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Symposium 2012

Proposal - Mental Training Towards A Thoughtful Economy?

The Challenge

Complex problems, such as climate change or irresponsible deployment of resources, are difficult to resolve without global participation of cooperating partners. To date, these problems have been main ...

Complex problems, such as climate change or irresponsible deployment of resources, are difficult to resolve without global participation of cooperating partners. To date, these problems have been mainly tackled through top-down approaches where governments and international institutions take the role of decision-makers.

Mental Training towards a Thoughtful Economy

1. Background Challenge

Recent events have raised serious concerns about the capacity of economic systems to deliver just and sustainable economies capable of delivering long-term social welfare and human potential. Indicators include rising inequality, sub-optimal use of human and natural resources and consequential threats to stability, depletion of the global commons, ruptures in the social contract and planetary survival. Although difficult to measure and subject to debates about historical norms there is also a strong impression of increasing social and psychological alienation – increased rates of drug use, mental disturbance, and abusive relationships, etc.

2. Background considerations.

In economic theory “sub-optimal” outcomes come about due to compensation failures or spill-overs (negative externalities) and the overall problem might be defined as a collective action and co-ordination problem in which socially useful behaviours are insufficiently rewarded and anti-social behaviours insufficiently punished.

The standard response in that case, based on neoclassical modelling, is to regard such outcomes as distortions arising from misaligned incentives and to consider how to adjust incentives to reward or punish a wider range of relevant factors – a response that implies that if the world worked more like economic (utilitarian based) models state it should, then we would be better off. The question becomes: could we stimulate pro-social behaviours by finding ways to broaden incentives and to include social objectives in contracts.

I would like to suggest that before embarking on solutions it will be useful to consider certain flaws in the economic modelling approach. They derive from (1) errors that we risk to import into policy as a direct consequence of thinking about incentives and economic problems according to neoclassical economic modelling; (2) problems we risk if we allow ourselves to be influenced by modelling unless we attend to the states of mind in which we do our thinking; (3) an under-estimation of the role of narrative in any evaluation that is necessary to measure outcomes and so calculate rewards and provide incentives; and (4) potential difficulties with the idea of mental training.

I. Model Error. The problem with all utilitarian based models (such as in neoclassical economics) is that they rest on a logically attractive schema but one which does not extract the core elements of reality. Typically, atomistic “agents” are given stable motivational systems and then operate in an environment where wants are pre-defined so that incentives can be set to create motivation and outcomes can be measured to determine rewards. In this way and with these assumptions it makes sense to argue that changing incentives changes outcomes. However, in fact, agents are not atomistic individuals who know what they want and will always know how to get it but sentient interacting social “actors” operating in moments of time within successive periods of future evolutions. They interact with experience  in a complex internal psychological and neurobiological environment as well as a social and institutional environment. This means they live in a fundamentally uncertain[1] and emergent world more reacting to and managing experience than seeking out pre-defined experiential goals except in a very general way. [Note human agents exist in a complex system in the world but also themselves constitute a complex system internally]. A crucial implication is that the causal outcomes of individual actions in this reality are often unknowable in any scientifically acceptable sense so that feedback can only be very “noisy” and possibly misleading, depending on the rime period selected to measure it.

In this context I argue the feedback relationships between action and outcomes that determine rewards might most usefully be considered as determined by narrative claims about outcomes rather than the (unknowable at the time) outcomes themselves – making the creation of feedback systems difficult and learning from and adjusting to experience complex. The crucial point here is not that existing models simplify (models must) or have a too restricted definition of incentives and utility but that what is extracted into the model about the world we live in creates misleading conclusions and flies in the face of intuition and evidence.

II. Theories and States of Mind. The theories we have about the world function as Bayesian priors determining how we will tend to see the world – the world does not simply exist, it is made in our minds. Economic theories which do not describe the world we live in distort how we see the world and how we act in it. We could usefully describe them as divided state theories[2] – that is theories that set aside observations that feel too uncomfortable to be included in thought – created in an environment of groupfeel – that is in a social-psychological context where facts that do not fit group views are systematically scotomised and the group interacts to feel comfortable rather than to deploy curiosity to establish the most likely truth.

III. Narratives and Thinking and Acting. There is abundant evidence that narratives determine accounting and measuring systems and the way “facts” are assembled, known and used to provide feedback – in other words narratives determine what is transparent. They thus determine compensation and support power, ultimately and reflexively influencing motivation and outcomes.

Current economic narratives are dominated by financial values based on the promotion and search for (unrealistic) phantastic objects so that ffinancial markets have been producing outcomes that fail all but a handful of people - distorting economy and society as well as seriously disturbing trust and social cohesion. A significant cause of these outcomes is a failure of thought so that, rather than following what became the conventional wisdom based on neoclassical economics, namely to think about financial markets as if they are a reliable means for establishing value forced by competitive pressure to be relatively efficient, we should rather try to understand them as they actually are – actually uncontrolled producers of instability, inequality and inefficiency. This can be argued to be a consequence of intrinsic features of the uncertain context individual financial decision-makers face when deciding what to do and the dilemmas institutions face when organising and monitoring their incentives. The central issue is that the context in which decisions have to be made when exchanging financial assets is radically uncertain and inherently emotional. That creates fundamental and irresolvable dilemmas, which, in turn, are managed everyday by creating “convincing” narratives.

To do the job in finance means to overcome the ever-present potential for doubts and distrust. The problem is that the market reality of price volatility, and ambiguous and ever-changing information flows, continuously creates constant grounds for ambivalence. To maintain even medium-term conviction – and even more so the kind of long-term relationship that worthwhile projects in the “real” economy usually require – is an emotional and cognitive challenge. How is it solved?

Phantastic object narratives are a special class of narrative – stories about objects of desire, love, idealisation and excitement – which Richard Taffler and I introduced to understand the causes of asset price bubbles. They are stories about how to get great returns for average or low risk – exciting stories about new ways of doing business, new financial products, new ways of managing risk, new technologies, new asset classes, new areas of the world, or new ways of creating loans to sell houses or engage in other activities. The power of phantastic object narratives is that they offer relationships to, subjectively, very attractive idealised “objects” (people, ideas or things – tulips, dotcoms, derivative options, emerging markets, star analysts and managers). In the human psyche narrators can imagine (feel rather than think) that their deepest desires can yet be satisfied. Narratives support the belief that the very unusual is possible.

In everyday markets, phantastic object narratives are continuously being created by financial intermediaries and their clients. This is shown by the deeply entrenched, but largely false belief, that more than a handful of agents demonstrate the skill to achieve consistent exceptional performance.

The problem with phantastic objects, of course, is that they are not real. We idealise to overcome the problems of uncertainty and ambivalence that otherwise threaten our attachment and so make us insecure. Reality, which is a complex mixture of satisfaction and frustration, should modify idealisation and gradually create real experiences of the value of trust. If, however, relationships remain based on idealisation then reality will be a constant threat.

Relations founded on phantastic object narratives, therefore, are inherently unstable and fragile. They can only be maintained for lengthy periods in what I term divided states of mind – simplistic states in which the everyday anxiety-producing ideas thrown up by reality are present in the mind but not consciously experienced and so not available for conscious thinking. Divided states are black and white and so can be contrasted with more complex integrated states of mind with shades of grey. In these, anxiety is tolerated so that the reasons for doubt and trust can remain in awareness and become objects for conscious, or level-headed, thought.

IV. Mental Training and Caring. Although I can see where the topic selected is coming from and greatly value the initiative, I would prefer we refer to “Mental training for a Thoughtful Economy”. Caring sets up (as in some of the points made in the challenge) a conflict between types of incentives and feelings and thinking etc. This has two problems – one, I think it will be easily mocked; two, I think it is actually misleading. The problem is not caring or its absence but a problem of thought and thoughtfulness, including the idea that thinking and feeling (rational and irrational, men and women, etc., etc.,) are somehow in different conceptual categories. In fact “thought” is an evolutionarily evolved capacity which has carried survival value, is intrinsically linked to the body via feeling states and is precisely what can be missing both in models and economic behaviour. When I say thought I am thinking of thoughtful/thoughtless and in particular of Bion’s model of thinking in an integrated (rather than divided state) that I have elaborate elsewhere. The underlying issue is that Integrated thinking is emotionally challenging to individuals and in groups and organizations – it is based on the idea that we can only think about things in such a way that we can bear the feelings that are consequent on the thoughts.  The reason economic agents and institutions are able to pursue short-term goals which conflict with long term consequences is precisely because they find ways not to think. I would expect Tania and Matthieu to express this a bit differently but in essence to say the same thing: human thought includes caring and feeling and if it is absent in any given situation it is because active processes (chemical stimulations, addictions, etc) have been recruited to push it beyond awareness. Mental training would consist of ways to overcome this problem and learn to recognise the signs that it has happened.


  1. We need to recognise the power of models of thinking, to be clear and to make it clear that the serious limitations of the incentive model in economic thinking is much more debilitating than is currently recognised. Specifically we need to show unequivocally that to examine how human agents interact to create economic outcomes we need to re-visit, fundamentally, current economic model assumptions and the states of mind that underlies them - and not just tweak models by widening incentives.
  2. To devise how an economy can produce fairer more sustainable outcomes that maximise human welfare, that is economies characterised by pro-social behaviour, we need to understand how human (economic) narratives work (how and why some become so attractive and others do not) which in turn requires an understanding of the phenomena of phantastic objects, divided states and groupfeel and their impact on the capacity to think about reality as it is.
  3. To create a caring economy, that is an economy focused on sustainability and human welfare, we need to create a thoughtful economy with a new economic narrative focused on transparent “integrated state thinking” evaluation of economic outcomes. This requires:
    1. Recognition that current institutional practices are often designed to pervert thought and distort reality, to the extent it is considered quite acceptable to game the system, shareholders, taxpayers etc.
    2. Revisions to accounting methodologies, narratives and corporate (and other) governance practices which increase transparency and challenge. (Widening Board participation and improving training and role enactment of non executive directors)
    3. Systematic focus on long-term expected outcomes using fan-chart type approaches and being explicit about uncertainty.
    4. A systematic effort to focus on understanding and learning to recognise the symptoms of divided states and groupfeel – probably enabled by check lists (aided by computer text analysis) systematically applied to account narratives, statutory and regulatory reports and a wide range of other text productions.
    5. Changes to professional education training and so attitudes and ideologies to stress and teach abilities to recognise and address empathically resistances to truth, and change and their origin.



[1] Uncertainty needs but has rarely got careful definition. The conception of uncertainty analysed in most economic models derives from the way Savage (1954) and others that followed (for instance Ellsberg) understood Knightian uncertainty as a situation in which agents have incomplete data. This can be referred to as truth uncertainty (Lane and Maxfield, 2005). But economic agents must not only act in such a context of truth uncertainty but also face what Lane and Maxfield term semantic and ontological uncertainty. Semantic uncertainty refers to situations where it is reasonable to doubt which of several multiple meanings any available information may have so that different dispersed agents can be expected to impute different meanings – this  was essentially the uncertainty which preoccupied Hayek (1937). Ontological uncertainty, on the other hand, refers to uncertainty agents have about the validity of their own beliefs – about what kind of entities inhabit the world, what kinds of interactions these entities can have with each other and how these entities and their interactions may change as a result of their interaction. It is the form of uncertainty that can be discerned in the writings of Keynes as well as Knight, Adam Smith, Schumpeter, and Shackle and more recently Nooteboom (2002) as well as by Lane and Maxfield (2005) and among social scientists Smith, Beckert, Esposito, Bonk and myself.

[2] Perry Mehrling [Discussion in the opening session of INET’s Paradigm Lost: Rethinking Economics Conference, Berlin April 12th April 2012].

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