Monday, February 2, 2015

Seneca's gamble: why the road to ruin is rapid



Why people can so easily destroy the resources that provide their livelihood? Fishermen, for instance, have destroyed fisheries over and over, and every time they refused to take even the most elementary precautions to avoid disaster. Eventually, I came to think that it is related to a basic miswiring of the human mind: the "gambler's fallacy". Fishermen, it seems, see fishing as it were a lottery and they redouble their efforts thinking that, eventually, they will get lucky and strike it rich. Alas, it doesn't work in this way and all what they obtain is to destroy the fish stocks and create a spectacular collapse of the fishing yields. This way of creating one's own ruin could be termed "Seneca's gamble", from the words of the Roman philosopher Lucius Annaeus Seneca who stated that "the road to ruin is rapid".



The "Martingale" is a strategy to be played with games which have a 50% chance of winning. It consists in doubling one's bet after every loss, believing that, eventually, a win will pay for the previous losses and provide a gain.

The Martingale is an example of the "gambler's fallacy". Typically, gamblers tend to think that some events - such as the numbers coming out of the wheel in the roulette game - are related to each other. So, they believe that, if the red comes up several times in a row, it is more probable that the black will come out the next spin. That's not true, of course, and the Martingale is a surefire way to ruin oneself, and to do that very rapidly. Nevertheless, many people find the idea fascinating enough that they try to put it into practice. It is the effect of a bad miswiring of the human mind..

The gambler's fallacy may explain some aspects of the human behavior that would be otherwise impossible to understand. For instance, in a previous post I was showing this figure, describing the yields of the UK fishing industry (from Thurstan et al.).



Compare the upper and the lower box, and you'll see that the fishing industry was ramping up at an incredible speed their "fishing power," just when fishing yields had started to decline. Note also how they still had a lot of fishing power when the fisheries had all but collapsed. How could it be that they kept fishing so much even when there was little or nothing left to fish?Thinking about this matter, we can only come to the conclusion that fishermen reasoned like gamblers at a betting table. In other words, they were playing a sort of "fishing Martingale", doubling their efforts after every failure.

Gamblers know - or should know - that casino gambling is a negative sum game. Yet, the gambler's fallacy makes them think that a streak of bad results will somehow increase the probability that the next bet will be the good one. So, they keep trying until they ruin themselves.

Now, consider fishermen: they or should know  that, at some point, the overall yield of the fishery has become negative. But, like gamblers playing roulette, they believe that a streak of bad luck will somehow increase the probability that the next fishing trip will be the good one. So, they keep trying until they ruin themselves.

The mental miswiring that gives rise to the behavior of gamblers and fishermen can create even larger disasters. With mineral resources, we are seeing something similar: operators redoubling their efforts in the face of diminishing returns of extraction; the story of "shale gas" and "shale oil" is a typical example. Maybe it is done hoping that - somehow - the destruction of one stock will increase the probability to find a new one (or to create one by some technological miracle). So, instead of trying to make mineral stocks last as long as possible, we are rushing to destroy them at the highest possible rate. But, unlike fish stocks that can replenish themselves, minerals do not reproduce. Once we'll have destroyed the rich ores that created our civilization, there will be nothing left behind. We will have ruined ourselves forever.

In the end, the gambler's fallacy is one of the factors that lead people, companies, and entire civilization to a rapid collapse. It is what I have called the "Seneca Cliff" from the words of the ancient Roman philosopher who first noted how "the way to ruin is rapid". In the case described here, we might call it the "Seneca gamble" but, in all cases, it is a ruin that we create with our own hands.





12 comments:

  1. Sometimes they know it's a plunder. Simply, they don't care about the future:
    “We’ve got to fish harder before it’s all gone.” Asked what he would leave his son, he shrugged: “He’ll have to find something else.” http://www.nytimes.com/2012/01/25/science/earth/in-mackerels-plunder-hints-of-epic-fish-collapse.html?_r=2&pagewanted=all&

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    1. Yes. Back in the 1960s I met a one-armed fisherman in Crete who still did a bit of close inshore fishing with dynamite. He shrugged - his son was in Germany and not likely to come back.

      best
      Phil

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  2. This is why accurate information about the disposition of a renewable resource is so crucial. If a resource is clearly plentiful, those who exploit it can be careless, at least in the short run, without the resource becoming substantially depleted. If the signs are clearly there that a resource is becoming over-exploited then it becomes a moral issue or a matter of having the correct laws in place to preserve the resource.

    Clearly if those who exploit the resource have insufficient information about its status then they are more likely to attribute their past successes or failures to luck, and they also are more likely to behave irresponsibly. Sometimes sheer stupidity mixed with greed is to blame for the destruction of a resource. The information is available but the people exploiting the resource don't pay attention to it.

    In today's world, many resources, particularly renewable resources, are analyzed well enough so that they can be properly managed if the information about them is readily available. The bigger the uncertainty in the disposition of a resource, the larger must be the margin for error in its management. Then it becomes a matter of individual or group responsibility. When a resource is global the problem is particularly difficult because international cooperation is needed in order to manage it properly.

    For an example a local resource, Sweden seems to have a very sensible approach to the maintenance of their forests. They cut down trees selectively at a rate that does not exceed their natural replacement rate. They do field studies to accurately assess the disposition of the resource and their government has a rational approach to the matter.

    http://www.swedishwood.com/about_wood/forest_management/sustainable_forest_management

    Water resources are also renewable, but the uncertainty in their disposition can be quite large in some regions, particularly at the present time with the acceleration of climate change. Some water resources require international agreements for their management. This is difficult and political issues often interfere.

    In any case, Sweden is the exception in terms of resource management. In most places there are either insufficient studies to supply the information or else there are no laws in place to limit the exploitation of the resource. In the case of global resources, there are rarely any laws in place to prevent their exploitation. A few successes are notable, including whales, but this is partially due to widespread recognition that whales have intrinsic value as intelligent animals.

    In addition, the problem of "The Tragedy of the Commons" (Garret Hardin) can be seen, in which individuals (or groups, corporations or nations) simply don't care about the future of the resource and mindlessly exploit it until it becomes exhausted. This is what we see today.

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    1. I mentioned in my comment to the original post on British fishing industry. "In Britain these were isolated, extremely poor, (in living memory) self-contained working class communities, maintaining highly skilled social structures living with high-risk environments."

      My point now is that it was the corporate interests who made the gamble by financing the vast increase in fishing power - the trawler men got dressed up as high-end modern entrepeneurs. Highly intelligent hunter gatherers were suddenly equipped with radar, sonar and huge engine power.

      BTW that dip in the 1940s was because the steam driven trawlers were laying or sweeping minefields. The men were similarly engaged. I knew some of them later.

      We are engaged in my view with the corporate mind-set. This might or might not have been inherited from our hunter gatherers but it surely is what we have been in for a while now.

      best
      Phil

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    2. The repetitive nightmare of misallocation of resources continues ... North Sea fishing, EU & UK complicity...
      https://uk-mg42.mail.yahoo.com/neo/launch?action=compose&.rand=394377786#9745462447

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  3. Ugo
    For a while later the great modern cities will be scavenged (by hand and pick axe and cart one guesses) and smelted and black-smithed using re-grown forests. Who knows, there might be better ways

    best
    Phil

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  4. In the case of infinite resources the Martingale is not a bad strategy. Casinos know this and to counter it all they have to do is put down a table limit and limit the size of a maximum bet. In the real world the "Martingale" is a bad strategy because there is no such thing as infinite resources.

    I don't know that the fishing industry is an example of a Martingale strategy at work. Another explanation could be that technology was thrown at the problem because as the stock began to deplete old ways of fishing were not producing enough to satisfy the needs of fishermen and the needs of the market. This created an opportunity for large factory ships with lots of technology to step in and make a profit after the little guy was squeezed out of the industry.

    Man the tool maker does not make tools unless the mother of invention; necessity; prompts man to do so. Viewed this way all technical progress is a response to shortage. Be it fish, minerals or timber wherer there is a shortage technical fixes are found to try and counter the shortage. Once the idea of using 'chipboard' for building buildings seemed ridiculous but with the loss of virgin old growth ticky-tacky caught on.

    Technology building on itself yields a behavior resembling a Martingale strategy for each technical change is seen as an improvement in technique which it appears to be. This resembles doubling a bet. It also resembles a Martingale strategy because technology is not magic and eventually laws of physics kick in and ruin cannot be avoided.

    A self sustaining fishery was possible with limited resource extraction and a curb on acceptable technologies. Unfortunately a meta-technology, or a technology of technologies which would limit and correct the excesses of inappropriate technical use and fixes is something very few people are into. It is a mature but un-sexy attitude and in our world which is committed to overpopulation, irrelevant.

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  5. Not to be pedantic but you probably mean a "supermartingale" rather than a martingale. Supermartingales are how casinos make their profits.

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    1. Are you sure? Wikipedia has an article titled "Martingale" and they don't use the term "supermartingale"

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    2. A martingale is a fair game. The casino games are not fair -- the house has a small edge, which the law of large number virtually guarantees will turn into stable annual profits. That's the definition of a supermartingale. This is the Wikipedia article (unless there's more than one):

      http://en.wikipedia.org/wiki/Martingale_%28probability_theory%29#Submartingales.2C_supermartingales.2C_and_relationship_to_harmonic_functions

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  6. Ugo,

    It would be interesting to see a similar measure of "oil drilling power" (number of rigs? amount of wells drilled per rig per year?) compared to the production, or change in production. I'd be willing to bet that more and more rigs are producing fewer and fewer net barrels of oil.

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  7. A good course/conference from Donella Meadows on sustainable systems (part 1 of 4) :
    https://www.youtube.com/watch?v=HMmChiLZZHg
    (most of the introductory examples are based on fishing)

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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)