[om-list] Limits of Prediction in the Natural and Social Sciences

[Mark Butler]

Most physical models treat the idea of intelligence as an irrelevant 
emergent property of deterministic systems at best.  However, the 
presence of intelligent free agents in a physical system must be 
something far more subtle more than quantum mechanical randomness, for 
two reasons, first fundamental randomness in an intelligence is 
completely incompatible with the concept of moral responsibility, and 
second, fundamental quantum mechanical randomness merely accelerates the 
apparent heat death of the universe, an eventuality we can hardly take 
seriously.

Free will in man (let alone God) cannot be a random or arbitrary 
fluctuation inside a deterministic machine, as many neurophysiologists 
would have it.   Nothing incapable of increasing the specified 
complexity of a system can be considered truly intelligent.  
Deterministic mechanisms, at best, can only preserve specified 
complexity.  Chaotic mechanisms, albeit productive of strikingly 
beautiful patterns (those created by cellular automata, for example), 
never increase specified complexity, either.

The metaphysical issue concerns the limits of predictive knowledge about 
the future.  Leaving the questions of divine knowledge and power for 
theology, what are the limitations of predictive calculations about the 
future based on partial knowledge of the way it is in the present?  The 
limits of predictive projection of macro-level social behavior years 
into the future is a serious policy issue for government and private 
parties alike. The market or natural price for all forward looking 
financial instruments - public or private - including bonds, equities, 
insurance, taxes and so on is based on a long term projection of future 
conditions by the parties concerned.

Current econometric models assume social stability and rational behavior 
- no major wars, no cultural decline, no moral collapse.  But a brief 
examination of history abundantly demonstrates that moral considerations 
are primary in the rise and fall of both enterprises and civilizations.  
Rational behavior is a key assumption of the Black-Scholes equation for 
the market price of futures - under adverse conditions, however, market 
participants do not behave rationally (famously bankrupting the 
centuries old Barings Bank during the Asian currency crisis a few years 
back).

But might we make much better predictions if we thought of people as 
imperfect moral agents, disregarding moral, prudential, and legal 
constraints on their behavior in proportion to the weakness of 
character, rather than assuming rational self interest and perfect 
obedience to law?    If we included an estimates of the level of 
morality of the traders, investors, regulators, etc, we ought to get 
much better econometric models - ones that can predict market behavior 
under conditions like the Great Crash of 1929 much better than we do 
now.  More importantly we ought to be able to make much more reliable 
predictions about the fate of nations and civilizations in moral decline.

We do this now, of course.  Nations that neglect moral considerations in 
the behavior of other states and countries do so at their own peril.  
The behavior of a single prince or potentate is hard to predict, but 
analytical models could tell us about the behavior of a market economy 
under laws and moral traditions different from our own.  Surely a 
generalized banking failure has a highly different character in Japan 
than it does in the United States.  One of the major challenges for the 
Japanese is that most economic research has been done in the context of 
the Western tradition.  Japan, despite all appearances in matters of 
commerce, has an entirely different one.

Utility theory is a well developed analytical theory of behavior that is 
easy to implement. If you want to predict behavbior in context of 
philosophical and political concerns, however, you need to model thought 
processes, not individual thought processes, necessarily (much too 
hard), but rather collective thought processes.  You cannot predict 
model international economic behavior under war conditions very well, 
for example, unless you keep track of the basic moral reasoning of the 
people in each country.  Political concerns flowing from those moral 
considerations are paramount in wartime.

This flows into game theory, where strategy can be modelled, but long 
term prediction is difficult.  Fundamental questions of diplomacy 
revolve around projections of victory in any international dispute, so 
anything would be helpful.  I don't mean such mundane things as 
preserving your foreign investments, either, but rather fundamental 
questions of life and liberty for people throughout the world.

Virtually every serious public policy question revolves around these 
considerations.  How big should the defense budget be? How much internal 
security is necessary?  How much regulation of private commerce is too 
much?  What about banking regulations? securities, foreign trade, 
monetary, non-profit, education, and the environment?  How much does a 
minor decline in average morality affect the stability of a complex 
civilization (sometimes catastrophically, apparently)?  How much would 
an increase in morality reduce the need for regulation?  What are the 
likely unintended consequences of any proposed regulation or 
deregulation on something as complex as the electrical power grid?

The most critical aspect of any model is how you keep track of what you 
don't know and the degree to which you do not know it. A proper 
treatment of entropy and ignorance using information theory, 
probability, statistics, fuzzy logic, etc. is fundamental to any 
scientific prediction about the future.  That and natural law are 
usually sufficient for natural science, but by adding an analytical 
model of basic moral considerations to now common models of economic 
self interest, ought to greatly increase the utility of analytical 
models in the social sciences. 

Comments?

- Mark