Institutions

I want to share some thoughts about institutions. What makes them special as organisations? What is their history? Will there be more institutions in the future? Should there be?

As a first definition, I'm tempted to say that institutions are organisations that are neither family-based, nor for profit. This makes a difference for what holds it together. 

In a family, members stick together out of loyalty to other individuals, because of personal relationships. There may be some fixed roles, but in principle a person in a family is irreplaceable. This was less true in the past, when families had to do more of the tasks that institutions and companies do today. Back then, a person's role in a family came with much more specific expectations. This may have been partly cultural, but it also makes sense for an organisation that has to fulfill a lot of complicated functions where people sometimes need to be replaced. 

In a company, members are attached to the organisation through equity, or through a contract (or both). To members without equity (most employees), there is not much difference if they work for a for-profit company or an institution. If the company doesn't fulfill its part of the contract, the individual should leave. If the individual doesn't fulfill their part of the contract, the company should kick them out. At least in theory. Having equity, on the other hand, means being entitled to a share of the profits. This is an entirely different relationship, which has proven historically to be a very powerful way to align people's interests. However, for there to be a company, there must be the potential for profit.

This leaves us with institutions. An institution is an impersonal organisation that exists to produce some value that can't be sold for profit. When does it make sense to produce something that can't be sold for profit? Take roads, for instance. The economic value of roads clearly is larger than the cost of building them. However, it is often impractical to collect money from people based on how much they use a specific road, and adding the infrastructure necessary to do so adds cost and decreases the economic value of the roads themselves. So, the modern solution is to tax some combination of vehicle owners and everyone in general to finance the roads, and to make them freely available. 

Let's challenge this definition. What about education and healthcare? Clearly, it's possible to sell these things for profit, and yet this is mostly handled by non-profit institutions. I'll just leave this aside for now, saying that it's an ongoing process to determine which model really works best here. In the case of general education, it is hard to measure the value the education will provide (since it takes to long to pay off), which makes it difficult for the client to know how much to pay. In the case of healthcare, the client is often at a natural disadvantage since they may have a strong time preference. 

What about publicly owned companies? Why not be completely an institution? Probably, the reason is that it makes it easier for a government to raise money quickly by selling a part of the company. 

Area effects

In this piece, I'll go over some thoughts around area effects.

To me, they seem understudied. I think it's the sort of thing that makes "common sense", but not sense to people more used to actively model the world. 

Let's start with a story to illustrate what I mean by area effects. I grew up in a suburb of single family houses. In that neighbourhood, there used to be a cat, a single black cat called Licorice. At one point, Licorice died of old age. What we saw in the following months was that our garages would get invaded my mice, and perhaps also rats. The mice eventually became fatter and fatter and would hardly even bother to scurry away quickly when a person approached. In the end, another neighbour got a new cat called Elsa. Right away, the mice disappeared. The drastic change in number of mice seemed disproportionate to me, for just the difference of one cat. Then I realized that the cat was actually 'killing' more mice than it ate since it was constantly denying the mice the opportunity to forage. Since a cat could come around at any time, it was never safe to be a mouse in the neighbourhood anymore, and the mice starved.

Let's talk terrorism. During the attacks of 2015 to 2017, they killed in total about 200 in Europe. Media and governments were reacting like World War III. At that point I was thinking "Why are people freaking out? They can't kill all of us, they can even make a dent of a dent in the population". Surely some of this fear was due to cognitive availability bias. Getting killed in an attack felt very likely because a Dunbar number of people had been killed and we had heard about all of them. Also being unable to take in just how many people 500 million people really are. But the widespread fear wouldn't have been possible if the victims hadn't been chosen at random. If they had only targeted satiric cartoonists, almost no-one would have felt a personal fear. 

Same thing with Covid. The widespread panic definitely died down when it became clear that unless you had a preexisting health condition, Covid for you would be a heavy cold and that would be that. 

There is a kind of risk calculation everyone does. I'll repeat an idea from Taleb here. The ensemble probability is not the same as the time probability in the presence of irreversible events. Let's break that down. An irreversible event to a person would be death. To a company or state, being dissolved is usually irreversible. To someone in certain positions of power, losing that power is irreversible. 

What about ensemble average? Let's take Covid again. You take 100 people, they all get Covid. Mortality rate is about 1%, so one of them dies. Seems like okay odds, right?

Of course not. That's not the calculation people make, not intuitively. For that, you have to imagine one person, being subjected to something as dangerous as Covid, several times over their life. On average, a person will survive 100 such events. After 70 such events, they have a 50/50 chance of being dead. So it seems like taking such a risk about once per year wouldn't make the average lifespan of an adult much shorter. However, it's not a psychologically implementable rule to say "I'll only take 1% risks once per year". It's too easy to lose track of how often you take the 1% risks. Internally this will have to be implemented as never deliberately taking a 1% risk, and only taking it in the face of an even bigger risk to yourself or someone close to you. So something that has a chance of killing a random 1% of the population will cause huge disruptions as people try to avoid it at all costs. 

Baby Daddy

The Proposal

Suppose you are a man (this is important to the point being made). You go on a date with a woman who is out of your league. She has some combination of beauty, intelligence, humor, popularity, status, and wealth that would normally preclude a relationship between you two, or at least make it unstable since she has, honestly speaking, better options. Let's also assume that she is seen as a high-value partner in your eyes, not just general opinion. She is kind to you, treats you with respect, and there is some personal chemistry. Now she makes the following deal (as indirectly and subtly as custom requires):

-She will donate an egg that is to be fertilized with your sperm. 

-The fertilized egg will be gestated by a surrogate mother, whose free cooperation and compensation she will provide for.

-When the child is born, it will be taken care of and raised by you. She will pay for about 2/3 of the expenses for the both of you, so unless you're ready to lower your living standard a bit, you will have to be a working single parent eventually.

This is of course just a gender-flipped version of an arrangement that women have been presented with throughout all of history, and that some have gone along with. That is, having a child with a wealthier man out of wedlock (he is most likely married to someone else), but with his financial support. The mechanics are a bit different, but the pros and cons from your perspective are the same.