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> ”Our civilization cares about whether Microsoft stock will be priced at $37.70 or $37.75 tomorrow afternoon.” This is not a good thing. Vastly more effort is

by s_kilk 9y ago

> ”Our civilization cares about whether Microsoft stock will be priced at $37.70 or $37.75 tomorrow afternoon.” This is not a good thing. Vastly more effort is being poured into this than is being dedicated to averting climate catastrophe. In the future, this era will be looked back on as the pinnacle of the grotesque irrationality and chaos of Capitalism, if there's anyone even left to have such thoughts.

gravy 9y ago
Don't companies participating in hyper-competition only compete for the best products/services/etc. in the eyes of their customers? I mean, companies only get money (investments) if there is promise or results that their product can make money (sales) in a ratio beneficial to the investors. So doesn't everyone win in this case? Not accounting for practices that can arise out of monopolistic tendencies of companies like Amazon or something -- but even then, if competition always exists, isn't the onus on the company to provide the best product for the consumer?
eru 9y ago
Somewhat ironically, if you want less societal resources to be spend on price discovery, you have to make price discovery easier. Ie unleash the full powers of the market via unlimited short selling, exotic derivatives, elimination of the sub penny rule (https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...) etc. If less effort can discover prices quicker, there will be less money to be made total, and thus in equilibrium those bright PhDs will rather go and help eg Google sell more ads.
- skybrian 9y ago
  Not sure it's necessary? The trend towards index funds will do it. There's an argument that a lot of money is made by correcting other investor's mistakes. As below-average investors switch to index funds, competition gets tougher among the remainder who are smarter on average.
  - eru 9y ago
    Yes, the move towards low cost investing is great, too. Sucks out lots of profitability out of the financial industry.
- manodocedoceu 9y ago
  Im not a believer in the efficient market hypothesis. Remember, it's a hypothesis. Also, The grand central station analogy is just that, an analogy. Both of these dangerously oversimplify the phenomenon they try to describe. Modern Markets are unfathomably complex systems. The Efficient market hypothesis is useful as a tool in reaching approximate, generalized, comprehension (ie: for lays and as a peripheral complement for practictioners), but not at all useful in application (some wonderful historical examples out there, study up!). The fact is that price and markets are not mechanistic. Price has some seemingly objective measures, but those are actually based on projections of future value. Price is based on collectively determined projections/belief of future value, sure, but this talk of markets becoming more efficient is moot, as we are seeing that, while reacting faster and in more iterations due to transaction efficiency, those don't help us find a 'better' indexable measure of the future value. Furthermore, transactuon costs have lowered, but it's arguable that the diversity of perspectives governing price have been reduced quite drastically. 1) unquestioning belief in efficient market hypothesis is a classic 'confuse the word-concept rose with the actual rose' fallacy. It doesn't work in making actual decisions. 2) price is a subjective gauge of expected future value. As we arent in the future it's impossible to have a more efficient price, since there is no objectivity with which to match. 3) price finding efficiency ≠ transaction efficiency 4) transaction efficiency has improved concurrently with the hyperstandardization of perspective, method and hypercentralization of participation, which has made price-finding of 'financial markets' much less effective as a universal gauge with any bearing on physical markets composed of commercial transactions with merit to anyone other than speculators in abstract 'markets.' 5. Considering all of the above, your argument that improved transaction efficiency is the same as improved price efficiency, and that faster and cheaper transactions will reduce brain-drain seems about as silly as the 'we don't need to worry about babyloniancivilization-induced mass-extinction because singularity.'
  - eru 9y ago
    The term 'efficient market hypothesis' is a bit of a misnomer in the singular. It's actually a bunch of hypothesis that eg differ in strength. The strongest form, that markets knows everything, is probably wrong. The weakest form, that it's hard work to beat those traders at hedge funds and Goldman Sachs with information you got out of the evening news, is almost certainly true. Exactly which strength in the middle applies in the real world is an empirical question and depends eg on the markets under observation. In any case, https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm... makes for some interesting arguments.
Bromskloss 9y ago
Is it irrational? Unfortunate, perhaps, in a tragedy-of-the-commons sort-of-way (assuming that everyone shares your beliefs and goals), but who is being irrational?
- mcguire 9y ago
  If you make every decision optimally but still end up driving your car off a cliff, there may be something wrong with you definition of rationality.
  - V-eHGsd_ 9y ago
    I mean, maybe you're not optimizing for not driving off a cliff :)
  - Bromskloss 9y ago
    That doesn't seem like an equivalent situation. I'm talking about a tragedy-of-the-commons situation, where an individual has a negligible influence over the climate, and so might rationally go ahead and instead spend his effort on something that he will actually get some benefits from.
    - Chris_Jay 9y ago
      Granted, but it would still seem rational for everyone to prioritize aligning our short- and long-term incentives so that this sort of tragedy doesn't become worse than it has to be.
    - chriswarbo 9y ago
      Individuals may be acting in their own self-interest, but civilisation is acting irrationally. One of the roles of government is to impose rules and regulations that steer individual (and corporate) self-interest in directions which are widely agreed to be in the interests of civilisation (like preventing/mitigating climate change) but which would otherwise be ignored or worsened if left to individuals or corporations.

by s_kilk 9y ago

gravy 9y ago

Don't companies participating in hyper-competition only compete for the best products/services/etc. in the eyes of their customers? I mean, companies only get money (investments) if there is promise or results that their product can make money (sales) in a ratio beneficial to the investors. So doesn't everyone win in this case? Not accounting for practices that can arise out of monopolistic tendencies of companies like Amazon or something -- but even then, if competition always exists, isn't the onus on the company to provide the best product for the consumer?

eru 9y ago

Somewhat ironically, if you want less societal resources to be spend on price discovery, you have to make price discovery easier. Ie unleash the full powers of the market via unlimited short selling, exotic derivatives, elimination of the sub penny rule (https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...) etc. If less effort can discover prices quicker, there will be less money to be made total, and thus in equilibrium those bright PhDs will rather go and help eg Google sell more ads.

skybrian 9y ago
Not sure it's necessary? The trend towards index funds will do it. There's an argument that a lot of money is made by correcting other investor's mistakes. As below-average investors switch to index funds, competition gets tougher among the remainder who are smarter on average.
- eru 9y ago
  Yes, the move towards low cost investing is great, too. Sucks out lots of profitability out of the financial industry.
manodocedoceu 9y ago
Im not a believer in the efficient market hypothesis. Remember, it's a hypothesis. Also, The grand central station analogy is just that, an analogy. Both of these dangerously oversimplify the phenomenon they try to describe. Modern Markets are unfathomably complex systems. The Efficient market hypothesis is useful as a tool in reaching approximate, generalized, comprehension (ie: for lays and as a peripheral complement for practictioners), but not at all useful in application (some wonderful historical examples out there, study up!). The fact is that price and markets are not mechanistic. Price has some seemingly objective measures, but those are actually based on projections of future value. Price is based on collectively determined projections/belief of future value, sure, but this talk of markets becoming more efficient is moot, as we are seeing that, while reacting faster and in more iterations due to transaction efficiency, those don't help us find a 'better' indexable measure of the future value. Furthermore, transactuon costs have lowered, but it's arguable that the diversity of perspectives governing price have been reduced quite drastically. 1) unquestioning belief in efficient market hypothesis is a classic 'confuse the word-concept rose with the actual rose' fallacy. It doesn't work in making actual decisions. 2) price is a subjective gauge of expected future value. As we arent in the future it's impossible to have a more efficient price, since there is no objectivity with which to match. 3) price finding efficiency ≠ transaction efficiency 4) transaction efficiency has improved concurrently with the hyperstandardization of perspective, method and hypercentralization of participation, which has made price-finding of 'financial markets' much less effective as a universal gauge with any bearing on physical markets composed of commercial transactions with merit to anyone other than speculators in abstract 'markets.' 5. Considering all of the above, your argument that improved transaction efficiency is the same as improved price efficiency, and that faster and cheaper transactions will reduce brain-drain seems about as silly as the 'we don't need to worry about babyloniancivilization-induced mass-extinction because singularity.'
- eru 9y ago
  The term 'efficient market hypothesis' is a bit of a misnomer in the singular. It's actually a bunch of hypothesis that eg differ in strength. The strongest form, that markets knows everything, is probably wrong. The weakest form, that it's hard work to beat those traders at hedge funds and Goldman Sachs with information you got out of the evening news, is almost certainly true. Exactly which strength in the middle applies in the real world is an empirical question and depends eg on the markets under observation. In any case, https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm... makes for some interesting arguments.

Bromskloss 9y ago

Is it irrational? Unfortunate, perhaps, in a tragedy-of-the-commons sort-of-way (assuming that everyone shares your beliefs and goals), but who is being irrational?

mcguire 9y ago
If you make every decision optimally but still end up driving your car off a cliff, there may be something wrong with you definition of rationality.
- V-eHGsd_ 9y ago
  I mean, maybe you're not optimizing for not driving off a cliff :)
- Bromskloss 9y ago
  That doesn't seem like an equivalent situation. I'm talking about a tragedy-of-the-commons situation, where an individual has a negligible influence over the climate, and so might rationally go ahead and instead spend his effort on something that he will actually get some benefits from.
  - Chris_Jay 9y ago
    Granted, but it would still seem rational for everyone to prioritize aligning our short- and long-term incentives so that this sort of tragedy doesn't become worse than it has to be.
  - chriswarbo 9y ago
    Individuals may be acting in their own self-interest, but civilisation is acting irrationally. One of the roles of government is to impose rules and regulations that steer individual (and corporate) self-interest in directions which are widely agreed to be in the interests of civilisation (like preventing/mitigating climate change) but which would otherwise be ignored or worsened if left to individuals or corporations.