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

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