An intriguing book has turned up: Art and Economy, the first volume of a catalogue of projects on the global economy supported by the Landia Foundation and Universität der Künste Berlin.
One project is Michael Marcovici’s Rat Trader. The book describes the training of laboratory rats to trade in foreign exchange and commodity futures markets. Marcovici says the rats “outperformed some of the world’s leading human fund managers.” The rats were trained to press a red or green button to give buy or sell signals, after listening to ticker tape movements represented as sounds. If they called the market right they were fed, if they called it wrong they got a small electric shock. Male and female rats performed equally well. The second generation of rattraders, cross-bred from the best performers in the first generation, appeared to have even better performance, although this is a preliminary result, according to the text. Marcovici’s plan, he writes, is to breed enough of them to set up a hedge fund.
The point the project makes is that trading does not require human interaction. It prompted in my mind as well the question of the circumstances in which the standard assumptions of rational self-interested maximisation apply – whether by humans or rats or any other creatures – and when we should be looking to adopt alternative ‘behavioural’ assumptions.
I also liked Anke Strauß’s The Mechanic and the Machinic: Thoughts on Economic Systems. The essay argues that machine-metaphors for the economic system – “calculable, controllable and manipulable” – are sterile. “Mechanics always need an outside stimulus, some kind of energy.” Worse, “We are the weakest link in a world that has a mechanical way of thinking.” Schumpeter is the hero of economics in this essay.
I’ve not finished reading yet but it’s a very intriguing catalogue.
art and economy
Who will be the first to set up a trading desk of rats to take on the Goldman Sachses of the world?
Fancy giving it a go, Diane?
As someone born in The Year of the Rat and who went on to serve in the 7th (Desert Rats) Armoured Division, I find the idea enticing. We might consider applying these principles to the Treasury, only if humans are needed they might need much bigger electric shocks to have much effect.
As Del Boy was fond of saying “This time next year we’ll be millionaires”.
As long as the rats don’t expect “Masters of the Universe”-level compensation – a hunk of cheese a day should suffice!
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Most random number generators outperform active trading. Please read the Wikipedia article on the efficient market hypothesis. It could be rats, bugs, coin tosses, anything. I can’t believe the author can possibly be so stupid as to think he can breed better rat traders; this has to be a troll article.
He’s an artist – it’s artistic comment on markets.
Ok. I suppose it does serve to effectively point out the pointlessness of hedge fund worship. I apologize for my tone, I didn’t realize it was not intended to be taken at face value.
🙂
I think the whole essay is meant to be a bit tongue in cheek but am not sure as it’s translated from German.
You’re dismissing the claims being made based on your own strawman. “Random number generators outpeforming active trading” is not the same claim as “rats outpeforming some of the best hedge fund managers in the world”. Differently put, even if it’s true that random number generators can (sometimes) outperform some/most forms of active trading, it doesn’t then follow that it will outperform either a) all active trading or b) (some of) the best human hedge fund managers, never mind the question being looked at here, which is whether trained rats can compete and/or outperform the best hedge fund managers in the world.
If you really want to poke holes in this idea credibly and objectively, then you to actually read the book and make sure you understand the claims being made, and then demonstrate that these specific claims are factually incorrect or possibly explainable by some other means.
As it stands your comment smacks of being a response to some cognitive dissonance and of possibly confirmation bias, no offence intended.
Actually he did not say anything unreasonable. He said in another words that if the EMH is true, it does not matter because human traders are lucky and some rats are luckier than some of them and who cares anyway because it is all random. I have not read the book and I do not plan to because there is really nothing new here. To prove some effect one must monitor the performance e of rats for thousands of trades and I doubt it they will survive getting shocks for that long.
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The conclusions regarding the rat project are wrong because they are based on the assumption that there can be skilled and consistently profitable traders in forex. In the absence of this control group the results cannot be evaluated for significance. Forex is a negative-sum game due to a wealth-out effect arising from the spread cost. It is a game setup to benefit those who pocket the spread, i.e.the brokers. Frequent intraday forex trading is a losing game necessarily (See: http://bit.ly/YcSZ1Y). Daily forex trading can be profitable if capitalization is high, which removes leverage benefots in most cases, and there is a market-timing edge, something that is difficult to maintain. Some rats will always get lucky and beat forex traders that got lucky but the skill may be comparable because traders think they have skill when they trade forex but in reality they do not.
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