Feb

13

It's common among fish and butterflies to have false eyes, usually directly opposite from the placement of the real eyes.

There appear to be three reasons for this. The eyes often mimic dangerous prey like snakes and scare off potential predators. The eyes also serve to fool predators who focus on the eyes of the prey and try to approach from the opposite direction so as not to be seen. The false eyes allow the butterfly or fish to escape in exactly the opposite direction from what is expected, after getting a good look at the killer. Finally, sexual selection seems to be involved with the false eyes being a conspicuous mark of health and attraction to the opposite sex, thereby increasing reproductive potential.

There is hardly any form of deception that is not grist for the deceivers in the market. The situation calls for testing and generalizations. The false eyes in the market often occur at the opening in Japan or Europe where the open in these countries at 19 GMT or 3 GMT to an inordinate extent are opposite from the eyes of the open in New York. I found some 330 occasions each during the last 10 years where the direction of the open in Europe was opposite the direction in New York, e.g. down in New York but up in Europe, or up in Europe but down in New York. I found that the false eyes were the ones in US, with the direction in Europe correct in the next few hours after the US open to a significant extent. The tendency while significant has waned recently in the constant coevolution of those trying not to be deceived unduly by frequent false signals.

As an aside, I saw some nice examples of false eyes at the Mandalay Bay aquarium, a commercial venture, which like so many such compared to those run by zoological societies and other non-profits gives the customer an infinitely more educational and enjoyable experience and thus is so much more popular. How many more people have been exposed to nature refuges and wildernesses at Disney than all other refuges? As Mark Penn notes, it's best to always conclude that people are smart and act in their own interests. The greater patronage at places like Mandalay, Disney, and Naples Zoo compared to their non-profit making rivals shows what people value.

Other false eyes in the market would have to include those who are always talking about the next bear market, or recession. They've been doing it since 1980, and they got one in the naughties. Eventually their eyes will see correctly again.

The study of false eyes led me to a review of false eyes in Go. A good summary of the game, talks about strategic moves in Go. They can be "to make eyes", "To hinder the formation of eyes". To create "False eyes" along with the intention to threaten or attack neighboring forces, to oppose junction, to escape Hama (Territory ) et al. I would like to call on some experts in Go to contribute to what strategies in the Game of Go have to teach us about markets as this appears to be one area out of the many thousands of connections and areas of overlap in games, nature or other pursuits which we have not yet explored.

Steve Leslie remarks: 

At the risk of being jejune or appearing insipid, retaining an iconoclastic perspective is not necessarily a bad thing. This would have proven valuable especially during uncharacteristically robust times, e.g. late 1999 with respect to the markets and late 2007 with respect to such stocks as Google, Apple and Research in Motion. A case can also be made that when things appear most dour or data at their bleakest, e.g. 1982, that a change in momentum might be in the not so distant future. When something is least clear is where opportunities abound. To "think outside the box" is to think for oneself and outside the pervasive wisdom at the moment and not to side with the party politic. Beware of lemmings and pied pipers! 

Pitt Maner III adds:

Go looks to be a very challenging game at the highest levels, for humans and especially for computer programs.

"The superiority of humans over computers in Go might also be explained in more humanistic terms. Go challenges computer algorithms because it requires broad pattern matching skills and a relatively intuitive approach, while chess favors an algorithmic solution because the focus is more localized (on the capture of a single piece) and the approach is more logical.

This discussion of the application of Monte Carlo techniques to Go might have parallels in the markets and be suggestive of other ideas.  Here also is a Wired interview with the Go programmer, Remi Coulom. 

From Coulom's website :

The game of Go is a difficult and exciting challenge for artificial intelligence research. Today, the best Go-playing programs are still far from the strength of the human masters. Nevertheless, machines have made very spectacular progress in the recent years thanks to the emergence of a new technique called Monte-Carlo tree search. In this lecture, I will explain the principle of Monte-Carlo tree search, and how it was used to build a strong program, Crazy Stone. 

Alston Mabry goes over some basics:

The objective of Go is to take and defend territory on the board, and capture the opponent's stones and territory. A stone, or group of contiguous stones, is captured if it is surrounded by enemy stones (or the edge of the board). An "eye" is an empty space inside of a group that gives it "life". However, one eye is not enough — if a group is surrounded, the last enemy stone can be placed in a single eye to capture the group. Life for the group can be secured against all attack only by having two internal eyes.

A "false eye" is an empty space, inside a group, that is "false" because some part of the eye's wall could actually be captured, thus destroying the eye.

Go is very much a game of risk and reward. Each move is both offense and defense. A defensive move meant to secure life for a group may create a strong formation from which to launch attacks. And the reverse: An aggressive move to claim territory may panic the enemy, but then as he defends, he may create a solid formation which threatens the aggressor. Now the aggressor must backpedal and play defensively to protect his outpost.

In Japanese the back and forth of risk and reward is captured in the word "sente". A player "has sente" if each of his moves forces a response from his opponent. In a tight game, sente passes back and forth between the players.

There is sente at the opening of the game, or "fuseki", when players are usually staking out territory and claiming corners. These are broad, strategic moves. And then there is sente in close, tactical situations, where the life of a group is threatened, and each threat forces a response.


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