Mar

18

In explaining the theory of Steinitz, Lasker tells us that the strength of an attack must be in proportion to the amount of advantage held at a particular time. A player can be 'right' about who holds the advantage in a chess position, but they will lose anyway if they gauge the extent of their advantage poorly.

How should someone gauge his or her advantage? Lev Alburt proposed the idea that advantages could be stated in terms of expected results between equal opponents, and thus a 55% position would mean that White should slightly outscore his opponent (e.g., 5.5 points from 10 games). But if someone thinks his advantage is much bigger (e.g., 85%) he'll probably lose to someone who is essentially 'wrong' on the judgment but who is closer to the correct proportion (e.g., 50% or 45%). The point is that a large overestimation will lead to someone over committing to the attack and paying too little regard for the weak underbelly of his position.


The applicability to trading is very clear, but usually these issues seem to be dealt with as just a binary signal (e.g., 'bullish', 'bearish', 'entry,' or 'exit') and with money management being approached as a separate issue, again with rather artificial discrete inputs (what is the maximum adverse excursion, what can I risk, where's my entry/exit, etc.).

It strikes me that a more proportional approach is much better, e.g., committing or reducing forces according to the amount of advantage. But how should one model such an approach and test it statistically? The problem would seem to be that highly variable commitment dramatically increases the complexity of any test.

Alan Millhone writes:

Excellent article. Tom Wiswell used to say, "Position bests possession." Two weekends ago I entered the yearly Lebanon, Tennessee Checker Tournament. The tourney had around 60 entrants and 23 in the Masters. In my last round I played Dr. Robert Shuffett, author of three excellent checker books. We drew an opening that became the 'White Doctor' and with reds I went down a piece early into the game. Despite being a piece short, I had a death grip on his pieces which were held on his double corner side of the board. I had to maintain carefully that grip to keep any kind of edge or else he would have traded pieces with me and then being a piece up on me would have won the game through attrition.

The market holds simililarities to a checker game, as one is always conjuring ways to keep ahead of the game and the market and to have more winners than losers at the end of the day. At the Tennessee Tournament we played eight rounds of two games each. World 3-Move Champion Alexander Moiseyev was there and won eight out of eight rounds. A truly remarkable feat to accomplish against veteran Masters. To be able to 'win' every trade would be also a remarkable feat of accomplishment and you would thus become a sought-after advisor to the multitudes of traders as Grand Master Mosieyev is to checker players.

Stefan Jovanovich adds:

I had a chance to ask Gil Hodges some questions once after the Mets had finished winning a game. The first question was whether he thought that a well-hit ball would be a hit 50% of the time (this was and has been the prime number of baseball statistics: a perfect hitter will have a .500 batting average). Hodges said that the number was about right but it was probably slightly less than it had been when he was a player because fielders had much better gloves and greater range than they had in the "good old days." He smiled when he said that.

Did he think that there was such a thing as "clutch?" Yes, but it was not that certain players got better in pressure situations, rather that they did not get worse. If the pitcher threw them a hanging slider they would hit it out of the park in October just they way they did in April. "Clutch" for a pitcher was the ability to throw good pitches behind in the count. Whitey Ford was the definition of clutch. Hodges said it took "us" (meaning the Brooklyn Dodgers) three World Series to figure out that Ford would deliberately fall behind in the count. "We thought that gave us an advantage but what it really did was get us to over-swing against the 2-0 or 3-1 curve ball and hit another weak grounder to a corner infielder."

At its best baseball is chess with spitting and cleats.


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