Cognitive capacity and earning capacity: tracing dynamics of inequality in complex systems

In this talk, we present our recent findings in the double auction market experiments from a cognitive viewpoint. More specifically, we examine the effect of working memory capacity (WMC) to subjects’ earning performance from trading, which we coin the intelligence-irrelevance hypothesis. Recent genoeconomics have stimulated a series of questions on the economic and social consequences of some inheritable traits. To seriously address these questions, one needs also to know the role of complex systems: do they amplify or reduce the initial diversity of genetic inheritances? In this case, the intelligence-irrelevance hypothesis is examined to see whether the double auction market, as an institution design, can actually have a narrowing effect. Our experiments based on a pool of 346 subjects show some initial evidence in favor of the alternative hypothesis, i.e., working memory capacity has a significant effect on the earning performance of subjects. Moreover, the initial gap of earnings attributed to working memory capacity can be narrowed, but not disappear, through subjects’ learning in the recurrent environment. By decomposing working memory capacity into different constituents, we also find that different market complexity may trigger different constituting parts of WMC. In a market when the participating robots are truth tellers, it is the constituent corresponding to “storage and transformation” playing a role, but when the participating robots are adaptive traders, the corresponding constituent becomes “coordination”.