Bacteria Behaviour Can Shed Light On How Financial Markets Work

notscientific writes "Bacteria invest in proteins in an attempt to reduce stress or increase energy intake, while humans invest in cash. In both cases, better tradeoffs pay off. The similarities in tradeoffs faced by both bacteria and humans during investment are actually quite similar. Now, using synthetic biology, a group of scientists has shown that the outcomes of investment decisions in bacteria can be precisely defined, alluding to the idea that human investment activities, such as financial markets, can be thoroughly understood as well, and even modelled."

Comments

This is a surprise?

[dreamchaser]

It makes perfect sense. Both activities involve the same types of selective process that guides evolution in general, be it biological evolution or financial.

Re:This is a surprise?

[Samantha Wright]

Economists have a history of borrowing scientific theories to explain their field, often overindulging in analogy to the point where the metaphor becomes useless. Consider the following paragraph from the article:

But when bacteria were exposed to acid, something unexpected happened: Those that invested almost nothing into managing stress, and instead favored growth at all costs, succeeded. Gudelj doesn’t yet know the actual mechanism behind this, but she suspects that it’s down to the particulars of the life cycle of the bacteria and its stressor. When taking this analogy to businesses, it appears there are certain types of difficulties for which being nimble and focusing on growth is a better strategy than facing difficulty by trying to manage it.

The author is unable to suggest what these types might be; he simply assumes that the theory is valid and that bacteria must have something to tell us. This kind of growth works for bacteria because they are able to subdivide indefinitely and aren't a monolithic organism. To stretch an already-abused metaphor, the closest example to this kind of growth is creating many similar products or entering a large number of markets to try and find something that works, both of which can be hazardous because of the paradox of choice and loss of investor confidence. Moreover, if a core market collapses, at best all that will be left is the parts of the company that entered the market that succeeded; for bacteria, it's considered "good enough" for a couple of cells to survive, but this is not generally considered acceptable for business. Bacterial survival simply isn't analogous to business success.

Re:This is a surprise?

[Anonymous Coward]

And both make the body they're growing in very sick, if they put growth above being social.

Re:This is a surprise?

[ATMAvatar]

Also, a large fraction of both bacteria and wall street investors are parasites that should be eradicated for the greater good of the larger organism they reside in.

Re:This is a surprise?

[Ryanrule]

So if we dip hedge fund managers in acid, they will work harder? Lets tests this, we need a 100k sample size.

Too obvious.

[DoofusOfDeath]

What's insightful about realizing that one can use disease-causing parasites to model disease-causing parasites?

Re:So bacteria have a form of high frequency tradi

[NoNonAlphaCharsHere]

Actually, high frequency trading is a cancer on the economy.

Too simple

[Roger W Moore]

That's too simplistic a model. Think something like the bacteria in your gut. We need bacteria there to help our body digest food. However, if you get too many of the wrong sort (lets call these "greedy" bacteria) or they get out of your gut and into other parts of your body then they can make you really ill or even kill you. In the same way our financial markets and services are needed to make our economy work well. However get too many greedy financial people or have them start infecting other areas of our society - like, say, government - and just like our bodies our society will get very ill.

Financial markets are more like lemmings

[manu0601]

Two points

First slashdot summary tells about financial markets, TFA talks about businesses. I understand that businesses are dwarfs in financial markets, that vast majority of transactions being financial products non based on real economy.

Second, financial markets are more like lemmings than bacterias. They have nasty group behavior that cause all actors to jump into the sea at the same time. Surprisingly, bacterias look to fit neoclassic economy models better than humans, as their decisions seem more rationals.