Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Is finance dumbing us down?

Gerald Crabtree’s scary paper on “Our Fragile Intellect” (h/t Paul Kedrosky) has only one sentence about finance, but it is a damning one:

Needless to say a hunter gather that did not correctly conceive a solution to providing food or shelter probably died along with their progeny, while a modern Wall Street executive that made a similar conceptual mistake would receive a substantial bonus.

I have absolutely no idea whether Crabtree’s speculations about the genetic fragility of human intelligence are correct or not, but I am certain that the problem of moral hazard in finance is a real one.

Meanwhile, finance students who complain about the technical complexity of modern finance may do well to ponder Crabtree’s claim that “life as a hunter gather required at least as much abstract thought as operating successfully in our present society”. Computing the right way to hedge a complicated derivative is hard, but as Crabtree would say “non-verbal comprehension of things such as the aerodynamics and gyroscopic stabilization of a spear while hunting a large dangerous animal” is probably as hard or harder.

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One response to “Is finance dumbing us down?

  1. Max November 27, 2012 at 2:51 am

    I prefer the theory that intelligence isn’t a response to nature, but rather a response to human competition – in other words, we need to be smart in order to outsmart other people in a winner-take-most social context. If this theory is correct, then intelligence will continue to increase regardless of how easy it is to survive.

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