Of modelling Human beings and pseudo random number generators

While have a chat with my friend Abhishek over my previous post on irrational behavior of humans, I started thinking on how and if humans can be represented by random numbers (Afterall each one us is unique and essentially random).

I believe (as do a lot of evolutionary scientists) that our reaction to any stimulus depends on a lot of factors, like the genes we carry, the natural environment we have lived in, the kind of thoughts we have, our experiences, stimuli from the recent past etc. Evidently, there are far too many variables that can affect our decisions.

So is there a way to this apparent madness ? Can we call these effects totally random? Abhishek sure seems to think so. But I doubt it. If everyone had totally random characteristics, then we would have had a zero (neutral) average reaction to any stimulus. But, on the contrary, masses behave more in unison. So the seemingly random "personality trait numbers" have a non-zero mean. But this mean can only be seen in a "large enough" group.

So can traits of human beings be thought of as being generated by a pseudo-random number generator? After all, these can have a mean, are random for all practical purposes but everyone knows that these have been derived from some determinstic method. I really dont know. But the idea itself seemed too good not to be posted

Irrational Pessimism

One of my close friends has written about irrational pessimism driving the economy down. Though I would like to take partial credit for injecting the thought into his head. He mainly talks about how people behave irrationally and how it affects markets.

My point-of-view is that people go with their animal instincts much more than their deterministic models. When someone senses danger, his/her reaction gets biased (for most people towards damage control and for a few others, towards risk taking). This precise difference in the nature and the magnitude of bias makes each one of us unique - and a pain for the economists to model.

If the economists also include this feature into the decision model (As the behavioral economics guys have been saying for sometime now ), then they wont be caught in awkward situations where the masses behave in a manner completely different from what they predict.

People don't always make choices based on their precise calculation of the odds. They go with what the feel is right - and the fact that most things can not be put in numbers directly also means that in translating things to numerical terms itself brings in the bias that the numerical analysis sought to avoid. Maybe the next step would be to model people based on a the major bias that they have - maybe conduct a survey and see in which direction and how much are people biased. And then predict things - that would certainly do a better job than what it does right now.


PS- (kidding alert )Irrational pessimism is the kind which can not be put in the form of p/q where p and q are integers and q is not 0. (/kidding alert)