Winning

The Incomparable Falkenstein has just posted some links to research that suggest winning is more satisfying than mere achievement.

He links the research to his pet-topic (risk premia), however I am reminded of the assumption that our utility curves are independent. I remember a seminar from uni where some professor showed what happened when the assumption of independence was broken, and being left-ish students we all fell over ourselves to declare free market ideology dead.

I no longer believe that. Sure, the welfare theorems may need some patching – however I think that a strong argument for free market capitalism is that we do all value rank and relative position.

Prior to the industrial revolution, the economy didn’t grow much, so to get rank and position you had to take something ‘real’ away from someone. With free market capitalism, the pie grows about 2% per capita on average each year, and if you can come up with a good idea you will get a outsized share of that growth/ pie!

Even if Bill Gates and Steve Jobs hate each other like feudal kings, their plans of attack are much better for the rest of us. Rather than herding us all into battle under some defunct banner, they compete with each other by trying to make a product that we find more useful.

Because capitalism allows the pie to grow, it allows for a more peaceful form of competition for rank. That is what I call progress.