Economics and Emotion

Note: This is part 3 of a 5 part series. In part 1, I outline a model of emotion: namely, that our emotions give us information about the implied structure of future possibilities. In part 2, I explore some mathematical properties of this model.  In this, part 3, I analyze economic activity in terms of this model. In part 4, I look at politics through the lens of this model.  In part 5, I tie things together.

Money as A Consistent Interface to Emotion

“What does economics have to do with emotion? Money is serious business, there’s no room for feelings”. This is the kind of ridiculous thing people tell each other today. I believe money is entirely about emotion. That it feels good to get money is as obvious to anyone as is the fact that it feels bad to lose money. I think the obvious emotional response to financial transactions is really the only purpose money serves – it allows us to predictably modify the emotional states of other people, and thereby reliably obtain outcomes desirable to us which are dependent upon other people acting in a specific way.

Can you think of any other way to reliably modify someone else’s emotional state? Aside from ‘inflicting physical violence’, which seems to be something people universally dislike, giving them lots of money is the only reliable way of influencing most people’s emotions.   When you give someone a tiny bit of money, this is offensive to them because you are telling them “you are so foreign to me, I cannot think of any way to modify your emotional state besides this generic interface”.  A smile, a ‘thank you’, is a far more welcome than a tip of ten cents. The ‘rational utilitarian’ model of economics finds this outcome confusing, because it makes the mistake of placing money at the basis. All texts on utility theory will tell you that utility involves the ‘good feeling’ associated with consuming a good or enjoying a service. So money is about emotion –  but this gets forgotten, which is why suggesting that the stock market is a mechanism of public emotional  will get you odd looks.

Exchanging Possibilities

From the perspective of the ‘Structure of Possibility’ model of emotion, “it feels good to get money” is a straightforward prediction: you can use money to manifest all kinds of possibilities.  Money can be exchanged for goods and services. If you are given money, the number of possible futures available for you to select from increases. The more money you are given, the more possibilities you have to choose from.

People who are exchanging financial instruments are really just exchanging reasonable belief in different outcomes.  If I trade a bunch of my Twitter stock for your Facebook stock, we’re really swapping clauses in our reality models; I’m giving up a reason to belief that growth in Twitter stock will enable me to buy things. In exchange, I gain a reason to believe that growth in Facebook stock will enable me to buy things.  The belief I gave up – “growth in Twitter stock will allow me to buy stuff” – that’s the exact belief you gain from this transaction. So it’s entirely reasonable to state that by exchanging financial instruments, what we are really doing is exchanging portions of our reality models.  That’s awesome.

If the idea of exchanging beliefs and emotional states makes you feel uncomfortable – what does that emotion tell you?

When I give someone else money to buy a sandwich, I am losing some of my ability to manifest generic possibilities, in exchange for gaining a very high probability of a manifesting a single outcome – me with a sandwich in my tummy. From the other side of the transaction, the woman who made the sandwich is probably not worried about being hungry. If she owns a sandwich shop, she makes dozens of sandwiches each day. For her, getting the money is necessary to make other things happen, to manifest certain possibilities – paying rent on her shop (which prevents the possibility of her landlord from kicking her out), paying the salary of her employees (which increases the probability that they show up and make sandwiches), and paying her suppliers – which increases the probability that they deliver her raw materials.

Profit: Net Positive Emotion

So what is profit, then, under the “Structure of Possibility” model of emotion? A profitable business is one which takes in more money than it gives out; since money confers the ability to manifest generalized possibilities, it’s not too far off to suggest that money itself is just a representation of positive emotion. Thus, a profitable business is one that created a total net change in positive emotion.

Imagine a business that cuts down trees and sells them, for example. The cost of the land, growing the trees, the labor to cut them down – all of those things require selecting specific possibilities, which closes out others. The lost branches of the possibility graph, the closed doors – that’s the cost the business incurs.  The new buildings that could be built, the repairs that could be made – those new possibilities which it’s not reasonable for people to believe in, for analysts to forecast and investors to bet on – those are reflected in the the revenue that the business generates.  If more possibilities are destroyed than were created, the business will go under.

If this idea angers you – the idea that a profitable business is an emotionally positive one – first, take a deep breath and think about where that anger is coming from. Try to interpret it in the context of my model, if you can.  If you think i’m suggesting that anything  a person does which gives them money creates net positive emotoin, that’s not accurate.   Nobody would consider “hitting people with a brick and taking the money” a positive business model, because eventually you’ll run afoul of the law. Let’s explore that.

Hitting people in the head with a brick prevents them from stopping you from taking their wallet. It could be an effective way of generating profit for yourself, at a cost to everyone else. That cost – creating negative emotional outcomes for other people – always has political ramifications. Eventually, the police, a political structure, will put you in jail.  What about just threatening to hurt people? The ‘Structure of Possibility’ model makes it quite clear that introducing a negative outcome to someone’s reality model, and then offering to make it go away, is not a net positive emotional interaction; you must account for the victim of the threat’s modified reality model, which now predicts an increase in the probability of being mugged.

Hurting people, or threatening to hurt them, are two ways you can damage someone else’s emotions for a profit. Unfortunately, there are a ton of other horrible things people do to each other, which are entirely legal and are often bandied about under the label of “free markets.”  The “Structure of Possibility Model” of emotion suggests a new way of talking about free markets, which I’ve already written about here. To truly consider a transaction “freely entered”, both parties need to walk away feeling good about the transaction. If anyone involved along the way feels mistreated, abused, coerced, ashamed, or irritated as a result of the transaction – then that negative emotion needs to be accounted for while determining whether or not the transaction was actually profitable.

At this, an astute reader may point out that businesses routinely screw people over and make them feel horrible, knowing they don’t have a choice – and yet those businesses maintain healthy profits, because they aren’t trying to make people happy.  I will respond to the astute reader that all of the negative emotional effects of the transaction which aren’t accounted for the price pile up until they are used later, by political leaders, who capitalize on that stored up negative emotion, typically by extracting concessions from the businesses which were too stupid to treat people nicely. There’s often a side-effect tax  on any business that looks like it wasn’t trying to treat people nicely.

Do you think labor leaders have an easier time building a constituency among a population of workers that feels unhappy about their arrangement with their employers, or one that feels happy?  The answer is obvious, of course, but this central fact about emotion seems to escape all kinds of people.  “Paying your employees as little as possible” is an absurd strategy that makes perfect sense to some unintelligent sociopaths, who don’t understand why a person would accept a job offer and feel crappy about it.  “Pay people enough that they are happy to come to work for you” makes perfect sense to anyone with any empathy, and is entirely scalable.

I’ll talk about politics in part 4, but the short idea here is that if your business is routinely making people unhappy, there will eventually be serious political consequences for you.  I’d prefer to live in a world where markets resolved most issues, but this will only happen if there is a strong cultural insistence that both parties need to leave a transaction feeling good about it.  If that’s not possible, then it’s probably better for a transaction not to occur.  If one party to a transaction leaves feeling good, and the other one doesn’t, the party who leaves feeling good is too stupid to understand the danger they put themselves in. I plan to live a million years through biotechnology, and “not being an asshole” is a type of pedigree that will be really hard to fake. If you plan to die in a century or less, knock yourself out with your stupidity. Do the rest of us a favor and make you’re too busy making money to have children. If you plan to stick around to see this show really take off, though I suggest you treat people as kindly as possible – It’s the smart thing to do.

Leave your comments, or move on to part 4.

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