Does having greater dependence on computational algorithms make the market more rational?

[giblets]

You'll be sorry when the machines take control of our economy and rule over us.

[Kuciwalker]

No I won't.

[Asher]

This is precisely the argument I object to. Why is the market "supposed" to be based on human actors any more than any other profession?

It's a philosophical question more than practical.

The market is a place where parties exchange assets/goods/services. This is ultimately what it is for.

Computer algorithms should not need any of those things. Computer algorithms exist to, by and large, game the system and increase profits without any real concept of what they're buying or selling. It's all numbers to it. It's buying 39875349873489 and selling 3489734958734857 to make 5873874 in profit.

Similarly I think day traders are tools.

[Kuciwalker]

Are other industries so prone to hormonal decision making?

JM

Um, isn't this an argument in favor of automation?

[Asher]

Um, isn't this an argument in favor of automation?

In his OP he's asking if it's best to leave this to computers to do. So it probably is an argument in favor of automation...

[Kuciwalker]

It's a philosophical question more than practical.

The market is a place where parties exchange assets/goods/services. This is ultimately what it is for.

Computer algorithms should not need any of those things. Computer algorithms exist to, by and large, game the system and increase profits without any real concept of what they're buying or selling. It's all numbers to it. It's buying 39875349873489 and selling 3489734958734857 to make 5873874 in profit.

This isn't remotely coherent. I can say the same thing about robots in automobile factories. Robots don't need cars, and everything to them is just a bunch of voltages on wires...

[Asher]

It is coherent, but not to certain types of people who are rigid in their thinking.

You are comparing the marketplace to an automobile assembly line. The fact that you don't see any flaws with this comparison speaks volumes.

[Kuciwalker]

Just because you were a ****ty programmer for firms that went bankrupt doesn't mean everyone in the business is incompetent, Asher.

[Asher]

Just because you were a ****ty programmer for firms that went bankrupt doesn't mean everyone in the business is incompetent, Asher.

Who is talking about competence at all?

Break out more strawmen, that'll help you...

PS: "****ty programmer"? Where does that even factor into here? My programming was used to unwind virtually every Lehman position they had in fixed-income AND equities. If it was ****ty they'd not be unwinding.

[MikeH]

Every bit of sufficiently complex software written by humans for any purpose will have bugs and/or unexpected emergent behaviour. And in these cases they can only be as good as their algorithms.

Automated trading is fine, and it's almost impossible to be competitive without it these days, you just need to make sure there's some kind of sanity checking monitoring going on.

It's like relying on your sat nav, 99 times out of 100 it's fine but every so often it takes you up a dead end private dirt track.

[Hauldren Collider]

The key thing to remember is that humans will make errors far more often and with less consistency than an automated system. Even if it has errors, as long as it has fewer errors than humans, it's okay.

[MikeH]

The automated system can consistently make errors very fast indeed.

[giblets]

The key thing to remember is that humans will make errors far more often and with less consistency than an automated system. Even if it has errors, as long as it has fewer errors than humans, it's okay.

Sure, let's just assume all errors are equally serious

[Dauphin]

The flash crash caused by positive feedback was halted by an automated process, wasn't it? if a market moves by a certain percent then trading is suspended. My observation with automated trading is that it inherently assumes chartist thinking as it surely doesn't work by reacting to the latest news, e.g a computer can't interpret a press release as well as a human.

[Fake Boris]

This is precisely the argument I object to. Why is the market "supposed" to be based on human actors any more than any other profession?

The idea that has been mentioned already, is that trading is about assigning value (more than "producing" it), and some people have an instinctive reaction about machines doing this.

I don't agree, but it's not surprising.

BTW if capital "produces value", then it should be taxed like labor.