When is 'Illusion' Good?

"Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces." ~ Sigmund Freud

Are illusions healthy?  Do we prefer a distorted version of reality over reality itself?  Is it a deep, inner human desire to be "tricked?"

Once again, I'm inspired this weekend by a talk on TED Ideas Worth Spreading.  The talk, Your brain is badly wired -- enjoy it!, is an interesting 14-minute lesson on how our "learned" perceptions, create illusions:

Al Seckel, a cognitive neuroscientist and master of visual illusions, explores some of the perceptual illusions that fool our eyes and our brains.  Running through example after example of images that buck our expectations, he asks why such tricks make us so happy.  He even creates some of his own illusions, challenging our notion of what's true.

"Art has a double face, of expression and illusion, just like science has a double face: the reality of error and the phantom of truth." ~ Publilius Syrus

As Seckel explains in his TED talk, we, as humans, enjoy being "fooled," especially when an illusion gives us joy or pleasure, as with art forms, such as motion pictures and photography.  Here at TFP, I often observe the foolish behavior of investors, collectively referred  to as "the herd."  Put simply, stock prices are based upon expectations of future market and economic conditions.  These expectations are largely based on perception, which is formed by past experience, and "discounted" to a present value to arrive at a stock price.  In other words, the gaps of missing or unknown information about the future direction of stock prices creates an incomplete picture and those gaps must be filled to complete the picture.  Where the herd is led astray is by their collective perception, which is a result of prior learning and conditioning, to arrive at an "illusion."  This illusion is often a distortion of reality...

Seckel goes on to explain that, as we grow older, our perception typically grows increasingly distorted by our "learning."  One of Seckel's "illusions" appears to form the picture of a naked woman out of dolphins.  Children only see the picture as dolphins.  Does this not confirm that our "learning" distorts our thoughts as we age?

"Truly it is an evil to be full of faults; but it is a still greater evil to be full of them and to be unwilling to recognize them, since that is to add the further fault of a voluntary illusion." ~ Blaise Pascal

Is illusion voluntary?  I like to believe that, if we know ourselves intimately, both as humans and as individual personalities, we may better learn to recognize when the potential for illusion exists and avoid it when the risk of harm is relatively high.  Herd behavior in the stock market, once again, is an immediate and recognizable example.  Can you think of others?

"If we choose, we can live in a world of comforting illusion." ~ Naom Chomsky

What are your thoughts?  When is illusion good?  Is everything an illusion to some degree that can not be avoided?  Does our perception become distorted as we age?  Does that mean that we create illusions by "filling in the gaps of missing information" with our learned perceptions?  Is it simply easier and more convenient to see something that is not there because the alternative (reality) is less pleasing?

Finally, do you see the first image as a courtyard or a terrace?  In the second image do you see a young lady or an old man?

Let me know your thoughts and try to allow this exercise to be more entertainment than anything else...  Once again, for the TED Talk, click here.

Comments

[Oz]

It's difficult to say what an illusion is and when it is good or bad. My own preference is to use the word "interpretive framework" because it doesn't have the same negative connotation that illusion has, but still suggests that parts of reality are lost or filled in.

An interpretive framework can be good or useful if it helps us interpret reality in a good or useful way in accordance with our goals. Reality itself, as observation and science reveals, is continually more deep, complex, and mysterious than we will ever know. So I feel that an interpretive framework is necessary to help make sense of it all. Of course we will miss some information and try to fill in the rest, but that's just the situation we're in. Some information is beyond our human capacity at the moment while other information is simply superfluous to our goals.

With that in mind, I'm also of the belief that we have an interpretive framework that we can change. The change is necessary when the lens we're currently using to look at reality doesn't suffice any more. This is when an interpretive framework becomes an illusion or delusion, and this is when it becomes bad.

Another great, thought provoking post =)

P.S. I haven't really watched The Matrix, even though I'm sure some of my comments sound like they're from the movie.

[The Financial Philosopher]

Oz:

Your comment illustrates one "illusion" working to distract us from our path and that illusion is language. The fact that you chose not to use the word because of its negative connotation and limiting meaning tells me that you have refused to let "conventional wisdom" define you and your life...

There are many things that act as "illusion" in our lives and language and social conventions are but a few of them. Of course media noise and self-doubt are a few others to mention...

Thanks for the thought-provoking comment, as usual...

[Iqbal Latif]

One thing that strikes me is the 'meager value' of wealth that we pursue. The 'form of capital' today is a great illusion. The way huge amounts of wealth move from one place or party to another via a few 'cyber specks' is an uninterrupted illusion. Markets are efficient in destroying wealth and excess. A thousand, a million, a billion or a trillion - these are all in cyber space. This movement is unique, enabling people to be crafted from billionaires to paupers. Note here that an almost- millionaire is a pauper vis-a-vis a billionaire. BSC ex-CEO, Jimmy Cayne, sold his 5,658,591 shares on the 25th of March at $10.84. This was his total position of full common stock at BSC. At the high of the year, the value of his stake was about a billon$. At $10.84 it was $61.33. The wiping out of $950m of wealth is remarkably effortless.

Time and leverage are of the essence in the illusory world of today. Any individual, corporation or nation can go through the extremes of this illusion if they understand that the limits of their mathematical models are bound to fail at some point or another. Illusions surpass limits of mathematical models. John Merewether's efficient Market Hypothesis failed as it was based on assumption. Hence the disaster that was LTCM.

The markets have become more efficient. Particularly, the uncertainty associated with riskier assets has decreased, and therefore spreads between riskier and less risky assets should decrease. The fund, comprised of $140 billion in assets (almost all borrowed), had more than one trillion dollars in exposure through derivatives. Today's ABS and subprime crisis arises out of a similar genre.

A billion today is rarely ever physically transferred. In actuality, it has no physical presence. It comes easily and disappears into thin air. It is this 'illusion' that MER, C, BSC, JPM and MS now have to live with. Asset valuations are mathematically capitalized in 'cyber specks'; although this illusory cyber wealth is backed by physical assets, the ease of destruction of 'cyber wealth' is mind boggling. It leaves no charred grounds, no ruins. Physical wars against semi-developed nations are soon going to be meaningless. Once cyber credit disappears, nations go bust. If Afghanistan or Iraq were a cyber connected economies, for example, the shape of war would be very different. The 'loss of cyber speck dominated wealth ' can change the lives of people. It is far more destructive than physical war - it leaves no ruins but destroys people to the core.

Is it not a big illusion that a company like BSC gets smashed but its 1.2 billion glittering headquarters and its thousands of employees did not see any physical affect? Clashes in olden times left physical signs of destruction. In our illusion prone world, a man can be left penniless with no obvious sign of external destruction. Our present day global financial system is a system backed by illusory money – is this not a great illusion? 'Illusory money' has a destructive ability and its capability to obliterate the valuations of underlying physical assets is superior than any other method of obliteration. Those who handle this 'illusion' well (Goldman Sachs is a great example here) make money on both sides of the market.

[The Financial Philosopher]

Great points Iqbal:

Money is thought of as a tangible object (i.e. something we can touch and feel); however, it is quite the opposite -- it is intangible.

The value of investment assets and their derivatives are expressed on "paper" and, today, in electronic form.

As we have learned recently, "paper value" is illusory because complex financial structures do not even appear on the balance sheets of financial institutions. It's all an "illusion."

Thanks for the comment...