Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

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05/02/2004
Dr. Brett Steenbarger: Evolution

A common observation is that the one question Darwin never answered in his classic text was the one concerning the origin of species. Darwin made a strong case for gradual evolution via selection and mutation, but he could not account for speciation: the large changes that resulted in the creation of new species.

Only much later, with the "modern synthesis", the writings of Ernst Mayr, and the "punctuated equilibria" theory of Eldredge and Gould, did we come to understand speciation as a function of "peripatric" processes. Events such as the formation of a desert, the rise of a mountain range, or the drying up and splitting of lakes into smaller, separate bodies of water, have the effect of isolating members of a population from each other. In their new, isolated environment, each segment of the population experiences different selective pressures and adapts differently. Over time, the difference in adaptation is so great that the members of the populations can no longer reproduce with each other, at which point they are truly different species.

Speaking of his landmark contributions to evolutionary theory in his book "Toward a New Philosophy of Biology", Mayr remarks, "The major novelty of my theory was its claim that the most rapid evolutionary change does not occur in widespread, populous species, as claimed by most geneticists, but in small founder populations. [In my empirical observations], I had found again and again that the most aberrant population of a species--often having reached species rank, and occasionally classified even as a separate genus--occurred at a peripheral location, indeed usually at the most isolated peripheral location. Living in an entirely different physical as well as biotic environment, such a population would have unique opportunities to enter new niches and to select novel adaptive pathways." (p. 461).

If we think of traders--and trading ideas--as populations, it might make sense to contrast "widespread, populous species" with potential "founder populations". True founder populations would be completely isolated from their original pools. Over time, they would develop traders and trading ideas that are so different from those of the original pool that they would constitute a separate species or even genus. By that time, there is little overlap between the founder group and the original group from which they were isolated: communication is limited, because the groups no longer understand one another.

I believe that when trading firms succeed, it is because they have become founder populations and developed new species of traders and trading. One can only speculate as to the degree to which such evolution can be accelerated by making speciation a conscious, intentional process.

Note from Victor Niederhoffer:
I solicit any communications from the learned readers of this site on their own take of what Darwin's books can teach us about the causes of variability and will transmit a few of my own humble observations on this subject in future missives. I can state here, however, that based on my observations and my reading of the very learned work of scholars in this field, that the market has evolved to generate certain varieties of movement for us, and that these varieties are related and correlated to all the other markets in the world, and that big variations in one market are soon adapted to and revealed in closely related markets. Victor Niederhoffer