Daily Speculations

The Web Site of Victor Niederhoffer & Laurel Kenner

Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

 

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8/01/04
The Grandmaster: Why Straight lines Bend

At one time chess positions were assessed mainly in terms of certain fixed components - material, pawn weaknesses etc. These were then added together in a linear way to produce a 'judgment' as to who was better.

Sometimes this seemed to work quite well, especially if the examples were picked carefully enough. But then one fine day a few players discovered that you could be material down, have a bad pawn structure and STILL HAVE THE BETTER GAME.

The point is that you must be able to DO SOMETHING with your position; some of the most beautiful ones have potential only to get worse whereas the most and some of the most wretched are good because somehow they work well together and lend themselves to rapid improvement. I believe that there is an error in thinking here which is reproduced in many areas outside of chess, notably economics and investment.

People can't resist drawing straight lines between past events (eg supply and demand, earnings, stock price etc) in an attempt to predict the future. But in their haste to make sense out of things they forget about the dynamic effect that reality will have on their theories. Straight lines always bend.