Aug

13

This article shows results of experiment on the E-Coli bacteria detailing the survival or death of the bacteria in response to the way it handles introduced exogenous stimuli. The upshot is that small changes in exogenous conditions can lead to large substantial differences in outcomes. Surely a rich field for market related phenomena looking at how small changes in one input (say rates) may lead to large movement in other markets (say currencies) when the dependent variable is already under some stress.

Pitt T. Maner III writes: 

This is a really interesting field.

It looks like bacteria have been "hedging their bets" for quite some time. And they have a type of "memory" that influences their response to current environmental conditions. On a larger scale it is interesting to note what happens to the ecology of a system when a "keystone species" is removed. The field of "synthetic ecology/biology" looks to have important findings for a wide range of fields and the bacterial algorithms already developed are being used for engineering problems.

1. "Bet-hedging in stochastically switching environments":

"We investigate the evolution of bet-hedging in a population that experiences a stochastically switching environment by means of adaptive dynamics. The aim is to extend known results to the situation at hand, and to deepen the understanding of the range of validity of these results. We find three different types of evolutionarily stable strategies (ESSs) depending on the frequency at which the environment changes: for a rapid change, a monomorphic phenotype adapted to the mean environment; for an intermediate range, a bimorphic bet-hedging phenotype; for slowly changing environments, a monomorphic phenotype adapted to the current environment. While the last result is only obtained by means of heuristic arguments and simulations, the first two results are based on the analysis of Lyapunov exponents for stochastically switching systems."

2. "Memory in Microbes: Quantifying History-Dependent Behavior in a Bacterium":

"Your average bacterium is unlikely to recite π to 15 places or compose a symphony. Yet evidence is mounting that these 'simple' cells contain complex control circuitry capable of generating multi-stable behaviors and other complex dynamics that have been conceptually linked to memory in other systems. And though few would call this phenomenon memory in the 'human' sense, it has long been known that bacterial cells that have experienced different environmental histories may respond differently to current conditions [1]–[3]. Though some of these history-dependent behavioral differences may be physically necessary consequences of the prior history, and thus some might argue insignificant, other behavioral differences may be controllable and therefore selectable and even fitness enhancing manifestations of memory."

3. The work of Professor Robert T. Paine and the concept of the "keystone species" where an organism has a big effect relative to its abundance:

"It was a ritual that began in 1963, on an 8-metre stretch of shore in Makah Bay, Washington. The bay's rocky intertidal zone normally hosts a thriving community of mussels, barnacles, limpets, anemones and algae. But it changed completely after Paine banished the starfish. The barnacles that the sea star (Pisaster ochraceus) usually ate advanced through the predator-free zone, and were later replaced by mussels. These invaders crowded out the algae and limpets, which fled for less competitive pastures. Within a year, the total number of species had halved: a diverse tidal wonderland became a black monoculture of mussels1."

anonymous adds: 

OK, what about Slime Molds (particularly, Dictyostelium discoideum). It has the absolutely stunning biological characteristic that it spends much of its life as thousands of individual cells and other times as a single entity.

When times are good for Dictyostelium doscoideum its 'cells' wander off and enjoy themselves. However, in less hospitable environments the 'swarm' of cells coalesce and form a single entity.

Apparently the cells emit acrasion (or AMP) that contains information useful for other cells

When things are starting to look tough the cells pump out increasing amounts of AMP and the cells begin to cluster….Other cells follow these trails and increase to mass towards it completed whole.

Now, I wonder about the stock market. During the regular upward movements most of the components are doing their own thing, following their oscillations generally higher…. When 'it' hits the fan, the correlations between the stocks increase rapidly to 1.0 and they form a single bearish, growling entity.

Now without pushing the analogy too far, I wonder if stocks 'transmit' statistical information (AMP to follow the analogy) to each other (in this context they would not transmit as much as 'exhibit' some form of common statistical behaviour) that forced the behaviour of component stocks into a more correlated state.

Testing possibilities are legion.

Gary Rogan writes: 

My general objections to giving some purpose to the market have to do with incentives, or more precisely lack thereof to do anything in particular.

I read a whole chapter of a book on a slime mold presented as an altruism study. The reason it was presented like that is that when the individual slime mold cells cooperate, only the lucky few that join the growing "mushroom" at the right time get to propagate because they get to form spores only at a particular state of development of the hastily arranged colony. Nevertheless, when presented with a choice of dying for sure or maybe propagating (and the cells only cooperate when they are close to death) they chose to cooperate and propagate. There is also some amount of deception involved when the cells jokey for position, but not a lot, since any particular placement is hard to achieve.

What is the equivalent reason for stocks to cooperate?

Bill Rafter writes: 

Should what you say about stocks transmitting statistical information occur, it would mean a relative decline of idiosyncratic volatility. That is something we have studied, and found that when the going gets tough, the idiosyncratic vol grows faster than the market's vol.There are some other measures of "group think" that are good indicators of both the broad markets and individual assets.

I would posit that stocks do not transmit info, but their owners do. Consider the case of futures in which one market takes such a hit as to require significant margin calls. Human nature being what it is, the public sells its winners to finance its losers, and non-related markets dive along with the primary.


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