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Scientists Develop Financial Turing Test

ScuttleMonkey posted more than 4 years ago | from the i-failed-the-turing-test dept.

The Almighty Buck 184

KentuckyFC writes writes to share a new online test that is being touted as the "financial Turing test." The web-based exercise asks users to distinguish between real and randomly generated financial data. "Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces. They say that the more efficient it is, the more random its returns will be and a perfect market should be completely random. That would appear to give the lie to the widespread belief that humans are unable to tell the difference between financial market returns and, say, a sequence of coin tosses. However, there is good evidence that financial markets are not random (although they do not appear to be predictable either). Now a group of scientists have developed a financial Turing test to find out whether humans can distinguish real financial data from the same data randomly rearranged. Anybody can take the test and the results indicate that humans are actually rather good at this kind of pattern recognition."

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184 comments

Not random and not predictable? (2, Interesting)

XanC (644172) | more than 4 years ago | (#31289512)

What does that mean?

Re:Not random and not predictable? (2, Insightful)

BradleyUffner (103496) | more than 4 years ago | (#31289558)

What does that mean?

pi?

What do you mean pi? (2, Interesting)

ElMiguel (117685) | more than 4 years ago | (#31290300)

What exactly do you mean by pi not being "predictable"? Pi can be calculated algorithmically to any desired precision, nothing to "predict" there. You can even calculate arbitrary digits [wikipedia.org] without having to calculate the preceding ones. Random means precisely "not predictable". It seems some people here are equating not following a uniform distribution with not being random, which is incorrect.

Re:What do you mean pi? (5, Interesting)

OeLeWaPpErKe (412765) | more than 4 years ago | (#31291140)

Actually you can play games with pi's digits that would be rather hard. Say I'd give you 5 consecutive digits and ask you for the position in pi. Since there are infinite solutions to this question, it's not actually predictable (chance of guessing correct would approach 0 rather fast). Or I could give you 5 digits from pi (or any other number) and ask you to give the next number in the sequence. Again, this next number is totally not random, but not predictable in any way either.

Not random, not predictable. Lots of questions about pi are like that.

But this is not what is indicated in markets. Markets are unpredictable due to a chaotic component in their makeup : humans. Only if you were to predict the actions and thoughts of every participating human precisely over long time periods would you be able to predict markets. Presuming that the markets are influenced by real-world events, you'd also have to predict the real world. "Will Obama get reelected ?" is a question to which any serious market prediction system would have to know the answer, because it matters a lot. Same goes for "Will the football season of 2011 be more or less interesting than 2010", because these questions make a large difference.

It's like the weather. The weather (and climate for that matter (second paragraph) [wikipedia.org]), in mathematical terms, consists of a very large collection of mostly random effects. Due to the fact that effects grow over time until they dissipate, but that takes time, you have some amount of predictability in the short term (although sometimes such an effect can have an extreme short-term effect. There are places in the pacific which go from sunny and calm seas to hurricane in about 20 minutes, sometimes right on top of a ship). So in the short term weather "averages out" the different effects (meaning if you see a strong cloud front anywhere, it will start dissipating. If you see any kind of clearly defined features anywhere they will get "blurred" in the short term). But in even the middle term, never mind the long term, new effects will soon dominate whatever you're seeing at any particular time (new cloud fronts, new wind directions, obstacles in the movement of air, unexpected heat sources on the ground, or just the opposite, very cold layers of water that just appear out of nowhere). Since those new effects are the result of idiotically small events (the proverbial "butterfly flap"), the only way to predict weather patterns long term is to track every last human, every last butterfly, and so on. Obviously this is not just impractical, but impossible. So you could say that to even know what the weather (or temperature, or ...) is at any given time, you'd have to be God. If you're not omniscient, you only see a small, averaged and smeared out picture of the weather, no matter how precise the instruments you're using. To predict the weather (or climate) with any reasonable amount of certainty, you'd need a simulator that could simulate the entire universe, faster than the universe works. Generally, mathematicians joke that they'd simply use such a simulator to guess tomorrow's lotto numbers and retire to a pacific island, but the point of the joke is that any program that is capable of predicting any real-life chaotic system, such as climate (or even the path of the planets, which is in the long term nowhere near as constant as they seem [wikipedia.org]), has to have the ability to calculate next week's lotto numbers.

The problem is that tiny, seemingly absurdly unimportant variations today make a large difference tomorrow. Another illustration might be that wether you park your car in front of the house or behind it will generate a difference of 5 degrees celcius in the average worldwide temperature in 10 years. On the other hand huge, seemingly important things like the energy absorption rate of the ocean hardly make any difference at all (because whatever effect they have, no matter how huge, it will get beaten by growing tiny effects). This is not a joke, or a "reductio ad absurdum" argument but the actual, literal truth (arbitrary small details have huge effects over time, while things that look very important and very big today hardly matter at all). This is a very difficult concept to grasp, and extremely unintuitive.

The quintessential chaotic system, mandelbrot's fractal, is just such an example. You take any imaginary number p(0) = x + yi. Then you say p(n+1) = p(n)^2 + p(0), and you examine the value of p(infinity) for various values of c. This will draw the famous mandelbrot fractal. In the regions where the function is chaotic (the nicely curving parts), it will split up in infinitely many infinitely small lines, all following very complex trajectories. It is impossible to "predict" how such a line will go, except by evaluating all possibilities, in other words, you can only calculate the full function, there are no possible shortcuts.

The problem cannot be simplified. That might be as good a definition of a chaotic system as any other. "A chaotic question is a question that cannot be simplified in any way", the point being that there is remarkably complex behavior, like the weather or climate, that cannot be simplified from the full interaction patterns of every last atom, photon and neutrino that participates in the dance of the elements.

Like the pi question above. There is no way to know the correct answer, no matter how much extra parts of the sequence I'd give you. No matter how precise, either in quantity or quality, the information, it's never enough to give the correct answer.

Re:Not random and not predictable? (5, Insightful)

jackhererUK (992339) | more than 4 years ago | (#31289588)

It means it follows a recognisable pattern, that can be distinguished from random data after the fact but not predicted in advance.

Re:Not random and not predictable? (1)

presidenteloco (659168) | more than 4 years ago | (#31289860)

Kind of like?

You could not have predicted what I was going to type here, but you can understand it once I've typed it?

I have been accused of being random in the past.

Seriously though, to say whether the stock market is "random", you have to define the question more
precisely. If you mean: is the next "index value" that the market is going to generate random? Yes. And thus
is the sequence of those that it is going to generate "random". Yes. I am pretty sure that it is ok for the definition
of random for the pattern that a sequence of random (unpredictable) events to have low complexity statistics.

e.g. a random process can generate a uniform distribution of values

Re:Not random and not predictable? (5, Informative)

colonelquesadilla (1693356) | more than 4 years ago | (#31289604)

It's a chaotic system, but it has certain patterns that seem to repeat. The thing I noticed after looking at a few, is that the real ones are easily identifiable by the development of resistance and support levels, which technical traders use to find probable entry and exit points. Basically, the hypothesis is that a group X holds the stock, they tend to have some psychological barrier price in common at which they would sell, and another at which they would buy more, this selling and buying makes it difficult to break through those price points. When it approaches one of those points trading goes up, if something has changed to make the stock more attractive to another group, or to make it less attractive to the group of traders that tends to hold it, it will change hands, and the new investor group will have new barriers. So over any given time period you will notice a lot of closing stock prices at close to the same level, then a sudden jump, and new level it bounces between, etc.

Re:Not random and not predictable? (1)

DerekLyons (302214) | more than 4 years ago | (#31290712)

It's a chaotic system, but it has certain patterns that seem to repeat.

That seem to repeat more or less exactly, but actually repeat within an unpredictable range of values and on an unpredictable range of cycle timings.

Which is why there are as many technical trading systems as there are gambling systems, with roughly the same results.

Re:Not random and not predictable? (1)

guruevi (827432) | more than 4 years ago | (#31291270)

I never understood this trading thing. Basically, all you do is transfer money around and hope you get more by making the right choices. However by making money, you are causing somebody else to lose money. All-in-all the global system doesn't make or lose any money unless somebody adds more product thereby reducing the worth of the same product already in the hands of somebody else.

I also don't know how doing bad things here can cause the markets to crash. You either have stock or you don't, selling stuff you don't have should be impossible because the market should keep track of what each person has. If all-of-a-sudden there is a major increase in money going around for a certain product without anyone actually producing the product (a so-called bubble) it should be clearly visible.

Anyway, maybe I'm ignorant but for some reason, some people get rich off it.

Re:Not random and not predictable? (5, Informative)

u38cg (607297) | more than 4 years ago | (#31291350)

Yes, you are pretty ignorant, I'm afraid. Don't be ashamed, you're in the larger group. Happily, a dose of economics would sort you out a treat. To sort out your central misunderstanding, neither the amount of wealth or the amount of things that you can buy or the amount of work there is to be done is fixed. They relate to each other in rather complex ways, but the upshot is that we can all become richer - and if you don't believe me, ask your great-great-grandfather, or a Chinese factory worker saving up her wages to pay for an education.

Re:Not random and not predictable? (5, Funny)

$RANDOMLUSER (804576) | more than 4 years ago | (#31289618)

<facepalm> Slashdotters!! If you had a goddam girlfriend, you'd know what "not random and not predictable" meant.

Re:Not random and not predictable? (1, Funny)

Anonymous Coward | more than 4 years ago | (#31290714)

Slashdotters!! If you had a goddam girlfriend, you'd know what "not random and not predictable" meant.

Wrong. I do have a girlfriend, and she is entirely predictable: I'm wrong & she's right.

Re:Not random and not predictable? (0)

Anonymous Coward | more than 4 years ago | (#31289622)

A system can be random but so complex that the only working model of it is the system itself. Such a system is not random but effectively not predictable either.

Re:Not random and not predictable? (2, Interesting)

careysub (976506) | more than 4 years ago | (#31289656)

From the website http://arora.ccs.neu.edu/ [neu.edu] "We collect data from various sources and we show it to you in two windows, - one window plots the actual data, - the other plots the data randomly permuted (tech note: we permute the derivative of the data)."

So the test is really "can you recognize a natural data set from the same set with a randomly permuted derivative".

The notion of "randomness" is independent of the statistics of the distribution. And since distributions with different statistics usually look quite different whether this is a surprising result depends entirely on what statistical model they have chosen.

Re:Not random and not predictable? (0)

Anonymous Coward | more than 4 years ago | (#31289700)

Totally random = high entropy.
Totally predictable = low entropy.

Neither (totally) random nor (totally) predictable means it's somewhere in the middle
of those two extremes, it has medium entropy, which makes it possible to recognize
by its entropy, once you've gathered enough data.

Re:Not random and not predictable? (1)

Gerzel (240421) | more than 4 years ago | (#31290154)

No random does not necessarily correspond to entropy, although it usually does.

Re:Not random and not predictable? (2, Informative)

Archangel Michael (180766) | more than 4 years ago | (#31289822)

Chaos Theory. Patterns in otherwise seemingly random outcomes. If you look at the details, for instance each snowflake, you'd come to the conclusion that each snowflake is unique (they are), however if you take a step back, you'll notice that the randomness of snowflakes becomes clear in that each snowflake conforms to a pattern that is apparent even as each snowflake is unique.

I know that this is a fairly poor explanation of chaos theory, so don't butcher me too much.

Re:Not random and not predictable? (4, Informative)

pclminion (145572) | more than 4 years ago | (#31289868)

A chaotic system is one where arbitrarily small perturbations always lead to arbitrarily large divergence in phase space. What this means is that even though a system might be following a completely causal underlying law of behavior, it still cannot be predicted because it would require having infinitely accurate knowledge of the parameters.

Because measuring apparatus always involves noise, and noise is of some finite value, this means that the arbitrarily small (yet IMPORTANT) perturbations cannot be resolved against the noise background. This places a very limited time window on your ability to make predictions.

Basic examples of this are the Lorenz attractor, the chaotic pendulum, etc.

Re:Not random and not predictable? (4, Interesting)

hibiki_r (649814) | more than 4 years ago | (#31289910)

Traditionally, economists have claimed that stock variations were random, as explained in 'A random walk through Wall Street'. Now, further analysis indicates that the changes of value in stocks are not random at all: If they were, the last couple hundred years worth of financial data would be almost impossible, with extreme oscillations that would only happen once in a billion years in a random model occurring every couple of decades.

Instead, what some have proposed is that stock oscillations instead follow power law distributions: It still makes it impossible to know what the market will do tomorrow, or next week, but it makes large oscillations a whole lot more common than in a random model. This makes many of the current models that are used to assess how risky a portfolio is into a pile of garbage. For that argument, you could read 'A not so random walk through Wall Street'

Re:Not random and not predictable? (4, Interesting)

hazem (472289) | more than 4 years ago | (#31290730)

There's a great example of this in a book called "The Origin of Wealth" by Eric Beinhocker (a great book, actually).

In Chapter 8, he shows graphs of IBM's stock price over a period of time and a random walk. They look very similar and I think it would be hard to tell them apart. However the next set of graphs show "Changes in Stock Price" for IBM vs the random walk and the difference is stark. The real random walk had a very wide band of nearly uniform "fuzziness" about the origin. The real one, however, had a much narrower band of fuzziness with many large spikes in either direction.

Here's a link on Google Books to those pages:
http://books.google.com/books?id=eUoolrxSFy0C&lpg=PP1&dq=%22origin%20of%20wealth%22&pg=PA176#v=onepage&q=&f=false [google.com]

Re:Not random and not predictable? (1)

BitZtream (692029) | more than 4 years ago | (#31289930)

It means that while its not based on pure randomness, the scope and breadth of the object in question are too large to simulate or emulate in a way that allows us to predict whats going to happen.

Its like a weather pattern.

Both are not random, and are entirely predictable. We are just unable to predict either because we don't have the processing power or the monitoring power to know enough about what we are trying to simulate to accurately predict the outcome. There are simply too many pieces to the puzzle for us to predict, but patterns are apparent and in hindsight, most of the things could have been seen if we had the right focal point and indicators to work with.

Re:Not random and not predictable? (1)

at_slashdot (674436) | more than 4 years ago | (#31289940)

22222222222222222233333333333333333333333333333337777777777777777777777777

These numbers are not random, but they are not predictable (at least not by you).

Re:Not random and not predictable? (1)

samkass (174571) | more than 4 years ago | (#31290076)

If you ask a human to write a series of 100 numbers, picking them "at random" between 1 and 10, you're going to get a list of numbers that has measurably different characteristics than purely random data. In particular, you'll tend to get much too few repeating sequences. It's still not predictable.

Re:Not random and not predictable? (1)

Mister Whirly (964219) | more than 4 years ago | (#31290674)

Yep, in a statistics class I had once, half the class was assigned to make up "random number" lists, and the other half actually generated a random number list using actual randomly generated numbers (by using dice). It was very easy to tell which were made by people, becasue as you stated, there were not enough repeating sequences as in the truly random ones.

Well, if you look at the graph on the front page (1)

SmallFurryCreature (593017) | more than 4 years ago | (#31290122)

Well, if you look at the graph on the front page it becomes bloody obvious. The real data goes up and down, but does so over longer periods, it jitters but there is a direction to its movement overall. While the fake one goes up and down far to randomly, it simply does not look like a stock market result.

So yes, within this simple example, I could tell just because I know from years of news exposure what a financial graph tends to look like.

But to be honest, I am not sure it means anything. They could just have made the random sample to random. The real turing test is about actually putting some effort in the fake system to make people believe it is real. By this test your would have a turing test program that just reads random words from a dictionary and then ask people if they can spot the difference.

Poker (1)

The Abused Developer (1730734) | more than 4 years ago | (#31290182)

this is what it means; it means that all the crap on the Wall Street is nothing else but genuine *Poker*; and, as the Poker, the *Bank* drives the game and cheats as it wishes; you, the f&%^#$er on the main street just have to play for giving them the money. did someone expected something else?! not me,

Re:Not random and not predictable? (1)

mikael (484) | more than 4 years ago | (#31290478)

Fractal patterns- a line graph over a long period can be decomposed into a base pattern that is repeated at different amplitudes at different frequencies (hourly, daily, weekly, fortnightly, monthly, annual quarters, yearly). Such analysis can be used to synthesize patterns such as music instruments (audio grains) ocean waves, cloud patterns (Perlin textures), and terrain (fractal landscapes). For 2D and higher, these ratios can vary according to direction as well.

It might be that different traders have different buying/selling patterns, and that these are all superimposed on top of each other.

Re:Not random and not predictable? (1)

AndersOSU (873247) | more than 4 years ago | (#31290818)

it's more that they're trying to read tea leaves, and it's called technical analysis. Some of it makes sense (at least from a psychological/sociological perspective - and don't forget, the market is just people), like levels of resistance and support, while other is just shear lunacy, like the famous head-and-shoulders. However, because there are so many people looking at the same things, it becomes a self-fulfilling prophecy. A head-and-shoulders supposedly means the stock is going to drop. Mind you, there's not fundamental reason why this is so, but because everyone thinks that's what it means they sell their stock, and sure enough, the price drops.

Re:Not random and not predictable? (1)

mikael (484) | more than 4 years ago | (#31291054)

If it weren't for the fact that all the other inputs to the system were human, analysis might work, but as you say once you get everyone else looking to see what everyone else is doing and trying to analyze each other, it just ends up being a twitchy feedback system.

Not predictable? (1, Troll)

Colin Smith (2679) | more than 4 years ago | (#31290536)

Yeah, lots of noise at the daily level, but beyond that the signals emerge.

e.g.

ftse 100
http://uk.finance.yahoo.com/q/bc?s= [yahoo.com]^FTSE&t=my&l=on&z=m&q=l&c=

dow jones
http://uk.finance.yahoo.com/q/bc?s= [yahoo.com]^DJI&t=my&l=on&z=m&q=l&c=

The markets are powered primarily by inflation (forget CPI figures, they're heavily manipulated to look good, look at credit creation). August 15th 1971, the fundamental nature of money changed, debt became money, debt pays interest. Expansion in credit loaned into existence (by banks) is followed by collapse because of the interest. You should also take a look at interest rates over the period (couldn't find an online chart).

We've been living on bubbles for the last 30 years (there are many smaller credit bubbles in the charts before that), and will continue to do so until the money men lose their influence with the state... It's been 300 years in the UK so far.

Re:Not predictable? (1)

FooAtWFU (699187) | more than 4 years ago | (#31290914)

Here's the Wall Street Journal correcting the Dow for inflation: Adjusted for Inflation, Dow's Gains Are Puny [wsj.com]. Disheartening, but they note:

All of this might be enough to put investors off stocks entirely, until they consider the long-term alternatives. Measured over the 1978-2008 period, rather than over just one decade, stock performance in real-real terms actually is better than that of just about any other major investment class, Mr. Thornburg found: 4.5% a year. Stocks' ability to keep up with inflation over the very long haul may be their best selling point.

This makes sense, after all. If making boatloads of money on the stock market were so easy, you'd expect people to bid up the price of stocks until it wasn't much easier than making money investing anywhere else.

p.s. if you have trouble reading it (1)

FooAtWFU (699187) | more than 4 years ago | (#31291394)

If you ever get a link to the Wall Street Journal that you can't read, just plop the URL into Google and click on the link from there.

Re:Not random and not predictable? (1)

DriedClexler (814907) | more than 4 years ago | (#31291258)

Create an encoding method for algorithms that outputs a graph. Randomly generate a short algorithm.

It's not random, because it has a low Kolmogorov complexity (shortest program that outputs the data). But it's not predictable either, because you don't know *which* simple program it is.

Here Is The Simple Form: (2, Funny)

WrongSizeGlass (838941) | more than 4 years ago | (#31289546)

* Do you have any money?
- If 'No', please leave.
- If 'Yes', please give me your money.
* Did you give me all your money?
- If 'No', you pass. Please leave.
- If 'Yes', you are a fool. Please Leave.

Turing Test? (0)

Anonymous Coward | more than 4 years ago | (#31289584)

Based on 2 previews, I failed. Does that mean I am not human?

Re:Turing Test? (1)

sinrakin (782827) | more than 4 years ago | (#31289684)

I failed five times in a row, then I read the article. It says humans can "learn" to tell the difference between the series, not that they can tell immediately. However the quote says "It's not hard to see why. In feedback sessions, the players say that the real data was smoother than the randomised data or vice versa and that these patterns were easy to spot after a few goes". So it sounds like people actually don't know how they're recognizing the patterns. Actually, I'd bet you could construct data that would fool people if you superimposed a few random series with different periods, say: quarterly, weekly, daily, etc.

Economists ... (4, Informative)

Anonymous Coward | more than 4 years ago | (#31289620)

Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces.

The market is only efficient within a narrow range of economic activity. When economic activity exceeds the top and bottom ranges you get bubbles and panics - inefficient markets. We see them all the time.

I really wish economists would stop assuming that for any given economic activity, the conditions and their subsequent results can be extrapolated across the board. That's why, whether it's the Chicago school or the Keynesians, they can point to data (a selected portion of economic activity) that supports their view, when in fact all schools of economics is correct in their little slice of economic activity and conditions.

Re:Economists ... (1)

geoffrobinson (109879) | more than 4 years ago | (#31289762)

I tend towards the libertarian end of the spectrum, especially in economics. The past three or so years has made me think about economics a lot and my underlying assumptions.

My conclusion is that it is extremely hard to come up with a very good detailed economics theory because you can't really test all that well. And your data sample set is limited.

What you would really need is access to alternative realities. What would have happened if the Fed didn't reduce rates to really low levels 9 years ago? What would have happened if we let the banks go under instead of bailing them out? I have guesses but no firm idea. You can't rerun the Great Depression and fine-tune all the variables.

So when I see guys like Paul Krugman insist we need a bigger stimulus, the first thing I think is "this is completely unfalsifiable."

Re:Economists ... (2, Funny)

Qzukk (229616) | more than 4 years ago | (#31289952)

the first thing I think is "this is completely unfalsifiable."

And now you understand why there's no Nobel prize for economists.

Re:Economists ... (1)

blahplusplus (757119) | more than 4 years ago | (#31289864)

The real issue is that the price mechanism can't deal with the complexity of the real world, it's too easy to externalzie and hide other important real world data and costs that price mechanisms of market theoreticians can never take into account.

Efficient markets could work if everybody was god, but people are not 1) equally skilled 2) have equal time to analze information 3) do not have unbiased access to opportunities 4) Human psychology tends to treat those with much money as special or royalty, when most rich people have simply taken advantage of large numbers - they are not necessarily rich because they are better then competing products or better then everyone else for instance, rather lots of complex factors go into "financial success" often times it involves criminal behaviour (i.e. bail out of the banks, the stock market ponzi game, etc)

Re:Economists ... (4, Insightful)

Maxo-Texas (864189) | more than 4 years ago | (#31289886)

The market is also inefficient when any participant with more resources uses some of those resources to change the rules of the market to favor that participant.

For example, the same movie sells in china for 2.49 and in america for 19.99 (often with an english soundtrack for both). In an efficient market, the movie would be purchased there for 2.49 and sold here for 4.99 making a 100% profit for someone. But artificial rules restrict this.

For example, drugs which are out of patent are sold in India and China for 10 cents a pill but for 33 cents a pill in the united states (example- metformin) and those in patent are sold for about 10 to 50 cents a pill in india and china and for 5.00 a pill in the united states. (and apparently viagra is much cheaper in canada than the u.s.). In an efficient market those pills would be purchased, imported, and resold. But artificial laws prevent this rational activity.

For example, Microsoft absolutely slaughtered many competitors through illegal monopolistic behaviors (for which it lost many court cases years after the competitors were dead or crippled). In an efficient market, there would have been other options.

Viagra in Canada (5, Funny)

Comboman (895500) | more than 4 years ago | (#31290114)

apparently viagra is much cheaper in canada than the u.s.

That's a function of supply and demand. We virile Canadian men don't need Viagra, so that drives down the price.

Re:Viagra in Canada (1)

sgtrock (191182) | more than 4 years ago | (#31290760)

Funny, I always thought it had to do with the number of splinters you Canucks pick up from knotholes... I've always admired your high tolerance for pain, even if it is LaBatts induced. ;)

Re:Viagra in Canada (3, Insightful)

DeadDecoy (877617) | more than 4 years ago | (#31290832)

Or, because of the large demand, the marginal costs of producing extra pills approaches 0, thereby allowing them to sell pills at a cheaper price and maintain their profit margins.

Re:Viagra in Canada (3, Interesting)

Krahar (1655029) | more than 4 years ago | (#31290988)

Sorry man, clearly the stupendous demand from impotent Canadians is driving down the price through extremely-large-scale efficiencies in sales and production.

Bad example (1)

Locke2005 (849178) | more than 4 years ago | (#31290320)

Generic metformin in is available in the US for $4 for 60 850mg tablets, or less that 7 cents per pill. You example is wrong, but your general point is not -- it is widely known that American pharmaceticals are sold for far less in other countries, even in Canada and Mexico. Basic economics say they should be more expensive elsewhere, due to transportation costs. And of course, the pharma companies due their best to make reimportation of drugs back into the US unlawful.

Re:Bad example (1)

Maxo-Texas (864189) | more than 4 years ago | (#31290872)

Fair enough-- I pay $10 for 60 500mg tablets as a generic and miscalculated too (what is it? -- about 20 cents a pill I guess).

I'm not arguing it would be more expensive elsewhere, only that with such gross imbalances in price, in a rational market, people would arbitrage the price.
Our market is not rational

Re:Economists ... (4, Informative)

cynical kane (730682) | more than 4 years ago | (#31290414)

That's not market efficiency. In your example, the moviemakers would respond by making movies 19.99 globally, with the market failure of the Chinese not being able to afford movies.

Price discrimination* is a key part of economic efficiency when a monopolistic competitor** has control over their market goods. If the competitor sets prices without discrimination, this causes inefficiency because buyers (the Chinese) and sellers (the moviemaker) never get to trade, and market efficiency is defined as maximizing trade within the market.

* The market kind, not the racist kind.
** A monopolistic competitor refers to a competitor that has control over a narrow niche in a wide market, and is not the same as a monopoly.

Re:Economists ... (1)

Maxo-Texas (864189) | more than 4 years ago | (#31291052)

Okay... you are using some special meaning of an efficient market.

I'm talking plain english here.

If hot dogs are selling for $1 on this block and $15 three blocks away, an "english language" efficient market is going to close that gap.

Americans are basically being pumped dry of wealth at this point. You either sneak around the system (by taking a thermos with a hot dog into the theater) or just refuse to participate.

Re:Economists ... (1)

ElAurian (133656) | more than 4 years ago | (#31291456)

There is nothing wrong with price discrimination. All companies should be allowed to sell their products for whatever price they want, based on any criteria they want (except, arguably, race/sex/religion etc, because society doesn't like it).

However, using the legal system to enforce that price discrimination is a bad idea. Without the extensive legal barriers set up to "make prices fair", and with uniform labor/production/safety etc laws worldwide, the average incomes of people in the West and people in China (in this example) would equalise much more rapidly.

When corporations hijack governments to protect their own interests, it is bad for everyone.

Economics ...p=r-c (0)

Anonymous Coward | more than 4 years ago | (#31291176)

The most basic economic formula is profit equals revenue minus cost (P = R - C). Like you, many people ignore the cost, C, when analyzing the market.

China & USA have different costs, because they are separated by the Pacific Ocean. It costs something to ship a movie, e.g. DVD, from one place to the other. If these DVDs are made in China, then the Chinese locale has much lower costs. You can't just teleport those DVDs to North America for free and sell them.

Drugs, i.e. medicines, are highly regulated for efficacy & safety. The US FDA tests drugs and passes that cost onto the manufacturer, who passes it onto the patient (consumer). Once the Chinese & Indian consumers get the off-patent versions, years of data show the drugs to be safe, which lowers insurance costs to the manufacturer.

Viagra is a recreational drug, not a medically necessary one. If more people restricted their drug use to medical necessity, then drug price would go down. Demand for drugs & their prices are too high.

The crack-addict consumer is the cause of your INefficient market, not the suppliers.

Re:Economics ...p=r-c (1)

Maxo-Texas (864189) | more than 4 years ago | (#31291524)

Do you think it would cost $17.00 to import dvd's into the U.S?

How many DVD's could one person buy for $2.99 and carry back and sell for 19.99 if there were not laws prohibiting them from doing so.

The difference in price is a result of laws which support an artificial market. The real cost to make the DVD is under $2.99 (most likely under a quarter). We pay more because the market isn't efficient because laws were passed to make it illegal to bypass artificial barriers.

The same is true for drugs. That .10 pill is sold for .10 at a profit in india and china. In all likelyhood, even if your importation theory is correct, it could be sold at a profit for much less than $1.00 in the U.S. The only reason it is $5.00 here is because artificial barriers block an efficient market.

Here's the problem. I don't mind shipping the jobs to india because they can get buy for $14,000 a year. I mind that I have to compete with them when they get medicine, dvd's, and many other products at the true price while I have to pay grossly inflated prices. It wouldn't matter if my income was stagnant if the price of goods was dropping by 10% per year. Which is how capitalism is *supposed* to work.

You know.. efficient market. If your prices are too high- someone will undercut them. Only now we have laws that block an efficient market. So I get to see jobs shipped overseas because I cost too much AND pay more for the same items.

I figure it lasts another 4-8 years personally. The end of this trend has already started.

Re:Economists ... (0)

Anonymous Coward | more than 4 years ago | (#31291416)

For example, Microsoft absolutely slaughtered many competitors through illegal monopolistic behaviors (for which it lost many court cases years after the competitors were dead or crippled). In an efficient market, there would have been other options.

That merely points out one of the other flaws in the idea of a "free" market. Nothing succeeds like Success. Sometimes known as "Nobody ever got fired for buying IBM^WMicrosoft".

In engineering terms, this is a positive feedback circuit, and uncontrolled positive feedback is the exact opposite of self-correction. Monopolies exist because people are too greedy to leave well enough alone even when the end result would be the same.

Key is Jumps (1)

ObsessiveMathsFreak (773371) | more than 4 years ago | (#31289652)

A friend of mine actually came up with this test a few months ago and sent an email around with 8 series to see if people could spot real data from randomised ones (Maybe it got chained on to a wider audience).

The key to the test is that random walks typically don't undergo large jumps or oscillations. In fact, they're generally quite a bit smoother than real data. I see that TFA comes to more or less the same conclusion(I think).

The moral if this story is that 99% of normal probability theory does not easily apply to financial time series data.

Re:Key is Jumps (2, Insightful)

ottothecow (600101) | more than 4 years ago | (#31290758)

The jumps in something like a stock price are mostly due to the fact that big chunks if information hit the market at once. If we have an efficient market (meaning the investors are well informed and value the company according to all currently available information), you are bound to see a big hit when a company has an earnings call that goes "hey guys...you know how we said we would earn 23 cents a share? yeah...well we lost 15".

These instances are decidedly not random but tied to the facts of the underlying business and since news is usually released in quarterly calls and SEC filings, there will have to be large one-time corrections rather than random-looking up and down movements over time that trend toward the final price.

Re:Key is Jumps (1)

Fnord666 (889225) | more than 4 years ago | (#31290920)

The moral if this story is that 99% of normal probability theory does not easily apply to financial time series data.

Just remember that in most economic theories, the real world often turns out to be a special case.

Re:Key is Jumps (1)

u38cg (607297) | more than 4 years ago | (#31291448)

Would that be because time series analysis is a quite separate discipline to simple inference?

little in common with the Turing test (2, Insightful)

snarkh (118018) | more than 4 years ago | (#31289660)

The test is to distinguish computer-generated graphs from the actual stock prices.
It seems to have very little to do with the actual Turing test.

Re:little in common with the Turing test (1)

FlyingBishop (1293238) | more than 4 years ago | (#31289926)

Actually it sounds to me like a computer could be made to recognize this as well as a human pretty easily. It's just statistics. But I must be missing something, because an economist would certainly have as good an understanding of the Turing Test as I do of economics.

Re:little in common with the Turing test (1)

snarkh (118018) | more than 4 years ago | (#31291092)

Yes, I don't see why a computer cannot be made to recognize this. It just shows that the current models do not model the stock movements very well.

not (ever) predictable = random (1)

presidenteloco (659168) | more than 4 years ago | (#31289708)

"markets are not random (although they do not appear to be predictable either)"

Ummmm. Isn't one of the leading definitions of a "random" process that it is
a process which exhibits maximum complexity, and thus is not predictable
except by the execution of the identical process. ?

i.e. "inherently unpredictable by any algorithm simpler than the process itself" = "random"

Re:not (ever) predictable = random (1)

Digicaf (48857) | more than 4 years ago | (#31289884)

It's been a while since I was in math, but I believe the key is that "unpredictable == random" only when "unpredictable" is completely unbound by statistical analysis. If "unpredictable" is bound by a statistical equation, then it is not random, even if it is only loosely bound.

E.g. if some function can predict the result of said system with an average rate of success that is greater than 0% but less than 100%, then the system can be said to be not random and not predictable.

Re:not (ever) predictable = random (1)

Obfuscant (592200) | more than 4 years ago | (#31290130)

E.g. if some function can predict the result of said system with an average rate of success that is greater than 0% but less than 100%, then the system can be said to be not random and not predictable.

That has to be incorrect.

Look at coin flips. The function "X = heads" predicts the result of that system correctly on average 50% of the time. Using your definition, the flip of a coin is not random and not predictable, when the truth is it is random and not predictable.

Random statistics require an equal probability of each outcome. The digits of PI are, as a set, random, but quite predictable in sequence. The closing price of stock X will follow something close to a normal distribution, thus it cannot be random. Of all the prices that a stock COULD have, you are more likely to be correct if you pick one close to the previous price. I.e., the chance of being right is greater than 1 in [all possibilities].

Re:not (ever) predictable = random (0, Flamebait)

radtea (464814) | more than 4 years ago | (#31289944)

Ummmm. Isn't one of the leading definitions of a "random" process that it is
a process which exhibits maximum complexity, and thus is not predictable
except by the execution of the identical process. ?

Yes it is. So what?

You've pointed out that randomness implies unpredictability.

You seem to be asking about how non-random data can be unpredictable, which is an unrelated question.

A => B does not mean !A => !B.

Everyone in Canada has decent health care. That is completely unrelated to the question of whether anyone in the United States or France or Australia (that is, people who are not in Canada) has decent health care.

Re:not (ever) predictable = random (1)

Obfuscant (592200) | more than 4 years ago | (#31290524)

Everyone in Canada has decent health care.

Crap. I posted to this thread so I lost my ability to mod this as flamebait. Defining "decent" as "sometimes ok, sometimes ineffective, always delayed and rationed" is dishonest at best.

Re:not (ever) predictable = random (1)

gmuslera (3436) | more than 4 years ago | (#31290068)

What about not random, but the amount of variables involved is high and not all known or acknowledged by all the players?
The algorithm could be simpler than the process, but for running it you need information that some of the players won't disclose.

Anyway, some of the key elements could be related to complex enough system (i.e. weather, how Katrina changed markets? how predictable it was with i.e. 2 weeks in advance? o human behaviour unrelated to market, like 911)

Re:not (ever) predictable = random (1)

SwordsmanLuke (1083699) | more than 4 years ago | (#31290564)

You're right, that's phrased poorly. What it *should* say is that "markets are not random although they do not appear to be entirely predictable either".

No one can 100% predict the movements of the market - but because it's not actually random, you can predict correctly better than half the time - which means you can make money.

Not What It Appears To Be...... (1, Insightful)

Anonymous Coward | more than 4 years ago | (#31289750)

I clicked the link. Instead of a "Financial Turing Test", it looks more like a "Slashdot My Website In Seconds Test".

Re:Not What It Appears To Be...... (1)

AndrewNeo (979708) | more than 4 years ago | (#31290552)

Well, you have to give them credit - they passed the test! They are most definitely Slashdotted.

That DOES NOT mean financial data is not random... (1)

viraltus (1102365) | more than 4 years ago | (#31289934)

It could mean that we humans are good distinguishing among different random patterns, but the fact we can do that says nothing about the randomnes of the series.

People don't matter. People are just a host. (4, Interesting)

gestalt_n_pepper (991155) | more than 4 years ago | (#31290038)

Seriously.

Money is more accurately described as a kind of swarm intelligence. The meme of money is the fundamental self replicator. Admittedly the ecology is complex, (dollars, derivatives, bonds, et al.) but the fundamental rules are the same.

Money want to reproduce. We (our collective cultural awareness) are merely hosts for money to exist.

Usually, money is symbiotic, benefiting the host and itself. Occasionally, it turns into a pathology that harms its hosts (i.e. tulip manias, compulsive gambling/banking, stock market crashes).

The delusion here is thinking that we can "control" the economy. The economy (our name for money's ecology), will always, to some degree, be out of control as long as the hosts are relatively free agents. We can garden (i.e. set up nice environments for money to replicate), but direct control is probably a pipe dream). Moreover, money replication isn't free. It takes real environmental resources to create and is therefore limited. Expanding the garden forever isn't an option. Sustaining a nice one probably is.

Re:People don't matter. People are just a host. (1)

HeckRuler (1369601) | more than 4 years ago | (#31290544)

Who let the biologist in here?
I thought we agreed that smoking jackets and top hats were required?
Jenkins! Chase off this riff raff at once!

Re:People don't matter. People are just a host. (1)

gestalt_n_pepper (991155) | more than 4 years ago | (#31290852)

I'm a *psychologist* you insensitive clod (Well, I have the degree anyway - actually I develop software for a living)

Re:People don't matter. People are just a host. (1)

fridaynightsmoke (1589903) | more than 4 years ago | (#31290864)

Seriously.

Money is more accurately described as a kind of swarm intelligence. The meme of money is the fundamental self replicator. Admittedly the ecology is complex, (dollars, derivatives, bonds, et al.) but the fundamental rules are the same.

Money want to reproduce. We (our collective cultural awareness) are merely hosts for money to exist.

Usually, money is symbiotic, benefiting the host and itself. Occasionally, it turns into a pathology that harms its hosts (i.e. tulip manias, compulsive gambling/banking, stock market crashes).

The delusion here is thinking that we can "control" the economy. The economy (our name for money's ecology), will always, to some degree, be out of control as long as the hosts are relatively free agents. We can garden (i.e. set up nice environments for money to replicate), but direct control is probably a pipe dream). Moreover, money replication isn't free. It takes real environmental resources to create and is therefore limited. Expanding the garden forever isn't an option. Sustaining a nice one probably is.

It is possible for the economy to grow, even with hard-limited resources, for as long as technology continues to grow. New tech allows greater effeciencies to develop (think of computing power per kg of silicon, for example) which allows greater economic value to be derived from a given amount of resources. More value or use from a given input of natural resources or labour tends to decrease the 'real' price of those resources, because in a way they become less 'scarce'. A 'bigger economy' can mean 'cheaper stuff' as well as or instead of 'more stuff'.

Re:People don't matter. People are just a host. (1)

mejogid (1575619) | more than 4 years ago | (#31290896)

Your analogy does nothing but complicate financial markets. There's also no real consistency in your argument - you seem to be using vague and increasingly baseless environmental analogies that have no real connection to each other. Your last two sentences in particular also seem to have no real relevance to the earth as a system, economic or environmental, due to the input of the sun's energy and the potential for exploitation of resources within and external to the earth.

Re:People don't matter. People are just a host. (1)

gestalt_n_pepper (991155) | more than 4 years ago | (#31290986)

Sadly, I can claim that it has as much predictive power as any other economic theory.

And of course it's just a theory - untested. It is, to some degree testable in silica, more so than many of the current models.

Re:People don't matter. People are just a host. (1)

FireIron (838223) | more than 4 years ago | (#31291476)

Clearly, the money swarm has rejected me as a host carrier...

financial advice? (1)

bth (635955) | more than 4 years ago | (#31290156)

IMHO, a more interesting financial turing test would be to distinguish between human and computer-generated financial advice.

Re:financial advice? (0)

Anonymous Coward | more than 4 years ago | (#31290404)

I was terribly disappointed by the above article, as I was hoping it would provide a way to determine if Wall Street denizens were actually human, or some sort of highly evolved parasite.

Much more interesting question (0)

Anonymous Coward | more than 4 years ago | (#31290210)

A much more interesting question: Is the financial system turing capable? If yes, one could use the financial system to compute stuff.

The moral question is thus proposed; (1)

Maintenance Goof (1487053) | more than 4 years ago | (#31290230)

If I cannot predict a market, do I then, no longer have the right to kill the market? Does this mean that Wall Street is not only by results and facts, but by definition evil?

Re:The moral question is thus proposed; (1)

u38cg (607297) | more than 4 years ago | (#31291480)

I don't understand your premise, argument, or concluding question. Help.

ZOMG! (1)

coaxial (28297) | more than 4 years ago | (#31290340)

Markets aren't rational? [time.com]
People (especially people that think of themselves as being "smart") are prone to self-delusion? [uchicago.edu]

But seriously, why would anyone hold on to the myth that markets are rational given the experimental findings of behavioral economics.

Oh that's right, it's the new religion to to keep the plebes down. Now excuse me, I have to cash my 30 million dollar bonus check for going bankrupt, because it's so hard to find such well qualified experts brain trust like me.

Re:ZOMG! (1)

myowntrueself (607117) | more than 4 years ago | (#31290632)

But seriously, why would anyone hold on to the myth that markets are rational given the experimental findings of behavioral economics.

Why would anyone believe that human beings are rational agents given everyday experience?

Both internal and external experience should be enough to inform anyone who thinks about it that neither they nor the people around them are rational beings.

If one wished to drive the point home even more heavily, a visit to any number of internet chatrooms should present very clear evidence to wipe away any notion of humans as rational.

I think the only 'reason' anyone would hold the belief that humans are rational agents is, in the end, hubris.

Benford's Law (1)

Efreet (246368) | more than 4 years ago | (#31290570)

I bet one of the main things they use in this is Benford's Law [wikipedia.org], which says that numbers beginning with small first digits are more likely to appear in logarithmically distributed data (like most financial data) than numbers with large first digits.

Random does not neet to be a random walk (2, Insightful)

yooy (1146753) | more than 4 years ago | (#31290736)

Dude, it is the year 2010. Everybody knows by now that financial data does not follow a random walk (coin tossing). Stock market variations hat a "fat tail". Unfortunately it is hard to put thins into option pricing (problems with variance). This is actually a reason why far out of the money options are likely to be underpriced. I think Mandelbrot came up with this decades ago. Welcome to the real world. I heard more interesting things. Like the Peruvian who did not clone sheep but bacteria. Yea, that's right.

Re:Random does not neet to be a random walk (1)

RJHelms (1554807) | more than 4 years ago | (#31290910)

I think Mandelbrot came up with this decades ago.

Yeah, but most economists never read Mandelbrot. His economic research is very interesting but pretty much unheard of.

Completely random? (1)

RJHelms (1554807) | more than 4 years ago | (#31290888)

Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces. They say that the more efficient it is, the more random its returns will be and a perfect market should be completely random.

I'd really like to see a citation for this. I've studied a fair deal of economics in my day, and I don't remember anything even like a claim that a perfect market is completely random. Maybe I just studied the wrong (or maybe right, in this case) economics, but I can't think of any theoretical foundation for that.

If anyone can point me in the direction of real research on this, I'm very interested.

technical analysis (0)

Anonymous Coward | more than 4 years ago | (#31290932)

looking for technical patterns, trends, and lines of support and resistance, i was much less accurate than i thought i would be. but the timer certainly didn't help. if i had more time to look at the charts, i think i would be better able to tell which chart ignored the "rules" of technical analysis more often. perhaps? it would be interesting to see how they generated their "random" charts. i'm starting to doubt my ability to read charts now.

Anonymous Coward (0)

Anonymous Coward | more than 4 years ago | (#31290962)

I think that perhaps they need to develop something related to the Turing test for politicians' interviews. It sometimes really does just seem like they've memorized a list of vetted, safe responses from their staff and reply with whatever one has the most buzzwords in common with the interviewer's question. It often sounds a bit like a computer program looking up stock answers to things might respond...with a lack of finding anything in the database returning something like "I'll have to refer to my staff on that". I'm not that familiar with the theory behind the testing in detail but I wonder if there's a way to analyze conversations that have already taken place (e.g. news interviews) for a "Turingish" rating of sorts. Yeah, I said "Turingish"...

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