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## Scientists Develop Financial Turing Test184

KentuckyFC writes writes to share a new online test that is being touted as the "financial Turing test." The web-based exercise asks users to distinguish between real and randomly generated financial data. "Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces. They say that the more efficient it is, the more random its returns will be and a perfect market should be completely random. That would appear to give the lie to the widespread belief that humans are unable to tell the difference between financial market returns and, say, a sequence of coin tosses. However, there is good evidence that financial markets are not random (although they do not appear to be predictable either). Now a group of scientists have developed a financial Turing test to find out whether humans can distinguish real financial data from the same data randomly rearranged. Anybody can take the test and the results indicate that humans are actually rather good at this kind of pattern recognition."
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## Scientists Develop Financial Turing Test

• #### Not random and not predictable? (Score:3, Interesting)

on Friday February 26, 2010 @03:37PM (#31289512)

What does that mean?

• #### Re: (Score:2, Insightful)

What does that mean?

pi?

• #### What do you mean pi? (Score:3, Interesting)

What exactly do you mean by pi not being "predictable"? Pi can be calculated algorithmically to any desired precision, nothing to "predict" there. You can even calculate arbitrary digits [wikipedia.org] without having to calculate the preceding ones. Random means precisely "not predictable". It seems some people here are equating not following a uniform distribution with not being random, which is incorrect.
• #### Re:What do you mean pi? (Score:4, Funny)

on Friday February 26, 2010 @05:02PM (#31290568) Homepage
I believe he may have been referring to the film Pi [imdb.com], and not the number.
• #### Re:What do you mean pi? (Score:5, Interesting)

on Friday February 26, 2010 @05:51PM (#31291140) Homepage

Actually you can play games with pi's digits that would be rather hard. Say I'd give you 5 consecutive digits and ask you for the position in pi. Since there are infinite solutions to this question, it's not actually predictable (chance of guessing correct would approach 0 rather fast). Or I could give you 5 digits from pi (or any other number) and ask you to give the next number in the sequence. Again, this next number is totally not random, but not predictable in any way either.

Not random, not predictable. Lots of questions about pi are like that.

But this is not what is indicated in markets. Markets are unpredictable due to a chaotic component in their makeup : humans. Only if you were to predict the actions and thoughts of every participating human precisely over long time periods would you be able to predict markets. Presuming that the markets are influenced by real-world events, you'd also have to predict the real world. "Will Obama get reelected ?" is a question to which any serious market prediction system would have to know the answer, because it matters a lot. Same goes for "Will the football season of 2011 be more or less interesting than 2010", because these questions make a large difference.

It's like the weather. The weather (and climate for that matter (second paragraph) [wikipedia.org]), in mathematical terms, consists of a very large collection of mostly random effects. Due to the fact that effects grow over time until they dissipate, but that takes time, you have some amount of predictability in the short term (although sometimes such an effect can have an extreme short-term effect. There are places in the pacific which go from sunny and calm seas to hurricane in about 20 minutes, sometimes right on top of a ship). So in the short term weather "averages out" the different effects (meaning if you see a strong cloud front anywhere, it will start dissipating. If you see any kind of clearly defined features anywhere they will get "blurred" in the short term). But in even the middle term, never mind the long term, new effects will soon dominate whatever you're seeing at any particular time (new cloud fronts, new wind directions, obstacles in the movement of air, unexpected heat sources on the ground, or just the opposite, very cold layers of water that just appear out of nowhere). Since those new effects are the result of idiotically small events (the proverbial "butterfly flap"), the only way to predict weather patterns long term is to track every last human, every last butterfly, and so on. Obviously this is not just impractical, but impossible. So you could say that to even know what the weather (or temperature, or ...) is at any given time, you'd have to be God. If you're not omniscient, you only see a small, averaged and smeared out picture of the weather, no matter how precise the instruments you're using. To predict the weather (or climate) with any reasonable amount of certainty, you'd need a simulator that could simulate the entire universe, faster than the universe works. Generally, mathematicians joke that they'd simply use such a simulator to guess tomorrow's lotto numbers and retire to a pacific island, but the point of the joke is that any program that is capable of predicting any real-life chaotic system, such as climate (or even the path of the planets, which is in the long term nowhere near as constant as they seem [wikipedia.org]), has to have the ability to calculate next week's lotto numbers.

The problem is that tiny, seemingly absurdly unimportant variations today make a large difference tomorrow. Another illustration might be that wether you park your car in front of the house or behind it will generate a difference of 5 degrees celcius in the average worldwide temperature in 10 years. On the other hand huge, seemingly important things like the energy absorption rate of the ocean hardly make any difference at all (because whatever effect they have, no matter ho

• #### Re: (Score:2)

You're saying that because any given 5 consecutive digits appear infinite times among pi's expansion, pi is unpredictable? That is, multiple solutions = unpredictable? Sorry, but that doesn't make sense. By that definition, 1/9 = 1.11111... is unpredictable too, since if I give you the sequence "11111" and ask you for the position I took it from, you can't know the answer either! That question is equivalent to "guess the number I'm thinking of"; hardly a mathematical experiment.

My take is that predict

• #### Re: (Score:3, Insightful)

Then why don't you answer the question. These are digits of pi ... which is the next digit ?

46457

You say it's predictable, great. Predict it.

I do think we all agree it's not random.

• #### Re: (Score:2)

the only way to predict it is to calculate it from the beginning. You couldn't say, give me the next number following 5873465097. I could give you a run of any length from any point within the digit stream of pi and there is no way you could tell me the next number (short of me starting from the first digit).

• #### Re: (Score:3, Funny)

well holy crap. I had never heard that before. that's kinda awesome.

• #### Re: (Score:2)

I think what he means by "Pi is not predictable" is that not already knowing you're dealing with Pi, given a sequence of digits from the expansion of Pi, you could not easily predict the next digit.

For example, given the following: 7,8,4,8,8,9,1,0,1,5,9,8,6,0,3,0,9

without knowing that these are digits of pi in advance, you'd have trouble being able to predict that the next digit is 5.

• #### Re: (Score:2)

but the same sequence of digits must occur somewhere in the decimal expansion of e, and other constants, but you couldn't tell if that sequence was "random" or not. In fact, pi and e should *also* contain 7,8,4,8,8,9,1,0,1,5,9,8,6,0,3,0,9,4 and 7,8,4,8,8,9,1,0,1,5,9,8,6,0,3,0,9,6 somewhere so it's not a matter of *predicting* the next number, is it?
• #### Re:Not random and not predictable? (Score:5, Insightful)

on Friday February 26, 2010 @03:45PM (#31289588)
It means it follows a recognisable pattern, that can be distinguished from random data after the fact but not predicted in advance.
• #### Re: (Score:2)

Kind of like?

You could not have predicted what I was going to type here, but you can understand it once I've typed it?

I have been accused of being random in the past.

Seriously though, to say whether the stock market is "random", you have to define the question more
precisely. If you mean: is the next "index value" that the market is going to generate random? Yes. And thus
is the sequence of those that it is going to generate "random". Yes. I am pretty sure that it is ok for the definition
of random for the pat

• #### Re: (Score:2, Interesting)

It means it follows a recognisable pattern, that can be distinguished from random data after the fact but not predicted in advance.

i.e. Music

• #### Re:Not random and not predictable? (Score:5, Informative)

on Friday February 26, 2010 @03:46PM (#31289604)
It's a chaotic system, but it has certain patterns that seem to repeat. The thing I noticed after looking at a few, is that the real ones are easily identifiable by the development of resistance and support levels, which technical traders use to find probable entry and exit points. Basically, the hypothesis is that a group X holds the stock, they tend to have some psychological barrier price in common at which they would sell, and another at which they would buy more, this selling and buying makes it difficult to break through those price points. When it approaches one of those points trading goes up, if something has changed to make the stock more attractive to another group, or to make it less attractive to the group of traders that tends to hold it, it will change hands, and the new investor group will have new barriers. So over any given time period you will notice a lot of closing stock prices at close to the same level, then a sudden jump, and new level it bounces between, etc.
• #### Re: (Score:2)

It's a chaotic system, but it has certain patterns that seem to repeat.

That seem to repeat more or less exactly, but actually repeat within an unpredictable range of values and on an unpredictable range of cycle timings.

Which is why there are as many technical trading systems as there are gambling systems, with roughly the same results.

• #### Re: (Score:2)

I never understood this trading thing. Basically, all you do is transfer money around and hope you get more by making the right choices. However by making money, you are causing somebody else to lose money. All-in-all the global system doesn't make or lose any money unless somebody adds more product thereby reducing the worth of the same product already in the hands of somebody else.

I also don't know how doing bad things here can cause the markets to crash. You either have stock or you don't, selling stuff

• #### Re:Not random and not predictable? (Score:5, Informative)

<calum@callingthetune.co.uk> on Friday February 26, 2010 @06:11PM (#31291350) Homepage
Yes, you are pretty ignorant, I'm afraid. Don't be ashamed, you're in the larger group. Happily, a dose of economics would sort you out a treat. To sort out your central misunderstanding, neither the amount of wealth or the amount of things that you can buy or the amount of work there is to be done is fixed. They relate to each other in rather complex ways, but the upshot is that we can all become richer - and if you don't believe me, ask your great-great-grandfather, or a Chinese factory worker saving up her wages to pay for an education.
• #### Re: (Score:2)

There are a couple of things you're missing:

1. There is money pumped into the system from outside. When you buy a stock, you're really investing in a company that makes things that (hopefully) people want. You may not be investing in the company directly, but by purchasing it from somebody who did, you're making the initial investment possible.

So it's not a zero-sum game. You're making money available to people who make stuff. If you think that's worthless, try starting a company some time without borro

• #### Re: (Score:2)

1. but do that not devalue the money already in the system?

2. so i can borrow your car, sell it, and keep the profits?

• #### Re: (Score:3, Interesting)

> 1. but do that not devalue the money already in the system?

Just the opposite. It funds the creation of more goods with the same amount of money. That increases the value of money, which is why people pay for the privilege of borrowing it.

> 2. so i can borrow your car, sell it, and keep the profits?

The analogy misses several points, and the analogy with a physical car is extremely misleading.

* You MUST return what you borrowed, or return an equivalent. The broker will limit what you can borrow by w

• #### Re:Not random and not predictable? (Score:5, Funny)

on Friday February 26, 2010 @03:47PM (#31289618)
<facepalm> Slashdotters!! If you had a goddam girlfriend, you'd know what "not random and not predictable" meant.
• #### Re: (Score:2)

What is a girlfriend? :P

• #### Re: (Score:3, Interesting)

From the website http://arora.ccs.neu.edu/ [neu.edu] "We collect data from various sources and we show it to you in two windows, - one window plots the actual data, - the other plots the data randomly permuted (tech note: we permute the derivative of the data)."

So the test is really "can you recognize a natural data set from the same set with a randomly permuted derivative".

The notion of "randomness" is independent of the statistics of the distribution. And since distributions with different statistics usuall

• #### Re: (Score:3, Informative)

Chaos Theory. Patterns in otherwise seemingly random outcomes. If you look at the details, for instance each snowflake, you'd come to the conclusion that each snowflake is unique (they are), however if you take a step back, you'll notice that the randomness of snowflakes becomes clear in that each snowflake conforms to a pattern that is apparent even as each snowflake is unique.

I know that this is a fairly poor explanation of chaos theory, so don't butcher me too much.

• #### Re:Not random and not predictable? (Score:5, Informative)

on Friday February 26, 2010 @04:08PM (#31289868)

A chaotic system is one where arbitrarily small perturbations always lead to arbitrarily large divergence in phase space. What this means is that even though a system might be following a completely causal underlying law of behavior, it still cannot be predicted because it would require having infinitely accurate knowledge of the parameters.

Because measuring apparatus always involves noise, and noise is of some finite value, this means that the arbitrarily small (yet IMPORTANT) perturbations cannot be resolved against the noise background. This places a very limited time window on your ability to make predictions.

Basic examples of this are the Lorenz attractor, the chaotic pendulum, etc.

• #### Re: (Score:2)

But chaotic systems are generally predictable short term... while markets aren't (otherwise everyone would make a ton of money trading within seconds of observations).

• #### Re: (Score:2)

The rate at which the system diverges is characterized by a set of numbers called Lyapunov exponents -- if the stock market is indeed a chaotic process, its short-term unpredictability could mean that it has particularly large exponents. Of course, there's no proof that the stock market is a chaotic system, but chaos is a good example of something which is both "non-random" and "unpredictable."
• #### Re:Not random and not predictable? (Score:5, Interesting)

on Friday February 26, 2010 @04:12PM (#31289910)

Traditionally, economists have claimed that stock variations were random, as explained in 'A random walk through Wall Street'. Now, further analysis indicates that the changes of value in stocks are not random at all: If they were, the last couple hundred years worth of financial data would be almost impossible, with extreme oscillations that would only happen once in a billion years in a random model occurring every couple of decades.

Instead, what some have proposed is that stock oscillations instead follow power law distributions: It still makes it impossible to know what the market will do tomorrow, or next week, but it makes large oscillations a whole lot more common than in a random model. This makes many of the current models that are used to assess how risky a portfolio is into a pile of garbage. For that argument, you could read 'A not so random walk through Wall Street'

• #### Re:Not random and not predictable? (Score:5, Interesting)

on Friday February 26, 2010 @05:16PM (#31290730) Journal

There's a great example of this in a book called "The Origin of Wealth" by Eric Beinhocker (a great book, actually).

In Chapter 8, he shows graphs of IBM's stock price over a period of time and a random walk. They look very similar and I think it would be hard to tell them apart. However the next set of graphs show "Changes in Stock Price" for IBM vs the random walk and the difference is stark. The real random walk had a very wide band of nearly uniform "fuzziness" about the origin. The real one, however, had a much narrower band of fuzziness with many large spikes in either direction.

• #### Re: (Score:2)

It means that while its not based on pure randomness, the scope and breadth of the object in question are too large to simulate or emulate in a way that allows us to predict whats going to happen.

Its like a weather pattern.

Both are not random, and are entirely predictable. We are just unable to predict either because we don't have the processing power or the monitoring power to know enough about what we are trying to simulate to accurately predict the outcome. There are simply too many pieces to the puzz

• #### Re: (Score:2)

22222222222222222233333333333333333333333333333337777777777777777777777777

These numbers are not random, but they are not predictable (at least not by you).

• #### Re: (Score:2)

If you ask a human to write a series of 100 numbers, picking them "at random" between 1 and 10, you're going to get a list of numbers that has measurably different characteristics than purely random data. In particular, you'll tend to get much too few repeating sequences. It's still not predictable.

• #### Re: (Score:2)

I think you mean 0 through 9.

• #### Re: (Score:2)

Yep, in a statistics class I had once, half the class was assigned to make up "random number" lists, and the other half actually generated a random number list using actual randomly generated numbers (by using dice). It was very easy to tell which were made by people, becasue as you stated, there were not enough repeating sequences as in the truly random ones.
• #### Well, if you look at the graph on the front page (Score:2)

Well, if you look at the graph on the front page it becomes bloody obvious. The real data goes up and down, but does so over longer periods, it jitters but there is a direction to its movement overall. While the fake one goes up and down far to randomly, it simply does not look like a stock market result.

So yes, within this simple example, I could tell just because I know from years of news exposure what a financial graph tends to look like.

But to be honest, I am not sure it means anything. They could jus

• #### Re: (Score:2)

Fractal patterns- a line graph over a long period can be decomposed into a base pattern that is repeated at different amplitudes at different frequencies (hourly, daily, weekly, fortnightly, monthly, annual quarters, yearly). Such analysis can be used to synthesize patterns such as music instruments (audio grains) ocean waves, cloud patterns (Perlin textures), and terrain (fractal landscapes). For 2D and higher, these ratios can vary according to direction as well.

It might be that different traders have dif

• #### Re: (Score:2)

it's more that they're trying to read tea leaves, and it's called technical analysis. Some of it makes sense (at least from a psychological/sociological perspective - and don't forget, the market is just people), like levels of resistance and support, while other is just shear lunacy, like the famous head-and-shoulders. However, because there are so many people looking at the same things, it becomes a self-fulfilling prophecy. A head-and-shoulders supposedly means the stock is going to drop. Mind you, t

• #### Re: (Score:2)

If it weren't for the fact that all the other inputs to the system were human, analysis might work, but as you say once you get everyone else looking to see what everyone else is doing and trying to analyze each other, it just ends up being a twitchy feedback system.

• #### Not predictable? (Score:2, Troll)

Yeah, lots of noise at the daily level, but beyond that the signals emerge.

e.g.

ftse 100
http://uk.finance.yahoo.com/q/bc?s= [yahoo.com]^FTSE&t=my&l=on&z=m&q=l&c=

dow jones
http://uk.finance.yahoo.com/q/bc?s= [yahoo.com]^DJI&t=my&l=on&z=m&q=l&c=

The markets are powered primarily by inflation (forget CPI figures, they're heavily manipulated to look good, look at credit creation). August 15th 1971, the fundamental nature of money changed, debt became money, debt pays interest. Expansion in credit l

• #### Re: (Score:2)

Here's the Wall Street Journal correcting the Dow for inflation: Adjusted for Inflation, Dow's Gains Are Puny [wsj.com]. Disheartening, but they note:

All of this might be enough to put investors off stocks entirely, until they consider the long-term alternatives. Measured over the 1978-2008 period, rather than over just one decade, stock performance in real-real terms actually is better than that of just about any other major investment class, Mr. Thornburg found: 4.5% a year. Stocks' ability to keep up with inflatio

• #### Re: (Score:2)

Create an encoding method for algorithms that outputs a graph. Randomly generate a short algorithm.

It's not random, because it has a low Kolmogorov complexity (shortest program that outputs the data). But it's not predictable either, because you don't know *which* simple program it is.

• #### Oh Java! (Score:5, Funny)

<BadAnalogyGuy@gmail.com> on Friday February 26, 2010 @03:39PM (#31289530)

Is the test where we have to decide whether to install Java?

Because I pass.

• #### Here Is The Simple Form: (Score:3, Funny)

on Friday February 26, 2010 @03:41PM (#31289546)
* Do you have any money?
* Did you give me all your money?
- If 'No', you pass. Please leave.
- If 'Yes', you are a fool. Please Leave.
• #### Economists ... (Score:4, Informative)

by Anonymous Coward on Friday February 26, 2010 @03:47PM (#31289620)

Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces.

The market is only efficient within a narrow range of economic activity. When economic activity exceeds the top and bottom ranges you get bubbles and panics - inefficient markets. We see them all the time.

I really wish economists would stop assuming that for any given economic activity, the conditions and their subsequent results can be extrapolated across the board. That's why, whether it's the Chicago school or the Keynesians, they can point to data (a selected portion of economic activity) that supports their view, when in fact all schools of economics is correct in their little slice of economic activity and conditions.

• #### Re: (Score:2)

The real issue is that the price mechanism can't deal with the complexity of the real world, it's too easy to externalzie and hide other important real world data and costs that price mechanisms of market theoreticians can never take into account.

Efficient markets could work if everybody was god, but people are not 1) equally skilled 2) have equal time to analze information 3) do not have unbiased access to opportunities 4) Human psychology tends to treat those with much money as special or royalty, when mo

• #### Re:Economists ... (Score:5, Insightful)

on Friday February 26, 2010 @04:09PM (#31289886)

The market is also inefficient when any participant with more resources uses some of those resources to change the rules of the market to favor that participant.

For example, the same movie sells in china for 2.49 and in america for 19.99 (often with an english soundtrack for both). In an efficient market, the movie would be purchased there for 2.49 and sold here for 4.99 making a 100% profit for someone. But artificial rules restrict this.

For example, drugs which are out of patent are sold in India and China for 10 cents a pill but for 33 cents a pill in the united states (example- metformin) and those in patent are sold for about 10 to 50 cents a pill in india and china and for 5.00 a pill in the united states. (and apparently viagra is much cheaper in canada than the u.s.). In an efficient market those pills would be purchased, imported, and resold. But artificial laws prevent this rational activity.

For example, Microsoft absolutely slaughtered many competitors through illegal monopolistic behaviors (for which it lost many court cases years after the competitors were dead or crippled). In an efficient market, there would have been other options.

• #### Viagra in Canada (Score:5, Funny)

on Friday February 26, 2010 @04:28PM (#31290114)

apparently viagra is much cheaper in canada than the u.s.

That's a function of supply and demand. We virile Canadian men don't need Viagra, so that drives down the price.

• #### Re: (Score:2)

Funny, I always thought it had to do with the number of splinters you Canucks pick up from knotholes... I've always admired your high tolerance for pain, even if it is LaBatts induced. ;)

• #### Re: (Score:3, Insightful)

Or, because of the large demand, the marginal costs of producing extra pills approaches 0, thereby allowing them to sell pills at a cheaper price and maintain their profit margins.
• #### Re: (Score:3, Interesting)

Sorry man, clearly the stupendous demand from impotent Canadians is driving down the price through extremely-large-scale efficiencies in sales and production.
• #### Re: (Score:2)

They are all manufactured in the same place, so efficiency would flow across the borders.Apparently impotency does not.
Almost half of Cialis sales are in USA and that does not include all the "discount viagra online" sales which are recorded in Canada, but are then shipped to US. http://www.insideindianabusiness.com/newsitem.asp?id=16591 [insideindi...siness.com]

Generic metformin in is available in the US for \$4 for 60 850mg tablets, or less that 7 cents per pill. You example is wrong, but your general point is not -- it is widely known that American pharmaceticals are sold for far less in other countries, even in Canada and Mexico. Basic economics say they should be more expensive elsewhere, due to transportation costs. And of course, the pharma companies due their best to make reimportation of drugs back into the US unlawful.
• #### Re: (Score:2)

Fair enough-- I pay \$10 for 60 500mg tablets as a generic and miscalculated too (what is it? -- about 20 cents a pill I guess).

I'm not arguing it would be more expensive elsewhere, only that with such gross imbalances in price, in a rational market, people would arbitrage the price.
Our market is not rational

• #### Re:Economists ... (Score:5, Informative)

on Friday February 26, 2010 @04:51PM (#31290414)

That's not market efficiency. In your example, the moviemakers would respond by making movies 19.99 globally, with the market failure of the Chinese not being able to afford movies.

Price discrimination* is a key part of economic efficiency when a monopolistic competitor** has control over their market goods. If the competitor sets prices without discrimination, this causes inefficiency because buyers (the Chinese) and sellers (the moviemaker) never get to trade, and market efficiency is defined as maximizing trade within the market.

* The market kind, not the racist kind.
** A monopolistic competitor refers to a competitor that has control over a narrow niche in a wide market, and is not the same as a monopoly.

• #### Re: (Score:2)

Okay... you are using some special meaning of an efficient market.

I'm talking plain english here.

If hot dogs are selling for \$1 on this block and \$15 three blocks away, an "english language" efficient market is going to close that gap.

Americans are basically being pumped dry of wealth at this point. You either sneak around the system (by taking a thermos with a hot dog into the theater) or just refuse to participate.

• #### Key is Jumps (Score:2)

A friend of mine actually came up with this test a few months ago and sent an email around with 8 series to see if people could spot real data from randomised ones (Maybe it got chained on to a wider audience).

The key to the test is that random walks typically don't undergo large jumps or oscillations. In fact, they're generally quite a bit smoother than real data. I see that TFA comes to more or less the same conclusion(I think).

The moral if this story is that 99% of normal probability theory does not easi

• #### Re: (Score:3, Insightful)

The jumps in something like a stock price are mostly due to the fact that big chunks if information hit the market at once. If we have an efficient market (meaning the investors are well informed and value the company according to all currently available information), you are bound to see a big hit when a company has an earnings call that goes "hey guys...you know how we said we would earn 23 cents a share? yeah...well we lost 15".

These instances are decidedly not random but tied to the facts of the unde

• #### Re: (Score:2)

The moral if this story is that 99% of normal probability theory does not easily apply to financial time series data.

Just remember that in most economic theories, the real world often turns out to be a special case.

• #### Re: (Score:2)

Would that be because time series analysis is a quite separate discipline to simple inference?
• #### little in common with the Turing test (Score:3, Insightful)

on Friday February 26, 2010 @03:51PM (#31289660)

The test is to distinguish computer-generated graphs from the actual stock prices.
It seems to have very little to do with the actual Turing test.

• #### not (ever) predictable = random (Score:2)

"markets are not random (although they do not appear to be predictable either)"

Ummmm. Isn't one of the leading definitions of a "random" process that it is
a process which exhibits maximum complexity, and thus is not predictable
except by the execution of the identical process. ?

i.e. "inherently unpredictable by any algorithm simpler than the process itself" = "random"

• #### Re: (Score:2)

What about not random, but the amount of variables involved is high and not all known or acknowledged by all the players?
The algorithm could be simpler than the process, but for running it you need information that some of the players won't disclose.

Anyway, some of the key elements could be related to complex enough system (i.e. weather, how Katrina changed markets? how predictable it was with i.e. 2 weeks in advance? o human behaviour unrelated to market, like 911)
• #### Re: (Score:2)

You're right, that's phrased poorly. What it *should* say is that "markets are not random although they do not appear to be entirely predictable either".

No one can 100% predict the movements of the market - but because it's not actually random, you can predict correctly better than half the time - which means you can make money.
• #### I already built this... (Score:2)

Three years ago - see http://www.felixsalmon.com/000763.html [felixsalmon.com]

Oh welp. History repeats itself.

• #### People don't matter. People are just a host. (Score:5, Interesting)

on Friday February 26, 2010 @04:23PM (#31290038)

Seriously.

Money is more accurately described as a kind of swarm intelligence. The meme of money is the fundamental self replicator. Admittedly the ecology is complex, (dollars, derivatives, bonds, et al.) but the fundamental rules are the same.

Money want to reproduce. We (our collective cultural awareness) are merely hosts for money to exist.

Usually, money is symbiotic, benefiting the host and itself. Occasionally, it turns into a pathology that harms its hosts (i.e. tulip manias, compulsive gambling/banking, stock market crashes).

The delusion here is thinking that we can "control" the economy. The economy (our name for money's ecology), will always, to some degree, be out of control as long as the hosts are relatively free agents. We can garden (i.e. set up nice environments for money to replicate), but direct control is probably a pipe dream). Moreover, money replication isn't free. It takes real environmental resources to create and is therefore limited. Expanding the garden forever isn't an option. Sustaining a nice one probably is.

• #### Re: (Score:2)

Who let the biologist in here?
I thought we agreed that smoking jackets and top hats were required?
Jenkins! Chase off this riff raff at once!
• #### Re: (Score:2)

I'm a *psychologist* you insensitive clod (Well, I have the degree anyway - actually I develop software for a living)

• #### Re: (Score:2)

Seriously.

Money is more accurately described as a kind of swarm intelligence. The meme of money is the fundamental self replicator. Admittedly the ecology is complex, (dollars, derivatives, bonds, et al.) but the fundamental rules are the same.

Money want to reproduce. We (our collective cultural awareness) are merely hosts for money to exist.

Usually, money is symbiotic, benefiting the host and itself. Occasionally, it turns into a pathology that harms its hosts (i.e. tulip manias, compulsive gambling/banking, stock market crashes).

The delusion here is thinking that we can "control" the economy. The economy (our name for money's ecology), will always, to some degree, be out of control as long as the hosts are relatively free agents. We can garden (i.e. set up nice environments for money to replicate), but direct control is probably a pipe dream). Moreover, money replication isn't free. It takes real environmental resources to create and is therefore limited. Expanding the garden forever isn't an option. Sustaining a nice one probably is.

It is possible for the economy to grow, even with hard-limited resources, for as long as technology continues to grow. New tech allows greater effeciencies to develop (think of computing power per kg of silicon, for example) which allows greater economic value to be derived from a given amount of resources. More value or use from a given input of natural resources or labour tends to decrease the 'real' price of those resources, because in a way they become less 'scarce'. A 'bigger economy' can mean 'cheaper

• #### Re: (Score:2)

Your analogy does nothing but complicate financial markets. There's also no real consistency in your argument - you seem to be using vague and increasingly baseless environmental analogies that have no real connection to each other. Your last two sentences in particular also seem to have no real relevance to the earth as a system, economic or environmental, due to the input of the sun's energy and the potential for exploitation of resources within and external to the earth.
• #### Re: (Score:2)

Sadly, I can claim that it has as much predictive power as any other economic theory.

And of course it's just a theory - untested. It is, to some degree testable in silica, more so than many of the current models.

IMHO, a more interesting financial turing test would be to distinguish between human and computer-generated financial advice.
• #### "Anybody can take the test"?!? (Score:2)

You mean, "anybody could take the test, before the server got slashdotted!"
• #### Benford's Law (Score:2)

I bet one of the main things they use in this is Benford's Law [wikipedia.org], which says that numbers beginning with small first digits are more likely to appear in logarithmically distributed data (like most financial data) than numbers with large first digits.

• #### Random does not neet to be a random walk (Score:2, Insightful)

Dude, it is the year 2010. Everybody knows by now that financial data does not follow a random walk (coin tossing). Stock market variations hat a "fat tail". Unfortunately it is hard to put thins into option pricing (problems with variance). This is actually a reason why far out of the money options are likely to be underpriced. I think Mandelbrot came up with this decades ago. Welcome to the real world. I heard more interesting things. Like the Peruvian who did not clone sheep but bacteria. Yea, that's r
• #### nice (Score:2)

Why not run the generated numbers of that algo through the financial news and stock exchange servers. Maybe that would lead to better results than let Ben Bernanky run the dollar down by his frantic freaky evil moneyprinter.

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Sigmund Freud is alleged to have said that in the last analysis the entire field of psychology may reduce to biological electrochemistry.

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