Scientists Develop Financial Turing Test

← Back to Stories (view on slashdot.org)

Scientists Develop Financial Turing Test

Posted by ScuttleMonkey on Friday February 26, 2010 @07:37AM from the i-failed-the-turing-test dept.

KentuckyFC writes writes to share a new online test that is being touted as the "financial Turing test." The web-based exercise asks users to distinguish between real and randomly generated financial data. "Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces. They say that the more efficient it is, the more random its returns will be and a perfect market should be completely random. That would appear to give the lie to the widespread belief that humans are unable to tell the difference between financial market returns and, say, a sequence of coin tosses. However, there is good evidence that financial markets are not random (although they do not appear to be predictable either). Now a group of scientists have developed a financial Turing test to find out whether humans can distinguish real financial data from the same data randomly rearranged. Anybody can take the test and the results indicate that humans are actually rather good at this kind of pattern recognition."

33 of 184 comments (clear)

Min score:

Reason:

Sort:

Not random and not predictable? by XanC · 2010-02-26 07:37 · Score: 2, Interesting

What does that mean?
1. Re:Not random and not predictable? by BradleyUffner · 2010-02-26 07:41 · Score: 2, Insightful
  
  What does that mean?
  pi?
2. Re:Not random and not predictable? by jackhererUK · 2010-02-26 07:45 · Score: 5, Insightful
  
  It means it follows a recognisable pattern, that can be distinguished from random data after the fact but not predicted in advance.
3. Re:Not random and not predictable? by colonelquesadilla · 2010-02-26 07:46 · Score: 5, Informative
  
  It's a chaotic system, but it has certain patterns that seem to repeat. The thing I noticed after looking at a few, is that the real ones are easily identifiable by the development of resistance and support levels, which technical traders use to find probable entry and exit points. Basically, the hypothesis is that a group X holds the stock, they tend to have some psychological barrier price in common at which they would sell, and another at which they would buy more, this selling and buying makes it difficult to break through those price points. When it approaches one of those points trading goes up, if something has changed to make the stock more attractive to another group, or to make it less attractive to the group of traders that tends to hold it, it will change hands, and the new investor group will have new barriers. So over any given time period you will notice a lot of closing stock prices at close to the same level, then a sudden jump, and new level it bounces between, etc.
  
  --
  It's either false dichotomies, or the terrorists win, you decide.
4. Re:Not random and not predictable? by $RANDOMLUSER · 2010-02-26 07:47 · Score: 5, Funny
  
  Slashdotters!! If you had a goddam girlfriend, you'd know what "not random and not predictable" meant.
  
  --
  No folly is more costly than the folly of intolerant idealism. - Winston Churchill
5. Re:Not random and not predictable? by careysub · 2010-02-26 07:50 · Score: 2, Interesting
  
  From the website http://arora.ccs.neu.edu/ "We collect data from various sources and we show it to you in two windows, - one window plots the actual data, - the other plots the data randomly permuted (tech note: we permute the derivative of the data)."
  So the test is really "can you recognize a natural data set from the same set with a randomly permuted derivative".
  The notion of "randomness" is independent of the statistics of the distribution. And since distributions with different statistics usually look quite different whether this is a surprising result depends entirely on what statistical model they have chosen.
  
  --
  Starships were meant to fly, Hands up and touch the sky - Nicky Minaj
6. Re:Not random and not predictable? by Archangel+Michael · 2010-02-26 08:03 · Score: 2, Informative
  
  Chaos Theory. Patterns in otherwise seemingly random outcomes. If you look at the details, for instance each snowflake, you'd come to the conclusion that each snowflake is unique (they are), however if you take a step back, you'll notice that the randomness of snowflakes becomes clear in that each snowflake conforms to a pattern that is apparent even as each snowflake is unique.
  I know that this is a fairly poor explanation of chaos theory, so don't butcher me too much.
  
  --
  Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
7. Re:Not random and not predictable? by pclminion · 2010-02-26 08:08 · Score: 4, Informative
  
  A chaotic system is one where arbitrarily small perturbations always lead to arbitrarily large divergence in phase space. What this means is that even though a system might be following a completely causal underlying law of behavior, it still cannot be predicted because it would require having infinitely accurate knowledge of the parameters.
  Because measuring apparatus always involves noise, and noise is of some finite value, this means that the arbitrarily small (yet IMPORTANT) perturbations cannot be resolved against the noise background. This places a very limited time window on your ability to make predictions.
  Basic examples of this are the Lorenz attractor, the chaotic pendulum, etc.
8. Re:Not random and not predictable? by hibiki_r · 2010-02-26 08:12 · Score: 4, Interesting
  
  Traditionally, economists have claimed that stock variations were random, as explained in 'A random walk through Wall Street'. Now, further analysis indicates that the changes of value in stocks are not random at all: If they were, the last couple hundred years worth of financial data would be almost impossible, with extreme oscillations that would only happen once in a billion years in a random model occurring every couple of decades.
  Instead, what some have proposed is that stock oscillations instead follow power law distributions: It still makes it impossible to know what the market will do tomorrow, or next week, but it makes large oscillations a whole lot more common than in a random model. This makes many of the current models that are used to assess how risky a portfolio is into a pile of garbage. For that argument, you could read 'A not so random walk through Wall Street'
9. Re:Not random and not predictable? by daremonai · 2010-02-26 08:25 · Score: 2, Funny
  
  You wouldn't happen to be a member of the California legislature, would you?
10. Re:Not random and not predictable? by hazem · 2010-02-26 09:16 · Score: 4, Interesting
  
  There's a great example of this in a book called "The Origin of Wealth" by Eric Beinhocker (a great book, actually).
  In Chapter 8, he shows graphs of IBM's stock price over a period of time and a random walk. They look very similar and I think it would be hard to tell them apart. However the next set of graphs show "Changes in Stock Price" for IBM vs the random walk and the difference is stark. The real random walk had a very wide band of nearly uniform "fuzziness" about the origin. The real one, however, had a much narrower band of fuzziness with many large spikes in either direction.
  Here's a link on Google Books to those pages:
  http://books.google.com/books?id=eUoolrxSFy0C&lpg=PP1&dq=%22origin%20of%20wealth%22&pg=PA176#v=onepage&q=&f=false
11. Re:Not random and not predictable? by u38cg · 2010-02-26 10:11 · Score: 5, Informative
  
  Yes, you are pretty ignorant, I'm afraid. Don't be ashamed, you're in the larger group. Happily, a dose of economics would sort you out a treat. To sort out your central misunderstanding, neither the amount of wealth or the amount of things that you can buy or the amount of work there is to be done is fixed. They relate to each other in rather complex ways, but the upshot is that we can all become richer - and if you don't believe me, ask your great-great-grandfather, or a Chinese factory worker saving up her wages to pay for an education.
  
  --
  [FUCK BETA]
12. Re:Not random and not predictable? by philosopher3000 · 2010-02-26 23:15 · Score: 2, Interesting
  
  It means it follows a recognisable pattern, that can be distinguished from random data after the fact but not predicted in advance.
  i.e. Music
13. Re:Not random and not predictable? by jfengel · 2010-02-27 04:37 · Score: 2, Interesting
  
  > 1. but do that not devalue the money already in the system?
  Just the opposite. It funds the creation of more goods with the same amount of money. That increases the value of money, which is why people pay for the privilege of borrowing it.
  > 2. so i can borrow your car, sell it, and keep the profits?
  The analogy misses several points, and the analogy with a physical car is extremely misleading.
  * You MUST return what you borrowed, or return an equivalent. The broker will limit what you can borrow by what you have in the account, and can seize your stuff to ensure that it's returned. (The broker even insures me against your failure.)
  * You have to pay for the privilege, so you don't get to keep all of your profit even if you make it.
  * Stocks are fungible; cars are not. It doesn't matter if you return the exact same shares.
  * My car is something I use; the stocks just sit there. This is a way for the stock owner to make a profit on unused value.
  * The "profit" on selling my car would imply that you could give me the full replacement value of the car, sitting in my driveway, without my even noticing it was gone. That's very unlikely because the value of the car doesn't fluctuate that much. Stock prices fluctuate considerably, and short selling takes advantage of those changes. Or, if it changes the wrong way, you get hosed.
Oh Java! by BadAnalogyGuy · 2010-02-26 07:39 · Score: 5, Funny

Is the test where we have to decide whether to install Java?
Because I pass.
Here Is The Simple Form: by WrongSizeGlass · 2010-02-26 07:41 · Score: 2, Funny

* Do you have any money?
- If 'No', please leave.
- If 'Yes', please give me your money.
* Did you give me all your money?
- If 'No', you pass. Please leave.
- If 'Yes', you are a fool. Please Leave.
Economists ... by Anonymous Coward · 2010-02-26 07:47 · Score: 4, Informative

Various economists argue that the efficiency of a market ought to be clearly evident in the returns it produces.
The market is only efficient within a narrow range of economic activity. When economic activity exceeds the top and bottom ranges you get bubbles and panics - inefficient markets. We see them all the time.
I really wish economists would stop assuming that for any given economic activity, the conditions and their subsequent results can be extrapolated across the board. That's why, whether it's the Chicago school or the Keynesians, they can point to data (a selected portion of economic activity) that supports their view, when in fact all schools of economics is correct in their little slice of economic activity and conditions.
1. Re:Economists ... by Maxo-Texas · 2010-02-26 08:09 · Score: 4, Insightful
  
  The market is also inefficient when any participant with more resources uses some of those resources to change the rules of the market to favor that participant.
  For example, the same movie sells in china for 2.49 and in america for 19.99 (often with an english soundtrack for both). In an efficient market, the movie would be purchased there for 2.49 and sold here for 4.99 making a 100% profit for someone. But artificial rules restrict this.
  For example, drugs which are out of patent are sold in India and China for 10 cents a pill but for 33 cents a pill in the united states (example- metformin) and those in patent are sold for about 10 to 50 cents a pill in india and china and for 5.00 a pill in the united states. (and apparently viagra is much cheaper in canada than the u.s.). In an efficient market those pills would be purchased, imported, and resold. But artificial laws prevent this rational activity.
  For example, Microsoft absolutely slaughtered many competitors through illegal monopolistic behaviors (for which it lost many court cases years after the competitors were dead or crippled). In an efficient market, there would have been other options.
  
  --
  She was like chocolate when she drank... semi-sweet at first and then increasingly bitter.
2. Re:Economists ... by Qzukk · 2010-02-26 08:17 · Score: 2, Funny
  
  the first thing I think is "this is completely unfalsifiable."
  And now you understand why there's no Nobel prize for economists.
  
  --
  If I have been able to see further than others, it is because I bought a pair of binoculars.
3. Re:Economists ... by cynical+kane · 2010-02-26 08:51 · Score: 4, Informative
  
  That's not market efficiency. In your example, the moviemakers would respond by making movies 19.99 globally, with the market failure of the Chinese not being able to afford movies.
  Price discrimination* is a key part of economic efficiency when a monopolistic competitor** has control over their market goods. If the competitor sets prices without discrimination, this causes inefficiency because buyers (the Chinese) and sellers (the moviemaker) never get to trade, and market efficiency is defined as maximizing trade within the market.
  * The market kind, not the racist kind.
  ** A monopolistic competitor refers to a competitor that has control over a narrow niche in a wide market, and is not the same as a monopoly.
little in common with the Turing test by snarkh · 2010-02-26 07:51 · Score: 2, Insightful

The test is to distinguish computer-generated graphs from the actual stock prices.
It seems to have very little to do with the actual Turing test.
People don't matter. People are just a host. by gestalt_n_pepper · 2010-02-26 08:23 · Score: 4, Interesting

Seriously.
Money is more accurately described as a kind of swarm intelligence. The meme of money is the fundamental self replicator. Admittedly the ecology is complex, (dollars, derivatives, bonds, et al.) but the fundamental rules are the same.
Money want to reproduce. We (our collective cultural awareness) are merely hosts for money to exist.
Usually, money is symbiotic, benefiting the host and itself. Occasionally, it turns into a pathology that harms its hosts (i.e. tulip manias, compulsive gambling/banking, stock market crashes).
The delusion here is thinking that we can "control" the economy. The economy (our name for money's ecology), will always, to some degree, be out of control as long as the hosts are relatively free agents. We can garden (i.e. set up nice environments for money to replicate), but direct control is probably a pipe dream). Moreover, money replication isn't free. It takes real environmental resources to create and is therefore limited. Expanding the garden forever isn't an option. Sustaining a nice one probably is.

--
Please do not read this sig. Thank you.
Viagra in Canada by Comboman · 2010-02-26 08:28 · Score: 5, Funny

apparently viagra is much cheaper in canada than the u.s.
That's a function of supply and demand. We virile Canadian men don't need Viagra, so that drives down the price.

--
Support Right To Repair Legislation.
1. Re:Viagra in Canada by DeadDecoy · 2010-02-26 09:23 · Score: 3, Insightful
  
  Or, because of the large demand, the marginal costs of producing extra pills approaches 0, thereby allowing them to sell pills at a cheaper price and maintain their profit margins.
2. Re:Viagra in Canada by Krahar · 2010-02-26 09:36 · Score: 3, Interesting
  
  Sorry man, clearly the stupendous demand from impotent Canadians is driving down the price through extremely-large-scale efficiencies in sales and production.
What do you mean pi? by ElMiguel · 2010-02-26 08:43 · Score: 2, Interesting

What exactly do you mean by pi not being "predictable"? Pi can be calculated algorithmically to any desired precision, nothing to "predict" there. You can even calculate arbitrary digits without having to calculate the preceding ones. Random means precisely "not predictable". It seems some people here are equating not following a uniform distribution with not being random, which is incorrect.
1. Re:What do you mean pi? by Mister+Whirly · 2010-02-26 09:02 · Score: 3, Funny
  
  I believe he may have been referring to the film Pi, and not the number.
  
  --
  "But this one goes to 11!"
2. Re:What do you mean pi? by OeLeWaPpErKe · 2010-02-26 09:51 · Score: 5, Interesting
  
  Actually you can play games with pi's digits that would be rather hard. Say I'd give you 5 consecutive digits and ask you for the position in pi. Since there are infinite solutions to this question, it's not actually predictable (chance of guessing correct would approach 0 rather fast). Or I could give you 5 digits from pi (or any other number) and ask you to give the next number in the sequence. Again, this next number is totally not random, but not predictable in any way either.
  Not random, not predictable. Lots of questions about pi are like that.
  But this is not what is indicated in markets. Markets are unpredictable due to a chaotic component in their makeup : humans. Only if you were to predict the actions and thoughts of every participating human precisely over long time periods would you be able to predict markets. Presuming that the markets are influenced by real-world events, you'd also have to predict the real world. "Will Obama get reelected ?" is a question to which any serious market prediction system would have to know the answer, because it matters a lot. Same goes for "Will the football season of 2011 be more or less interesting than 2010", because these questions make a large difference.
  It's like the weather. The weather (and climate for that matter (second paragraph)), in mathematical terms, consists of a very large collection of mostly random effects. Due to the fact that effects grow over time until they dissipate, but that takes time, you have some amount of predictability in the short term (although sometimes such an effect can have an extreme short-term effect. There are places in the pacific which go from sunny and calm seas to hurricane in about 20 minutes, sometimes right on top of a ship). So in the short term weather "averages out" the different effects (meaning if you see a strong cloud front anywhere, it will start dissipating. If you see any kind of clearly defined features anywhere they will get "blurred" in the short term). But in even the middle term, never mind the long term, new effects will soon dominate whatever you're seeing at any particular time (new cloud fronts, new wind directions, obstacles in the movement of air, unexpected heat sources on the ground, or just the opposite, very cold layers of water that just appear out of nowhere). Since those new effects are the result of idiotically small events (the proverbial "butterfly flap"), the only way to predict weather patterns long term is to track every last human, every last butterfly, and so on. Obviously this is not just impractical, but impossible. So you could say that to even know what the weather (or temperature, or ...) is at any given time, you'd have to be God. If you're not omniscient, you only see a small, averaged and smeared out picture of the weather, no matter how precise the instruments you're using. To predict the weather (or climate) with any reasonable amount of certainty, you'd need a simulator that could simulate the entire universe, faster than the universe works. Generally, mathematicians joke that they'd simply use such a simulator to guess tomorrow's lotto numbers and retire to a pacific island, but the point of the joke is that any program that is capable of predicting any real-life chaotic system, such as climate (or even the path of the planets, which is in the long term nowhere near as constant as they seem), has to have the ability to calculate next week's lotto numbers.
  The problem is that tiny, seemingly absurdly unimportant variations today make a large difference tomorrow. Another illustration might be that wether you park your car in front of the house or behind it will generate a difference of 5 degrees celcius in the average worldwide temperature in 10 years. On the other hand huge, seemingly important things like the energy absorption rate of the ocean hardly make any difference at all (because whatever effect they have, no matter ho
3. Re:What do you mean pi? by BradleyUffner · 2010-02-26 11:41 · Score: 2, Funny
  
  well holy crap. I had never heard that before. that's kinda awesome.
4. Re:What do you mean pi? by OeLeWaPpErKe · 2010-02-26 23:14 · Score: 2, Insightful
  
  Then why don't you answer the question. These are digits of pi ... which is the next digit ?
  46457
  You say it's predictable, great. Predict it.
  I do think we all agree it's not random.
Random does not neet to be a random walk by yooy · 2010-02-26 09:17 · Score: 2, Insightful

Dude, it is the year 2010. Everybody knows by now that financial data does not follow a random walk (coin tossing). Stock market variations hat a "fat tail". Unfortunately it is hard to put thins into option pricing (problems with variance). This is actually a reason why far out of the money options are likely to be underpriced. I think Mandelbrot came up with this decades ago. Welcome to the real world. I heard more interesting things. Like the Peruvian who did not clone sheep but bacteria. Yea, that's right.
Re:Key is Jumps by ottothecow · 2010-02-26 09:18 · Score: 2, Insightful

The jumps in something like a stock price are mostly due to the fact that big chunks if information hit the market at once. If we have an efficient market (meaning the investors are well informed and value the company according to all currently available information), you are bound to see a big hit when a company has an earnings call that goes "hey guys...you know how we said we would earn 23 cents a share? yeah...well we lost 15".
These instances are decidedly not random but tied to the facts of the underlying business and since news is usually released in quarterly calls and SEC filings, there will have to be large one-time corrections rather than random-looking up and down movements over time that trend toward the final price.

--
Bottles.
Re:Poker by colonelquesadilla · 2010-02-26 11:40 · Score: 2, Informative

You might mean blackjack. Poker is a zero sum game, some casinos take a rake or charge admission, sell drinks, or otherwise make their money, but the house doesn't generally even play poker, only provides a dealer and a table.

--
It's either false dichotomies, or the terrorists win, you decide.