk about happiness, and happiness the emotion, which is something experienced, in a moment and in context. There is also contentment, which many also call happiness. There is also... (is this a PG rated blog?!)
QS: Happy people perform better I have heard people say. Do you think it’s true? Are there other benefits for trying to be happy?
LC: Well I guess if you are entirely unhappy and considering slitting your wrists then sure, there would be a benefit to being happy... living for example might count as one. As for drawbacks... well if you are really happy you might not notice if someone else is slitting your wrists.
QS: Can a pursuit of constant happiness be harmful or even dangerous in some respects?
LC: Absolutely. To pursue constant happiness is an illusion. An impossibility. A futility even! If you experienced nothing but happiness, then how would you know you are happy? You need something other than ‘happy’ to be able to compare ‘happy’ to in order to know that you are indeed ‘happy’. Happy?
QS: The film made several claims about how we could increase our happiness. You recognized quite rightly that the claims are based on the paradigms of positive psychology movement. What is your view about that movement?
LC: Pleads the fifth.
QS: I see people in business building careers and striving for different things. Oftentimes these things are something that should change their life circumstances, but according to the filmthis would not be actually very efficiently spent time in order to become happier…so are many, perhaps most of us in fact living our lives totally wrongly? Being busy with things that actually contribute very little to our happiness?
LC: It depends on how you see it. If you gain your happiness from the journey, from the struggle, from the sense of mucking in and doing things, then the happiness you will experience will be a result of the journey rather than the destination. If you are only focussed on the goal as your source of happiness and not the journey then you are constantly in a state of unhappiness, because you are not where you want to be! However, if you struggle through something (which makes you decidedly unhappy) there is a sense of joy and happiness associated with coming out of it the other side. The point here though, is that happiness occurs in a moment, at particular points in time, not as a constant throughout. Also, to peg one’s happiness in such a way as “I will only be happy if...” means that you will always be unhappy.
QS: I must say that one thing that came into my mind is that since “happiness” should make us more productive and efficient, it occurred to me that the positive psychology movement might have ideological connections. Not necessarily to any specific political movement, but in general to things like consumerism or progressing economical activity just for it’s own sake. What do you think, could there be parallels or is this an overinterpretation ?
LC: Pleads the fifth again. However, what I will say, is that consumerism these days taps into the ‘wants’ of humanity. This has occurred in part because of the contributions of people such as Edward Bernays (Freud’s nephew, PR/advertising guru) who managed to change the way products are sold into something that is less concerned with what we ‘need’ and more concerned with what we ‘want’. Adam Curtis in his documentary “The Century of the Self” highlighted how this has meant that what is desirous in itself has also been changed (as advertising changed and sold us stuff that fits in with a concept of a lifestyle and also possible lifestyles we might desire that advertising products would match). So, returning to your question, if we have a vision of what our ‘happy’ lifestyle looks like, is that something that we have bought into because an advertising guru has devised it or because it holds true with our own personal values? I.e. are we trying to get others to like us because of a particular lifestyle we are working towards (which thinking positively can help us achieve) or are we associating with people who like us for who we are (warts and all)? Is the point of us all being here to be ‘productive and efficient’ for the ‘economy’ or someone else?
QS: One thing that bothered me a lot in the film was that couldn’t unhappiness be also a motivating force. Or at least a force that forces us to take a realistic view on how things should be developed. In business I see often too optimistic thinking to make people to belittle risks and underestimate the time and resource requirements, sometimes with catastrophic consequences. And if business goes badly, shouldn’t people in fact feel unhappy ..in order to work getting things on the right track again. I would assume same applies in people’s personal lives too?
I’m kind of trying to outline an idea that wouldn’t unhappiness be a necessary feeling to be able to reflect with correct feedback from the environment?
LC: We’re in a car... it is heading down a hill at full throttle towards a cliff that is looming up in the distance... the brakes are gone... but hey! Let’s think positively about this...! One needs to be realistic when it comes to happiness I think. And I agree with you, unhappiness can be a great informer of things that are or are about to go wrong. Unhappiness sounds useful to me. What is the point of discarding it? Is it really possible to discard it? I think not.
QS: Another thing that bothered me even more in the film is that is it actually ok to try to actively remember just positive things and forget unpleasant ones? What if we have some unresolved knots in our personality? Problems that we have not dealt with…it does not seem right to me that we should just try to ignore the bad things that have happened to us and try to forget them by being overly active in order to pursue a constant day to day happiness?
LC: I cannot remember that time when I was an absolute git on vodka. I am going to repeatedly drink vodka as a result of this because I think when I have vodka I am wonderful. My friends don’t seem to agree with me and now I have no friends. Oh well... let’s forget about friends then. Where does it stop? We learn from our mistakes, trials and tribulations. Integrating them, owning them, and using them, is a fundamental part of being human.
QS: I suppose happiness should contribute to having a “good life”, but what else is there? Or in other words, when can we say we have had a fulfilling life, is being happy enough?
LC: A good life is something you look back on, not something you can see moving forward. As for the goal of life being a good life? I am not convinced. Goals change all the time throughout life and I believe this reflects how we change ourselves. What is good when you are twenty does not seem so good when you are eighty. With whose eyes are you looking forward to when you imagine a ‘good life’? The eyes of the 20 year old or the eyes of the 80 year old?
QS: I have to ask this…Do you think happy people irritate other less happy people and why? And if so, should we hide our happiness in order not to make others even more miserable :-)
LC: Depends on what time of the month it is.
Happiness Part 1. How happy can you be?
Norwegian filmmaker Line Hatland made a movie “How happy can you be” (original title in Norwegian: Hvor lykkelig kan du bli). It is science documentary about happiness and things that should make us happy. Hatland had interviewed a big number of professors and researchers [1], [2] who discussed the most recent studies and speculated what to make of them. I remember some fantastic statistics from that film, even though it has been a while ago since I saw it. For example:
- The experts claimed that 50 % of our happiness is “in our genes”. So that no matter what we do, 50 % of our happiness is already defined regardless of what we do. Consequently some people are just naturally happier than others and that’s it.
- Surprisingly only 10 % of happiness is defined by circumstances. That means that regardless how we arrange our life, the circumstances affect only a little to our overall happiness. The film claimed that this is because we are adaptable, we get used to our circumstances whether we are rich or poor, married or unmarried, kids or no kids etc… Wow!
- But most interestingly, 40 % of our happiness should be defined by how we act and react in our everyday life and what kind of attitudes we have. I understood it to mean that we should think positively, “glass is half full” rather than “half empty” kind of thinking. Just reacting positively and acting proactively would make us happier. Dwelling in self pity and accusing circumstances would be the worst thing to do.
Ok. All that sounds fine to a laywoman in psychology like me. Somewhat surprising perhaps, but if the scientists so say, why not. But the film moved then to concluding that that you get a better return (in terms of becoming happier) by investing your time in changing your attitudes and reacting positively to whatever happens to you rather than struggling to change your life’s circumstances. Of course, positive thinking and changing circumstances are not directly contradictory, you can change your attitudes and be positive all the time and still act to make changes to your environment and lifestyle, why not? I just started to doubt that what if you always try to react positively even if the things that happen to you worsen your circumstances. Can that make sense?
The film continued to list several techniques how you should think and act in everyday situations in order to be happier. It’s been a while since I saw the film so I don’t actually remember any of the tips any more, but I remember that for the most part they sounded like common sense to become more positive. Rules how to react in different situations and thinking patterns how to make your attitude to be more positive.
But then the program went on concluding that since in order to be happy in the present, you need to avoid dwelling in problems and that in turn would be best achieved by not thinking unpleasant things and remember only the happy things in your past. It was said that people who remember their past as happy times are also happier in the present time and that all of us have in fact a very selective memory. We create ourselves a kind of history we like it to be. I think the film claimed that it is never too late to get a happy childhood – just forget the unhappy memories and remember good ones. At that point I remember that the whole thing started to bother me more seriously for some reason. Now that happiness popped up in discussions in PH, I started to process what was it that made me so confused then.
Looking back I think it is that the whole thing started to sound like some sort of “life management” coaching, which is probably fine if you have to motivate yourself to accomplish specific tasks, let’s say in a business assignment where you need to execute specific tasks at your peak performance and not get too philosophical about questioning the deeper meaning of the whole strategy… that’s fine.
But is the meaning of our life to be as happy as we can? Are we really motivated to make changes in our life or environment if we are just happy to the things as they are? Isn’t that a bit too fatalistic attitude? Can it be even hurtful to start managing your lifestyle and create own life history too much? Shouldn’t we remember also mistakes and learn from them? ….I started to wonder shouldn’t there be more to having a good life than just trying to be happy all the time. I think the program “how happy can I be” did ask these questions a little bit, but not very much if I remember correctly. If you got interested, I found that there is also a critic about the program published in “Journal of Happiness studies” [3]. There is likely more discussion about the validity of the program’s conclusions.
Just some days ago I told about this program in PH and we had chat with Loki and Sophia about it. I was awed about the good insight girls had that indeed pursuit of constant happiness (whatever it is) cannot be the sole meaning of our life. Since Loki as a professional in psychotherapy immediately recognized that the theses presented in the program are probably based on the paradigms of a “positive psychology movement” (as I later found to be case according to [1]) , I decided to ask Loki if I could interview her more in detail for my blog, and to my great delight she accepted!!!
I think this whole topic is really important….should we try to be happier or is it ok just to be miserable. Should we try to accomplish something or is it wasted time since we can be happy more easily, were all the claims and recommendations in the program actually true…
See Happiness part 2. for Loki’s interview!
Q
References
[1] internet page, feb 26th 2009 http://www.nfi.no/english/norwegianfilms/show.html?id=605
[2] internet page, feb 26th 2009 http://icarusfilms.com/new2006/hhap.html
[3] internet page, feb 26th 2009 http://www.springerlink.com/content/g3u37tr415854750/
- The experts claimed that 50 % of our happiness is “in our genes”. So that no matter what we do, 50 % of our happiness is already defined regardless of what we do. Consequently some people are just naturally happier than others and that’s it.
- Surprisingly only 10 % of happiness is defined by circumstances. That means that regardless how we arrange our life, the circumstances affect only a little to our overall happiness. The film claimed that this is because we are adaptable, we get used to our circumstances whether we are rich or poor, married or unmarried, kids or no kids etc… Wow!
- But most interestingly, 40 % of our happiness should be defined by how we act and react in our everyday life and what kind of attitudes we have. I understood it to mean that we should think positively, “glass is half full” rather than “half empty” kind of thinking. Just reacting positively and acting proactively would make us happier. Dwelling in self pity and accusing circumstances would be the worst thing to do.
Ok. All that sounds fine to a laywoman in psychology like me. Somewhat surprising perhaps, but if the scientists so say, why not. But the film moved then to concluding that that you get a better return (in terms of becoming happier) by investing your time in changing your attitudes and reacting positively to whatever happens to you rather than struggling to change your life’s circumstances. Of course, positive thinking and changing circumstances are not directly contradictory, you can change your attitudes and be positive all the time and still act to make changes to your environment and lifestyle, why not? I just started to doubt that what if you always try to react positively even if the things that happen to you worsen your circumstances. Can that make sense?
The film continued to list several techniques how you should think and act in everyday situations in order to be happier. It’s been a while since I saw the film so I don’t actually remember any of the tips any more, but I remember that for the most part they sounded like common sense to become more positive. Rules how to react in different situations and thinking patterns how to make your attitude to be more positive.
But then the program went on concluding that since in order to be happy in the present, you need to avoid dwelling in problems and that in turn would be best achieved by not thinking unpleasant things and remember only the happy things in your past. It was said that people who remember their past as happy times are also happier in the present time and that all of us have in fact a very selective memory. We create ourselves a kind of history we like it to be. I think the film claimed that it is never too late to get a happy childhood – just forget the unhappy memories and remember good ones. At that point I remember that the whole thing started to bother me more seriously for some reason. Now that happiness popped up in discussions in PH, I started to process what was it that made me so confused then.
Looking back I think it is that the whole thing started to sound like some sort of “life management” coaching, which is probably fine if you have to motivate yourself to accomplish specific tasks, let’s say in a business assignment where you need to execute specific tasks at your peak performance and not get too philosophical about questioning the deeper meaning of the whole strategy… that’s fine.
But is the meaning of our life to be as happy as we can? Are we really motivated to make changes in our life or environment if we are just happy to the things as they are? Isn’t that a bit too fatalistic attitude? Can it be even hurtful to start managing your lifestyle and create own life history too much? Shouldn’t we remember also mistakes and learn from them? ….I started to wonder shouldn’t there be more to having a good life than just trying to be happy all the time. I think the program “how happy can I be” did ask these questions a little bit, but not very much if I remember correctly. If you got interested, I found that there is also a critic about the program published in “Journal of Happiness studies” [3]. There is likely more discussion about the validity of the program’s conclusions.
Just some days ago I told about this program in PH and we had chat with Loki and Sophia about it. I was awed about the good insight girls had that indeed pursuit of constant happiness (whatever it is) cannot be the sole meaning of our life. Since Loki as a professional in psychotherapy immediately recognized that the theses presented in the program are probably based on the paradigms of a “positive psychology movement” (as I later found to be case according to [1]) , I decided to ask Loki if I could interview her more in detail for my blog, and to my great delight she accepted!!!
I think this whole topic is really important….should we try to be happier or is it ok just to be miserable. Should we try to accomplish something or is it wasted time since we can be happy more easily, were all the claims and recommendations in the program actually true…
See Happiness part 2. for Loki’s interview!
Q
References
[1] internet page, feb 26th 2009 http://www.nfi.no/english/norwegianfilms/show.html?id=605
[2] internet page, feb 26th 2009 http://icarusfilms.com/new2006/hhap.html
[3] internet page, feb 26th 2009 http://www.springerlink.com/content/g3u37tr415854750/
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