Heuristics and algorithms

Quoted from “New Ways to Crash the Market” by James Surowiecki:

“As Kirilenko told me, “Automation should, in principle, make markets cheaper, faster, and more accessible.” Indeed, markets today incorporate new information faster than ever before. Yet they are also fundamentally less stable, and more prone to sudden and inexplicable breakdowns. A 2014 study of the impact of algorithmic trading across forty-two global stock markets found that it made the markets more liquid and more efficient but also more volatile. Even more striking, a 2013 study of commodity markets found that, over the years, these markets have become increasingly self-reflexive: sixty to seventy per cent of price changes are driven not by new information from the real world but by “self-generated activities.” Markets, in other words, are moving themselves much of the time. That may be how Navinder Sarao got rich. It’s also how we’ve arrived at a situation where a trillion dollars can vanish in a matter of minutes, even though the real world hasn’t changed at all.”


This sounds suspiciously like our nervous system and the automatic aspect of our mind.


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