Great post by Tim O’Reilly in a Money:Tech conference context about the never-ending race between humans and machines in markets. The former’s algorithms are constantly thwarted by the latter’s wilful misbehaviors, and so is there a solution in computation? This is a theme at Money:Tech, and it’s a vital subject.
Here is Bill Janeway of Warburg Pincus, as quoted by Tim:
…as driven by the web more generally, the frontier between human and machine-decision making has become radically problematic. First, quantitative approaches in trading, pricing, valuation, asset definition vastly expanded the domain for machine decision-making. But then the humans struck back, by refusing to act like the mindless molecules that the models driving machine decison-making required. The self-reflective, behavioral attributes of human market participants is now driving back that frontier, requiring innovations in every aspect of financial market processes, beginning with techniques of risk measurement and risk management. When price is an inverse function of liquidity and liquidity is an inverse function of price certainty, the recursive loop can only be broken by human intervention and action.
Bill neatly captures the tug-of-war between humans and machines in dynamic markets. Thought-provoking stuff, even if you think this particular genie has, you know, left the bottle and broken it.