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Strategies for a discontinuous future.












Thursday, June 03, 2004
 


Enron Traders

Ok, you're probably expecting my comments...

'Traders' are paid to become machines - they iteratively and algorithmically (try to) exploit 'rules' of finance, psychology, and 'technics'. This is a great example of the second fundamental axiom of the machine: the machine is amoral.

More to the point, if evil traders are a surprise to you, you need to get out more. Evil is just the endpoint of trading in the absence of human control. This particular example is just an extreme version of the logic that dictates the rules of play on the floors in Wall St, the City of London, Tokyo, etc, etc.

So I think looking at the symptom is just noise - look at the cause: why does every kid I know who's just finishing college dream of being a trader? The answer's pretty simple: a good (not great) trader will easily be worth >$1m before they hit 30. In fact, if you look at Enron, it's star traders and heads of trading were being paid more than the CEO, CFO, etc.

But ultimately, I'm not making a moral argument. I'm making an epistemological one. How do we know what we value? All our latest economic and psychological knowledge tells us one very simple thing: we don't.

But we're trained to believe not only that we do, but also as though it's incredibly easy to calculate: it's just a matter of ROI. When our epistemology of value itself is so simplistic - I mean, there's rarely even a consideration of opportunity cost - it's no surprise that we end up with a generation of traders - human counting machines. Interestingly, that's the original meaning of the word 'computer'.

Maybe this says it best: I have the greatest respect for Cass Sunstein - I just finished one of his books. But, even if it's the best quantitative attempt we can make at the moment, do you want your life valued like this? I don't, because I don't think it adequately reflects what I value - even if it leads to unintended consequences in the aggregate.

-- umair // 4:25 PM //


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