The Credit Crunch and the normal distribution of intelligence

15 points of separation

Three months ago the press decided that we had reached the 5^th anniversary of the credit crunch, thought to have started in August 2007. Most of their explanations concentrated on bankers and their creation of derivatives based on mortgage debt. Absent from this account was any clear admission that citizens differ in their ability to understand numbers.

Looking at the credit crunch through the lens of general intelligence provides another perspective. This brief note, written to another intelligence researcher two years ago, looks at the issue in terms of standard deviations of intelligence, so each sigma is 15 IQ points. A 2 sigma is IQ 130, a 3 sigma IQ 145.

How did the international bankers screw up?

The managers were 2 sigmas, and they hired too many 3 sigma mathematicians whom they couldn’t really understand. The 3 sigmas were so happy with their bonuses that they kept cranking out complicated derivatives.

The managers liked the answers they got from the mathematicians, which seemed to make risk disappear by distributing it very widely.

They cranked up a sales campaign run by 1 sigmas, who cruelly exploited the –1 sigmas and –2 sigmas, all encouraged by vote buying politicians (2 sigmas?) who wanted to give everyone a house even if they couldn’t pay for it. 

A few 2 sigma bank managers could have stopped the rot, but most of them had been fired because they were too old, and couldn’t adapt to selling complicated derivatives.

People can only easily communicate within 1 sigma bands, so the situation was ripe for confusion.

Hence John Paulson and a few other 3 sigmas made immense fortunes by understanding all this and then working out a way of shorting mortgage protection insurance securities. Paulson made a personal gain of 2.5 billion dollars.

I hope that explains it all.

Epilogue: Damn the bankers

Looking at the recent press coverage, the “damn the bankers” narrative downplayed the part played by governments who were only too glad to encourage any borrowing that made their voters happy. Far from just being lax in their regulation of banks, Governments often encouraged the relaxation of lending criteria which brought in new grateful homeowners. Citizens lapped up the credit, correctly gambling that if enough people got into debt they would never have to pay it back. So, the irony is that citizens who got into debt probably played their cards better than those who built up their savings.

In fact, the general intelligence perspective on the credit crunch places it in the general context of how citizens of different ability levels deal with each other. This goes far wider that just the management of credit. More of that later.

Social class and university entrance

How many children from each social class will enter university?

In Britain today, social class no longer determines our chances in life. A parent’s social class accounts for only 3% of the social class mobility of their children.  The ability of the individual child accounts for 13%. For all we know, the rest of the difference may be due to personality or perhaps even physical attractiveness, but it is not social class.  Without quite realising it, we have achieved considerable social mobility between generations, with far more of that change being due to ability than to social class itself.

One surprising effect of this meritocracy is that social classes still differ in intelligence, simply because the most able have been given a chance to rise into more demanding jobs, and the less able have been left in less prestigious occupations.  Opportunity has allowed people to spread out more, and has brought the best brains to bear on the hardest problems, regardless of their social background.  Separately, there has also been “social class inflation”, with more people doing managerial work, and far fewer in unskilled manual jobs. These manual classes have been stripped of many of their brighter people, who have moved upwards as opportunities opened up.  

If entry to university were based solely on intelligence, how many children from each social class would enter university? Making that calculation depends on some assumptions. First, that people marry partners of roughly the same intelligence. This seems to be true, in that married couples are even more concordant for intelligence than they are for height.  Secondly, that some parental intelligence is passed on to children by genes, and recent heritability estimates of 66% have been established, on samples of 11,000 children (Haworth et al. 2009).

Calculating the estimated intelligence of university applicants according to the social class of their parents is pretty straightforward. Using data analysed by Daniel Nettle on the 1958 generation, the average intelligence score of each social class is multiplied by 66% to get an estimate of the average intelligence of their children. Since the other 34% of intelligence differences are not due to parental intelligence, the class averages will all converge on the population average, a phenomenon known as regression to the mean. The children of professional parents will fall back somewhat towards the population average, though they will remain above it. The children of unskilled manual workers will rise back somewhat towards the average, though they will remain below it. In this way ability is gradually reshuffled each generation, though not totally. At the end of this generational process there will be some differences in the average IQs for each social class. However, these small average differences translate into substantial differences at the upper reaches of the intelligence distribution. This is simply because most people’s abilities pile up in the centre of the intelligence range and there are fewer people at the edges. A small average group difference leads to into big differences in the numbers of individuals at rarified levels of IQ.

As regards university entrance, society can set any cutoff point it likes.  The Table shows what could be expected at various levels of participation. The top 50% was the stated national aspiration, and incidentally corresponds currently to the percentage of the school population who get 5 or more A to C grades at GCSE. The top 40% is close to our current participation level. The top 15% corresponds very roughly to the old universities, and the top 2% to the most intellectually demanding courses at the most highly ranked universities.  The Table shows that social class differences are greatest when the cutoff point is set very high, simply as a consequence of the normal distribution of intelligence.

The point of this exercise is not to say that entry to university should be based on IQ tests. Universities base entry on scholastic tests, particularly those that identify the very brightest candidates. Nor do these calculations lead to setting any particular cutoff point for university entrance as a whole.  That is a social decision.

The real point is to explain that different rates of entry to university according to social class are a direct consequence of a meritocratic society. If people are allowed to rise to the jobs which they merit, (true of Britain from 1958 to 2000 and most probably beyond), then there will be a slight but significant difference in the average intelligence of their children. These differences become quite marked at the outer reaches of the intelligence distribution, leading to actual university entrance figures being legitimately different from simple expectations.  One should not expect every social class to have university entrance rates directly proportional to their numbers in the population, because people are selected into jobs by ability.

Oddly enough, when we hear that proportionately more middle class children are going to university we should reply “So they ought to be, if their parents were correctly selected for their jobs”.

Percentage of each social class who will be admitted if the university takes the top 50, 40, 15 or 2 % of the student population

	Student IQ	Top 50%	Top 40%	Top 15% Russell Group	Top 2% Oxbridge
Professional	104	64	54	26	5.0
Managerial	102	56	46	20	3.3
Middle	98	45	35	13	1.7
Semi-skilled	96	39	30	10	1.2
Unskilled	95	34	26	8	0.9

References

Nettle, D. (2003) Intelligence and class mobility in the British population. British Journal of Psychology, 94, 551-561.

CMA Haworth, MJ Wright, M Luciano, NG Martin, EJC de Geus, CEM van Beijsterveldt,

M Bartels, D Posthuma, DI Boomsma, OSP Davis, Y Kovas, RP Corley, JC DeFries, JK Hewitt, RK Olson, S-A Rhea, SJ Wadsworth, WG Iacono, M McGue, LA Thompson, SA Hart, SA Petrill, D Lubinski and R Plomin (2009)  The heritability of general cognitive ability increases linearly from childhood to young adulthood. Molecular Psychiatry 1–9.

Time's face

The Depiction of Time

Psychologists have been more concerned with estimations of time than with its depiction. Humans are poor timekeepers. Living on a fast rotating, slightly tilted planet our ancestors had no need to count the hours. Diurnal variation did the job nicely. Dawn to dusk, our nearby star guided us with dependable regularity. Carving daylight into measured segments made no sense. The question of time was answered by the sun’s position in the sky, and the night was for sleeping.

Calculating planting seasons away from the equator was more difficult, but just counting the days was enough for a first approximation, and the moon gave monthly help, though its cycle was not exactly in step with the solar estimates. Calendars became necessary, and intellectual elites grew up to do the calculations. Eventually it became necessary to measure the passage of time more precisely, even if only because the eternal panoply of the stars seemed to spin round at night, and it began to be important to time sightings of planets.

The whole history of timekeeping is fascinating, if only for its intellectual challenges. The devices were clunky: water filling cups, candles burning down, sand falling through the narrow aperture of an hour glass. Not till Christiaan Huygens invented it in 1656 did the pendulum bring its harmonic oscillating order to chronometry, and held supreme until the 1930s. Not a bad run for one man’s mechanical device, though Galileo had done the conceptual groundwork in 1637. In 1927 the oscillations of quartz provided the Holy Grail: no-one has needed better day to day precision ever since.

Once time could be measured down to fractions of a second it became very apparent that humans did not think like stopwatches. Filled “engaged” time passes quickly, dull “empty” time slowly, terrified time not at all. Time stands still when we are about to die. Even aside from threats of imminent death, patients recounting their traumas in an unlimited therapy session in a quiet and peaceful consulting room (in which a whole afternoon and evening are set aside for them) totally lose track of time, and will often estimate that the 4 or 5 hour session took about an hour, or an hour and a half.  Anyway, Einstein’s comment to his secretary Helen Dukas as to how she should answer lay enquiries about the meaning of relativity catches the main findings perfectly: “An hour with a pretty girl on park bench passes like a minute, but a minute sitting on hot stove seems like an hour”.

This is not to say that we completely lack any internal clock. Left in a dark cave away from all zeitgebers (external cues to the time of day) human rhythms follow a 25 hour cycle.  It is not clear why we are one hour too generous, but it seems that rough approximations are good enough.

A consequence of the pendulum controlled, rotating drive shaft was that time was depicted as a dial, a clock face with equal segments, noon at the top, where the sun should be, but absurdly telling only half the story, since in this configuration the clock must rotate twice every day. We have gained precision, but 12 hour dial time has lost us our connection with real time. Clocks have become a device for dark places, the anonymous non-world, windowless airport rooms. We have become coordinated with each other, and not with the heavens.

Some pioneers have moved Into this conceptual gap, making 24 hour wristwatches. For example, Bjorn Kartomten’s solar lunar timepieces, in a weighty chunk of a chronometer, reveal daylight and night, and moon rise and set and phase, for every point on the planet.  Emerald Sequoia invent imaginary timepiece apps, many of astronomical time, providing grand complication watches for fractional cost, though on iPhones and not yet wearable on a wrist. Perhaps as all these new watches gain popularity we will stop living by the fast, insistent, atomic clock coordinated seconds hand, and ignore even the insolent minute hand, but glance every now and then at the single hour hand that rotates slowly through light and shade and connects us again to the sun and moon, from whence time began.

Euripides' Trojan Women

Last night I went to the Gate Theatre to see The Trojan Women by Caroline Bird, in whose hands Euripides’ harrowing tale took on a contemporary shape. The Gods, always in my experience a tedious part of any Greek drama, were rightly presented as our modern deity, TV announcers on flat screens, and the fall of Troy was no more than “the pictures on the postcards we send from the world”. The script presented tragedy in vernacular language, flippant and anguished by turn.  A stunning cast of actors held us in an agonising grasp, doing their work a mere yard away from our faces, in small room above a Notting Hill pub: the magic of theatre at its best. A third of the audience, to my great surprise, stayed on later to hear me pick out some psychological themes.

Does tragedy ever change its psychological shape? I doubt it. The fall of Troy has parallels with the fall of Berlin: rape on a massive scale is a commonplace response. Seen from the viewpoint of evolutionary psychology, murdering the children of one’s defeated enemies makes good sense, as does immediately raping their womenfolk. The winning genes complete the military conquest.

Revenge is a theme in The Trojan Women, and the avenging of wrongs was an obligation in ancient times. Why not train the young to hate their enemies, when the alternative is further subjugation? Blood feuds make evolutionary sense. However, if common law can evolve so that justice is swift and sure, then the obligation can be passed over to the State. England achieved this in the Middle Ages, with an independent judiciary, trial by jury, and a common law which applied to most citizens. As a consequence, violence was far lower than on the Continent. No need to get the family involved in vengeance if the State did the job, with representation of the accused, elaborate procedural safeguards, and a noose. Nowadays, those openly wanting vengeance can be ignored. However, compared to the past, the State has become indulgent. In the Theory of Moral Sentiments, Adam Smith observed (II.II.21) that "mercy to the guilty is cruelty to the innocent” and that one should oppose the emotions of compassion one might feel for the perpetrator, out of a more enlarged compassion for mankind. In that spirit modern day gangs still settle scores the old and reliable way.

War often has its justifications. There is often an ancient casus belli (think Arab-Israeli conflict, which could be dated to 1948, or 1917 or 1000BC), and it is a matter of punctuation as to who started first. Violence is simply a response to provocation. This prompted the question: can there be unprovoked violence? By chance I and the director of the play, among others, had just seen a security video of an assailant running up behind a 16 year old girl and felling her unconscious with one blow to the back of her head. The assailant was unknown to the victim, and there was absolutely nothing about her manner which was in the least provocative. In some ways that makes the case even more disturbing. We are faced with the reality of one person hurting another without cause or compunction. As the director observed, the assailant will probably be revealed to have “mental health problems”. That should reassure us all.

Reporting on child sexual abuse

The Children’s Commissioner’s report "I thought I was the only one" on child sexual exploitation mentions perpetrators’ ethnicities, but without saying whether the numbers were more or less as predicted from the Census. In fact, the Commission’s own figures show that only half the predicted number of White perpetrators were actually found (43% versus 88%), twice the number of “mixed” ethnicity (3.8% versus 1.8%), almost 5 times the number of Asians (33% versus 6.7%) and almost 7 times the numbers of Blacks (19% versus 2.8%).

As regards the broader question of the national extent of sexual exploitation, the headline annual figure of 16,500 victims is not case-based, but is inferred from signs of disturbed behaviour, which of course may be due to factors other than sexual exploitation. It is no more than a tentative indication, and it would be unwise to base decisions on methods which lack detail and require peer review.