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The financial system is a giant message passing algorithm. It is pretty much just a min-sum algorithm [1] whose sole purpose is to answer the question "what sho

The financial system is a giant message passing algorithm. It is pretty much just a min-sum algorithm [1] whose sole purpose is to answer the question "what should we do?". Anyone who has played around with these algorithms for solving decoding problems knows that they are fabulously powerful. But these message passing algorithms have two weaknesses: (A) When there is more than one solution (B) When there are small loops in the message network By far the worst problem is (B): it's a kind of a "corruption" of the network and causes it to pretty much go off the rails. I think people already do understand the consequences of these problems in the financial system, but we don't seem to see how we can just change the topology and/or the messages themselves, in particular, to try to fix up these self-reinforcing loops. Or: move away from min-sum towards sum-product (which often works an order of magnitude better) by perhaps implementing basic income. Etc. Etc. [1] https://en.wikipedia.org/wiki/Generalized_distributive_law https://en.wikipedia.org/wiki/Generalized_distributive_law

zghst 9y ago
Brilliant take. Better analysis than pseudo-intellectual O'Reilly and the Wired cultists.
KirinDave 9y ago
Having worked in the financial industry, your view of it is what we'd call, "50,000" feet. I don't think it reflects reality on the ground, nor does it really reflect how humans in groups make decisions according to research. The message network loop issue isn't even an issue for message passing systems except in the most pathological cases (where it results in an unbounded growth in messages or an infinite delta on the values the algorithm calculates.
- mathgenius 9y ago
  I'm not saying the finance system doesn't work, it obviously does, and amazingly well. I'm just pointing out the weaknesses of the system, and these weaknesses could easily cause humanity to walk off a cliff. I also have a finance background. This idea that the system is a kind of message passing is not a "50,000 feet" idea, it actually came to me from writing algorithms to arbitrage markets. There you really are performing message passing (think of forex legs.) It's Dijkstra's algorithm. So this is the view from 50,000 nano-seconds. But I believe it holds for many other scales. Plenty of people walk into the supermarket and buy the product with minimum cost. Yes? How is this a view from "50,000 feet"? But obviously we are not just min-sum automata: we are all free agents, and so on. > how humans in groups make decisions according to research Well this is obviously a huge topic. > message network loop issue isn't even an issue for message passing systems except in the most pathological cases I totally disagree with this. Short loops completely screwup message passing.
  - KirinDave 9y ago
    > I'm not saying the finance system doesn't work, it obviously does, and amazingly well. I'm just pointing out the weaknesses of the system, and these weaknesses could easily cause humanity to walk off a cliff. I actually think the system is fantastically broken and produces nonsensical outputs quite often. For example, it rewards speculation in the absence of measurable outcome but demands measurable value to speculate. > There you really are performing message passing (think of forex legs.) It's Dijkstra's algorithm. I think you're confusing a model you use for the reality at hand though. > Short loops completely screwup message passing. If short loops screw up your data other than the ways I described then your system lacks idempotency guarantees and has a much larger problem. If you're that suceptible to replays then your architecture is somewhat antiquated. Even mass market products like SQS and RabbitMQ make it fairly approachable to model a message passing system across a central linearize queue and correct these issues. If you're not centralizing, then your system needs more sophistication but it is even more important that replays don't cause issues because you're essentially guaranteed to get them. Don't get me wrong; bugs exist. But it sounds more like design features and flaws you're describing.
AndrewKemendo 9y ago
Great analysis. (A) When there is more than one solution And this is exactly why the concept of a "growing pie" is flawed. Markets generally pool around a single solution versus averaging around multiple and there isn't enough capital (labor or dollars). I think it comes back to power law driving behaviors here and everyone wanting a huge win. So in effect markets look like fixed pies in the short term and the winner is the one that grows the pie. Trouble with this scheme is, the "pie growth", when it happens, is distributed to a very small group of people who have the ability to make big bets - so it compounds. In terms of (B) those are basically local maxima tied to (A) so that distribution of growth is chaotic and skewed. So while it might seem like corruption of the network, it actually is a function of the "winner take all" nature of any market in the absence of either consumer/user self regulation or some deus ex machina regulator (government etc...). Bottom line, it's a problem with how humans act (or fail to act) collectively around information sharing.
- AnthonyMouse 9y ago
  > Trouble with this scheme is, the "pie growth", when it happens, is distributed to a very small group of people who have the ability to make big bets - so it compounds. It seems like the real trouble is that we've set things up so that "big bets" are required. Huge tomes of regulations that have one-time compliance costs, so the cost to a tiny shop is the same as it is to Comcast or Microsoft, and regulatory capture to keep it that way. Tax laws that encourage profits to be kept within the corporation instead of returned to investors, which requires successful companies to become conglomerates. Laws that allow Hollywood and Apple to control content distribution and reject anything from anyone who poses a competitive threat to them. Fix things like that and you won't have to be so big to grow the pie.
rsync 9y ago
"(B) When there are small loops in the message network" Can you elaborate a real-world example of this for the layperson ? 50k foot view is fine :)
- smallnamespace 9y ago
  Here's the most important loop that's been driving up staggering wealth inequality in our lifetimes: - Corporations and the ultra-rich tend to be the ones who try to profit-maximize the most (because people who care about other things, don't work as hard to accumulate wealth, and because corporations that profit-maximize the best tend to survive and grow better) - National governments since WW2 had done a decent job of redistributing wealth, but since there are increasing returns to scale on investing in tax avoidance/evasion, it is the richest individuals and corporations that are best able to avoid taxes and move wealth offshore - It is cheaper and easier to cut a sweetheart tax with a corporation or a rich individual to temporarily attract capital to a nation-state than to generate wealth the hard way through education and infrastructure investment So our global capitalist system for the past few decades has simultaneously selected for the most selfish, profit-maximizing institutions and individuals, while also setting up a race to the bottom between nations (and even cities and states -- see Amazon's bid for a 2nd headquarters or Tesla's Gigafactory) to see who can give the biggest tax breaks to those at the top.
  - pishpash 9y ago
    That's not the result of 'loops in the network'. That's the result of the memory effect of wealth. See, this is the problem with handwavy gibberish.
    - naasking 9y ago
      > That's not the result of 'loops in the network'. That's the result of the memory effect of wealth. See, this is the problem with handwavy gibberish. I'm not sure if you're intending to be ironic, but you've achieved a gold star for irony nonetheless. Google "memory effect of wealth" to see if you come up with any meaningful, non-handwavy definition if your post was actually sincere.
platz 9y ago
> The financial system is a giant message passing algorithm. It is pretty much just a min-sum algorithm [1] whose sole purpose is to answer the question "what should we do?". no, no no. To even propose that the answer to the question of "what should we do?" can be solved by the financial system is laughable; that is pure free-market absolutism. The anwer to the question "what should we do?" is _political_ . Let us not confuse the market with politics.
- deleted 9y ago
  [deleted]
- platz 9y ago
  Downvoters, explain your logic please
  - ebcode 9y ago
    I didn't downvote you, but my best guess to why you're being downvoted is that HN skews capitalist, and confusing the market with politics is, in the capitalist p.o.v., how the game is in fact played. Myself, I don't think that you can untangle (even in your mind) the mess that is the market (financial system, really) from the mess that is the government. They're called "voting dollars" for a reason. I prefer to just refer to the whole big mess as "The System". As for downvotes, I don't think they add any value to the site except to encourage groupthink, and you're better off ignoring them. Or take them as a hint that you might be on to something! :)
  - danso 9y ago
    I assume you're being downvoted because you seem to have misread the author's statement and created a strawman argument. He posited that the financial system's algorithm's purpose is to answer, "what should we do?". You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole.
    - platz 9y ago
      > He posited that the financial system's algorithm's purpose is to answer, "what should we do?". Yes, That is just re-stating what the author wrote, without providing any clarifying information. > You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole. Maybe yes that is a maximalist interpretation; what is the alternative interpretation (it doesn't seem to be present in the author's text)? > move away from min-sum towards sum-product (which often works an order of magnitude better) by perhaps implementing basic income. Etc. Etc. Referencing 'basic income' here seems like a whole society problem to me, which has nothing to do with the technical implementation financial payment gateways, no?
pishpash 9y ago
The gist is right but over all this is some handwavy gibberish.

zghst 9y ago

Brilliant take. Better analysis than pseudo-intellectual O'Reilly and the Wired cultists.

KirinDave 9y ago

Having worked in the financial industry, your view of it is what we'd call, "50,000" feet. I don't think it reflects reality on the ground, nor does it really reflect how humans in groups make decisions according to research. The message network loop issue isn't even an issue for message passing systems except in the most pathological cases (where it results in an unbounded growth in messages or an infinite delta on the values the algorithm calculates.

mathgenius 9y ago
I'm not saying the finance system doesn't work, it obviously does, and amazingly well. I'm just pointing out the weaknesses of the system, and these weaknesses could easily cause humanity to walk off a cliff. I also have a finance background. This idea that the system is a kind of message passing is not a "50,000 feet" idea, it actually came to me from writing algorithms to arbitrage markets. There you really are performing message passing (think of forex legs.) It's Dijkstra's algorithm. So this is the view from 50,000 nano-seconds. But I believe it holds for many other scales. Plenty of people walk into the supermarket and buy the product with minimum cost. Yes? How is this a view from "50,000 feet"? But obviously we are not just min-sum automata: we are all free agents, and so on. > how humans in groups make decisions according to research Well this is obviously a huge topic. > message network loop issue isn't even an issue for message passing systems except in the most pathological cases I totally disagree with this. Short loops completely screwup message passing.
- KirinDave 9y ago
  > I'm not saying the finance system doesn't work, it obviously does, and amazingly well. I'm just pointing out the weaknesses of the system, and these weaknesses could easily cause humanity to walk off a cliff. I actually think the system is fantastically broken and produces nonsensical outputs quite often. For example, it rewards speculation in the absence of measurable outcome but demands measurable value to speculate. > There you really are performing message passing (think of forex legs.) It's Dijkstra's algorithm. I think you're confusing a model you use for the reality at hand though. > Short loops completely screwup message passing. If short loops screw up your data other than the ways I described then your system lacks idempotency guarantees and has a much larger problem. If you're that suceptible to replays then your architecture is somewhat antiquated. Even mass market products like SQS and RabbitMQ make it fairly approachable to model a message passing system across a central linearize queue and correct these issues. If you're not centralizing, then your system needs more sophistication but it is even more important that replays don't cause issues because you're essentially guaranteed to get them. Don't get me wrong; bugs exist. But it sounds more like design features and flaws you're describing.

AndrewKemendo 9y ago

Great analysis. (A) When there is more than one solution And this is exactly why the concept of a "growing pie" is flawed. Markets generally pool around a single solution versus averaging around multiple and there isn't enough capital (labor or dollars). I think it comes back to power law driving behaviors here and everyone wanting a huge win. So in effect markets look like fixed pies in the short term and the winner is the one that grows the pie. Trouble with this scheme is, the "pie growth", when it happens, is distributed to a very small group of people who have the ability to make big bets - so it compounds. In terms of (B) those are basically local maxima tied to (A) so that distribution of growth is chaotic and skewed. So while it might seem like corruption of the network, it actually is a function of the "winner take all" nature of any market in the absence of either consumer/user self regulation or some deus ex machina regulator (government etc...). Bottom line, it's a problem with how humans act (or fail to act) collectively around information sharing.

AnthonyMouse 9y ago
> Trouble with this scheme is, the "pie growth", when it happens, is distributed to a very small group of people who have the ability to make big bets - so it compounds. It seems like the real trouble is that we've set things up so that "big bets" are required. Huge tomes of regulations that have one-time compliance costs, so the cost to a tiny shop is the same as it is to Comcast or Microsoft, and regulatory capture to keep it that way. Tax laws that encourage profits to be kept within the corporation instead of returned to investors, which requires successful companies to become conglomerates. Laws that allow Hollywood and Apple to control content distribution and reject anything from anyone who poses a competitive threat to them. Fix things like that and you won't have to be so big to grow the pie.

rsync 9y ago

"(B) When there are small loops in the message network" Can you elaborate a real-world example of this for the layperson ? 50k foot view is fine :)

smallnamespace 9y ago
Here's the most important loop that's been driving up staggering wealth inequality in our lifetimes: - Corporations and the ultra-rich tend to be the ones who try to profit-maximize the most (because people who care about other things, don't work as hard to accumulate wealth, and because corporations that profit-maximize the best tend to survive and grow better) - National governments since WW2 had done a decent job of redistributing wealth, but since there are increasing returns to scale on investing in tax avoidance/evasion, it is the richest individuals and corporations that are best able to avoid taxes and move wealth offshore - It is cheaper and easier to cut a sweetheart tax with a corporation or a rich individual to temporarily attract capital to a nation-state than to generate wealth the hard way through education and infrastructure investment So our global capitalist system for the past few decades has simultaneously selected for the most selfish, profit-maximizing institutions and individuals, while also setting up a race to the bottom between nations (and even cities and states -- see Amazon's bid for a 2nd headquarters or Tesla's Gigafactory) to see who can give the biggest tax breaks to those at the top.
- pishpash 9y ago
  That's not the result of 'loops in the network'. That's the result of the memory effect of wealth. See, this is the problem with handwavy gibberish.
  - naasking 9y ago
    > That's not the result of 'loops in the network'. That's the result of the memory effect of wealth. See, this is the problem with handwavy gibberish. I'm not sure if you're intending to be ironic, but you've achieved a gold star for irony nonetheless. Google "memory effect of wealth" to see if you come up with any meaningful, non-handwavy definition if your post was actually sincere.

platz 9y ago

> The financial system is a giant message passing algorithm. It is pretty much just a min-sum algorithm [1] whose sole purpose is to answer the question "what should we do?". no, no no. To even propose that the answer to the question of "what should we do?" can be solved by the financial system is laughable; that is pure free-market absolutism. The anwer to the question "what should we do?" is _political_ . Let us not confuse the market with politics.

deleted 9y ago
[deleted]
platz 9y ago
Downvoters, explain your logic please
- ebcode 9y ago
  I didn't downvote you, but my best guess to why you're being downvoted is that HN skews capitalist, and confusing the market with politics is, in the capitalist p.o.v., how the game is in fact played. Myself, I don't think that you can untangle (even in your mind) the mess that is the market (financial system, really) from the mess that is the government. They're called "voting dollars" for a reason. I prefer to just refer to the whole big mess as "The System". As for downvotes, I don't think they add any value to the site except to encourage groupthink, and you're better off ignoring them. Or take them as a hint that you might be on to something! :)
- danso 9y ago
  I assume you're being downvoted because you seem to have misread the author's statement and created a strawman argument. He posited that the financial system's algorithm's purpose is to answer, "what should we do?". You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole.
  - platz 9y ago
    > He posited that the financial system's algorithm's purpose is to answer, "what should we do?". Yes, That is just re-stating what the author wrote, without providing any clarifying information. > You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole. Maybe yes that is a maximalist interpretation; what is the alternative interpretation (it doesn't seem to be present in the author's text)? > move away from min-sum towards sum-product (which often works an order of magnitude better) by perhaps implementing basic income. Etc. Etc. Referencing 'basic income' here seems like a whole society problem to me, which has nothing to do with the technical implementation financial payment gateways, no?

pishpash 9y ago

The gist is right but over all this is some handwavy gibberish.