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Why it’s usually crazier than you expect
- tradri 6y agoInteresting read about feedback loops and self-fulfilling prophecies. However, the author made it sound as if "momentum" is the only thing that drives human behavior. While it's certainly a part, I wouldn't say it's the only force driving human decisions.
- tradri 6y agoTo link it to the world of investing, other key factors that drive returns/risk of assets are value, size, quality, yield and volatility, besides momentum. It's a multi-variate equation.
- cactus2093 6y agoI don't think the author was claiming it's the only force. But I do agree this was interesting but felt like something was missing. If feedback loops are so powerful, why are most things actually fairly stable? How and when and why does something get sucked into a positive feedback loop? I'd be curious to read more thoughts about that.
- tradri 6y agoisn't that the question of what makes things go viral?
- PartiallyTyped 6y agoYou may be interested in Douglas Hofstadter's Gödel Etcher Bach, or if you are into something shorter, 'I am a strange loop', by the same author.
- tradri 6y agoThanks for the suggestions. They seem interesting.
- MaxBarraclough 6y ago> As the number of elephants declines, tusks become rare. Rarity pushes prices up. High prices make hunters excited about how much money they can make if they find an elephant. So they work overtime. Then fewer elephants remain, tusk prices rise even more, more hunters catch on, they work triple-time, on and on until the number of hunters explodes as everyone chases the last herd of elephants This is almost the opposite of Jevon's Paradox: > the Jevons paradox occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the rate of consumption of that resource rises due to increasing demand. https://en.wikipedia.org/wiki/Jevons_paradox https://en.wikipedia.org/wiki/Jevons_paradox
- pimlottc 6y agoJevon’s paradox can also lead to virtuous cycles. For example, electric-assist bikes require less user energy per mile, making biking easier, which leads to more time spent biking, resulting in more overall exercise. Similarly, increased transit use can lead to more time spent walking.
- laurent92 6y agoThere is also the vicious version: Mandating the wearing of helmets for cyclists increases the number of deaths, because of obesity and cardiac diseases due to raising the barrier to cycling.
- newbie578 6y agoWow, a really interesting read, nice to think about.
- sound1 6y agoAgree. I thought about how how my personal image perceived by others may affect my success or failure in life or career. Interesting and scary at the same time.
- alex_young 6y agoSeems like another way to read this is to say that unchecked capitalism leads to some pretty unhealthy behaviors. If people weren’t trying to get rich selling tusks we would have more elephants and if people weren’t trying to get rich with GME stock we would have less fear of our other investments being randomly targeted.
- tradri 6y agotaking the anarchist's approach: if people are happier owning tusks and using the stock market as a casino than seeing elephants and having stable finances, let em do it.
- alex_young 6y agoDo anarchists really believe that the profit motives of the few outweigh the collective interest of the masses?
- cylon13 6y agoIt's a pretty varied group defined around a negative. That's like asking whether atheists believe a specific positive statement about the world. That said, to try to answer your question, my guess is left anarchists would say "absolutely not, capitalism is full of unjust hierarchy and the profit motive is bad news altogether", and right anarchists would say, "there's no such thing as the collective interest, but nobody gets to violate the individual rights of anyone else for whatever motive".
- chii 6y agothey do, because they believe they themselves are going to be at the top. If you showed them where in society they will end up (i.e., at the bottom), they will change their tune.
- danShumway 6y ago> than seeing elephants I don't want to strawman anyone. Are there really Anachrocapitalists who believe that the market should decide whether or not we have mass extinctions, or is this post mostly satirical? There are so many problems with this idea, not the least being that markets aren't designed to eliminate niche ideas, they're designed to support them -- and because wild populations of elephants are a shared common resource, even a small number of people who are happier owning tusks means that their preferences suddenly outweigh the vast majority that want them to stop killing elephants. Markets aren't designed to stop people from irreparably damaging commons and messing up the world for everyone. That doesn't mean markets are bad, it just means... that's not what they were ever designed to do. You're using them to try and fix a problem that they're not optimized to fix. This is very much a, "if all you have is a hammer, everything looks like a nail" proposal. We don't need to solve literally every single problem with Capitalism. We especially shouldn't look at every single problem and say, "Capitalism doesn't solve that, so it's not a real problem."
- deleted 6y ago[deleted]
- yibg 6y agoSeems like a potential confirmation bias here with regards to GME. GME may be in a feedback loop right now, but how many other stocks had the beginnings of a feedback loop but fizzled out? How many companies started to win but didn't attract the best employees? Put it another way, is there any predictive power here or is it only something that can be observed after the fact? Seems like the latter.
- didibus 6y agoThere are firms I've heard of who have social media watchers and they play based on "buzz". I don't know how that pans out in long term holdings, but short term I'm guessing they've been successful or they wouldn't keep doing it.
- PartiallyTyped 6y agoThere was a post on wsb where he wrote a bot to keep track of sentiment around tickers. Then he played said tickers based on sentiment and the portfolio was consistent and possibly out performed the market but don't quote me on the last one.
- JW_00000 6y agoAlso, are we even "after the fact" at this moment? In other words, let's see in three months' time (or one year) whether there really was a positive feedback loop that saved GME or whether there was a rapid boom-and-bust cycle and GME is back to where it was last year (or even bankrupt). It's too early to draw conclusions while we're still in the middle of the frenzy.
- yowlingcat 6y ago> It's too early to draw conclusions while we're still in the middle of the frenzy. 100%. We're certainly not yet after the fact.
- TameAntelope 6y agoAn article last week referred to this as "reflexivity". * Reflexivity is a theory that positive feedback loops between expectations and economic fundamentals can cause price trends that substantially and persistently deviate from equilibrium prices. * Reflexivity’s primary proponent is George Soros, who credits it with much of his success as an investor. * Soros believes that reflexivity contradicts most of mainstream economic theory. https://www.investopedia.com/terms/r/reflexivity.asp https://www.investopedia.com/terms/r/reflexivity.asp has some additional info. I wonder if there's a way to marry "efficient market hypothesis" with "reflexivity on the edges" somehow. Well outside my ballywick, in any event.
- marcosdumay 6y agoNo, you can't marry the Efficient Market Hypothesis with any kind of inefficiency. Even less one that isn't compatible with a market settling into equilibrium. The hypothesis is just false. Markets do seek efficiency, but not the way it states. But the Efficient Market Hypothesis leads to tractable mathematics, so people try to approximate the real world into it.
- FabHK 6y agoI think Keynes captured the essence of reflexivity nicely in his beauty contest: "It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees." https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
- TeMPOraL 6y agoI've read the Investopedia article, but I struggle to see what's the big deal about it? Where's the conflict? The best I could summarize it is that "reflexivity" postulates that economic equilibria are usually not stable, but metastable. That is, they can be easily pushed out of their stability regime, at which point the feedback loops will no longer balance, and the equilibrium will get re-established elsewhere (if at all). That's the only thing I can see that requires some empirical justification. Other than that, the postulates seem to be basically "feedback loops 101", and the "mainstream economics" concepts, as I understand them, are built on the same principles too.
- mslate 6y agoIsn't Collaborative Fund the one that got smeared by the CEO of one of its portfolio companies? Previously: https://news.ycombinator.com/item?id=24793170 https://news.ycombinator.com/item?id=24793170
- vladmk 6y agoIt usually is crazier than you expect but I feel the authors answer “small trends” is a cop out answer. Small trends can be found in any success, the contrarian view is more interesting: why do things go right when they’re not supposed to? “Small trends” is a bad answer for GameStop, the answer is more complex and the variables aren’t covered in this article
- netsharc 6y agoIt seems like cheap thought but he tries to present it like it's deep insight. And in 2008/09, people probably didn't want to buy from a bankrupt GM because it's hard to get spare parts from bankrupt car manufacturers. At least for the common definition of bankrupt (i.e. shuttered).
- gautamcgoel 6y agoThe ideas discussed in his post, especially the idea of rapidly expanding spheres of civilizations consuming all resources in their path, were beautifully explored in Stephen Baxter's sci-fi book, Manifold: Space (a spin-off of his earlier book, Manifold: Time, which is also excellent). In his book, alien intelligences are common; once they become sufficiently advanced, their civilizations tend to rapidly expand and consume all available resources, often to the detriment of other civilizations in their path. This pattern leads to some interesting phenomena: first, while the night sky might seem quiet at first, once we do encounter aliens, we tend to see their signals across many star systems in rapid succession. The reason is pretty obvious: there is only a brief period of time when we are on the surface of a sphere - a few years after our first observations of aliens, we are engulfed within their sphere and observe their signals from all over our stellar neighborhood. Another idea he plays with is the idea of "refugee" species, who attempt to flee oncoming spheres by evacuating ahead of their path instead of being consumed. Actually, he pushes this idea even further: in the book, our solar system was already engulfed in a few spheres millions of years ago. He suggests that this why Venus is such a hellscape: the aliens came, took the resources they wanted, and left behind a polluted mess. In the case of Venus, they left lots of greenhouse gases behind as the result of some chemical process used to extract resources; as a result, Venus quickly became the warmest planet in the solar system. It's a fun twist on the Fermi paradox: signs of aliens are actually all around us, we are just too dumb to notice them. Another interesting idea he explores a bit is "ownership" of resources. Do the resource-rich asteroids in our solar system really belong to us? Or are they available to any alien race who happens to pass through? In the book, we first notice aliens by observing unexplainable infrared radiation from the asteroid belt (later revealed to be thermal emissions from their resource extraction). He suggests that these aliens will potentially crowd out humans; even if they are not overtly hostile, they could gobble up all the resources we would have used to expand our civilization. Highly recommend this book.
- abbadadda 6y agoWhere does one buy said book, "Manifold: Space"? I'd prefer paperback or hardcover (no options on UK Amazon)... sounds very interesting.
- FabHK 6y ago1. I was expecting to read about a gamma squeeze... (people buy far out-of-the-money calls on GME (low delta), option seller is short, buys a bit of GME to get flat, more people buy & price goes up, delta goes up, option seller needs to buy more stock to hedge, and you have your feedback loop going (until option is far in-the-money, delta is one, and option seller doesn't need to buy anymore).) But that never came... it was just positive feedback in perception. 2. It's not "usually" crazier than you expect. Most everywhere, we have feedback loops that keep things stable. Demand rises, prices rise, people think, eh, too expensive, and demand and supply are in balance again. Airplane gets bumped nose-up a bit, angle of attack increases on the wing and the horizontal stabiliser creating upward forces, but everything (centre of gravity, tail volume, etc.) is carefully designed such that this results in a nose-down momentum until the plane is in equilibrium again. And I could go on. That's why it is so unusual when things spin out of control (nuclear bomb, anyone?). 3. As for GME, I trust that the forces of the market will pull it back down where it belongs soon enough. EDIT: closed parenthesis
- xapata 6y agoUsing the airplane analogy, there's a good amount of turbulence in the market. Especially as you look at smaller scales, both in time and price changes. There's a decent amount of literature discussing evidence that low-latency trading has increased market turbulence for little efficiency gain. I'm having trouble scrounging up links, but a lot of good research came out of the Santa Fe Institute and associated folks.
- FabHK 6y agoAbsolutely... I think HFT is useless rent seeking. It provides little efficiency, I think, and the liquidity often drops out when the market needs it most, anyway.
- throwaway-571 6y agoFor exemple Robinhood mostly getting out of the GME trading business because it was too hot and they ran out of credit with their clearing house, preventing their users from participating in the market.
- einpoklum 6y agoTitle should say what "It" is.
- paulpauper 6y ago>It’s simple: As the number of elephants declines, tusks become rare. Rarity pushes prices up. High prices make hunters excited about how much money they can make if they find an elephant. So they work overtime. Then fewer elephants remain, tusk prices rise even more, more hunters catch on, they work triple-time, on and on until the number of hunters explodes as everyone chases the last herd of elephants whose super-rare tusks are suddenly worth a fortune. Or maybe simply selling tusks is profitable and there does not need to be a feedback loop for elephants to go extinct.
- chii 6y ago> Or maybe simply selling tusks is profitable and there does not need to be a feedback loop for elephants to go extinct. but that's not logical, because if selling tusks is profitable, then more people will want to join in, thus increasing the number of tusks being sold (implying more elephants being killed for it). Until profit goes away due to drop of demand at least.
- m3kw9 6y agoThere seem to be survivorship bias and the examples he demonstrated are probably at the tail end of a distribution
- CamelCaseName 6y agoHas anyone seen surprising feedback loops they can share?
- m3kw9 6y agoQuestion: Is it possible foreign actors can drive up the price to try to cause adverse unintended effects?
- dreamcompiler 6y agoThis article is solely about positive feedback loops (even though the author never says "positive.") If positive feedback loops were the whole story every stock that rose a little would take off like a rocket. Clearly that doesn't happen, and it's because there are also negative feedback loops, like noticing that a stock is overvalued and refusing to buy it until the price comes down. What makes the future difficult to predict is that negative feedback loops and positive feedback loops are often fighting each other and you never know early on which will ultimately dominate.
- zyngaro 6y agoThere’s a name for that: the snowball effect