"We are ruined by our own biases. When making decisions, we see what we want, ignore probabilities, and minimize risks that uproot our hopes. What's worse, "we are often confident even when we are wrong," writes Daniel Kahneman, in his masterful new book on psychology and economics called "Thinking, Fast and Slow." ---------------- Now with that being said, "Computer systems are now becoming powerful enough, and subtle enough, to help us reduce human biases from our decision-making. And this is a key: They can do it in real-time. Inevitably, that "objective observer" will be a kind of organic, evolving database." So, this looks like the future will enable us by default to become more objective with algorithms. http://online.wsj.com/article/SB10001424052970203462304577138961342097348.html ------------- "The algorithms used by movie rental site Netflix are now responsible for 60% of rentals from the site, as we rely less and less on our own critical faculties and word of mouth and more on what Mr Slavin calls the "physics of culture" ---------------------- Now it looks like we are choosing what to watch based on what others watch - we're not thinking. http://www.bbc.co.uk/news/technology-14306146 -------------- Then lastly algorithms will infer your bias and preferences based on your prior choices, including your down loads from social media and will feed you what your search engine understands you'll want to know. -------------- Sounds like we are back to square one, the search engine will feed our bias - news that makes us comfortable rather than news that makes us uncomfortable.
the stupidfication of the masses is appalling. but unfortunately for the us, traders, it will not have the same effect on the market behavior. in fact, going forward, beating the market will be increasingly difficult, as humans will be pushed away by the speed, intelligence and efficacy of machines.
Suppose algorithms were responsible for a "flash crash" in the markets. The remedy might be price point circuit breakers. While TPTB stand around with their thumb up their ass. Now suppose we have key word algorithms for news.Could we have a "flash crash" panic in the general population as stories with increasingly distorted news. Who or what is going to put an end to the news story? Suppose,a news item starting as a plane went down morphs into an attack (or even a rumored assaination) all generated by a computer connected by computers and keywords.(I wonder what contextual ads would pop up) This would be interesting to unwind and Imo, an event in the near future.
nutmeg You have some good stuff here, thanks for your time, effort and the post. This (line of thought) has book and movie deal all over it, I hope you get something signed very soon. Sounds like a great ending to the life and times of Gordon Gekko due to a massive heart attack (like his movie father), and across town his grandson's algo is racking up millions by the millisecond, a billion dollar come back (like his movie Grandfather). nutmeg productions, it's got a nice ring to it
nutmeg, what is your point? machines are programmed by humans with biases, so how can a machine be programmed w/o bias? it's like the argument that "random" # generators cannot be truly random.
I want to be the first one to know the news is wrong, the truth is beneath the surface. If facebook posts runs in the millions and we have millions of tweets, and news goes "viral" (via algorthms) the "market knows all" will get it wrong, the media may eventually have accurate information but how long before "accurate" information will go viral. -------------
How long before the human preventative actions blow up a genuine liquidity provider? Market moves a lot. Circuit breakers say "game over". The exchange then busts all your hedges.