Surely you are joking about Bayesian analysis not applying to trading.
These 2 old old articles (How experts make decisions under uncertainty - PART I & Part II.) for some reason triggered some very deep clicks in my head last year when I came across them (both on Bayesian inferences, both by Dr Brett on decision making processes with uncertain and incomplete datasets). At that point I had not heard about any of this - Bayesians, heuristics, adaptive & evolutionary behaviours. What a difference one year makes!
Both talk about how our brains have the ability to process old and new information, and how this information is weighted and meshed. Rational traders have the ability, with either mechanical methods or experience, to place proper weight age to new and unfolding information. Emotional traders don't. Both him and Salzman & Trifan below suggest the same thing, as does Gigerenzer. The latter goes a step in a different direction suggesting that simple heuristics can optimize those analytical methods more than people give them credit.
In this study (uploaded pdf), in 2005, Trifan and Salzman attempted to study market behaviour of Rationals (Bayesians) and Emotionals. I have highlighted some sections I found interesting regarding the behaviours of traders in the decison making process. Essentially, they conclude that, as expected, the Rationals performed best.
They also noted that under certain conditions the emotional traders (relying on honed intuition) may overcome the shortcoming of their emotional leanings by fine tuning their intuition in a similar manner to the rationals. They even suggest that, it may be possible for the emotional trader to produce out size returns as compared to the Rationals in such a case.
This suggests that emotive trading when guided with certain Bayesian behaviours with honed intuition (which is being considered a learned skill these days) is a powerful combination. I have viewed hard work , screen time, open conceptualization and a study of history as some of the ways intutition can be tuned (and I continue to do so).
Gigerenzer (who is referenced in the above study) suggests that both simple heuristics and intution play an often misjudged role in decision making (especially when considering decision making in an uncertain world). This gels, as none of thse concepts stand alone or in violation of another, but seemingly as a cohesive, meshed thought process. I found these very constructive (about intuition and the role of simple heuristics in optimising the decision making process). I don't under stand much about heuristics itself yet, but in time hopefully it will get better.
Both the paper and Gerd suggest that these methods by themselves are not superior, but that they should be not be shunned simply becuase they cannot be quantified as easily as other traditional methods of analysis.
There is paper referenced to Andrew Lo about markets, evolution and adaptive behaviour that was also referenced somewhere else (I cannot remember where) and even more cool was the reference to Doyne Farmer's paper on Market Force (that was one of the foundations of his research leading to the Prediction Company discussed earlier.)
My point is this - when I read Brett's papers initally about how figher pilots make decisions in seconds with new unfolding information for survival, or how athletes change their response mid swing or mid action, this clicked with me. On a very simple level, I related that instantly to how I play squash, often changing my decisions mid swing or mid - stroke. How I will evaluate strokes long before I hit them, as my opposer is simply moving and before he hits his shot. In 15years, my decision making in squash has become intuitive. Fluid. I don't have to think any more, it just comes. In my mind, I have been able to isolate instances that my trading has displayed similar characteristics. I have no doubt this is from practice, screen time and focus. In trading, I am no where close to that fluid level, there is too much thinking going on, and not enough honed intuition so far.
I have no doubt that this path will contiue to fine tune itself as long as I don't do anything stupid. I believe most traders would benefit from that, even if they are mechanical types. Problem is, this is no doubt hard to put down on paper, hard to show to others, hard to demonstrate with pretty and squiggly lines. people don't pay sustained attention to it for long enough to see results. And therefore, the lack of interest in this forum to such dry things.
The response to the mind games stuff on other threads is very encouraging though, people are waking up...and that is step one, I think.
Last edited by Deucalion; April 17th, 2012 at 10:54 AM.
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Funnily, that vid about Pert, reminded me of this...."Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money". Now, which wise guy said that?
Last edited by Deucalion; April 17th, 2012 at 11:22 AM.
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Thanks @Deucalion - great post w great links, etc. I like the talk by Farmer and looked more into INET - they just hosted a symposium in Berlin this last weekend. Soros was a co-sponsor and has a few talks including one on reflexivity that I haven't had a chance to watch yet. I did watch Damasio's address and found him interesting as always. Also looked more into Gigerenzer and his book on guy feelings. All this helps... my skull is thick but its starting to open up...
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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The very best reference for an undamaged brain is Albert Hofmann himself. He discovered LSD in 1938 and tried it over a very long time in various dosages
as part of self-tests. He was interviewed at his 100th birthday. His brain and memory were still excellent and
he could speak about his LSD adventures as it were yesterday.
Hofmann who lived in my neighbourhood died 2008 of natural cases at the age of 102. wiki: Albert Hofmann - Wikipedia, the free encyclopedia
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The eyes catches light and translates it into nerve impulses, and then we project an image in our minds. To what degree does that projection reflect the real world? This talk is really interesting:
"Information in the form of energy streams in, simultaneously, through all of our sensory systems in the form of energy.
And then it explodes into this enormous collage of what this present moment looks like, what it feels like, and what it sounds like"
"But when we combine studies that had sound methodology, the results are unambiguous. We can therefore safely conclude that a single dose of LSD had a positive treatment effect that lasted at least six months," Krebs and Johansen said.
Mullis details his experiences synthesizing and testing various psychedelic amphetamines and a difficult trip on DET in his autobiography. In a Q&A interview published in the September, 1994, issue of California Monthly, Mullis said, "Back in the 1960s and early '70s I took plenty of LSD. A lot of people were doing that in Berkeley back then. And I found it to be a mind-opening experience. It was certainly much more important than any courses I ever took." During a symposium held for centenarian Albert Hofmann, "Hofmann revealed that he was told by Nobel-prize-winning chemist Kary Mullis that LSD had helped him develop the polymerase chain reaction that helps amplify specific DNA sequences." Replying to his own postulate during an interview for BBC's Psychedelic Science documentary, "What if I had not taken LSD ever; would I have still invented PCR?" He replied, "I don't know. I doubt it. I seriously doubt it."