Not the answer being looked for

Can you answer Manolo Makaveli’s question: “What are the limitations of market intelligence?”

The average IQ in a population is, by definition, 100. Half the people are more stupid than that. Markets are, therefore, not notably intelligent.

Their saving grace is that it’s the more stupid half that always ends up occupying the decision making positions in any non-market system.

19 thoughts on “Not the answer being looked for”

  1. So Much For Subtlety

    The average IQ in a population is, by definition, 100. Half the people are more stupid than that. Markets are, therefore, not notably intelligent.

    In the interests of pendantry, can I quibble in the most annoying quibblish way possible?

    It does not follow that half the population is below average, depending on what you mean by average. Is 100 the median or the mean? If it is the median then half the population lies on either side. But IQ distribution may not be symmetric. It is likely to be bound both below and above by values it is hard to measure. If so, the mean may not be the median.

    If Michael Jordon has his photo taken with a bunch of pygmies, the median height will be quite short. But the mean will be taller than all but one.

    However markets learn. Markets observe. And not everyone gets an equal vote. Markets are not swayed per head of population but per dollar invested. A single man with a large mutual fund has a bigger impact that six guys with the spare cash from the kitty. If someone is known to know a lot, he will become a market maker. Others will copy him. So it is likely that the richer and smarter people sway markets a lot.

    In other words, markets are likely to be much smarter than the average person.

  2. Does China count as a non-market system? They make heavy use of intelligence tests for both civil service and CCP entrance exams, with the result that the people in decision-making positions usually are the brightest.

  3. . . . it’s the more stupid half that always ends up occupying the decision making positions in any non-market system.

    Not true. It’s a small group that decides things and their intelligence level is high. They design outcomes that benefit themselves.

  4. @ SMFS

    The range of human IQs is usually shown as a bell curve so it’s symmetric around the 100 point mark (at least for WiPepo – higher for the East Asians and lower for those of African descent).

  5. “The average IQ in a population is, by definition, 100. Half the people are more stupid than that. Markets are, therefore, not notably intelligent.”

    But I do believe, from probably 80-something upwards, that people are reasonably good at figuring things out in terms of self-interest. I also think lots of IQ-heavy people aren’t particularly good with predicting things, designing real world things etc.

    “Their saving grace is that it’s the more stupid half that always ends up occupying the decision making positions in any non-market system.”

    The problem there isn’t cleverness, it’s experience. Very few politicians have any experience of operational management. Many of them came from jobs where no-one gives a shit if you’re right or wrong. I’m sure Matt Hancock is cleverer than me, but he doesn’t know why you don’t build your own software solution if there’s a good off-the-shelf one.

  6. “it’s the more stupid half that always ends up occupying the decision making positions in any non-market system.”

    We watched ‘The Death of Stalin’ last night. It’s pretty good, isn’t it? Insofar as one can pray a comedy in aid of Tim’s argument it supports it pretty well.

    But a gloomy thought: the huge turnout of Russkis for his mourning and funeral – what Democratic politician has ever attracted the like?

  7. Is the relative intelligence of the “market” vs those who would control the market really the issue. The market is basically people and companies making decisions that they think will work to their benefit. They may get it wrong sometimes or be swayed by advertising, but largely they are seeking to take care of themselves and their families. The evidence is weak that those who control the market have much concern about the well being of others. The conclusion is let people act in the market as it suits them. They’ll make decent decisions more often than the controllers.

  8. Intelligence is a good approximation to the bell curve for those close enough to the ‘average’ (mean = median = mode for a true Gaussian distribution). But, in reality, there exist individuals 5 standard deviations above the mean (= IQ of 175, by definition), but nobody 5 sd below – 2 sd below (IQ below 70, i.e. the bottom 2.275% of the intelligence distribution) used to be defined as ‘moron’.

  9. @ dearieme
    we watched it a year or so ago: yes it’s good. But, FYI, it’s not supposed to be a comedy.

  10. @ Chris Miller
    +1
    The choice of a number for SD is arbitrary but most choices have been influenced by a wish not to look idiotic by identifying anyone as having an IQ <0. I have certainly known people who were more SDs above the mean than X where X is the number of SDs below the mean where a human being is incapable of independent existence (not just a moron, too stupid to spoon food into his/her mouth).
    It follows that the distribution is not quite Gaussian so median < mean and a majority of the population is below average.

  11. “it’s not supposed to be a comedy.” Supposed by whom?

    WKPD: The Death of Stalin is a 2017 political satire black comedy film written and directed by Armando Iannucci …

  12. Does China count as a non-market system? They make heavy use of intelligence tests for both civil service and CCP entrance exams, with the result that the people in decision-making positions usually are the brightest.

    But if they can’t disagree with the bosses, what good is their intelligence?

  13. Bloke in North Dorset

    Mrs BiND is a member of Mensa and I’ve been to more than a few meetings and gatherings and used to read the magazine. The only thing it is a predictor of is an ability to do well on IQ tests.

    In one mag some asked how the Chinese managed to make a compass that pointed south. The regular lunch we went to for one group had them talking about crystals, one guy drank silver filings every day and all sorts of other nonsense. (Has anyone done systematic IQ tests on conspiracy theorists because I wouldn’t be surprised if they’re populated by Mensan equivalents?)

    The most interesting and accomplished amongst them were the partners and Mrs BiND usually came and sat with us.

  14. @BIND

    I happen to agree that high IQ people aren’t necessarily rational or street-smart, and there’s no guarantee at all they’ll turn out to be particularly interesting or “successful” people. I think @bom4 speaks a lot of sense higher up the thread. Human society is a complex environment in which a variety of skills, traits and experiences can all contribute to different versions of success. But I wouldn’t go quite so far as saying “The only thing (IQ) is a predictor of is an ability to do well on IQ tests” – there is a lot of psychometric evidence that speaks against that.* Perhaps it is fairer to say that higher IQ is a necessary condition for certain kinds of success, and a helpful condition for many others, but a sufficient condition only for being good at IQ tests.

    * Having said that, since IQ is particularly well-correlated with academic “success”, I do wonder how strong its effect would be on career-related “success” in a society that was less blatantly – and often unnecessarily – credentialist. Anyone know some good data on this?

  15. Bloke in North Dorset

    MBE,

    Yes, but my comment was (mostly) tongue-in-cheek.

    Its one of those Monty Python’s Professor of Logic situations*: all (well most but that doesn’t work) successful people have high IQ, but not all people with high IQ are successful.

    *The last scene was interesting from the point of view of a professional logician because it contained a number of logical fallacies; that is, invalid propositional constructions and syllogistic forms, of the type so often committed by my wife. “All wood burns,” states Sir Bedevere. “Therefore,” he concludes, “all that burns is wood.” This is, of course, pure bullshit. Universal affirmatives can only be partially converted: all of Alma Cogan is dead, but only some of the class of dead people are Alma Cogan. “Oh yes,” one would think.

  16. Bloke in North Dorset

    I might add that my situation was very selective – as a general rule successful high IQ people don’t waste their time at the sort of gathering we used to attend.

  17. Intelligence is just a tool to be used toward a goal, and goals are not always chosen intelligently.

    Protector – Larry Niven

  18. @ MBE
    It would appear that it is not sufficiently correlated with career success to be worth using. May years ago (when I was, literally, in short trousers) ICI – as a science-based company – decided to test this idea and got all their executives to take an IQ test. They then decided not to subject job applicants to an IQ test because they thought that it wasn’t worth it. Anecdote: at the largest site four guys handed in their answers and walked out half-way through the exam sitting and were reported as having IQs “some unknown number above 180”; fairly obvious who three of them were, I later made a guess about who could be the fourth – none of them moved out of their specialisations into top management.

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