I was reading about the famous double slit experiment and then thinking about the Heisenberg uncertainty principle, the math, and the observer effect. I wonder what types(if any) of market implications could be attributed to the observer effect.

Ken Drees writes:

Interesting. I was contemplating this more than a few weeks ago too, but let it drop. It made me think of Schrodinger's Cat:

Schrödinger's cat is a thought experiment, usually described as a paradox, that Austrian physicist Erwin Schrödinger devised in 1935. It illustrates what he saw as the problem of the Copenhagen interpretation of quantum mechanics applied to everyday objects. The thought experiment presents a cat that might be alive or dead, depending on an earlier random event. In the course of developing this experiment, he coined the term Verschränkung (entanglement).

I was considering how a trade is alive and real only when one puts it on or opens the box and everything else is meaningless– the counting, the theory, the expected outcome– all meaningless unless you commit and then make it real and apart of consciousness, reality, an entity. 

Michael Cohn adds:

 Schrodinger's kitten's also interesting as a thought experiment across space and time. What I recently learned about the uncertainty principle was that there is a different way to think about it. I always thought about it in terms of how the observer may be creating the uncertainty in measuring both mass and acceleration with the instruments. What I now understand is because of quantum uncertainty these particles actually don't really know exactly where they precisely are at a given point in time beyond a prob distribution so if they don't know where they are I certainly can't help them as much as I would likes to be able to do so…

Jim Sogi comments:

2 closing related issues:

There's the insidious cursor and key watcher viruses.

Another related aspect is the inadvisable practice of putting your cursor over the execute button onscreen and having it execute without having touched the mouse, or accidentally touching the mouse or keyboard at the wrong time triggering the trade. Been there, done that.

There is also the issue of order field depth, which is a form of "disclosed" watching, and other order related manipulation issues perhaps posing, perhaps honest bid, perhaps flow bashing or bandwidth hogging, flashing. Lack surely can speak to many of these techniques he sees in individual stocks.

Russ Sears adds:

 If risk is defined as what is not known in the future that if it happens would hurt you, than imagination of what could happen causes you to avoid and prevent that perception.

Done to extremes this creates new risks from the over abundance of care and lack of focus on any other risks even to the point of altering the minds ability to cope. Think interest rate duration management and the creation of the tranches in the securitization process and modeling of those securities. Done in mass this creates bubbles, hysteria, or pop-stars. ( I believe this is the "Lady Gaga" "Apple" link. It is not mysticism but the creation of popular mystic.)

Much of psychology is the study of how unrealistic risk perception creates a difficult life and alters their reality for the fearful and anxious. Why should the markets be immune?

Ken Drees comments:

Lady Gaga is to Apple as Amy Winehouse is to Rimm.





Speak your mind

6 Comments so far

  1. Edward Lam on June 21, 2011 9:12 am

    Uncertainty over uncertainty:

    for those interested in the physics and its knock on effects I would highlight this book: Quantum Theory at the Crossroads: Reconsidering the 1927 Solvay Conference

    To summarise, Heisenberg’s Principle and the Copenhagen interpretation, which has become the overbearing consensus interpretation of ‘quantum mechanics’ (for example in the interpretation of the results of the two slit experiment) was only one of 2 or 3 main competing theories discussed at the solvay conference. Though it is indeed highly plausible, I think de Broglie’s theory of ‘wave interference’ is also equally compelling. One of the crucial differences between the two theories amongst others is that de Broglie’s theory, whilst equally accurate in predicting the result of the 2 slit experiment, does not assume ‘uncertainty’, though it does assume a higher level multidimensional reality.

    Whilst I don’t know whether the de Broglie interpretation has any parallels in trading, I do think, as with many consensus theories (dollar bear, Chinese internet stocks etc), the ‘uncertainty principle’ is likely to be substantially overvalued (perhaps in bubble territory?) (It does get bandied about in conversations a lot like a supposed common currency). Perhaps I can suggest list members proffer there own favourite ‘unreconstructed consensus ideas that must surely be overvalued’?

  2. Andre Wallin on June 21, 2011 9:54 am

    want to recommend Sport Tea as a very good pre trading drink makes one feel more calm and better than drinking more coffee.

  3. Ralph Waldo on June 21, 2011 4:19 pm

    What if the screaming, swearing and the gnashing of teeth do one well with this buying and selling? This “Sport Tea” seems a little wimpy.

    I say this because I think I might have found some sort of correlation between the amount of times I hit my computer, swear, call myself an #@!$ole and turns in the markets.

    I wonder if I can package this up and sell it? “The Swearing Schrodinger’s Cat” in a box system. I will also shrink wrap a bonus DVD to the side, (for the first 25 people who order of course,) “Calling Market Tops & Bottoms with No More than Simple Swear Words.”

  4. david on June 21, 2011 5:08 pm

    FDR said, “the only thing we have to fear is fear itself…..” I also heard said,”be afraid, be very afraid”, Neil Gaiman said, “Fear is contagious. You can catch it.” “I shall show you fear in a handful of dust”, says T.S Eliot To what degree does fear osculate risk, I do not know. This I do know, be afraid but have deep, very deep pockets.

  5. Andre Wallin on June 22, 2011 8:17 am

    ralph- so i guess people who endeavor to climb mount Everest are a bunch of wimps. it might be a marketing slogan, but i bet there is truth to it. you should try it and then knock it though. it has potassium, vitamin c, and a herbal adaptogen that is quite nice. i lift weights first thing in the morning for 20 min(manly), have breakfast/coffee, and 32 oz. of this tea. i am ready to take a loss and don’t care at all. if i skip this routine the loss is a lot harder to take.

  6. Ralph Waldo on June 22, 2011 8:13 pm


    I was just kidding, I drink wimpy things all the time, plus I am a big wimp. Though coffee is irreplaceable.


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