Oct

17

Deception theory often refers to the eight basic emotions communicated through facial expressions: anger, fear, sadness, joy, disgust, curiosity, surprise, acceptance. Are these emotions manifested in markets? Are they predictive? Do they change? Is the theory of deception useful for studying, understanding and predicting markets?

I am reaching a point where I am frequently asked to give lectures on markets, a point usually related to about 3 to 5 years before one receives a bevy of awards, which is usually a year or two from the awarder's estimate of your death. I think I will try to develop a theory of deception from biology and game theory that will substitute for my usual talk on music and markets, which takes tremendous physical and financial resources, and is similarly poignant to the audience.

Alan Millhone comments: 

Dear Chair

Most master checker players notate (record moves) while playing. A few would write down the wrong move and let their opponent see what they record on their game sheet — then they move elsewhere. I can see where this might disrupt their opponents thoughts.

Are there traders who position one way for all to see then do otherwise ?

Sincerely,

Alan

Anatoly Veltman writes:

Within the 1980s COMEX floor hierarchy, there was the Price Committee. Say, Gold traded 364.0-364.5 closing range. If I were going home short, I'd ask my influential broker, who was on that committee, to make sure day's settlement price is fixed at 364.2; if I were Long, I'd ask for 364.3. Sounds trivial– but when I carried 3,000-lot positions, it would put instant $30,000 in my pocket, day into day. I can only imagine shenanigans in the OPTIONS after-pit, where they settled hundreds of different strikes daily– and some might have carried 50% price discretion!

In any case, here comes the punchline: shrewd floor operators, who didn't carry overnight positions but loved to push Gold around during pit trading– kept tab of post-bell haggling. One fateful day, seeing Gold gap way against my position, they kept pushing the trend all day just to cause me margin liquidation. That one-day loss swallowed all of the settlement-print windfall collected for the year. 

Jordan Low adds: 

In Blink by Malcolm Gladwell, a game of chance drew cards from two piles. The bad pile that lead to losses was avoided at some point consciously, but the subconscious detected that pattern before the conscious. I, of course, tried to measure my sweat, heart rate etc before each trade. Am I deceiving myself on an opportunity when I am just trying to get a gambler's high? I couldn't find anything useful except that hearing the news is negative to my process. Reading subtitles and skipping the music is probably better. Perhaps there might be technology to read the general emotions on TV using facial recognition one day.

Jack Tierney, the President of the Old Speculator's Club writes: 

This idea of yours, Victor, reminded me of a book I recently finished, River of Doubt. It's an interesting account of Teddy Roosevelt's post-presidential, near-fatal adventure into unknown portions of the Amazon. While much of the story revolves around the encounters, challenges, and actions of the discovery team, significant portions tell an interesting story of Amazonian flora and fauna adaptations.

Some of these occur over large portions of the region, others might exist in an area measured in square yards– almost all, though, occur with incredible rapidity and are developed to attack very specific prey. As one might expect, within another very short period of time, it, too, is the prey of a newly evolved predator.

Of the different adaptations briefly encountered in the book, the one that aroused my curiosity the most is called "masting." I had never before heard the term and subsequently looked it up and did a little research:

Mast is a noun… that refers to the accumulation of various kinds of nuts on the forest floor that serve as food for… animals. The process… is known as masting…. it is not a continuous process, but rather is cyclic. Approximately every three to five years certain trees produce prodigious quantities of nuts; in between the "masts" they will produce almost none. "There are two elements of the economy of scale hypothesis for masting variability: First, predator satiation - by producing a gargantuan nut crop, the predators become satiated [and enough] nuts will survive to succeed in propagation. The predator population is held in check during the non-mast years. Second, [p]ollination efficiency - masting trees are wind-pollinated…from staminate to pistillate flowers, a rather precarious and random process…it is therefore advantageous for them to fill the air with pollen from many trees at the same time.

The masting trees' surreptitious and unpredictable flowering, as well as the feast-or-famine results experienced by its "predator" classes might parallel some of the actions/consequences of the flexions as they periodically feed and starve the lesser fuana.
 


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