Want to master the stock markets or perfect the art of playing chess or poker? Not a chance, say physicists
- Human mind isn’t designed to cope with all the possibilities
- Findings have implications for how the stock market is operated
By Lewis Smith
PUBLISHED:07:14 EST, 8 January 2013| UPDATED:07:14 EST, 8 January 2013
Playing the stock market or games of skill and strategy have fascinated people for centuries – but scientists have now concluded they are simply impossible to master.
A physicist at Manchester University says it’s not just lack of application or aptitude that prevents us mastering games of skill such as poker, chess, and Go.
It is that our minds just are not big enough or wired up suitably for the human brain to cope with all the permutations.
Dr Tobias Galla and colleagues at the university ran thousands of simulations of two-player games to see how human behaviour effects decision-making.
When games became more complex and when there are a lot of possible moves, they found that players’ actions became less rational and it was harder to find the best strategies.
Dr Galla said the findings could be transferred to explain problems with financial stock markets.
Many economists base financial predictions on the theory of ‘equilibrium’, assuming traders are intelligent and rational.
But Dr Galla, from the university’s School of Physics and Astronomy, said this was rarely always the case and could lead to economic predictions being wildly inaccurate.
‘Equilibrium is not always the right thing you should look for in a game,’ he said as his findings were published.
‘In many situations, people do not play equilibrium strategies, instead what they do can look random or chaotic for a variety of reasons, so it is not always appropriate to base predictions on the equilibrium model.
‘With trading on the stock market, for example, you can have thousands of different stocks to choose from, and people do not always behave rationally in these situations or they do not have sufficient information to act rationally.
‘This can have a profound effect on how the markets react.
‘It could be that we need to drop these conventional game theories and instead use new approaches to predict how people might behave.’
The researchers are now looking to expand their study into multi-player games to see how they could give a better understanding of how financial markets operate.
Source: http://www.dailymail.co.uk
loser’s mindset. Garry Kasparov, Bobby Fischer or any other Grandmaster for that matter wouldnt have reached their chess goals if they believed such rubbish. Susan, you might want to read Takashi Kotegawa’s story. He transformed 16,000 USD to 150 million USD in a span of less than 10 years. You tell me if he hasn’t mastered day trading. Who are these scientists and what have they accomplished in life? Are they even multimillionaires? Sounds to me like their study is to comfort themselves for being financially mediocre. They find solace in their little academe tower.
I think the point of the article is that the human mind on average can’t master those games, not that extraordinary individuals can’t exist. That’s what makes them extraordinary, they achieve much more then the average person is expected to achieve.
Since the article keeps speaking about the stock market it sounds like they are focusing on the fact that since stock market is affected by a great number of “average” people and according to their research those “average” people can’t make good predictions in such a complex system. Which in turn has quite a bit of relevance on that theory of equality that is used to predict market behavior.
Anyway, if their research is valid and ends up being correct it means that the current models of predicting market behavior is incorrect and is possibly yet another cause of the financial problems that are affecting the world right now.
While this might be true with the stock marketing, it’s definitely entirely false in the case of poker – as a solid proof for that stand all the multimillionaire professional poker players who know how to take advantage not only against other pros (where the gameplay approaches equilibrium) but also against weak, random, chaotic players who are actually a lot easier to defeat (those are their main source of income actually, games between pros are more like battles of egos).
The same conclusion, but for different reasons entirely, applies to chess. The best move in a chess game does not depend on the opponent so it makes no sense to say a good player cannot play accurately because his adversary goes far away from equilibrum.
I only made a short point but more can be easily explain to prove that those scientists’ conclusion don’ apply to poker or chess whatsoever.
Although I only have basic knowledge on stock market and general game theory on equilibrium, I strongly believe these revelations to be just overstatements.
In game theory, a true equilibrium point is one where all players have maximized their profits and neither of them can change his strategy to improve his situation over his opponent(s). It’s not the exact definition, but the point is that if the weak player doesnt know the optimal equilibrium strategy, then he will either:
–play a bad strategy which will allow the better player to adapt and find a new, better optimal strategy with bigger profits
–play chaotically (randomly) which will also allow the better player to make a change in strategy, this time based on statistics.
If what this article says about stock marketing is true, it means that this “game” simply has no true equilibrium point so from the start it cannot be placed in the same category with chess and poker.
Also: ‘Equilibrium is not always the right thing you should look for in a game’
This is kind of obvious! Equilibrium is when both players are inteligent enough and capable of finding the best strategy.
But if the weaker player deviates from the equilibrium and chooses another strategy (other than optimal), then, by equilibrium definition, the better player will be able to adapt and also deviate from the equilibrium by finding a strategy which dominates the other’s.