By Eric Peters, CIO of One River Asset Management
“What happens when governments stifle innovation?” I asked.
GPT4 answered: "When governments stifle innovation, it can lead to reduced economic growth, decreased competitiveness, and a slower pace of technological advancement. Businesses may face regulatory barriers, restricted access to resources, and limited incentives for research and development. As a result, talented individuals might seek opportunities in more innovation-friendly environments, causing a brain drain and hindering the nation's progress."
“Why would governments ever stifle innovation?”
GPT4 answered: "Governments may inadvertently stifle innovation due to bureaucracy, excessive regulation, or protectionist policies aimed at preserving domestic industries. They might also prioritize short-term political gains over long-term economic benefits, leading to misguided policies. Additionally, some governments may lack the foresight to recognize the potential of new technologies or may act in response to pressure from special interest groups resistant to change."
“When governments stifle innovation, what is the best way to correct such mistakes?”
GPT4 answered: "It is crucial to identify and eliminate barriers to innovation, such as excessive regulations and bureaucracy. Governments should establish policies that incentivize research and development, invest in education, and promote collaboration between the public and private sectors. Encouraging open dialogue, fostering competition, and ensuring transparent and evidence-based decision-making can help create a more innovation-friendly environment."
“Why do governments avoid near-term pain, even if that amplifies longer-term costs?”
GPT4 answered: "Governments often prioritize near-term pain avoidance due to electoral cycles, political pressures, and the need for public support. Short-term benefits may secure votes or address immediate crises, even at the expense of long-term consequences. The complexity and uncertainty of long-term issues are challenging for policymakers. This short-termism can hinder the development of policies that serve society's broader interests in the long run."
“Why do individuals do the same?”
GPT4 answered: "Humans tend to avoid near-term pain due to cognitive biases and psychological factors. Present bias, for instance, makes immediate rewards and consequences appear more significant than future ones. Additionally, humans have difficulty accurately predicting long-term outcomes, leading to a focus on short-term gratification. Uncertainty, fear of failure, and aversion to change also contribute to this preference for avoiding short-term discomfort, even if it compromises long-term success."
“Why are we so often our own worst enemies?” I asked myself. I didn’t bother asking GPT4, it couldn’t possibly give me the real answer. We feed these large language models everything we’ve ever learned, which is why they tell us what we already know. And this question remains as deep a mystery as any in the universe.
I first started to appreciate it as a young trader. The profession requires one to make frequent decisions, many of which are wrong. Both winning and losing trades can be cut short or left to run. And the profit/loss score card cannot be denied. In such a pursuit, each decision should be made coldly, rationally, with the sole objective to maximize profit while minimizing loss.
Yet there are times when traders act otherwise. We trade out of fear, greed, arrogance, stubbornness, narcissism, boredom, addiction. We add to losing longs in the irrational belief that by buying more, we may reverse a declining market. Or vice versa. We swear that if the market lets us get away with it one last time, we’ll never do it again. Sometimes a Hail Mary trade may work, even spectacularly.
And so reckless behavior is occasionally rewarded. But of course, in time, the market hunts down those unable to control their self-destructive impulses and ruins them. The ones who survive this battle with themselves learn to make decisions that are hard, humbling, and exploit the behavioral weaknesses and lack of discipline in others. Naturally, such elemental flaws manifest in every aspect of who we are; personally, professionally, politically. They are the source of the world’s infinite complexity, our pain, political dysfunction too.
It is why we must celebrate those rare dissenters with the courage to take a stand, forcing us to face our reflection when we succumb to our inner enemies. But these mysterious flaws are also the source of our sublime beauty. If we optimized for cold rationality, we would be utterly boring algorithms. Perhaps like the AIs we are creating. Which I suspect will never fully appreciate us.