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Human Stupidity

Human Stupidity

Today’s post is about Carlo Cipolla’s Basic Laws of Human Stupidity.

Human Stupidity

Until a couple of weeks ago, the only paper on human stupidity that I was aware of was the Dunning-Kruger study – which shows that the dumber you are, the less you will be aware of that fact.

  • In fact, the more stupid people are, the more highly inflated their opinion of themselves is likely to be.

More annoyingly, as anyone who has used social media (particularly Twitter and Reddit, in my case) can testify, the incompetent also fail to recognise the competence of others.

Then Joachim Klement went away on holiday and found himself too busy to write a new column.

  • Instead, he reproduced an article by Carlo Cipolla – a professor of economic history at Berkeley – on the Basic Laws of Human Stupidity.

I can’t really believe that I had never come across this before, so I decided to write about it.

Lots of stupid

The first law is that everybody underestimates the number of stupid people in existence.

  • I’m not so sure of this – I set the bar pretty high for non-stupidity, and the vast majority of people fail.
Equally distributed

The second law is that the probability that a particular person is stupid is independent of any other characteristic of that person.

  • This view is even more fashionable today than when Cipolla wrote his paper, but I don’t think that it’s true.

I could come up with lots of this which would correlate well with stupidity, assuming that we could agree on a definition of stupidity.

  • We could debate causation and correlation, but that wouldn’t make the variables independent.

And logically the rule doesn’t make sense, for two reasons:

  1. Cipolla asserts that stupidity is genetically determined, but simultaneously not associated with any other genetic tendencies, and
  2. because the accrued decisions of a non-stupid person as he passes through life should lead to differences in outcome, and therefore circumstance.

In any case, this rule is not crucial since stupidity is not a hidden characteristic which we need to winkle out by cross-referencing other attributes.

  • We can tell who is stupid, whatever other characteristics they possess.

So perhaps we can agree on a much narrow definition of the rule:

  • There is no reason (or need) to believe that any of a person’s attributes at birth should correlate with the chances of them being stupid, or with their degree of stupidity.
What is stupid?

Human Stupidity Matrix

The third law finally defines stupidity in economic terms:

  • A stupid person is someone who causes losses to others without making corresponding gains themselves (and possibly whilst also incurring losses).

Examples include most criminals, tailgating drivers, people who start bar fights and anyone who self-sabotages in a tantrum.

Our daily life is mostly made of cases in which we lose money and/or time and/or
energy and/or appetite, cheerfulness and good health because of the improbable action
of some preposterous creature who has nothing to gain.

There is only one explanation: the person in question is stupid.

Cipolla also identifies three other groups of people:

  1. Intelligent people, who gain whilst also helping others
  2. Bandits, who profit at other people’s expense,
  3. and Helpless people who provide benefits to others without gaining for themselves.

Cipolla felt that most people moved between these three groups, depending on the situation.

  • In contrast, stupid people were always stupid.
Dangerous stupidity

Dangerous Stupidity

The fourth law states that non-stupid people always underestimate how damaging stupid people are.

  • Dealing with the stupid always turns out to be a costly mistake.

The fifth law states that the stupid person is the most dangerous type of person – even more dangerous than a bandit.

Stupid people cause losses to other people with no counterpart of gains on their own
account. Thus the society as a whole is impoverished.

The bandit’s actions follow a pattern of rationality. Stupid people are dangerous because reasonable people find it difficult to imagine and understand unreasonable behaviour.

Cipolla warns particularly against stupid people in positions of power.

  • Democracy offers little protection against this, as we can see.
Two kinds of bandits

I have to take issue with Cipolla’s definition of everyone who profits at someone else’s expense as a bandit.

  • Some situations are zero-sum (poker, or stock-trading, say) and so long as there is a level playing field, it is not a tragedy that one person wins and another loses.

We need incentives, and people should benefit from their good decision-making.

More widely, though trade is generally seen as win-win at the time (often because the trading parties have differing valuations for the goods or services being exchanged), hindsight will sometime show that one person got the far better part of the bargain.

  • That doesn’t mean that they acted as a bandit, assuming both sides freely entered into the trade.

Two kinds of bandit

Cipolla distinguishes two kinds of bandit:

A person who robs you of 100 pounds without causing you an extra loss or harm is a perfect bandit: you lose 100 pounds.

This is a position on the line dividing areas B1 and B2 on the illustration.

  • Bandits in B1 gain more than you lose.
  • B2 bandits cause you to lose more than they gain.

In area B1 are bandits with overtones of intelligence.

Unfortunately, there are more B2s than B1s.

If someone kills you in order to rob you of fifty pounds or if he murders you in order to spend a weekend with your wife at Monte Carlo, we can be sure that he is not a perfect bandit.

Conclusions

Stay away from stupid, and avoid the temptation to engage and educate.

  • Or as the widely attributed quote has it:

Never wrestle with a pig. You just get dirty and the pig enjoys it.

This is a particularly important message in investment, where stupid people – and Dunning-Kruger behaviours – abound.

  • Until next time.

Mike Rawson

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 35 years, with some success.


Article credit to: https://the7circles.uk/human-stupidity/