Monday, August 10, 2009

Bridge Theory - Neuroscience, Economics, Intellegince, and Information Theory

My fundamental hypothesis is that both economics and cognitive science can be integrated into some version of information theory or computer science. This has been stirring in my head for a long time, ever since I learned about the justifications for the efficient market hypothesis. Now, with my recent learning, I think I'm almost ready to start connecting my observations and conjectures.

Here's one: Churchland shows how the Purkinje cells can easily be seen as performing transformations of matrices; it follows clearly from their structure. Can firms in marketplaces be similarly interpreted? Here's my rationale for that bizarre leap:

A firm has many inputs: its suppliers and customers. The prices at each input convey some information about the outside world (moreover, the prices for each commodity are the same across firms, adjusted for transportation cost), these are the "synaptic weights." The relative frequency of the inputs' stimulation is the positive or negative value of the element of the matrix. The input vector is conveyed through the firm's inputs (again, the suppliers and customers), is transformed according the the weights, and is summed and output as the firm's net profit. By considering whole industries, we can get output vectors. Thus: economies do matrix transformations.

This, on the surface, appears to be the same as what we observe in Purkinje cells. Can we therefore conclude that markets have the potential for cognition, assuming that these matrix transformations underlie cognition in biological neurons?

Why is this important as a theory, and not just a metaphor? Part of the reason economics is so "dismal" as a science is that its impossible to test economic theories; all studies must be purely observational (though one might argue that the failure of the socialist "experiments" consisted of "testing"). Free markets seem to serve human ends quite nicely, and while free-market advocates have been around for more than a century, their arguments are not universally accepted by the relevant decision makers. Indeed, we're currently in an environment where free market ideas appear particularly unfashionable. If we could bridge the theories of economics and cognitive science, showing that there is a meaningful identity in the information processing capacities of brains and markets, we could do real scientific testing on simple information processing models. We could test the hypothesis that de-centralized control yields the best possible informational processing capabilities. I would actually expect result to be tautological, if the "parallel-distributed processing" model we recognize to be at work in human brains is accepted to be at the root of economic processes as well.

Maybe then the preponderance of evidence would be overwhelming enough to restrain the controlling hand; finally make the case for limited government. Many have tried, could this be the ultimate argument? Presumptuous of me to even suggest, but nevertheless, I think that it is worth exploring, and that the result could be important.