Dan Ariely: Why Humans Are Hard-Wired To Create Asset Bubbles

Renown behavioral economist Dan Ariely explain why humans are biologically wired to make irrational decisions when money is involved. It's a case of our evolutionary wiring interfering with the decisions we face in a modern world very different from the one our ancestors adapted to.

For instance, he explains how one of the easiest phenomena to create in a lab are valuation "bubbles". Our vestigial herding instinct encourages us to imitate the actions of those around us (e.g. bidding for a particular asset), which then strengthens that signal for others (leading to even higher bidding), resulting in behavior not justified by the underlying fundamentals of reality (asset prices destined to crash).

In this podcast, Chris and Dan explore the human cognitive triggers that have led us to our third major bubble in 15 years (tech stocks, housing, credit) and why our natural programming often works against our best interests. In certain cases, like the banking sector, bad decision-making has become so ingrained in our institutions that Ariely thinks the "clean slate" approach is our best option should we have the courage to deploy it:

In very general brushstrokes I think that most bankers are in fact inherently decent people. We just put them in situation in which their conflict of interest is tremendously high and their social norms are incredibly dysfunctional.

When you hear bankers talking about their customers as Muppets, for example, they are forgetting who they are serving. They are hired by the rest of us to do a particular job; and they forget this. And then they have terrible conflicts of interest. 

Imagine that I give you a world in which, if you can adopt a particular perspective on life, you could get $5 Million as a bonus. Wouldn’t you start believing that world? And then everybody around you is doing the same thing, and you have some justification for it by talking about financial market theory and so on. All of a sudden you could see how you could take good people and you could put them in this distorted way -- in the same way that we talked about how global warming is probably the perfect storm for inaction -- I think Wall Street is the perfect storm for allowing people to rationalize their own selfish motivations as if they are serving other people.

It is really, really terrible because we have not done anything to change the way we pay bankers. And we have not changed anything in terms of the code of ethics and morality.

On the consumer side, there is a tremendous loss of faith. We have been screwed and we know that we have been screwed. And we know that we are not trusting other people. And I think loss of trust is a central issue for this financial crisis and sadly nobody is trying to do anything about that. Human beings are incredibly forgiving, but nobody has really stood up and said, "I am really sorry. I made all of these terrible mistakes. I want this particular bank to start fresh and caring about people," right? Nobody has admitted anything. So we as consumers feel that there are these other people on the other side who have behaved terribly, which is true, and that are smug about it, and that nothing is different. And why should we trust them? And we do not.

I don't think it is a generational thing. I think there is a tremendous feeling of lack of control, agency, and helplessness. And the sad realization -- this is one of the things that came out of financial crisis -- is that it is much harder to start a new bank now. So young people are actually quite idealistic and I think people would have started new banks where they behaved very, very differently. But what happened is that it is really, really tough to open a new bank now. But I am still hopeful: I think that this anger and frustration just needs to be channeled in a better way.

I am not a religious person but the story from the Bible is that God made the people of Israel walk around the desert for 40 years until the old generation that worshipped the golden calf passed away. I do think that we need a new generation of bankers. I think you cannot take the old generation of bankers and rehabilitate them.

Recent history is not showing us that this is something we should hope for. But there is a real question of, How do we create a new generation of bankers that are going to think of themselves as the caretakers of society, rather than the rapists?

Click the play button below to listen to Chris' interview with Dan Ariely (42m:54s):

This is a companion discussion topic for the original entry at https://peakprosperity.com/dan-ariely-why-humans-are-hard-wired-to-create-asset-bubbles/

Great interview. I would suggest that some people know they are participating in bubbles but do it anyways to go along for the ride, and hope to get out before it bursts.
For me personally, the biggest change in outlook came when I abandoned the belief that humanity would follow a trend of continual advancement and improvement. From the point onwards after I accepted that the data does not support this view, and that humanity will peak and decline to some as-yet unknown stage at “the bottom”, it became much easier to interpret and accept information.

I do have one disagreement with the interview, however, and I’m going to challenge one of Dan’s “beliefs”. And that is his suggestion that we need a new generation of bankers that are better at taking care of society.

The analogy I like to use from ecology is the parasitic isopods that often live on various tropical coral reef fish, most noticeably when they latch onto the forehead of a squirrelfish. The isopod stays there its whole life and sucks the blood of its host, but doesn’t kill it. The fish suffers from low red blood cell counts, and basically everything else you’d expect from a constant draining of your blood.

Is that parasite bad? “Evil”? No, it’s just consuming resources no differently than the squirrelfish is when it eats other free swimming isopods; it’s just that the squirrelfish’s food dies as soon as it hits his mouth. Does the squirrelfish need the parasite? Obviously not. Does the squirrelfish realize he is being parasitized? How would he? He’s never known anything different. “Oh that thing’s always been on my head, that’s the way it must be. It’s not bad, is it? It helps me swim straight right?”

I ask: why do we need banks? To give us credit? And credit is what we need to get things done? To grow? Why do we need credit to grow? Why does our economic health depend on getting credit from insolvent institutions that have assets of only a fraction of what they are lending out? Because the average person has a net worth of zero and must go into debt to actually do anything or build capital, that’s why. In other words, because we are debt slaves.

If we weren’t debt slaves and actually owned assets, then people would just pool their money together to get new things done – no banks needed. Formalized credit emerged when the rapidly growing economies of Europe a few hundred years ago were conquering the world and rapidly industrializing with the industrial revolution. Gold production could not keep pace with the growth of the real economy and credit was required to expand the money supply and avoid deflation. Credit facilitated growth in the absence of enough gold; credit is not necessary for healthy economic activity. Since then, the twin belief has been carried down through the centuries that economic growth is necessary, and that credit is what creates growth. But that’s simply a result of the last 300 years of our financial system.

Bankers never were and never will be caretakers of society. They are parasites, and nothing more. As noted, they aren’t inherently evil (although I’m sure those types are attracted to the positions…); they are just the expression of one aspect of human behavior that presents itself and destroys society when society allows that particular environment to be created.

I wonder if this is a potential interview topic. It’s kind of like the Stockholm Syndrome. How and why is it that the 99.9% masses have been duped into believing that their abusers, their parasites, are somehow necessary for survival? If only they'd just be nicer parasites! I think there would be some interesting psychology there, how many of us feel the need to “look up” to a higher monetary power and live in subservience to it, an inherent trust in our leadership. I’ve even had a good friend of mine (the only one I have managed to convince to buy some G&S, BTW) suggest that the reason Dick Cheney got into the positions he did was because he was a good leader!

I think that also leads into how society is in denial of the obvious evidence that we are heading for disaster, both financially and energy-wise. The average person believes that if there was a pressing need for change right now then our leaders would alert us and make the changes. Never mind that our leaders these days are becoming increasingly sociopathic, incompetent, and in many cases less intellectually capable than the average person. Beyond that, our political leaders who are now in bed with the emerging global corporatocracy have every incentive to hide the truth from the people so that they can benefit from the coming collapse, both monetarily and politically.

May the best of your yesterdays be the worst of your tomorrows.
I have long come to the realization that we need big brains to rationalize our stupidities. (Mia Culpa). How do you rationalize WW1? Hard- but we make a good fist of it, which is a magnificent feat.

Everything discussed was a model of reality, by necessity. It is good that the model is tested against reality.

I wonder if Prof Dan is familiar with the work of Dr. Iain McGilchrist?

Knowing about the great shift in the balance of power between the Master and His Emissary that happened as a result of the Enlightenment I distrust Models, even my own. They are as disposable as tissues.

I second the idea that everyone is trying to get us to spend money for short term gratification. Every time I get on my bicycle and go into town I come back less a hundred. And I pride myself on my frugality! The best way I find is not to get on my bike.

Dr Dan says he is not religious. My god is the God of the Yawning Chasms of Unknowing. It is only by dancing along the edge of the Chasm do we make progress-at the risk of falling off into Madness.There is no safety net. The dancers are my heroes.

Here is a visual analogy ripped out of a representation of the Cosmos on its grandest scale… What we know is represented by the filaments of matter and dark matter. What we don't know is the inexpressibly large voids between them.

Arrange the matter how you want, it will not make any difference to she grandeur of The Void.


At this point only fire and pitchforks will fix the bankers. They will try to destroy us all before they give up their power and everyone should know this. Don't expect rational or moral thoughts from them. They dont have the higher intelligence required to be good.
Only countries should have the power to create money.


Dan's comments at the end, however, indicate that he hasn't delved deeply into the impact of the debt bubble demise.  He is also ignoring resource limits to growth.
What is the incentive for a young person, or anyone for that matter, to enter the stock market or put money in the bank.  The stock market is at all time highs and banks are paying negative real interest rates.

Putting money in an IRA gives the government control over the funds.  When things get seriously off track, I expect the government to change the rules on retirement accounts.  Put more directly, I expect they will steal our savings.  They will likely take over IRAs and 401Ks and redistribute them.  It may be a more glaring wealth redistribution than zero interest rates, but the end result is exactly the same, rob from the savers to give to the non-savers.

No, I don't think a new generation of bankers is anywhere on the top ten list of things we will need in order to work our way out of the coming mess.


Thought provoking piece. Great Interview. Some underlying assumptions on Climate Change and Market Participation that might need a closer look.
 Don Ariely said "And it has been really sad because lots of people have basically taken their money out of the market. They are putting it aside. And now they will never be able to retire. And I saw some report on this yesterday that shows that young people do not want to put money in the stock market."

Quite the opposite of making me sad, this behavior of not participating in the rigged markets is greatly inspirational to me and gives me hope for the future. This is a bold move to not follow the herd. It does not necessarily follow that taking money out of the market will prevent retirement. That may prove to be the courageous action that allows some people to safeguard their assets and avoid participating in a market crash. Hopefully if Don becomes more familiar with the variety of investing strategies discussed on this forum and with the history of money, he will not be so quick to assume that we all must be members of the stock market herd. 

These are his words below.

" Because if you think about it the natural inclination is to see what other people are doing and to try and follow other people. In psychology this is what is called "social proof." It is about our herding instinct. It is about the fact that you see lots of people waiting in the line to a restaurant and you think to yourself this must be a great restaurant; let me stand in line as well."

The stock market is not necessarily a "great restaurant" …It might end up Eating Your Lunch.

What the heck is that? There is no incentive to save anything in the bank. With all the fees and charges applied to banks we are already at the point where is costs more to have money in the bank rather than the alternative. Physical cash has lost some of its value as its no longer okay to pay bills with it. Companies only accept digits on the computer; therefore, requiring participation in the banks.
Fortunately gold and silver provide a decent savings vehicle for those of us that recognize the value there, but the taxes involved and ownership risks make it uncomfortable as well. I am slowly introducing a couple friends of mine also in their early 20s to alternative investment approaches, but it feels very awkward and unfamiliar to them, as well as to me.

It seems that economics has become our new religion.  Materialism is a poor imposter for a spiritual and cultural foundation for society.  The questions wrestled with here are not new, they have been written and talked about for millennia, but we have rejected traditional sources of wisdom in favor of our love of power.  Awareness of the intensity and proclivity that we have for self delusion and living without beliefs have long been the foundation of deeper spiritual practices although they have become distorted to mean just the opposite.
The social contract has long been broken and the materialistic belief in "survival of the fittest" has been the justification for all manner of corruption.  We have projected our ugliness onto the natural world and now have used that illusion to justify our own brutality as "human nature".  If we can stand for a moment, without the constant rumblings of our self justifying inner dialog, in direct contact with the present moment, we can start where we are, with our own ugliness, and move on from there.  Perception without judgment (entangling and unexamined believe systems) leads to direct action on issues like climate change and everything else that appears to be a problem when we have a distorted view of "human nature".

We don't need apologists for the current corrupt system, hats off to the millennials who have not bought into the system and hopefully never will. As Mark_BC pointed out, we have never, even metaphorically, as a society asked the financial industry to serve the role they are currently operating in: 


So, they forget who they are serving, right? That they are basically—they are hired by the rest of us to do a particular job. And so they forget this. And then they have terrible conflicts of interest. 
I don't think that they have forgotten anything, they are doing what they have always have intended to do.  I agree that those within that industry are not evil any more than the rest of us, it is the cultural story that is completely broken.  But they do embody and help bring to awareness the emptiness and  bankruptcy, both figuratively and materially, of our current cultural paradigm.




When there is opportunity, the dumbest concept is to not participate in it because it effects your quality of life, standing in society, etc. In the wild, resources are scarce and it is the most natural thing to compete for the resources available to ensure to viability of your position in society because those resources might now be there tomorrow. If you do not participate, you lose your competitive edge and your fitness might deteriorate making you incapable to compete for future resources.
When it comes time to a resource decline, the most competitive and most fit organisms will survive and this removes the weak from the population and which allows the population to recover in another growth cycle. Chaotic cycles are very important for this reason because it creates the bottlenecks required for progress. Bottlenecks created by food, disease, or environmental changes allows for more resilient qualities to appear in the population. 

When we created an ecological bottleneck by spraying pesticides on our crops, 90-99% of the population will die and humans associate that with success. However, the remaining 1-10%, once a minority in the population will repopulate with a resilience to the pesticide making that same pesticide useless. This is important because this is how the world works. We need to recognize that we are participating in a natural ecological bottleneck, however different from anything the planet has seen before.

The city of Buffalo dose to a point ? Went pay the water bill yesterday all the city wanted was cash or check, no credit cards or debit cards. Somebody there has an ideal about what is going on.

Mark_BC, I think you are absolutely correct that we no longer need banks. Crowdfunding is enabling direct investing, eliminating vulture capital (venture capital) and banks; the technology exists to do the same for home mortgages and any other investment. As for banks creating better yields for their Muppets (customers), numerous studies have found index funds generate better returns that 99% of fund managers.Meanwhile, banks' trading desks make money every day, day after day–how is that possible in efficient markets? Obviously it's all gamed–high-frequency trading enables returns not from brilliant trading but from built-in advantages.
If we simply eliminated banks, we as a society would be much better off as the parasitic sector would vanish.  In the meantime, we can start bypassing banks as individuals and enterprise: pay people with PayPal or Dwolla, pay off your mortgage and don't get another one, manage your own money, etc.
Buggy whip manufacturers considered their industry 'essential" too… the fact is technology has leapfrogged banks. Whatever banks do, software can do better, faster and cheaper. Getting rid of parasitic sectors, fraud and waste is an under-appreciated way of restoring what everybody wants–higher net incomes, prosperity, etc.

Thanks for an outstanding interview!  I have been busy at work lately, so I haven't taken the time to express my gratitude for the recent OTC conversation with Charles Hughes Smith and many other of the recent podcasts and articles.
I have already shared the link with my colleages and students in our school's Theory of Knowledge group.  Theory of Knowledge is a 12th-grade level IB course roughly equivalent to philosophy, and behavioral economics fits perfectly within our curriculum.  We already see it a little bit when we look at ways in which language can shape thought, as there is an article, the name of which escapes me right now, that mentions work by Kahneman, Tversky, and Ariely in the context of how framing a question can shape not only people's responses, but also their perceptions, in some cases.  But, we would benefit from bringing a little more behavioral economics into the course, so, thanks again!


[quote=FreeNL]At this point only fire and pitchforks will fix the bankers. They will try to destroy us all before they give up their power and everyone should know this. Don't expect rational or moral thoughts from them. They don't have the higher intelligence required to be good.
Only countries should have the power to create money.
Of course the bankers will never cede their power and "share" of the economy willingly.  No group ever seems to do this, be they bankers, politicians, or boy scouts.  The 'natural' inclination is to hang on because, as Wildlifetracker says, the rule of the world is either you consume (or cling to) the resources in front of you or someone else will.
But the amount that bankers have assumed for themselves is vastly larger today than at any other point in history and is simply too large.  Most counter intuitively, even as technology has driven down the operating cost of literally every single other industry, the financial industry, which should be one of the industries most likely to benefit from technology driving down delivery costs,  has thoroughly bucked that trend and actually become more expensive over time, not less.

Historically, the unit cost of intermediation has been somewhere between 1.3% and 2.3% of assets. However, this unit cost has been trending upward since 1970 and is now significantly higher than in the past. In other words, the finance industry of 1900 was just as able as the finance industry of 2010 to produce loans, bonds and stocks, and it was certainly doing it more cheaply. This is counter-intuitive, to say the least. How is it possible for today's finance industry not to be significantly more efficient than the finance industry of John Pierpont Morgan? The short answer is that Wall Street, for the last thirty years or so, has been skimming prodigiously from the top. The graph above shows how the total economic cost of financial intermediation grew from under 2 percent in 1870 to nearly 6 percent before the stock market collapsed in 1929. It grew slowly throughout the postwar expansion, reaching 5 percent in 1980. Then, beginning during the deregulatory years of the Reagan administration, the money flowing to financial intermediaries skyrocketed, rising to almost 9 percent of GDP in 2010. This is exceptionally counter-intuitive, as Philippon points out. Over the last forty years, information technology has increased efficiency and lowered costs throughout the economy. Retail and wholesale trade, for instance, have both shrunk by about 20 percent as a share of GDP since 1970, thanks to better technology and improved economies of scale. (Source)
Yes, this is truly bizarre.  How is it that technology, the thing we most value as a society, has not managed to reduce the burden of finance, of all things? Furthermore, in any industry with high margins and that does not require much in the way of hard labor there is a rapid intrusion of new entrants that drives down the salaries and profitability until the margins shrink to a very competitive level. But not in banking.  There we find that salaries are more inflated than ever, even though there must be tens of millions of people willing to work those same jobs for less pay.  Happily. The reason I suspect is that banking has done a bang-up job of working the lobbying angle to assure that the regulatory barriers to competition are extremely high.  It's a club and they've built a very big fence around the whole thing. But, that aside, paying 9% of an entire economy to a class of people that provide no true value add, produce absolutely nothing, but merely skim, is akin to the burden Rome experienced in trying to field armies in distant lands. It's just too much, it has to be reduced, or it will kill the host.  But, human nature being what it is, the odds of that reduction happening willingly, before the host collapses, are not very high.   Perhaps that's too cynical of me, but I think not.   It feels more realistic than anything.  So we watch, and observe and prepare.

Dear Chris and all,
As I said above, I really appreciated this podcast.

Chris, you mentioned that behavioral economics has informed your decision to avoid discussion of global warming, here in this part:

Chris Martenson: Yes. You really shifted my views a number of years ago when I was thinking about climate change and that climate change is a difficult motivating topic because it lacks some features. It lacks a face, or worse, the face that we might associate with it is staring at us in the mirror. It is abstract. It is distant. It is not near and immediate. That there are a variety of things around that story that would require transforming it out of just the strict statistical data into a more human accessible compelling sort of an argument. And what I am wondering then is to get back to this idea is, what are the best ways of motivating people towards taking new actions? That is the work I care about, but marketers would care about it the same or doctors. We could be talking about—we want to try and motivate somebody towards maybe weight loss or saving more money for retirement, reducing excessive consumption, whatever that new action is. What does behavioral economics tell us about the best ways of motivating people to new actions?
When you explained your "relative absence from the Climate Change arena" in response to the thread following your interview with Mark Cochrane, you said the following:

My relative absence from the Climate Change arena reflects very little about my own views on the matter scientifically, but quite a lot about my views on the utility of the AGW story to lead to the sorts of changes I desire to see in the world.

Behavioral economist Dan Ariely convinced me that humans have a certain amount of hard wiring and that wiring responds better to some threats than others.  If we want people to take something seriously enough to change their behaviors, then the threat we are describing is most powerful if it:

  1. Has a face.  We combat things like Hitler, Saddam, even wolves, because they are easy to identify in our brains.  We are less successful with things like climate change, because there's nothing we can see and touch directly. There is no single foe to defeat.  Worse, the only face we can legitimately attach to the issue is the one we see in the mirror every morning.
  2. Is immediate and visible. The nearer and more immediate the threat, the faster we respond to it.  A saber tooth tiger gets more of our attention than a slowly advancing (or retreating) glacier.  We will dive into a body of water to save a drowning child we see, but barely give a second thought to children dying halfway around the world from fully preventable causes.  Evolutionarily this makes perfect sense, but it is a distinct liability for a species with the ability to fundamentally deplete resources that took hundreds of millions of years to accumulate over a few hundred years.  Similarly, discussions about potential changes in 2100 tend to lose a lot of people.
  3. Is concrete.  Statistical arguments really lose most people.  Even the idea of smoking, with its very high statistical chance of leading to illness and premature death, is not compelling enough to get people to quit or to not take it up at all.  The point here is that humans do better with certainty than with uncertain arguments, even though statistical methods are really solid and businesses and financial people use them every day to great effect.  Uncertain, or statistical, arguments are far less effective than you might expect based on the (severity) x (likelihood) outcome of some things like climate change.
  4. Is something we can control.  This means we have some sense of agency in the cause.  If it's something that we feel we have very little control over, that serves to blunt our tendency towards action.  The things we can control are the ones we react to best and with the most vigor.  What sense of control does any one person have in the climate change story given that most think that even if their entire nation gave up burning fossil fuels, China would simply do it instead?                                                                                                   The full post is here

Behavioral economics aside, any handling of the third E (environment) without global warming will simply not meet the rigorous data-driven standards of the rest of the Crash Course.  While it may make sense to exclude climate change from the section on the environment - presenting the reader/viewer with a Third-E-lite - for purposes of making the narrative easier for a reader/listener to handle, this decision does not hold water on the level of an well-conceived, objective analysis of the major destabilizing threats we face as a civilization.  Also, I am not convinced that the behavioral economics criteria you listed above is the only reason that global warming has been excluded.  After all, neither peak oil nor ocean acidification has a face, etc, yet you have acknowledged that both are significant threats to civilizational stability.

I can think of two reasons that this is important and worthy of addressing:

1.  Because the Crash Course is an important part of a growing intellectual body of work - both academic and less formal - around the immediacy of various limits to growth.  This body of work draws upon a tradition going back to Thomas Malthus and includes such modern thinkers at M. King Hubbert, Dennis and Donella Meadows, Al Bartlett, Charles Hall, Cutler Cleveland, Joseph Tainter, Ken Deffeyes, Kjell Aleklett,, Jeremy Grantham, Gail Tverberg, Bill McKibben, James Hansen (and the thousands of other peer-reviewed climate scientists), Mark Lynas, Naomi Oreskes and the hive-minds of Zero Hedge and the Oil Drum.  While all of these thinkers have made outstanding contributions, Chris, you are unique in your popularization of the concept of the three E's.  This is a powerful and important new paradigm.  And while the trademarked three E's may include or exclude anything that PeakProsperity wishes, any accurate and realistic overview of the third E must include anthropogenic global warming as the keystone, as climate is the linchpin and the trump card of environmental stability and/or instability.  Whether you intended to be or not, Chris, you are clearly part of an important group of people who are presenting data and creating narratives that do a better job explaining the world in which we live than do the legacy paradigms that are still the mainstream conventional wisdom.  As you and Adam have intimated, it is likely that a day will come when a much greater percentage of people take interest in these alternative paradigms.  When that happens, it is my hope that the third E includes climate change because that will give people the most realistic, data-driven overview of major destabilizing shifts.

2. Because there are practical and real differences as to how individuals, firms, other organizations, and government policymakers will respond to the three Es whether or not climate change is included.  In other words, it may be that installing solar hot water heating makes sense whether or not one believes in AGW, but there are many other outcomes that will be different whether or not the destabilizing power of climate change is recognized.  One simple example is where to buy land.  If one believes that the current dry and hot conditions in Australia and California are simply due to natural variablity, then it might make sense to buy farm or ranch land in New South Wales or California's central valley.  If, however, one believes that it is likely that these place will become hotter and drier due to global warming, then it makes more sense to buy farmland in western Washington or Tasmania.  Another example has to do with energy investments.  If one believes that oil is central to the functioning of our fast, bright, and warm civilization, but does not believe in AGW, then it very well might make sense to exploit the Canadian tar sands.  On the other hand, if one believes that exploiting non-con oil reserves means game over for the climate, then one might choose to support political leaders who seek to minimize such exploitation, and one may also vote with one's wallet by not buying stock in Trans-Canada or other corporations that are exploiting non-con oil.

OK, I'm out of time, so I'll post this as is; sorry, no time to edit.  Chris, I trust that you know by now how much I admire your work, so I intend no disrespect.  Nor am I a climate zealot, who requires everyone to believe the same thing he believes.  In fact, I probably spend too much time focusing on other aspects of the three E's.  Nonetheless, the data in support of AGW is very strong on three levels:  1. paleoclimate 2. what is happening today  3.  the results of models   The reality of this shift is almost universally acknowledged by climate scientists.  So, whether or not it's hard for people to stomach, any robust overview of the third E should include - if not feature - AGW.

Thanks again for all of your great insight.


P.S. I have been told by a CM/PP veteran that global warming was a topic that produced many virulent flame wars at the site a few years ago.  As I only arrived here circa March of 2012, I did not experience that. I am happy to engage in a civil and respectful discussion of AGW on the Definitive Climate Change thread.  That thread has been very quiet since Mark, Stan, Tony, Doug, Eric, and others have not posted very much there lately.

Forgetting the methane toxic bomb, climate change involves a massive redistribution of water throughout the world that will provide great opportunity and great loss within a short period of time. 
The BIGGEST trump card (other than the methane death bomb) is climate change in combination with power plants. NOBODY wants to talk about because NOBODY is going to do anything about it. 


Coastal areas are a great place to have them… until the ocean floods them.


The reality of the Climate Catastrophe is smacking the Poms and the Californians upside the head right now.
Over on ZH the peanut gallery interprets the Climate Catastrophe as a blue team versus red team thing !? Can you imagine how inane they look to an outsider?  These people identify themselves by their allegiances. (Divide and Conquer, anyone?) So much for rugged individualism.

Never mind we will be able to rationalize the CC too. Or Not-see the Methane Bomb.

I cannot understand our inability to offer whole-hearted support to those who dance along the edge of the chasm. We are like the drunk searching for his keys in the lamplight. If the keys are not in the lamplight then they might be somewhere else.

Max K. and Stacey mock the policy makers and M.Keyser discusses the three E's. Other people are beginning to own the topic.


The species best suited to "survive" are those best at cooperation, not those that "out compete" their neighbors.  We give lip service to terms like the "web of life", but don't seem to grasp its meaning.  This not an academic debate, but a point on which the survival of our species depends.
Systems based on cooperation tend towards equilibrium, those on competition towards self consumption and destruction.  The whole economic theory of the stability of "free" markets and their supposed tendency towards equilibrium was based on some degree on this flawed misconception of the stability of competitive systems and the results have been telling.

To find ourselves we must first lose ourselves, whether we do it on our own or it happens to us.  Our inability to evolve as a species is playing in the creative destruction that we now see playing out before our eyes. The only question that matters now is whether we will respond with love and compassion or will let ourselves be consumed in the self destruction of fear and self interest.

There is a lot of give, and a lot of take, and lot of variables. It's chaotic.Typically species that are best suited to survive are resource opportunists which have a large ecological range and have a large population and have a lot of genetic diversity. These qualities allow for a species to survive chaos in the form of disasters, disease, food scarcity, etc.
Species less likely to survive are resource specialists (single-resource consumers) which have a small ecological range and have a small population and have a lot of inbreeding because they are susceptible to disasters, disease, food scarcity, etc.
Humans most certainly are adapted to survive. However, despite our opportunist behavior, we have a single-resource based relationship with fossil fuels. It doesn't matter how big our ecological range is, or how large our population is, or great our genetic diversity is. Everywhere on Earth, humanity has this relationship with oil and it puts the entire human race in jeopardy. 
I would prefer equilibrium though. Chaos is brutal

The thing about complex systems is that they are inherently unpredictable.  While that sounds like a bummer, the beauty embedded in there can be found in what are called 'emergent behaviors.'
For example, I could give you all the atomic data on oxygen and hydrogen, the bond angles, orbital shell descriptions, polar moments and anything else you might want to know about the combination of two simple atoms and water would still surprise the heck out of you.

Liquid water itself is an enduring mystery especially at the truly micro level, but ice and snowflakes have what appears to be an infinite set of forms that are delightful and surprising.  All of those beautiful forms are 'emergent behaviors' that arise from the few relatively simple rule sets that define how water bonds form.

If even predicting how two simple atoms in combination will form and reform defy our predictive and intuitive abilities then what can we say when dozens of atoms combine into millions of molecules, interacting across millions of life types numbering in the quadrillions - each level of which has not a simple rule set, but a very, very complex rule set that includes feedback loops - are all in motion at once?  

Not very much predictively it turns out.  But we can observe and that's still where we are as humans…in the observe stage.

That simple rules can create extraordinary complexity is not the exception, but the rule of the universe in which we live.   Awesome!

The bummer, such as it is, is that instead of remaining humble and in awe of the complexity of simple natural laws that we humans think we have the ability to predict and control outcomes when there's pretty much nothing in our history to support such confidence.

As always, I think we will continue to learn and nature will provide plenty of learnings and surprises along the way.

Here's one.  Wolves change rivers.

Say what? Crazy talk?



Dear Chris,
I share your awe of complexity in the natural world, and the way that wolves change rivers is a nice example.  I trust that Arthur Robey, the grand master of complexity and outside-of-the-box thinking here, would also appreciate it.

Nonetheless, to cite complexity and call for humility in response to a request to include climate change as part of the third E is not consistent with the approach that you have developed.  So, while complexity is certainly awe-inspiring, it does not justify excluding climate science from the third E.

The reason that this is the case is that the core competency of Peak Prosperity is to help people make sense of major trends of our complex, emergent civilization. The human mind is even more complex than many, if not most, aspects of the natural world, which is a big part of the reason why economics and the other social sciences are so hard to get right.  That means that any future economic outcome should be very hard to predict.  Does that mean that PP is evincing a lack of humility when it makes economic predictions and makes recommendations as to how to preserve wealth?  I don't think so.  I appreciate all of the general forecasting and advice that you give.  Even if your timing has been a bit off in some cases, which is normal for any attempt to forecast a trend in a complex system, I concur with your general economic prognosis and I have allocated my (very humble) assets accordingly.  While I had some general inkling that I should invest in this way before finding PP, your numerous articles and podcasts have given me a much deeper understanding of the likely instabilities in our economy.  

Having said all of that, it is possible - due to complexity - that the economy does not develop in the way that you have described.  Maybe there will be a miracle breakthrough in energy production that allows us to postpone the age of limits for another few decades or centuries.  Maybe bitcoin will be the new gold, and all of the stackers will have misallocated their capital.  Maybe people will just start living mostly virtual worlds online, and by doing so, dramatically reduce the amount of resources that they consume.  While all of these things are possible, I do not assign any great probability to them.  More importantly, I have to make decisions about how to save and invest.  Not deciding, remaining agnostic, and leaving my savings with mainstream fund managers is also a decision and a type of action.

In other words, in spite of complexity, humans must continue to make decisions, many of which will affect their future position.  I assume that most of us here at PP take the information you offer into account when we make decisions having to do with the three E's.  This is from the opener at the beginning of each PP podcast:

Up next, fresh ideas and insights into the factors that are driving the world and shaping your future.
PP is clearly about making sense of complexity, even if that's hard to do.  Your approach here is to combine data driven analysis, common sense, a warranted suspicion of mainstream narratives,  and a well-informed, generalist's perspective to provide a big-picture look at where we are likely to be headed as a civilization.  Therefore, to play the The Fool on the Hill card by avoiding the climate question by citing complexity is artful legerdemain, and is not consistent with your generally robust and well-informed approach to big problems.

If anyone is interested in having an evidence-driven discussion of why complexity does or does not refute the findings of climate science, I would be happy to do so in Peak Prosperity's Definitive Climate Change thread.