Computer says no; better ask Paul the Octopus

16th July 2010

One of the week's most popular posts on FT Alphaville was about an octopus called Paul, who successfully predicted Spain to win the World Cup, outperforming the likes of JP Morgan and Goldman Sachs.  FC wonders:

ft

And faster than a screen grab cut and paste, it seems like he does.

A zoo in Madrid wants to sign the British born German Cephalopod and the general consensus amongst the Guardian readers is thus:

guardian

They also suggest that he could help decide whether Spain should:

a) Cut public spending or,

b) Stimulate the economy?

But perhaps this is a stretch too far for Paul. 

Better try a machine. Which is exactly what Rebellion Research, a hedge fund upstart in New York are doing. 

Instead of Paul they have Star, an algorithmically enhanced super computer that ‘learns' to adapt its trading strategy over time. 

Why?  According to one of the founders quoted in the WSJ piece ‘human beings aren't improving….but computers and algorithms are only getting faster and more robust'. 

The sentiment of which more than a few of the readers have taken exception to:

wsj1

 

A more cautionary note follows…

wsj2

 

In the current economic climate it's no surprise that there's been a growth in products such as trackers, absolute return funds and ETF's as well as the development of artificially intelligent computers such as Star that focus on reducing risk. But what, if any, is the human cost?

That's exactly what they're talking about on the Motley Fool in the thread ‘Macro changes in trading?'. 

Below, Bob342 seems to think the tumult isn't much to worry about:

fool

But what do you think? What's the bigger implication of the recent financial innovations such as ETF's? 

We could always ask Paul…

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