Summary of Key Points
This article discusses the relationship between economics and science, the current distortion in the interaction between the two fields, and how to create a financial system that better supports scientific research. Economics and science share a common origin in philosophy, but economics has deviated from its roots by pursuing the characteristics of a "hard science" while neglecting human aspects. Science, on the other hand, relies on finance, yet today's venture capital (VC) has transformed from a mechanism that supports innovation through risk-taking into one that delays repayment by relying on compelling narratives. The article proposes several potential solutions, ranging from the establishment of large-scale funds to the development of prediction markets, as well as designing mechanisms that leverage human tendencies such as the desire for recognition.
1. Economics and Science: Once Connected, Now Separate Paths
Although economics and science may seem unrelated, they are actually related, both stemming from philosophy. Science focuses on the study of natural laws (natural philosophy), while economics examines the principles of human society (moral philosophy). For example, Adam Smith initially taught moral philosophy in university, with economics being a later addition, originally referred to as "the study of how to make life more convenient."
However, economics has strayed from its original purpose. It has become envious of the precision of physical sciences and has tried too hard to adopt the methods of hard science, using complex mathematical formulas to achieve predictability, thereby forgetting Smith's emphasis on human behavior. Science, in contrast, studies entities like molecules and energy that do not exhibit emotions or consciousness, which is the main difference between the two fields today.
2. The Shortcomings of Economics: Studying Oneself Leads to Incomplete Understanding
Economics faces a problem that science does not: it examines human society, but its researchers are also human beings. This is like trying to see the back of one's own head—impossible to achieve a complete understanding. For instance, when observing the stock market, one's own buying and selling decisions directly affect prices; when studying consumer behavior, consumers may change their choices upon realizing they are being observed. This phenomenon of "observational bias" (also known as feedback loops) is virtually non-existent in natural sciences (except perhaps in quantum mechanics) but constitutes a fundamental challenge for economics. As humans are living beings with emotions and irrational impulses, these factors cannot be ignored.
3. The Distortion of Science's Financial Support: Venture Capital from Risk-Taking to Storytelling
Science needs funding to thrive, but modern venture capital has changed significantly. Early VC was like whaling—a small group of investors pooling resources to take risks on projects with the potential to change the world. Today, it has become a trillion-dollar "asset management game" that relies on appealing narratives such as "AI dominating the world" or "exploring Mars," constantly delaying the day when investments must be repaid if the projects fail.
Why has this happened? The entire world is engaged in a practice of borrowing short-term funds for long-term purposes: banks lend out short-term deposits for 30-year mortgages, governments spend money promised during their terms using resources from future generations, and companies use current revenues to inflate their valuations for the next year. With everyone using short-term capital for long-term goals, there is little patience for scientific projects to take ten years to yield results.
4. New Financial Approaches for Science: Are Large-Funded Funds and Prediction Markets a Viable Solution?
Some have attempted to create new financial tools to support science. For example, MIT professors have proposed the idea of large-scale funds that would package 50 unrelated drug development projects and issue bonds of different levels, similar to mortgage-backed securities (MBS). However, this approach faces challenges: drug development is a binary outcome (either success or failure), making it difficult to diversify risks, and it requires a complex infrastructure of rating agencies and guarantee institutions—something scientists often lack the time to accommodate.
Another approach is the prediction market, where people bet on scientific hypotheses (e.g., whether a protein target can be developed into a drug). The price reflects the perceived likelihood of success. However, this has significant drawbacks: such markets are niche and illiquid, and if prices perfectly reflect reality, there would be no profit incentive for participants. Science is too rigorous to allow for such speculative activities.
5. A More Practical Solution: Leveraging Human Motivation
Is there a more practical way to attract funding? Consider SpaceX, which engages in high-risk, uncertain projects like Mars exploration yet still attracts global investment. The reason is simple: SpaceX taps into human desire for recognition and achievement. Each rocket launch makes headlines, and Elon Musk's celebrity status gives investors both financial returns and emotional satisfaction.
Therefore, scientific projects can be designed to provide immediate feedback and opportunities for visibility. For instance, publishing groundbreaking papers at key milestones or conducting live experiments allows investors to see progress and share results. This doesn't turn science into entertainment; rather, it utilizes the desire for recognition in an era dominated by attention economy to attract capital that is otherwise short-sighted.
In conclusion, the relationship between science and finance needs to be redefined, with a focus on human behavior. We must understand human impatience while also leveraging our desire for recognition to create financial systems that truly support the long-term nature of scientific research.