Economy of Attention

“...in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”

— Herbert Simon (1971)

‘Seeing’ is not simply a matter of looking at an internal representation of the outside world; and perception, in general, is not a passive matter of light falling on the retina and entering the visual system. Rather, it depends on an active cognitive process of categorizing and classifying various aspects of interest, and paying attention to certain things. According to Kevin O’Regan of the Inititut Paris Descartes de Neurosciences et Cognition, the structure of the brain is such that neurons at different visual processing levels compete with each other to move up to higher levels of the brain, and thus determine what we end up paying attention to. However, the potential to turn our attention to different details gives us an impression of seeing everything, providing us with the illusion of a perfect visual world. For example, when we move our eyes or shift our attention, what we are in effect doing is to access the outside world in an intermittent and selective manner. In other words, our brain is using the external world as a memory store.

Now you see me? (Image Credit: Chris Chabris).

The role of selective attention, as explained by Kia Nobre of Oxford University, is to process and integrate this neuronal competition so as to enable people to take appropriate actions. Certain areas of the brain lie at the intersection of perception and action. For example, the areas involved in moving the eyes are also used to focus attention on something even if the eyes are not moving. Empirical studies suggest that the brain has the ability to insert anticipatory biases into the stream of perceptual information. In other words, the brain constantly constructs a forward-looking model of the world as it processes the different areas of neuronal activities, extracting regularities and building predictions. Long-term memory shapes anticipatory biases, and thus people’s ability to direct their attention may be affected by habit or training.

Attention is evidently a scarce cognitive resource with a veritable neurological basis. In fact, many demonstrated cases of ‘inattentional blindness’, i.e., not seeing something that is there, or the related phenomenon of ‘change blindness’, i.e., not noticing changes in a scene, show that the human brain’s internal representation of external reality are rather sparse and sketchy. Such cognitive phenomena is the antithesis of ‘insight’, i.e., seeing what others don’t. So, with so much information in the financial markets, how do people pay attention? How do traders generate market insights? And how do we go about measuring the value of attention?

“The closer you look, the less you'll see.” (Image Credit: Lucas Vassallo).

Experiments by neuroscientists and psychologists focus on understanding the mechanisms of how cognitive systems cope with scarce attention. One obvious application area is the design of how financial information is visually presented. Economists, on the other hand, construct models of optimizing competition for attentional resources as a scarce commodity in order to better understand the economics of human attention. One area of economics where attention is a key factor is advertising. In any case, it seems evident that the brain will use energy as efficiently as possible, and so it appears this could be an objective function that will drive the overall optimization process, given the constraints of the brain architecture. An alternative criterion may be behavioral success, in which case energy efficiency may then be one of the constraints. It is the difference of optimizing for costs or for results. It would be interesting to examine this aspect of attentional resources from the viewpoint of ‘causal entropic forces’ as recently proposed by physicists, as there might be hidden connections between the various optimization models.

Cognitive processing is costly in terms of time and energy. So what does this mean for the organization? What is the effect of the existence of cognitive costs on an organization? How do organizations cope with information overload? Firms involve many people working together for a common purpose. People have to share information, coordinate with one another, make decisions and communicate them, all with limited amounts of time and energy. According to Kenneth Arrow, an organization can hold more information than any individual, but to do so it will need to develop special codes, and to economize on information costs through a hierarchical structure, which may be analogous to a ‘hub-and-spoke’ transport network. While greater access to diverse information can enhance productivity, information overload will reduce it. Specifically, more information will only be beneficial when the ‘gains from trade’ of information exchange outweigh the additional communications and cognitive costs of maintaining a network. This has tremendous implications for how a trading firm is to be organized, e.g., whether horizontally or vertically integrated, by taking into considerations economies of scale or scope under the constraints of cognitive processing costs at the organizational level.

It is important to realize that cognitive processing costs constrain the universe of possible outcomes for any organization design. In “Seeing What's Next,” Christensen uses the example of Dell Computer to illustrate his “Value Chain Evolution” theory's golden rule: Integrate to improve what is “not good enough” (i.e., speed, customization, and convenience of online ordering), and outsource what is “more than good enough” (i.e., architectural design of the PC). While this is certainly a helpful insight, it does not consider the cost of cognitive processing which is especially critical in a highly dynamic and uncertain environment such as that found in financial trading. For that, we will need to layer upon it a telescoping perspective based on cognitive constraints in order to avoid certain catastrophe.

A thousand ships launched on a rising tide...

... crashing into the invisible iceberg.

We can thus picture three concentric rings as representing increasing scope of visibility:

1. the scope of participation at the level of the firm;
2. the scope of activity at the level of the value network; and
3. the scope of vision at the level of the environment encompassing industry landscape, regulatory regime, and the macro economy.

The design of a firm then has to do with where the boundaries of the firm are drawn, how the value network is to be partitioned among the marketplace and the collaborative commons, and how to allocate scarce attention efficiently to the greater surrounding contexts of industry, regulation or macro economy. Despite all that can be automated by institutions or by machines, human attention at the highest level of a firm remains a valuable scarce resource that needs to be managed.

Seeing what's next: A telescoping view that relates vision, activity, and participation.

“Economics is the science which studies human behaviour as a relationship between given ends and scarce means which have alternative uses.”

— Lionel Robbins (“An Essay on the Nature and Significance of Economic Science”, 1935)

References:

1. Simon, Herbert A. (1971). Designing Organizations for an Information-Rich World. In: Computers, Communication, and the Public Interest (Edited: Martin Greenberger). The Johns Hopkins Press.
2. Chabris, Christopher and Simons, Daniel (2011). The Invisible Gorilla: How Our Intuitions Deceive Us. Harmony.
3. The Invisible Hand Meets the Invisible Gorilla: The Economics and Psychology of Scarce Attention. Summary of Conference at IDEI, Toulouse School of Economics, September 2011. Retrieved from: http://www.idei.fr/doc/conf/psy/2011/summary.pdf
4. Christensen, Clayton M. and Anthony, Scott D. and Roth, Erik A. (2004). Seeing What's Next: Using Theories of Innovation to Predict Industry Change. Harvard Business Review Press.
5. Nielsen, Michael (2008, December 29). The Economics of Scientific Collaboration. Retrieved from: http://michaelnielsen.org/blog/the-economics-of-scientific-collaboration/
6. Useem, Jeremy (2015, October). Are Bosses Necessary? The Atlantic. Retrieved from: http://www.theatlantic.com/magazine/archive/2015/10/are-bosses-necessary/403216/

Participatory Universe

“What good is a universe without somebody around to look at it?”

— Robert Dicke (1916-1997)

John A. Wheeler at Princeton University in 1967. (Image Credit: The NY Times).

John Wheeler, who is mentor to many of today’s leading physicists, and the man who coined the term “black hole”, suggested that the nature of reality was revealed by the bizarre laws of quantum mechanics. According to the quantum theory, before the observation is made, a subatomic particle exists in several states, called a superposition (or, as Wheeler called it, a ‘smoky dragon’). Once the particle is observed, it instantaneously collapses into a single position (a process called ‘decoherence’).

Wheeler's hunch is that the universe is built like an enormous feedback loop, a loop in which we contribute to the ongoing creation of not just the present and the future but the past as well. To illustrate his idea, he devised what he calls his “delayed-choice experiment,” which was tested in a laboratory in 1984 (and 2007). This experiment was a variation on the famous “double-slit experiment” in which the dual nature of light was exposed depending on how the experiment was measured and observed, the light behaved like a particle (i.e., a photon) or like a wave.

Unlike the original “double-slit experiment”, in Wheeler’s version, the method of detection was changed after a photon had passed the double slit. The experiment showed that the path of the photon was not fixed until the physicists made their measurements. In other words, the outcome of the experiment depends on what the physicists try to measure: If they set up detectors beside the slits, the photons act like ordinary particles, always traversing one route or the other, not both at the same time. But if the physicists remove the detectors, each photon seems to travel both routes simultaneously like a tiny wave. When it comes to quantum systems, reality depends on how we interact with it.

Putting down her cup of tea, she asked in a timid voice, “Is light made of waves, or is it made of particles:” “Yes, exactly so,” replied the Mad Hatter. (Source: “Alice’s Adventures in Wonderland”).

These conclusions lead many scientists to speculate that the universe is fine-tuned for life. For example, this is how Robert Dicke, Wheeler’s colleague at Princeton, explained the existence of our universe:

“If you want an observer around, you need life, and if you want life, you need heavy elements. To make heavy elements out of hydrogen, you need thermonuclear combustion. To have thermonuclear combustion, you need a time of cooking in a star of several billion years. In order to stretch out several billion years in its time dimension, the universe, according to general relativity, must be several billion years across in its space dimensions. So why is the universe as big as it is? Because we’re here!”

Does this mean humans are necessary to the existence of the universe?

While conscious observers certainly partake in the creation of the participatory universe envisioned by Wheeler, they are not the only, or even primary, way by which quantum potentials become real. Ordinary matter and radiation play the dominant roles. Wheeler likes to use the example of a high-energy particle released by a radioactive element like radium in Earth's crust. The particle, as with the photons in the two-slit experiment, exists in many possible states at once, traveling in every possible direction, not quite real and solid until it interacts with something, say a piece of mica in Earth's crust. When that happens, one of those many different probable outcomes becomes real. In this case the mica, not a conscious being, is the object that transforms what might happen into what does happen. The trail of disrupted atoms left in the mica by the high-energy particle becomes part of the real world.

Erwin Schrödinger: “Until you observe the cat, it is both alive and dead at the same time.”

At every moment, in Wheeler's view, the entire universe is filled with such events, where the possible outcomes of countless interactions become real, where the infinite variety inherent in quantum mechanics manifests as a physical cosmos. And we see only a tiny portion of that cosmos. Wheeler suspects that most of the universe consists of huge clouds of uncertainty that have not yet interacted either with a conscious observer or even with some lump of inanimate matter. He sees the universe as a vast arena containing realms where the past is not yet fixed.

Wheeler had come to view quantum measurement, how it creates an actuality of what was mere potentiality, as the essential building block of reality. Quantum is the "crack in the armor" that covers the secret of existence, a clue that the mystery of creation may lie not in the distant past but in the living present. If the universe is a giant computer, the laws of nature will most likely be coded in a functional programming language based on “lazy evaluation”, or “call-by-need”, which is an evaluation strategy that delays the evaluation of an expression until its value is needed and which also avoids repeated evaluations. The benefits of lazy evaluation include: (i) the ability to construct potentially infinite data structures, (ii) the ability to define control flow structures as abstractions instead of primitives, and (iii) increase in performance by avoiding needless calculations. But most importantly, lazy evaluation can lead to reduction in memory footprint, since values are created when needed. It is thus consistent with Wheeler’s idea that the universe is designed under the advice of an “efficiency expert.”

In fact, there is no obvious extravagance of scale in the construction of the universe, according to Wheeler. For the purpose of having somebody around to be aware of the universe, life on one planet only (i.e., the Earth) seems to be a reasonable design goal. The anthropic principle thus provides a new perspective on the question of life elsewhere in space: they are not essential because it is not economical. Put another way, the universe has to be such as to permit awareness of that universe itself; and to do so economically with life on just one planet. “This point of view is what gives me hope that the question — How come existence? — can be answered,” said Wheeler.

“Faith is the number one element. It isn’t something that spreads itself uniformly. Faith is concentrated in a few people at particular times and places. If you can involve young people in an atmosphere of hope and faith, then I think they’ll figure out how to get the answer. Faith and hope are absolutely central to everything one does.”

— John Archibald Wheeler (1911-2008)

Reference:

1. Interview with John Wheeler: From the Big Bang to the Big Crunch. Cosmic Search, Vol. 1, No. 4. Retrieved from: http://www.bigear.org/vol1no4/wheeler.htm
2. Folger, Tim (2002, June 1). Does the Universe Exist if We’re Not Looking? Discover. Retrieved from: http://discovermagazine.com/2002/jun/featuniverse
3. Stenger, Victor J. (2007). The Anthropic Principle. In: The Encyclopedia of Nonbelief. Prometheus Books. Retrieved from: http://www.colorado.edu/philosophy/vstenger/Cosmo/ant_encyc.pdf

Invention or Discovery?

“A scientist searches for knowledge of the natural world through a specific methodology: the scientific method of hypotheses and experimental validation. Scientists have a clear goal: to describe natural phenomena with rational explanations based on repeatable experimentation and consensus. Speculation is allowed only insofar as it leads to verifiable predictions.”

— Marcelo Gleiser (“The Island of Knowledge”, 2014)

Excerpted from Marcelo Gleiser's book: "The Island of Knowledge", wherein he discusses whether mathematics is an invention or a discovery and why it matters:

“The display of wonder and regularity of Nature – day and night, seasons and tides, a Moon with phases, planets that return, the life and death cycle of plants and animals, gestation periods – requires a methodic counting and organizing as a means to gain some level of control over what is otherwise distant and unapproachable, the trends of a world evolving in ways clearly beyond human power. How else would pattern-seeking humans order their sense of reality if not through a language capable of describing these patterns, of analyzing them, of exploring their repetition as a learning tool? The mathematization of Nature, and the ordering of observed trends in terms of laws, is one of the distinctive achievements of our species.

“The power of mathematics comes from its being detached from physical reality, from the abstract treatment of its quantities and concepts. It starts in the outside world, the world as it is perceived by our senses, when we identify approximately circular and triangular forms in Nature, or learn how to count and measure distances and time. But then mathematics takes a simplifying step and lifts these asymmetric shapes from Nature and idealizes them as symmetric, so that we can more easily construct mental relations with them. These relations and their progeny may or [may] not be applicable back to the study of Nature. If they are, they may be used in a scientific model of some kind. If not, they may remain forever locked in the abstract realm of ideas they inhabit. This transplanting of forms and numbers from Nature, which allows for the abstract manipulation of number and form, is also why mathematics is always an approximation to reality and never reality as it is.

In the mind’s eye: A beautiful image is a poor reflection of truth.

“Nature’s creative power often hides behind asymmetries and not symmetries. Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line. The richness is found not in isolating order above everything else, but in contrasting order and disorder, symmetry and asymmetry, as complementary players in the ways we describe Nature. Symmetry … are excellent approximations to what we are attempting to describe. The danger, and the origin of the Platonic fallacy, is to believe that the symmetries are an imprint of Nature instead of an explanatory device we conceived to describe what we see and measure.

“There is a very productive alliance between the human brain and its mathematical attempts to make sense of reality. Mathematical results are not snapshots of some transcendent truth but a very human invention. The nexus of our quest for knowledge is not to be found outside of us but within us. Theorems in abstract mathematics, even if apparently completely disconnected from immediate reality, are the products of logical rules and concepts constructed with our minds. Our minds function in specific ways that reflect the embodiment of cognitive tools, which facilitate the development of abstract conceptual tools. We create the mind games of pure mathematics in the convolutions of our neocortex. And our neocortex is the result of eons of evolution driven by the pressures of natural selection and genetic variability, where the link between creature and environment is essential.

“The discussion of mathematics being an invention or a discovery, … points more to the importance of the human brain as a rare and wondrous oddity in the Universe than to the elusive truths written in some imponderable abstract realm. The cause of celebration is not “out there” or “up above” or in the “mind of God” but in this small mass we humans carry within our cranial cavity.

References:

1. Gleiser, Marcelo (2014). The Island of Knowledge: The Limits of Science and the Search for Meaning. Basic Books.
2. Lakoff, George and Nuñez, Rafael (2001). Where Mathematics Comes From: How the Embodied Mind Brings Mathematics into Being. Basic Books.
3. Baum, Eric B. (2006). What is Thought? A Bradford Book.

Quit, Stick or Pivot?

How does one know when to quit, stick, or pivot? Let's hear from the experts:

“Many of life’s failures are people who did not realize how close they were to success when they gave up.”

— Thomas Edison (1847-1931)

“Extraordinary benefits accrue to the tiny minority of people who are able to push just a tiny bit longer than most.”

— Seth Godin, “The Dip” (2007)

“Quitters never win and winners never quit.”

— Vince Lombardi (1913-1970)

“Never, never, never, never —
in nothing, great or small, large or petty —
never give in, except to convictions of honour and good sense.”

— Winston Churchill (1874-1965)

“If at first you don’t succeed, try, try again. Then quit.
There’s no point in being a damn fool about it.”

— W.C. Fields (1880-1946)

“Winners quit all the time.
They just quit the right stuff at the right time.”

— Seth Godin, “The Dip” (2007)

“You’ve gotta know when to hold ’em, know when to fold ’em.
Know when to walk away, know when to run.”

— Don Schlitz, “The Gambler” (1976)

“The people who are the best in the world specialize at getting really good at the questions they don’t know.”

— Seth Godin, “The Dip” (2007)

“Don’t be trapped by dogma - which is living with the results of other people’s thinking. Don’t let the noise of other’s opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

— Steve Jobs (1955-2011)

“Our life is an apprenticeship to the truth…
that there is no end in nature,
but every end is a beginning.”

— Ralph Waldo Emerson (1803-1882)

“Rise and rise again and again ...
until lambs have become lions
and the rule of darkness is no more.”

— Maitreya The Friend of all Souls (1943-2012)

“I have fought the good fight,
I have finished the race,
I have kept the faith.”

— St. Paul ("The Bible", 2 Timothy 4:7)

“Being able to persist is not the most important thing –
the ability to start over is.”

— F. Scott Fitzgerald (1896-1940)

“The greatest accomplishment is not in never failing,
but in rising again after you fall.”

— Vince Lombardi (1913-1970)

Life has endless ways of presenting its journeymen with contradictions that beg resolution, and/but gives little clues in the ways of solving them. ‘Nuff said.

References:

1. Godin, Seth (2007). The Dip: A Little Book That Teaches You When to Quit (and When to Stick). Penguin Group.
2. Ries, Eric (2011). The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Crown Business.
3. Horowitz, Ben (2014). The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers. Harper Business.
4. Bass, Thomas (2000). The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street. Holt.