Mar

19

My theory is the market is mostly self organized. One important mechanism is stigmergy - spontaneous, indirect coordination between agents or actions, where the trace left in the environment by an action stimulates the subsequent action. The traces basically is time and sales or on a cruder level charts and trade data.

H. Humbert comments:

My theory is that markets do sometimes self-organize, but at the very basic level they operate in two regimes: normal and "emotional". Of course they are always emotional to some degree, but what I mean is this: they are good at processing distributed data, that is averaging out the noise and extracting information from multiple participants who create noise and add bits and pieces of information. But that is only when the information is widely distributed. When like now key pieces of information come from very few participants in random bursts (as compared to the typical regime) the markets get swept up in emotion generated by each jolt and self-organize around that emotion. Even in normal markets they can abandon reason and self-organize into manias or panics, more into manias when there is prolonged liquidity, but more prone to do so when there is a distributed information glut and participants just generate noise.

Gary Phillips adds:

No doubt that (decentralized) collective behavior is shaped by adaptive evolution. That is, efficiency gains are a result of stigmergy and constructal theory. Perhaps, there is even a coordination between the two.

The recent explosion in 0DTE options volume comes to mind. And, the stigmergic and constuctal theories may explain how the phenomenon evolved. This self organized collective behavior emerged as a perceived improvement on futures as a vehicle for day trading i.e., better liquidity, flexibility, and leverage.

Both stigmergy and constructal theory are self-reinforcing processes. The more something works, the more people it draws, and the more people available to improve it further.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search