How to hedge electronic circuitry run amok
With respect to the growing dominance of machines on Wall Street, I recall the old Star Trek episode that involves a visit to a planet where the inhabitants seem to be living in a state of perfect bliss. Captain Kirk knows that this cannot be right. There is no such thing as perfect happiness. As it turns out, the population is controlled not by a loathsome dictator who has drugged the population into compliance, but by a computer that has evolved sufficiently to somehow gain control of their minds. Something must be done, concludes Kirk, to break its hold. Spock comes up with the solution by instructing the computer “to resolve the value of pi” – an impossibility because its resolution, as we all remember from high school math class, is infinite. The computer spends all of its time and devotes all of its resources trying to achieve the impossible and the dictatorial hold it has on the population is released – a trick we might want to keep in mind for the day computers complete their mastery of Wall Street.
Similarly, Financial Times once told the story of the textbook, The Making of a Fly: The Genetics of Animal Design. It started out selling for $113 per copy at Amazon – that is, until the governing algorithm misfired between two third-party sellers. The price then skyrocketed to $23 million before someone took note and fixed the problem. We forget that computer software, and this applies to Wall Street’s trading apparatus as readily as it does the Amazon pricing platform, is only as reliable and intelligent as the code by which it is instructed to operate. The practical equivalent to Mr. Spock’s solution in the financial realm is to store sufficient capital in the form of gold and silver coins detached from electronic circuitry that might run amok.