Daily Speculations The Web Site of Victor Niederhoffer and Laurel Kenner


James Sogi

Philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor,
semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family.


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Jim Sogi on Aggression Theory

Regarding the Chair's post on aggression theory, I recommend Coercive Family Process Vol 3, by Gerald R. Patterson, a study of aggressive children in the family context. The author asks, why are children aggressive? The method is based on observable behaviors of clients, counting events, such as 'number of bites' (obesity), 'out of seat' and statistical analysis thereof. He was the pioneer in such studies. He found in the 50's as he began his career that the best was not good enough. The theory is based upon performance, what people do from a bilateral or interactional perspective, rather than underlying neuroses or a person's characteristics. He looked not only to the patients but also the behavior and effectiveness of the therapists and their results. This latter point is interesting to traders who might improve understanding by counting and tracking their own behavior and trading results in reference to the methods. The author makes extensive use of statistics and tables. Many of his studies seem to focus on the point at which ramping up of low scale factors led to coercive action, and parallels the all important "break point" in market movements.

"Direct observation of behavior can be the key for identifying how actual behaviors are elicited, maintained and organized." Description and explanation are different. Breaking down behavior into 6 second intervals led to analysis of the effect of the environment on behavior, and bilateral effects. While simple frequency count was the preferred dependent variable in the 1960's it was too clumsy to describe relations between events. Patterson found conditional probabilities; given one behavior, what is the likelihood of behavior by another to be workable.

What is aggression? It is both aversive and contingent. A dentist is aversive, but not contingent on certain behavior. Dr. Patterson found patterns of cursive behavior, when a child displays one member of such a subset, he is likely to perform others as well. This is the clustering idea. Patterson describes cursive behavior as occurring in bursts. Dr. Patterson used 29 category codes of variables in homes of aggressive children, coding the most obvious events. He counts base rates for various behaviors. Aggressive behavior appears consistently across setting and time and tends to continue. It is worthwhile to identify subsets of market behavior, gaps, intra range reversals, continuous up days without x point pull back bars, ranges, etc and find the related responsive behavior or other clusters. Range reversals usually occur in groups or bursts. Big run ups like at the end of November come in a "burst" of up days. Down days, drops like October, came in bursts of 8 days down in a row. Both the psychologists and the market find these statistically significant. He talks of the cursive events being chained together. The measure of behavior includes duration and latency periods. Timing is important in the market and measurement of duration and latency is predictive, important and under utilized.

Our culture is programmed to reward many kinds of aggression. Look at sports and war. Football players are highly compensated. In ancient times soldiers were amply rewarded. Roman Centurions were granted 100 hectares and exemption from taxes. Television displays several violent episodes per 1/2 hour. The markets can be viewed as a form of aggression. Entering the market by an affirmative act one takes from another participant at the bottom tick or hits the offer, then anticipates a large run up, at which point the position is sold to another participant at the very top, when the market should fall, taking money out of the other participants. This can be characterized as aggression in the essence of taking from others. It is reinforced. Being nice is not reinforced in the market.

"At the crux of the interactional stance is the idea that each member of a dyad changes the ongoing behavior of the other." Extrapolate to larger numbers and we see the development of S#ros' reflexivity theory as an outgrowth of behavioral psychology! Synchronicity and reciprocity encompass the functional relation between the behavior of one person and another embedded in larger structures. A prime example of synchronous action is turn taking during talking. Another example is chess. On the higher order political scale the doctrine of equality in response to combat action, such as Israel's policy toward Palestine, an eye for an eye and a tooth for a tooth. In the market on a micro scale is the flipping of transactions at the bid and ask, then there is the up down action from bar to bar and then at a higher level the structures we seek to catalog and predict; of interaction between buying and selling groups. The offshoots from Synchronicity are ripple effects. Actions reflect back with growing cycles of reflexivity. This has application to markets, the bouncing repeatedly in ranges, the multiple surges of a trend, the current expanding range cycle, triangle patterns. Action tends to be mirrored in the response. The overall theory is that the study of micro structure will lead to the explanation and understanding of larger structures.

Jim Sogi, May 2005

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