Grey Swan

Half Sigma has an interesting post about distressed jeans being trendy. He notes that distressed jeans are significantly more expensive than new jeans, and consequently cannot be bought by everyone. In essence, they are a way of broadcasting to the world ‘I am wealthy*’. This is quite similar to the upper middle class’ obsession with luxury cars. While a BMW generally has more horsepower and gadgets than your average Nissan, it is functionally identical. Yes, you can speed down the highway a little easier in the Beamer, but most of the car’s value comes from other people knowing that you have it. This is not some contemporary idiosyncrasy. Historically, it was considered ‘high class’ to be pale. This showed that you did not have to spend time outside laboring in the fields. In most of the world, being pale is still a status symbol. In the West, being tan is now admired because it shows you have enough free time to head outside and enjoy the sun.

You can argue that price is all determined by supply and demand, and it is. But what is the reason for demand? In this case – Status! What is slightly disturbing about this is that status is a zero sum game. If you move up a notch, by definition, someone else must move down. Consequently, a large amount of resources are spent on competition that does not benefit anyone. It is a reversed free rider problem. People spend resources that they would not have to if they could sit down and come to an agreement. I believe realizing that status (and distressed jeans) are zero sum has at least two important implications.

1. It is one factor in the spiraling price of luxury goods (A Blog on this expansive topic tomorrow)
2. It may help us predict how the market will react to certain items. For Example, we should not discount an item because it seems so expensive (such as a 1000 dollar martini with a 300 dollar jewel on the bottom of the glass). An item that is overpriced, but whose price gives public recognition to its purchaser may not in fact be overpriced**.

I know that identifying status as zero sum is not new, but I believe that it has important implications when mixing with globalization (because the number of people better off than you seems to increase).

* The best argument illustrating how a high price can feed higher prices is…college. A certain school (whose name eludes me) was suffering declining applicant rates. In order to reverse this trend, said school raised their tuition in line with the Ivy League. The next year their applicant pool increased. Why? Because people searching for colleges saw the high price tag and assumed it had to be good place. The higher price made it less accessible yet more desirable. This is very important as it suggests that college is (to some extent) also a zero sum game.

** Also, indirectly: Consider a world where two companies both produce one type of nail clipper, and sell it for two dollars. One of the companies could simply repackage one of these nail clippers and sell it for more. This way, it would have two identical, differently priced products. Many people would believe that the more expensive nail clippers were better, and choose them.

After reading the New York Times article “TB Patient is Isolated After Taking Two Airline Flights,” I have come to believe that we are beginning to lose the war against bacteria. The article mentions a strand of extreme drug resistant TB that is mostly untreatable. Unfortunately, drug resistant bacteria are becoming more and more common with each passing day. The problem, I believe, is not that our rate of technological innovation is too slow, it is that the ‘Doctrine*‘ we use in applying our technology is antiquated.

We need to improve our tactics in order to prevent and reverse the trend of drug resistant disease. Currently, doctors tell their patients to complete the required dose of a certain antibiotic, with the hope of eliminating the infection quickly. We then cross our fingers and hope that the disease does not evolve any defense. No global effort is coordinated**. We really need to use evolution against bacteria. Since bacteria is always evolving through random mutations, if a particular drug type is not used, resistance to this drug will erode. This is similar to why animals that live entirely in caves have no vision. The idea is that we rotate different drugs in cycles. If we resist using a particular drug that has become generally ineffective, like penicillin was for a while, when we reintroduce it, it will once again act like a ‘miracle’ drug. Consider that penicillin has become more effective as people have stopped using it. If we entirely stop the use of a particular drug, this will happen much faster***. Of course, this would require world wide coordination, but in the long run it has the potential to save many lives.

* Consider that in World War II, the French army was nearly as well equipped as the German army. However, Germany had invented a combined tactics approach to warfare that became known as Blitzkrieg. Using this superior Doctrine, French resistance was effectively defeated in just a few weeks.

** This is akin to having an army made up entirely of platoons, with little or no higher authority to organize it.

*** I have done some research into evolutionary adaptations, mostly through computer simulation. What I have found is that once an adaptation is in place, even slight positive evloutionary pressures will maintain or improve that adaption despite genetic drift. That is why the wholesale prohibition on certain drugs would drastically increase the rate at which bacteria lost resistance to them. Actual research should be done, but I would guess rotating drugs in 10-20 year cycles would be very beneficial.

Robert Axelrod’s interesting book The Complexity of Cooperation uses computer simulation and agent based modeling to examine real life phenomena. One particularly interesting model employs computer agents to examine the spread of culture. In this model, each agent is randomly assigned a set of ideas that represent ‘culture’. Agents freely spread and adapt each others ideas over the course of generations. The closer two agents’ cultures are, the more likely they are to adopt each other’s beliefs. In the end, a number of ‘cultures’ emerge that share little or no cultural characteristics in common. This happens despite the fact that all agents initially share a large number of ‘ideas’.

The point of this model is (and I will not explain the model in any more detail, if you are interested check the book out) that the spread of ideas does not facilitate the adoption fo a global belief system. In fact, Axelrod’s model demonstrated that it can actually schism groups of people who previously had much in common*. I think this concept applies to the modern world. Currently, many people in the west believe that the majority of the world will or currently does share their liberal beliefs in democracy, peace, freedom of expression, etc. However, we should take lessons from Iraq, Somalia, Afganastan, Bosnia, and a host of other countries that this is NOT true. If we look at what has happened in the Muslim world in the last thirty years, we can clearly see how globilization can lead to radicalization. Muslims who previously held moderate world views have been exposed to western culture and responded with a resounding ‘no!’. In fact, all around the world groups are promoting there differences despite the constant spread of information.

A corollary to Axelrod’s research is that we can infer how well people from foreign countries will assimilate in our own based upon how closely their culture trends with our own. If they are very different, they are likely to maintain or increase those difference. If they are similar, they are likely to fully integrate. Countries like America, Western Europe, Canada, Australia, New Zealand, and Israel tend to have close enough cultures that intracountry movement in these areas is followed with full integration. Conversely, immigrants from the Muslim world, like the Turkish immigrants in Germany, may never fully accept their new countries culture. Please note, I am not trying to single out muslims. Rather, I simply use this group as an example because of its salient importance in world affairs.

* Why is this true? Well, most people would not agree that it is true at all. However, not only do I believe it is true, but I also believe that we can find corollaries in evolution. What we find is that a species that is initially uniform will begin to speciate even across areas where the spread of genetic material can continue. As natural variations occur, these differences will grow because species will have a preference to mate with those who share similarities – and because they mate with those closest to them. Eventually a new ‘species’ emerges. Clearly the human race, given another few million years would have suffered a similar fate, just as Neanderthals did before us. Of course, this only partially explains how culture works, and it does not explain why globalization would speed the rate of radicalization, only why people might ‘radicalize’ to begin with. One possible intuition is that since people have a preference for those with similar ideas, globalization points out the true magnitude of differences between different groups, and consequently pushes different culture groups farther apart. However, we should remember that culture is a dynamic system that can neither be easily explained nor be easily predicted. Constant flow of information only adds to the complexity of this system.