Preconscious Processing and Entrepreneurial Alertness

I caught this neuroscience question over at a new blog I like, Think Markets. Sandy Ikeda comments on a section of Daniel Gilbert's book Stumbling on Happiness:

I've been thinking about the following from Daniel Gilbert's Stumbling on Happiness:

Experiments have demonstrated that the moment we encounter an object, our brains instantly analyze just a few of its key features and then use the presence or absence of these features to make one very fast and very simple decision: "Is this object an important thing to which I ought to respond right now? [...] As such, our brains are designed to decide first whether objects count and to decide later what those objects are. This means that when you turn your head to the left, there is a fraction of a second during which your brain does not know that it is seeing a wolverine but does know that it is seeing something scary (Emphasis original, p.62).

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The ability to take in and quickly evaluate an object is evidently just such an evolutionary adaptation. And there's at least a superficial similarity between this phenomenon and what Israel Kirzner means by "entrepreneurial alertness." Of course, there are important differences. Gilbert is talking about wolverines in the wild while Kirzner talks about $20 bills lying on sidewalks: the one is a threat, the other a potential benefit.

Another apparent difference is that for Gilbert it's not just becoming aware of something, but being able to unconsciously process certain features of that something that somehow re-focuses one's attention more directly onto the object itself. (In Michael Polyani's terminology, your perception of something is shifting from "subsidiary awareness" to "focal awareness"). To a layman like me this sounds like a mysterious process, but it also sounds very much like what Kirzner is saying one does when exercising entrepreneurship - being able to pick out from the background that anyone else can see those things that indicate a profit opportunity and (instantly?) evaluate it - and it's perhaps just as mysterious. So, I'm curious about whether the psychology literature to which Gilbert refers might shed light on the nature of entrepreneurial alertness in Kirzner's sense.

Entrepreneurial alertness is the ability to identify an untapped market opportunity -- a sort of sixth sense associated with the profit motive. It is an idea put forth by Israel Kizner in his book Competition and Entrepreneurship.

It follows therefore that to identify absences in coordination among the plans of market participants it is sufficient to identify profit opportunities. And here it is, of course, that we have the source of entreperneurial alertness. Alertness to new opportunities is stimulated by the heady scent of profits. Profits are to be found where available bits of information have not yet been coordinated (Competition and Entrepreneurship, p. 222)

The question as I understand it is whether the sort of rapid value identification Gilbert is discussing in his book can explain entreperneurial alertness.

Simple answer: from a neuroscientific perspective, I don't think so.

Complex answer: the type of processing -- when the emotional or reward salience is assigned prior to the identification of an object -- is what we call preconscious processing. (I don't remember that part of the book, but that is what I think Gilbert is referring to.)

Preconscious processing is the evaluation of sensory stimuli that takes place before it enters your conscious awareness and attention (reviewed here). Even taking just the visual system, there is a lot of information out there in the world. If you tried to take all of this information to your visual cortex, you optic nerves would be gigantic. In order to compensate for the load your brain compresses this information to put into a more manageable form. This act of compression -- which happens mostly in the retina -- forms part of preconscious processing.

Another part occurs when you really need to react rapidly to a stimulus. Saying you are wondering in the mountains, and you see a rattlesnake. (Gilbert uses a wolverine example, but there aren't wolverines where I am from.) You need to react to the stimulus now. You can't just sit there and say to yourself, "Oh gee golly. That's a rattlesnake, and I should back up." The neurobiological framework that allows you to react before you have identified the stimulus is an evolutionarily old system designed to respond to threats. I would also call this system the sub-cortical visual system because most of the components of this system are located in the base of the brain. (The sub-cortical visual system is reviewed here.)

To give you a rough schematic of the visual system, information is detected and preprocessed by the retina, and then it is sent to the brain by the optic nerve. A lot of this information goes directly to the visual cortex and enters conscious awareness. (I describe the structure of the early visual system at length here.) The visual cortex is in the back of the brain in a place called the occipital lobe. But some of the information goes to structures in the base of the brain that do some of the housekeeping functions of vision. For example, some of that information goes to a place called the superior colliculus which helps you orient your eyes to important stimuli.

More important to our discussion is that some of this sub-cortical information ends up in a place called the amygdala which is responsible -- among other things -- for fear learning. The amygdala contains is a structure that is believe to associate emotional and motivational significance with stimuli.

Getting back to our rattlesnake example, visual information moves through the sub-cortical visual system to the amygdala which identifies the snake as a dangerous stimulus and triggers a reaction -- all before you know it was a snake. This is the type of preconscious processing of stimuli that I think that Gilbert is referring to.

An interesting side-note before I go on: we know that the cortical and sub-cortical systems are separate because of interesting cases of individuals with blind sight. Patients with blind sight are blind because of the destruction of their visual cortices, but their retinas are intact. If you remember, some of the information from the retina goes to the visual cortex, but some goes through sub-cortical processing. This sub-cortical processing is intact in these individuals -- which results in some really weird clinical findings. For example, if you show a light to them, and ask them whether they saw or not, they can identify it at greater than chance. Orientation to light sources may also be intact. There is even a very interesting case study where they show that fear conditioning is intact in blind sighted subjects. To demonstrate fear conditioning, in this case, they show a light to the subject and pair it with an electric shock. The subjects startles. After pairing the two repeatedly, you can show that every time the person sees the light, they startle in preparation for the shock -- even if the shock does not occur. This is because the light and the shock have been associated in their amygdala. Remember that this is occurring even though the person is not conscious of the light.

We see that there are two processing streams for early visual information, one cortical and one sub-cortical. The sub-cortical one is involved in assigning early motivational significance to objects before they enter conscious awareness. (For the initiated, yes, I understand that this is a radical oversimplification, but I trying to be brief.)

Could the sub-cortical, preconscious processing account for entreperneurial alertness? My intuition is "no" for several reasons.

First, sub-cortical processing is an evolutionarily old system that appears to have evolved to react rapidly to present threats. The types of stimuli that get conditioned in this system are not particularly sophisticated. (We can argue about whether some of this reactions are present at birth and hence ethological another time.) They are things like loud noises and dangerous looking shapes. The type of stimulus -- the "uncoordinated information" -- implied in entrepreneurial alertness is in my opinion too sophisticated to be encoded by this system.

Also, there is an issue of timing. Markets move pretty fast, but the speed of the system we are talking about is measured in milliseconds. It may be that people recognize market opportunities at this speed, but 1) I don't have the slightest idea how you could prove that and 2) it certainly isn't necessary that people react that quickly.

It is clear that this system can learn to associate stimuli with some type of value. This is demonstrated by my fear learning example above. I guess it is theoretically possible that a very sophisticated and experienced person could encode something like a market opportunity "pattern" in this system. I am not aware of any research that has examined this system for positive rewards. I am only aware of stuff like fear conditioning. (If someone knows more about it than me, feel free to chime in.) However, my intuition about how this system works that it is not responsible for entrepreneurial alertness.

If I had to speculate about what system is, I would say that human beings are excellent pattern recognizers. (Don't believe me. Read Blink.) Human beings have an extraordinary ability to recognize patterns in complex stimuli and associate these patterns with motivational significance. It is not unreasonable to me that an entrepreneur would be able to look at a market and see the pattern of some asymmetrical information that would allow them to make money. This does not imply that they have access to information about the whole market. Rather, it represents the application of their prior experience with market patterns to their perception of the present. However, I believe that this pattern recognition is implemented through systems other than the one Gilbert was describing.

I hope that this sort of clarifies the issue. If anyone has other questions, please put them in the comments.