CASTrader Blog

It's a spooky, spooky world

An interesting twist on solving the universe via Kurzweil:

"The answer to the universe is biology -- it's as simple as that," says Dr. Robert Lanza, vice president of research and scientific development at Advanced Cell Technology.

more:

Wired News: You call your theory of the universe a biocentric theory. What, exactly, does that mean?

Lanza: This new theory presents a shift in world view with the perspective that life creates the universe instead of the other way around.

I'm not sure I buy Lanza's theory, even if I do believe biologically inspired computing can "solve" the stock market.  The most remarkable part is here, though:

WN: Can you explain why we should doubt the things that are accepted as the truth in science classes everywhere?

Lanza: For the first time outside of complex mathematics, this theory explains the provocative new experiment that was just published in Science last month. This landmark experiment showed that a choice you make now can actually influence an event that has already occurred in the past.

This is astonishing if true.  No, you can't go back and change your bad stock picks just yet - this effect is apparently limited to the quantum world where it's already known quantum mechanics can transcend space via quantum entanglement (Einstein's "spooky action at a distance").  It's thought that quantum entanglement cannot be used to transmit information (it would be the ultimate wireless technology if it could) because transmitting information faster than the speed of light violates causality.  I'm certainly not qualified enough to comment on this experiment, however, appears to me to be able to send information back in time, an infraction for which the causality cops would throw you in the slammer for a long time.  If true, it's a very spooky world indeed.

What would this mean for the existence of randomness in the universe?  Causality implies that nothing is random, it only appears so.  In theory, knowing the state of the universe at any given moment implies that you have everything you need to predict it from that point forward, like predicting a dice roll, except impossibly tougher.  It's always been my pet armchair theory that string theory, with it's extra dimensions we can't see could hold the key (it's still just a theory).  To the degree we can access these extra dimensions, perhaps we can alter the universe to our will per Lanza's theory. Jim Simons, that quintessential super quant, is co-author of Chern-Simons Theory, which is used in string theory, and is an Einstein of our times. He's no doubt one of the spookiest forces in the financial markets because he apparently alters them to his liking at will.

Update: a blistering critique of Lanza's article by Good Math, Bad Math.

Random Thoughts on Predicting Randomness

Awhile back, I pondered the true randomness of a dice throw, the difficulty of generating random numbers, and concluded that while the markets may appear to be random, they are in fact predictable.  Perfectly Reasonable Deviations has some thoughts on the randomness of nature and the universe, and the potential for "predicting everything" with quantum computers.  Indeed, if one could predict everything, one should easily profit from each nuance of the market.  He points out that Einstein had similar beliefs about the predictability of the universe.  Einstein stated "God does not play dice," meaning nothing is random (including dice).  As a case in point, predicting earthquakes apparently just got a little easier.

One has to wonder, though, if like that weird quantum world, the very act of observing (or predicting and profiting from) something alters the outcome, which has important implications for quantum cryptography.  In the famous two slit experiment with photons, the very act of observing the quantum world (photons) changes the result.  Predicting the stock market and acting accordingly also alters the outcome.  It was once hypothesized the quantum world was so weird that photons could "know" in advance they were going to be observed and presumably act accordingly.  This was recently proven false, giving speculators everywhere hope that similarly baffling things like the stock market are not secretly plotting against them and aware of their every move.

As Nobel Prize winner Myron Scholes points out, predictability is transient and alterable:

My belief is that because the system is now more stable, we'll make it less stable through more leverage, more risk taking.

There are some baffling problems that arise, however, if the stock market is predictable and the very act of prediction (and profiting) alters the outcome:

1. Profiting from the prediction game implies that you must not only a) correctly predict the future if you had not acted, but also b) correctly predict the future if you do act.  Luckily, in some cases, a) and b) are essentially the same because your acts have a trivial impact.  For predatory trading systems and firms with a lot of capital, however, they may be quite different.
2. Assuming you can deal with 1), it's probably safe to say others can too.  If others can predict the same thing you are predicting, they are changing the outcome as well.  You are all of a sudden in a predictive "arms race" with them, trying to alter the future before they do.

I don't think any of this is incompatible with my favorite theory of how the market behaves - the Adaptive Market Hypothesis (AMH).  In fact, the AMH implies that there are people who can and do solve problems 1) and 2) at a profit - and there always will be.  With quantum computers now being demonstrated live ahead of achedule (some scientists are skeptical), the potential to predict the universe grows each day.  However, if 2) is indeed true, the one thing that may stop us from predicting things accurately is ourselves.