The Future of Everything

May 10, 2020

The quantum coin trick

Filed under: Economics, Quantum, Talks — Tags: — David @ 3:17 pm

Upcoming free talk at the CQF Institute on July 1:

Quantum Economics and Finance: The Quantum Coin Trick

Quantum economics and finance uses quantum mathematics to model phenomena including cognition, financial transactions, and the dynamics of money and credit. This talk takes a particular route into the subject, through a discussion of the quantum coin. Unlike a classical coin toss, which can be either heads or tails, a quantum coin can be – like Schrödinger’s cat – in a superposition of states. This gives it intriguing properties which can be used to simulate everything from the prisoner’s dilemma, to the credit relationship, to the pricing of options. The talk is based on material from the book Quantum Economics and Finance: An Applied Mathematics Introduction.

Slide 1



March 29, 2019

Talk for Quantizing IR panel at ISA 2019

Filed under: Economics, Physics, Quantum, Talks — Tags: — David @ 6:49 pm

This is an edited version of my contribution to the panel discussion “Quantizing IR I: Physicists, Meet Social Theorists!” at the International Studies Association conference in Toronto on March 29. The session was chaired by James Der Derian (University of Sydney) and the other participants were Alexander Wendt (Ohio State University), Shohini Ghose (Wilfrid Laurier University/Perimeter Institute), Kathryn Schaffer (School of the Art Institute of Chicago), Michael Schnabel (University of Chicago), and Genco Guralp (San Diego State University).

One nice thing about quantum is that it looks different to people who come at it from different backgrounds and take different paths. My background is in applied math, and my own interest in applying quantum methods to social questions came about several years ago when I was researching a book on the history of money. And I think money serves as a particularly simple and illustrative example of a quantum social phenomenon, so I will give a quick description of that before getting on to more general points.

The word “quantum” is Latin for “how much” and the money system is a way of answering that question – or “quanto costa” in Italian which makes the quantum connection more clear – which when you think about it is not an obvious thing to do since value is a quality not a quantity. Because of this fundamental incompatibility at its core, and because it is related to the transfer of information rather than of classical objects, the money system turns out to have its own quantum properties including indeterminacy, duality, entanglement, and so on.

The most trivial of these is that money moves discontinuously, in sudden quantum leaps. Schrödinger once said “If we have to go on with these damned quantum jumps, then I’m sorry that I ever got involved” but with money the same thing happens every time you tap your card at a store. There isn’t a little needle that shows the money draining out, it just jumps.

Money is fundamentally dualistic, presenting both as a physical object, like a coin, or a virtual object, like a credit transaction, while still retaining the properties of each. A bitcoin for example is a virtual currency but it exists on a real hard drive.

The money system is indeterminate: the price of something like a home is fundamentally uncertain and is only settled at the time of purchase. Transactions therefore act as a measurement process on value.

Money is entangling: here entanglement means indeterminate but coupled at the same time, an example being the state of a loan between two parties. We can model each participant as being in a quantum superposition of cognitive states. If the borrower defaults that acts as a measurement which collapses the state of the loan, even if the other party only finds out later. Of course this is a simpler version of entanglement than the kind seen in physics (there is only one axis, namely default or no default), but an advantage is that you don’t need sophisticated statistical experiments to tease it out.

So money does not behave classically which is one reason it has traditionally played a small or even non-existent role in economic models, which as many commentators have noted is one reason the financial crisis wasn’t predicted. Conventional models didn’t include a banking sector, let alone the financial entanglements represented by a quadrillion dollars worth of derivatives. The fact that money was left out of the picture seems a remarkable omission given its obvious importance not just to economics, but to everything from marital relations to international relations, but fits with the classical view that money is just an inert medium of exchange.

It was only later, through the work of people like Alexander Wendt, that I connected this with the broader areas of quantum cognition and quantum social science, which of course add many completely new dimensions. One way to think of money is as a kind of prosthetic that extends the dualistic properties of quantum mind, as we mentally collapse value down to price.

I agree with the idea that quantum processes are likely to play a role in human cognition. In itself though I don’t think that this will show or prove that society is quantum or that we are best seen as wave functions, because living systems can’t be reduced to their components. Quantum processes are believed to play a role in avian navigation, but this doesn’t really change the way we think about birds. At a trivial level, we are quantum because the universe is quantum, but what counts is the emergent behaviour. The question from my perspective is whether social systems can be usefully modelled as quantum.

The quantum methodology allows scientists to model things like indeterminacy, interference between incompatible concepts, and entanglement, all of which characterise human relations. Bohr’s theory of complementarity for example was inspired by psychology, and our ability to hold two incompatible ideas in the mind at the same time. This position is a little different from the physicalist argument, because it says that something like money is quantum not because it inherits these properties from subatomic particles, but because it is a quantum system in its own right, and I would argue this holds for other social institutions as well.

In this sense I’m not sure that economics needs a model of consciousness, but the problem is that it already seems to have one, which is that people are lifeless automata. This approach is epitomised by the old and, as economist Julie Nelson points out, rather gendered concept of rational economic man, who makes decisions to optimise his own utility based on preferences that are fixed and known. It would be a great improvement to shift to the connected, fluid, and indeterminate idea of quantum economic person.

It might still sound here that quantum is being used as just a metaphor. But the idea of a metaphor is to explain something complex in terms of something that is concrete and immediate, as in “all the world’s a stage”. A wave function is many things but it is not concrete or immediate. For one thing it involves imaginary numbers, and we have no idea what wave function collapse means, with many different interpretations, which is pretty humbling as Kathryn Schaffer noted.

Instead it makes more sense to go the other way, take human experience at face value, and use it as a metaphor to understand the physical world. One reason we don’t do that obviously is because quantum was applied to physics first.

We also need to distinguish between the system and the model of the system. Quantum models are not reality, even if they appear to give exact results in calculations. Instead they are tools adapted from mathematical techniques.

The original quantum idea came from someone, Max Planck, trying to fit a mathematical model to some strange looking data, for black-body radiation. One of the main tools in quantum mechanics is Hilbert space which is a generalisation of normal Euclidean space. This was developed in the early twentieth century and later used by physicists to formalize quantum mechanics. In general, quantizing a system is a fairly clunky mathematical procedure which converts classical equations into quantum ones.
These mathematical methods were adopted in physics not because anyone liked them but because they worked. Social scientists are permitted to do the same thing (models can be applied to different systems and at different scales).

For example if someone decides to quantize some aspect of the economy, the hope is that the resulting model captures the essence of the underlying system, addresses shortcomings in traditional models, is parsimonious in terms of parameters, and can make useful predictions. Such decisions are the prerogative of the modeller and should be made based on sound principles of mathematical modelling.

Of course there has been a lot of pushback from both physicists and economists to this use of the quantum approach, which is all to the good, but I can address a couple of points that often come up. One common objection is that quantum processes don’t scale up (Bohr’s correspondence principle), so what happens at the micro level doesn’t affect us at the macro level because it all washes out. But quantum processes do scale up, especially through the use of technology. In physics we have the atom bomb (which doesn’t wash out), or a laser pointer for that matter, in society we have the financial system which can be viewed again as a kind of quantum social technology that can be used for good or ill.

Another objection is that quantum social science is the ultimate example of “physics envy” – and there is some danger of that. But as someone pointed at another one of these events, that horse already left the barn. An example is the efficient market hypothesis, which is a central theory of economics and finance. The idea that market prices follow a random walk, and the emphasis on probability, was directly inspired by quantum theory, and was developed in part by the many nuclear physicists who switched to finance after the war. However this was a sanitised version of quantum that picked up on stochasticity but omitted its other features; and the theory was widely misused to justify the financial instruments which played a key role in the crisis.

While there is no shortage of model abuse in economics, physics envy is not the main problem. Instead it is institutional pressures that encourage the use of models that look good based on the aesthetic criteria of mechanistic science but have so many parameters and moving parts that they can give any answer you want. This is what economist Paul Romer called in a paper “the trouble with economics”. And in fact you see exactly the same issue in physics – Romer’s paper was named after Lee Smolin’s book The Trouble With Physics.

All this raises a couple of questions. One is that if something like the money system can be described as quantum, then does that tell us something useful about how we should interpret physics, for example the role of information (no idea). Perhaps more relevant from a sociological perspective at least is, why has it taken a century for these ideas and methods to feed into the social sciences.

Of course there is the worry that quantum ideas can be dangerous nonsense when applied outside physics. As physicist Sean Carroll wrote in 2016, “No theory in the history of science has been more misused and abused by cranks and charlatans”. However I would argue that the theory misused to the greatest effect in social science is the idea that we are like classical machines: inert automata, slave to the mechanisms of cause and effect. This has done far more damage than anything like “quantum healing”. Why is there so much controversy about social scientists possibly abusing quantum models, when they have been abusing mechanistic models for years?

One reason is that quantum ideas represented a challenge to our traditional scientific world view, and in some ways we still haven’t got used to them. Einstein for example said quantum reality reminded him of “the system of delusions of an exceedingly intelligent paranoiac, concocted of incoherent elements of thoughts”. Yet these concepts such as duality, indeterminacy, and entanglement seem quite reasonable when applied to our own thought patterns. And I think Einstein’s comments would apply quite well to the social world of finance.

As the Torontonian Marshall McLuhan wrote in 1992: “I do not think that philosophers in general have yet come to terms with this declaration from quantum physics: the days of the Universe as Mechanism are over”. So it is exciting that 25 years later that is starting to change.

April 27, 2015

Money is the Message – 2015 McLuhan Lecture

Filed under: Economics, Talks — Tags: , — David @ 3:25 pm

McLuhan lecture video, from Transmediale in Berlin

December 15, 2014

transmediale Marshall McLuhan Lecture

Filed under: Talks — David @ 11:44 am

Looking forward to giving the Marshall McLuhan Lecture at the transmediale festival in Berlin next month. The talk will be called “Money is the Medium” and will follow up on McLuhan’s description of money as a social medium.

June 13, 2012

Climate Change and its Impact on Preservation Management of Archaeological Sites, Athens

Filed under: Talks — Tags: , — David @ 1:40 pm

Talk on climate change and cultural heritage, Athens

Talk at roundtable on climate change and cultural heritage in Athens, April 2012.  Watch video

Breakthrough economics

Filed under: Talks — Tags: , — David @ 10:28 am

This is an article based on my talk at the Breakthrough Capitalism Forum in London, May 29, 2012. Versions available in Polish and Spanish.

Economics can be viewed as a mathematical model of the world. Such models are interesting because they encode a kind of story about reality. The models – and especially the assumptions on which they are based – therefore reveal much about the way we see the world and we see ourselves.

An early example was the Greek model of the cosmos. This model incorporated two main assumptions. The first was that the celestial bodies moved in circles, which were considered the most perfect and symmetrical of forms. The other assumption was that the circles were centered on the Earth. In Aristotle’s scheme, the planets and stars were thought to be encased in crystalline spheres which rotated around us at different speeds.

Of course, as we now know, both of these assumptions were wrong. But that didn’t seem to matter, for the model persisted for well over a thousand years – it was adopted by the Church, and was not finally overturned until the Renaissance. How did it manage to last for such a long time?

The main reason for the success of the Greek model of the cosmos was that it could make accurate predictions of important events such as eclipses. In a time when human affairs were believed to be influenced by the movements of the celestial bodies, this was an impressive demonstration of the power of mathematics, and gave a sense of order and stability to the universe (our desire to predict the future is coupled with a yearning for a comprehensible world).

Another reason, though, is related to aesthetics and the fact that, as Aristotle put it, man is a political animal. There was a strong parallel between the perceived order of the cosmos and the order of society. As with the model of the cosmos, Greek society was structured as a series of concentric rings, with slaves at the base, followed in ascending order by ex-slaves, foreigners, artisans, and finally the land-owning, non-working upper class. These men alone could be citizens, and oversaw everything from above, like the stars in the firmament (women did not take part in political life and took their social class from their male partner).

A model of the universe which suggested that everything has its natural place in a beautiful, geometrically-governed cosmic scheme therefore supported the status quo. For this reason it would certainly have appealed to the male leisure class that ruled ancient Athens, and later to the Catholic Church.

The first cracks in the model appeared in 1543, when Copernicus proposed that the Earth might go around the Sun, rather than vice versa. In 1577, the Danish astronomer Tycho Brahe observed a comet which passed between the planets, so if Aristotle’s crystalline spheres had actually existed, it would have broken through them. Finally, in 1687, Isaac Newton combined Kepler’s theory of planetary motion, with Galileo’s study of the motion of falling objects, to derive his three laws of motion and the law of gravity. The static circles of classical geometry were replaced with dynamical equations, which had a different but equally powerful aesthetic appeal.

Newton’s work laid out a template which scientists have continued to follow until the present day. To understand and predict a system, you break it down into its constituent parts, find the mathematical equations that govern their behaviour, and solve.

This mechanistic approach has been very successful in areas such as chemistry and physics. Newton was less confident that it would apply to other fields. After losing most of his fortune in the collapse of the South Sea bubble, he warned that ‘I can calculate the motions of heavenly bodies, but not the madness of people’. In the nineteenth century, though, economists decided to forge ahead anyway. The result, known as neoclassical economics, was directly inspired by Newton’s ‘rational mechanics’. As a mathematical model, it may have had as great an effect on society as the Greek model did in centuries past.

Efficient markets

In order to mathematicise the economy, economists of course had to make many simplifying assumptions, which imposed a kind of symmetry on the system. No one thinks these assumptions are completely true, but they have certainly been extraordinarily influential, and have shaped the way we see the economy – and therefore the economy itself.

The theory assumed that individuals and firms, who were the atoms of the economy, acted independently, rationally, and with similar power to maximize their own utility. This led to the famous caricature of rational economic man, or homo economicus. The ‘invisible hand’ (usually attributed to Adam Smith, though the idea predates him) then drives the economy to a stable equilibrium. The result of all this was supposed to be societal happiness, or what economist Francis Edgeworth called in 1881 ‘the maximum energy of pleasure, the Divine love of the universe’. As with the Aristolian scheme, everything is driven towards its correct place in the natural order.

In the same way that geocentric models of the cosmos were used for forecasting the positions of the celestial bodies, the aim of economic models was to make accurate predictions. However in this case the models did not seem to work so well. Predictions of quantities such as oil prices or gross domestic product are famously unreliable, and even today are not much better than random guessing.

The problem was apparently solved in the 1960s when the ‘efficient market hypothesis’ was floated as an explanation for the inaccuracy of forecasts. This was a physics-inspired theory which assumed that markets magically attain a stable and optimal equilibrium, and any changes are random perturbations that inherently cannot be predicted. However it should be possible to calculate risk based on statistical methods such as the normal distribution (bell curve), or variants thererof. The normal distribution is mathematically similar to a square (the word ‘normal’ is from the Latin for square) or circle in that its properties can be specified by a single number. The risk of an asset could be measured by the standard deviation of its past fluctuations, just as the size of a circle is given by the diameter.

This elegant theory, with its emphasis on stability, symmetry, and rationality, was the backbone of what Alan Greenspan described to the US Congress as ‘the whole intellectual edifice’ forged by Nobel laureate economists that ‘collapsed’ during the recent financial crisis – and indeed helped cause it by creating a feeling of false confidence. So why is it that economic storms still come as a surprise? Perhaps it is because concepts such as the self-centered homo economicus have even less relationship to the movements of money, than Earth-centered circles do to the movements of planets.

Not normal

The theory assumes that the ‘invisible hand’ drives the economy to a stable equilibrium. But the price of an asset – say gold – is often very unstable. The reason is that we buy gold because we hope it will go up in value, and if the value is going up we get excited and buy more. This positive feedback drives the price up further. The same thing happens in reverse on the way down, resulting in an unpredictable series of booms followed by busts. The same effect is seen for other assets such as oil, housing, currencies, and so on.

Now, this kind of unpredictability is superficially consistent with the efficienct market hypothesis, and is often wheeled out as support for the theory. However unpredictability does not imply efficiency – snowstorms are unpredictable, but no one calls them efficient. The theory also assumes that price variations are random, independent, and therefore normally distributed. But as we know markets are susceptible to sudden changes including catastrophic crashes. Their statistics are not ‘normal’, as predicted, but are similar to those of earthquakes in that they follow a highly asymmetric ‘power-law’ distribution – most price movements are small, just as the Earth is constantly experiencing small tremors, but there is the ever-present possibility of extreme events. Orthodox theory sees the economy as fundamentally stable, but perturbed by random pieces of news, while in fact the economy is a lively and dynamic system, dominated by nonlinear feedback loops and prone to sudden changes.

The model assumes that people act independently and make rational decisions to optimize their own utility (the proof of market equilibrium actually assumed infinite computational capacity, and the ability to plan into the future). But as behavioural economists or for that matter advertisers know, emotions such as trust and fear play a vital role in markets. So does communication between market players, as shown by the rapid financial contagion that often follows a seemingly contained local crisis.

The original idea of neoclassical theory was to optimise happiness. But while the economy has grown enormously in recent decades, reported happiness levels have remained static or even declined slightly. Perhaps one reason is that we have internalised these values of rationality, independence, and utility optimisation; while happiness apparently has more to do with connectivity, communication with other people, and a sense of community. The model, it seems, does not correctly predict what makes people happy – and could in fact be making us unhappy.

New model

To summarise: our orthodox theory, which has long dominated economics, is based on ideas of stability, symmetry, rationality, and mathematical elegance which go back to the ancient Greeks. We have modeled people as if they were rational and can look into the future. We model the economy as if it obeyed the harmony of the spheres. Like the Greeks, we have imposed our ideas of order and logic onto the universe. But there is one important difference, which is that the Greek model could make useful forecasts of events like eclipses – they could predict when the lights were going to go out. Our models don’t have that degree of empirical validity. The financial crisis which began in 2007, and came close to shutting down the global financial system, went unpredicted by every major forecasting institution including the IMF, the OECD, and the US Federal Reserve.

Motivated in part by the crisis, we are now seeing the development of a viable alternative to mainstream economics, that exploits new tools from applied mathematics (e.g. complexity theory, network theory, nonlinear dynamics), as well as from other fields (e.g. psychology, ecology, ethics), and tempers them with a healthy dose of humility (models are incomplete patches that are only useful in certain domains and contexts). As argued in my book Truth or Beauty, this development is part of a larger shift in science from seeing the world as a Newtonian machine to seeing it as a living system.

Given that its drawbacks have been known for some time – so-called heterodox economists have been criticizing it for decades – how did the neoclassical model manage to persist for so long? In this case the answer has nothing to do with prediction. That leaves aesthetics and the status quo. As with the Greek model of the cosmos, the idea that the system is the stable, rational, efficient, and optimal outcome of a mathematically-governed process is clearly one that is favored by the small elite – that layer of distant stars in the financial firmament – which derives the most benefit from the current arrangement.

Once again, we need a new model of the world – and one that is based on the messy realities of people and the environment, rather than elegant circles. Could the financial crisis be the comet that shatters the crystalline spheres?



April 20, 2012

Video of TEDx talk on prediction at Park Kultury, Moscow

Filed under: Talks — Tags: — David @ 1:02 pm

Theme of this event was Future 2112


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