September 28th, 2011
|12:27 pm - Traders and psychopaths|
I said in my last post I am trying not to see the most powerful financial traders as evil, but rather as individuals who have been given too much power, and so are destroying themselves. I like to believe that we need to have all different types of people - you know, angry people and unimaginative people, and whatever - because that makes us collectively more powerful. I'm not sure about psychopaths though. Perhaps they never do any good.
Bit of research here worth looking at. A couple of swiss psychologists compared the psychological profiles of financial traders with psychopaths, and their success in a 'Prisoners' Dilemma' game.
They expected to find that, like the psychopaths, the traders would be uncooperative with others, but that they’d perform better at the game .... traders “are supposed to be good at performing.”
But ... the traders were actually more uncooperative and egocentric than the psychopaths... (and) their performance at the game was about the same as the control group.
So basically, these traders are functionally indistinguishable from psychopaths, and no better than a random group at strategic performance.
I think we do have a question in society about what to do with psychopathic people. In case you think this is a polite way to say 'lock em up and throw away the key' - no, I don't think that. I just think we need to consider what to do about people who take insane risks and hurt other people.
In their master’s thesis, Noll and Scherrer write:
“The outcome seems to indicate that bank traders are even more prone than psychopathic individuals to rely on strategies that do not optimize their own total profit but considerably harm the profit of their gaming partner. Healthy controls achieved the same profit on their own part as traders and psychopaths but used a strategy that led to an equal profit of their partner and hence led to the highest overall profit, whereas the lowest overall profit was achieved by the traders.” And I think this is a general rule about society. Co-operative strategies which maximise benefits for all, are superior in absolute terms not just relative terms - they generate greater profit. The people with the worst strategies are the ones we employ to do strategy. And that's our fault, not the fault of the psychopaths themselves.
|Date:||September 28th, 2011 12:02 pm (UTC)|| |
We've known about the "no better than" for some time. Various parallel systems have tracked traders and discovered computers do about as well, and so does picking companies by lot.
Right, it makes you wonder why they pay people so much to so little overall benefit.
This: "...[they] rely on strategies that do not optimize their own total profit but considerably harm the profit of their gaming partner." And this: "Co-operative strategies which maximise benefits for all, are superior in absolute terms not just relative terms - they generate greater profit" - read to me like accurate descriptions of the options for approaching a riding partnership too...
If you approach it with a cooperative strategy which aims to maximise benefit for both rider and horse, you generate more profit (willingness, better learning ability, better physical ability (partly through lack of tension, but also because lack of tension enables horse to use its body better), a horse that tries for you and is forgiving of your mistakes), plus unexepected side profits (moments of grace, fun, enjoyment, blending with the horse).
If you focus solely on the profit of the rider (getting X school movement, or jumping Y height, not being scared, looking skilled in front of friends/instructor), it becomes about making the horse give you the profit you need with the "profit" of the horse being ignored - the result is that your horse is tense, uncooperative, unreliable, resistant, unbalanced, etc, etc.
The challenge/skill is balancing the profit for both - some riders get sacrificed to the profit of the horse (nervous rider carted off by a horse that wants to run), some horses get sacrificed to the profit of the rider (lame horse is jumped because the rider wants to jump) - and also being thoughtful about what the horse might experience as profit (ie lack of negative stimulus =/= reward)...
I have this challenge particularly since my boy is elderly and a bit crook at the moment - I'm trying to balance my profit (keep riding) with the profit I want for him (keep him moving and fit to avoid additional health issues) with the profit he wants for himself (let me stand in the field eating!)... But a profit that he does understand and which is meaningful for him, is when I can school him with a focus on working him through his initial discomfort and into more comfort in his body and approaching it with this frame of mind is more satisfying for both of us. (Using food rewards also helps! ;))
Sorry - this got a bit long, but I was really struck by how those quotes, and how well they applied outside of the business sphere too!
That is so touching and also fascinating. I like your description of negotiating with a slightly grumpy old horse to make him exercise a bit. Reminds me of talking myself into going to the gym. :-)
Hee! It is very much like that! :) I went into more detail (on the negotiating) in my riding update post just posted!
|Date:||September 28th, 2011 01:06 pm (UTC)|| |
Show Me the Monkey
The reason that index funds are so popular is that it's been shown over and over again since the 1960s that highly-paid financial analysts don't do any better at managing a portfolio than monkeys throwing darts at financial pages clipped to a dartboard.
The bigger problem is that if we keep rewarding people for making risky bets on the stock market instead of, say, inventing products that people want to buy, the financial markets will keep crashing.
Re: Show Me the Monkey
I agree. We'd end up owing the monkeys billions of pounds, and they'd just use it for bedding.
In case you think this is a polite way to say 'lock em up and throw away the key' - no, I don't think that. I just think we need to consider what to do about people who take insane risks and hurt other people.
Well... "lock them up" sounds a pretty good option to me in that case, in fact the only option, but then I'm one of the "other people" who would really rather not be hurt.
I know. I mean, I feel so torn. I honestly have no idea what the right thing to do is. Apart from not give them quite so much money and power.
I interpreted 'a prisoners dilemma game' to mean a variant, rather than the simple PD scenario, which is over after one decision isn't it? I could be wrong of course.
I think there was a computer-simulated 'universe' made with repeated iterations of the PD wasn't there? A bit like Conway's game of life, but with decision points, which could be used to test co-operative strategy? You probably know much more than me about it.
My memory of that simulation was that it found the winning strategy was to co-operate by default, but to tit-for-tat (once only) in response to non-co-operation? Sounds like I might be remembering the same thing you are describing? In which case I would say that it confirms the point made, that basing your decisions around beating others does not maximise gains.
Admit my memory is shaky though.