So, intuition is dead, is it?
According to Professor Ian Ayres in his new book "Super Crunchers", it is.
Fortunately, he is wrong.
Prof Ayres is a zealot of neural network, algorithmic and other black box technologies and he chooses in this book to extrapolate the limited value of these tools, because that is what they are, to develop a spurious vision of a future where all of our existences are dominated by computers crunching our data.
This erroneous leap of credibility simply does not stand up and one should always undertake a guarded mode of inquiry when interacting with people claiming an holistic truth. The prime issues with so many of these predictive analyses is that they exhibit an inability to incorporate the full macro- and micro-realities, they are unable to deal with "Black Swan events" (rare and massively destabilising), by being dependent on past data they are very poor at reacting to the random walk of all our futures, complex layered markets incorporating both economic and psychological mechanisms are beyond the limits of the software and the windows of opportunity for usage are constantly variable in all globalised interactions.
Black box technologies (Bbt) are very useful for a certain limited range of complex data analyses. Dunnhunby, for example, enhance the Tesco shareprice by spotting patterns in the shopping behaviours of Tesco's clubcard owners to target such individuals in order to increase the amount of cash from their wallet that ends up in proof of the motif "every little helps". This evidently works on an analytical level. Similarly, distribution firms use Bbt to optimise the routes travelled by both items and transportation to maximise returns. BBt is great for these simple data analytical tasks and pattern recognition at speed will always outperform the humble human brain in such instances. Even in areas that are slightly more layered in structure like marketing, the rating of products and games like go and chess, the software is able to compete with the very best of people power. Where Bbt reaches the limit of validity is when we arrive at complex multi-disciplinary and layered systems like financial markets.
Financial markets are an ever-evolving environment. The primary beauty of our Unified Trading Model (UTM) is that it reacts in real time to new market realities on all strata - macroeconomic, microeconomic, behavioural, infrastructural, holistic. The UTM with related big picture overview allows the potent combination of skilled practitioners and a robust highly-tuned trading model to find value in the marketplace in all windows. Different trading periods require different mixtures of input. During windows of market calm, a lack of unusual volatility and fairly predictable structural interactions, the UTM will access Bbt sub-modelling to a moderate degree - at peak times, up to 30% of our trading is neural net-based. But the market is a beast from the deep and periods of calm exist in order to be disrupted by breakpoints at all levels of input. In these market windows, the value of Bbt is minimal/nil. Market analysis is physics at speed in a relentlessly changing financial universe. Historical data, analyses, strategies and software have no role in the management of change in the marketplace. In football betting markets, these turbulent periods occur once every season on average and, during the upheaval, our Traders utilise intuition, creative pattern recognition and our holistic overview both of the sector and the markets to solve the new infrastructure at speed. Immersing oneself in the largely unique data on our servers is on a different level of efficiency of solution if compared with Bbt.
There are other problems with Bbt. In any complex scenario, there are very few individuals who are able to train up the Bbt software to the necessary levels of performance. The inputs are key and the laterally conceived selection of such inputs is one hell of a competitive advantage. Bbt, in the hands of your average economist, is liable to spot rogue patterns with illogical cause and effect linkages, and the ephemeral nature of their trading validity is a major issue in mature markets.
Two very separate areas that reveal the shortcomings of Bbt are medicine and international financial markets (IFMs). Advanced technologies are a great tool for the medical profession when utilised for their simplistic value as data-crunchers. Time is at a premium in the health arena and doctors are unable to personally collate and integrate the results from their research. Bbt provides the medics with a solid pool of data analysis regarding individual aspects of the patient. What the software is patently unable to achieve is an holistic prognosis taking into account all the medical conditions which exist in parallel. In these circumstances, it is the doctor's intuition and experience that offers the best chance of success.
The situation is similar in IFMs as clearly indicated by the current credit squeeze. As the economically comprised economies pump liquidity into the markets from their central banks to delay, but deepen, the eventual recession, the role of Bbt in establishing and extrapolating the chaos is ignored. Investment banks and hedge funds are overflowing with mathematical whizzkids developing fallacious Bbt models. These proprietary softwares were used to undertake risk analysis, trade and hedge during the recent bull market. In the short term, this application was successful but, in the bigger picture, their value collapses. Prior to the credit squeeze, the global financial sector had absolutely no idea where the real risk was residing. Everybody was busy packaging and repackaging their exposures to risk based on the "advice" offered by Bbt. This hotch-potch structure guaranteed the crisis. Furthermore, as they attempt to analyse, model and trade their way through the current market turbulence, the analysts at many of these firms are effectively trading blindfold in the dark. They do not possess a valid big picture framework and their models are bobbins.
The only individuals of analytical importance, whether we are looking at the football betting markets or the IFMs, are those with extensive market memory and a shrewd intuition. The market memory is critical as experience of historical realities and data-sets allows an advanced starting point for any contemporary analyses. Intuition is the biggie though. Top traders get gut feelings. This pattern recognition is hardly conscious but exists in the sub-conscious and enables an immediate response to the machinations of the distorted and corrupt financial arenas. Intuition is particularly valuable in specific time windows on both a macro- and microeconomic scale. These islands of intuition form a bedrock of our significant trading advantage and, consequently, we have no wish to discuss anything so isolationist in detail. But, intuition is the premier algorithm. It is multi-layered and multi-disciplinary and always bases logic at the foundation of any causal links. Holistic Human versus Quantitative Mechanistic is always a home win.
A further parallel to this myopic mode of thinking may be seen with the new paradigm grouping of economists. In their blinkered reality, the last twenty five years represents a sustainable improvement to the rate of growth of the world economy, apparently, and the combined influences of IT-based productivity gains and the imposition of neo-liberal shareholder capitalist policies will stretch out for ever more... Of course, this is ridiculous in the same manner as the death of intuition is nonsense. As the British and American governments desperately scramble the bankers to postpone the oncoming recession until after the forthcoming elections, such simplistic hubris will be shown to be baseless. Sure, IT has improved productivity as has every previous innovative breakpoint. It is also true that the economic enslavement of vast swathes of the world population has enabled companies to record outrageous profits coupled with rampant tax evasion (over half the leading 300 businesses in Britain paid no tax in 2006 - compare and contrast the correlation with their share prices). These short term advantages are more than factored into the market prices. What ISN'T discounted by the current prices are i) the massive impact of the necessary global reaction to climate change, and ii) the cyclical nature of slavery - the chattering classes always reach a threshold where they have individually taken their fill of the fruits of the erosion of human rights and guilt kicks in. Let the new paradigm people buy up their shares and we'll short sell their future realities, thank you very much...
In conclusion, black and white visions might sell books but they do not reflect reality. The lack of an holistic oversight leads to economists and market makers developing fallacious correlations and constructs which enable the fleet-footed to cream off profit with cutting edge trading models.
© Football Is Fixed/Dietrological
