“War and peace” was the Nobel prize lecture by laureate Robert Aumann on game theory, which he delivered also in IISc Bangalore in 2006, of course among other places. I was in the auditorium that day, as a clueless 16 year old who understood nothing. I left the auditorium remembering one statement he made: (paraphrased) “If there is one word that sums up economics, it is incentives“. I did go back and read his lecture much later and found that it was in fact very accessible to non-expert readers and quite insightful. Even today I marvel at game theory — I don’t really understand it, but I know that when I do, it will be profound and life changing.
Why would I believe something will be profound and life changing when I understand it? The answer lies in the universality of it. Physics is universal — if I go out to build a playhouse in my backyard, I am working with the laws of physics. All activities in the real world are under the jurisdiction of the laws of physics. I can do nothing in the real world that isn’t allowed by the laws of physics. I believe that incentives is also universal. For instance, I wouldn’t be building a playhouse if I didn’t have an incentive for it, especially if there are many people involved in building it. No activity can be done unless it is well-incentivised.
There are things that can be built in principle, but we don’t know how to incentivise people to build them. An old example is the supersonic commercial flight ( see concorde). There were flights, that took just over 3 hours from London to New York. It is allowed within the laws of physics for us to do this, but apparently, it is not incentivisable economically to keep such a service available. There is an idea called the space elevator. It is an elevator to outer space; just a very, very long cable (100s of 1000s of km) that extends from the earth to outer space and stays upright due to the centrifugal force balancing out the gravity. The laws of physics and the limits of technology perhaps allow this. It can be built in principle, but we don’t know to incentive work towards it. It’s even awkward to say “can be built in principle” (it can’t be built if you can’t incentivise it!).
This brings us to the question of fundamentals: Are economic limitations as fundamental as physical ones? That is, if building some device or accomplishing a task would have to violate a law of physics, we say ‘it can’t be done even in theory‘. Should we say the same if it violates a law of economics? There are a couple of hairs to split here. First, if a task doesn’t violate any law of physics, but we don’t have the necessary technology, we say it could be done in theory, only to me limited by technology, and technology evolves with time. This is different from saying that it cant be done even in theory. However, one has to note that theory evolves in time, too. Similarly, among economic impossibilities, we want to distinguish between tasks that can’t be incentivised in practice today and those that cant be incentivised even in theory. So now back to the question, are the economic impossibilities as fundamental (or more) as the physical impossibilities?
Something about this question makes me uncomfortable. It is the following: There are theoretical physicists who think about what would happen in the universe if a particular law were to be violated. So indeed, the work in this space is not constrained by the laws of physics. However, even these theoretical physicists are working under the laws of economics. For instance, such a field of study wouldn’t exist, if there wasn’t enough incentive for it. So it seems we maybe able to escape from the laws of physics, by sitting inside a theory room and theorizing as we wish, but even that activity can’t practically escape the laws of economics — it can be done only if it is has a sufficient incentive, in the form of intellectual interest, for example. This would lead us to conclude that the economic impossibilities are more fundamental. And that’s uncomfortable for me because, one of the reasons why I chose to do physics is that it represents the reality that cant be escaped from.
There are some amusing consequences of the difficult-to-incentivise tasks. When faced with a hard technological challenge, it’s a common practice to start with a simpler problem. However, it may not be easy to incentivise efforts towards the simpler problem (some would say it’s not really simpler in that case). For instance consider the case of colonising the moon. It is perhaps easier than colonising mars, but apparently, it is easier to incentivise large scale efforts towards the latter. It is probably related to the psychological impact of colonising a place that feels like it is outside the realm of earth.
A couple of years ago, I wrote a post about Finding a stone in the darkness, which was also on this topic. It was about the events surrounding the discovery of the famous Gaussian (i.e., Normal) distribution, particularly focusing on the incentives that led to this discovery. In short, the Normal distribution was develop by Gauss in order to predict the position and therefore discover a new “planet”, Ceres. At that time, the Normal distribution was nothing more than a mathematical jargon that not many people cared about; they cared about Ceres. It was Ceres that captured the imagination of people, ( astronomy has been very captivating to the public and continues to be so) and therefore generated incentives for work in this direction. A by-product of this work was the Normal distribution, which later tuned out to be vastly more impactful than the discovery of Ceres itself.
Thought Flow 