Third Day of EE 2022: Rory Sutherland Brands EE
At the start of the second block of presentations, on the third day of the second annual conference on ergodicity economics (EE 2022), Rory Sutherland presented his views on EE.
Rory is an unusual speaker for an academic conference.
To quote from his bio on the website of the London Speaker Bureau:
https://londonspeakerbureau.com/speaker-profile/rory-sutherland/
“Rory Sutherland is the Vice Chairman of Ogilvy, an attractively vague job title which has allowed him to co-found a behavioral science practice within the agency.”
And,
“He writes regular columns for the Spectator, Market Leader and Impact, and also occasional pieces for Wired. He is the author of two books: The Wiki Man, available on Amazon (at prices between £1.96 and £2,345.54, depending on whether the algorithm is having a bad day), and the best-selling Alchemy, The surprising Power of Ideas which don’t make Sense, published in the UK and US in May 2019.”
Rory believes that individuals have a strong instinct for variance reduction, instead of a constant focus on outcome maximization at “each spin of the wheel”, and that this explains the role as well as the value of brands in the economy.
He started his presentation by expressing skepticism about some findings in behavioral economics, starting with risk aversion. He does not see risk aversion as an irrational bias, but instead he sees it as something perfectly sensible for individuals, especially individuals with fewer resources.
Rory believes that individuals understand instinctively how a decision in the present can cast a long shadow into their future. Thus, avoiding errors and managing to “fail successfully”, as discussed in an earlier post linked below, make a lot of sense for individuals.
In his view, brands are not better, but provide more certainty that something is good enough to avoid catastrophe, especially when time is short and resources are scarce. Brands signal a degree of dependability.
He offers eating at McDonald’s as an example of this strong, individual instinct for variance reduction. McDonald’s does not optimize your culinary experience in the moment, but instead its brand stands for an experience that is “predictably not terrible”: Today, as well as tomorrow and beyond, “the food will be as expected, it will not make you sick, and the bathrooms will be clean”.
Rory delivered a strong, and credible presentation in support of EE.
Given his background, and by the end of the presentation you may suddenly realize that he had defined EE as a brand.
Seeing Through the Lens of the Individual’s Experience
His business experience pivots on the ability to understand individuals correctly, and as he expresses it: (i) If you change the way people look at something, you change what it means to them, (ii) if you change what it means to them, you change their emotional response; and (iii) if you change their emotional response, then you change their behavior and their way of thinking.
Such changes amount to more than adding a bias to a mind-map of reality, they define the mind-map.
Rory articulates how we do not really understand what we see, but that instead we only see what we understand.
However, as discussed in an earlier post, the map is not the territory, but some mind-maps work better than other mind-maps.
Rory Sutherland’s presentation shows how EE changes the way people look at reality.
In the process, his presentation also changes the way people look at EE.
He sees EE as a new way to look at just about anything, and for the better.
Thus, he brands EE as something important that you should know about because it will improve the way you, and other decision-makers, look at things:
EE makes us see things through the lens of the individual’s experience.
The Differences Between the Individual and the Collective
EE quantifies Rory’s informed beliefs about the behavior of individuals, as well as the behavior of institutions.
EE recognizes two types of averages to estimate the growth rate of processes that combine a skill-based signal with random noise, and that develop as trajectories over time: (i) the ensemble average growth rate based on the number of observations in a dataset of such trajectories, and (ii) the time average growth rate based on the long-run observation of a single trajectory.
The ensemble average quantifies a collective growth rate that may not be available to the individual, and the time average quantifies an individual growth rate that may be different from the collective growth rate.
EE also recognizes several types of growth dynamics that drive such growth processes, including: (i) the additive growth dynamic, and (ii) the multiplicative growth dynamic.
For more details without the math, see the paper below. For the math, see its long reference list of EE papers.
Source: Gadenne, Francois (2021), Ergodicity Economics in Plain English, Retirement Management Journal, Vol. 9, No. 1, pp61.65
The difference between the individual and collective experience arises when a process displays non-ergodicity, i.e. when the time average growth rate differs from the ensemble average growth rate.
EE’s ability to look at just about anything, and for the better, may even apply to the way we look at the process of branding itself: Given Rory’s earlier connection between branding and dependability, could one understand branding as an ergodic transformation of a non-ergodic observable?
Rory’s Roar
Rory points out that the collective perspective provided by the ensemble average growth rate applies to institutions, and institutional decision-makers.
He also points out that the single trajectory perspective provided by the time average growth rate applies to individual decision-makers.
In non-ergodic systems, such as the economy, seeing through the lens of the institutional experience (the ensemble growth rate) provides a rosier view of reality than seeing through the lens of an individual’s experience (the time average growth rate).
For non-ergodic observables, the ensemble average growth rate is higher than the time average growth rate. In some cases, the ensemble average growth rate carries a positive sign when the matching time average growth rate carries a negative sign.
Think about it: same dataset, but opposite views of the meaning of the data: “Averaging wrongly means getting it wrong.”
Improving the expected value of wealth, or the expected value of the utility of wealth, or even the ensemble average growth rate of wealth does not necessarily improve the individual experience, because – and unlike the time average growth rate of wealth - these averages do not take into account the long-time shadow of the decision.
The aggregate loses touch with the individual experience. “Bad statistical appreciation of reality fails to understand the shadow of time on the human condition.”
Further, Rory points out that institutions see reality from the perspective of an additive growth dynamic, i.e. thinking linearly; and that individuals see reality from the perspective of a multiplicative growth dynamic, i.e. thinking non-linearly.
This further reinforces the difference in perspective between institutions and individuals, to the point of structurally contradictory decision-making in the presence of critical problems.
Rory even recommends that we read a book written by an anarchist anthropologist, James C. Scott, in order to understand the nature of the brand that stands opposite to EE’s brand.
Source: Scott, James C. (2020 ), Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed, Yale University
“Seeing like a State” to avoid blame is not the same thing as seeing like an individual to avoid regret.
Rory concludes that EE has a unique brand, the lens of the individual’s experience, and that it matters greatly because institutional decision-makers are currently seeing an ensemble average reality that does not match the time average reality of their customers, clients, citizens, and constituents.
At the end of each post, we ask ourselves the following question before we publish it:
“What is an individual member of the next generation supposed to do with this?”
Personal practice based on this post:
(i) “Would you like to know more?” Start with this link: https://ergodicityeconomics.com/
Minds are closing down under stress. People are tired of ideas. They want to know how to survive. “CTRI by Francois Gadenne” connects the dots of life-enhancing practices for the next generation, free of controlling algorithms, based on the lifetime experience of a retirement age entrepreneur, and continuously updated with Wealth, Health, and Statistics research performed on behalf of large companies.