You will hear people talking about “latency,” which means the delay between a trading signal being given and the trade being made. Low latency — high speed — is what banks and funds are looking for. Yes, we really are talking about shaving off the milliseconds that it takes light to travel along an optical cable.

So, is trading faster than any human can react truly worrisome?

The rest is here (if you want to read more about the practical ethics of quantitative finance). What interests me is the more general notion of mechanistic processes making our decisions for us and inhibiting our ability to recognize and react to possible hazards.

The problem isn’t simply speed (or delay), it comes down to mechanistic processes and structures that are inaccessible to human decisions, neutralizing the power of human judgement and intuition to deal with emerging patterns.

Read another recent New York Times piece about how valuable hunches are in battle:

“Not long ago people thought of emotions as old stuff, as just feelings — feelings that had little to do with rational decision making, or that got in the way of it,” said Dr. Antonio Damasio, director of the Brain and Creativity Institute at the University of Southern California. “Now that position has reversed. We understand emotions as practical action programs that work to solve a problem, often before we’re conscious of it. These processes are at work continually, in pilots, leaders of expeditions, parents, all of us.”

The mind accomplished a lot over a couple hundred thousand years and we still don’t understand how the most fundamental processes work. Let’s not sell it out just yet. The mind — including intuitions, emotions, the whole ball of crud — is still our best asset.

What the machine-processes give us is objective safeguarding and reference — like instruments in an airplane.

But don’t planes have autopilot too? Isn’t that the same as algorithm-generated trading?

No. I think the difference is that the plane still goes the same speed and the pilot can still notice emerging dangers and use discretion to take over the controls. A fighter pilot wouldn’t let the computer fly in a dogfight (do they still have those?) — though computers come in damn handy to analyze and prioritize potential threats and targets (something I read about in Popular Mechanics when I was a kid, I think for since-cancelled Comanche helicopter program: I don’t know how sophisticated the real flight and weapons systems are).

In quantitative finance, the computers don’t just take over the controls for a while to make things cheaper and easier; the computers have actually changed the nature of task, introducing a different set of directions we can’t handle. There’s no “going manual” anymore, and we lose the ability to identify and manage emerging patterns.

Automated functions must exist to help us identify and correct mistakes (either by freeing our attention to notice them, or by providing objective benchmarks and measures), but they should not drive the process.

No related posts.

Just sort of a brainstorm here, following up on some of my relatively more youthful attempts to outline what this is all about:

• Draft Enterprise Model
• The Practice of Theory

The other day I jotted down a few points — trying to distill the underlying mission of this amorphous enterprise. It has a few different aims. I’m doing this one first because it’s the most relevant and the easiest to explain.

Make decision-making processes more open and objective, specifically through digital media.

This means advocating and educating people to bring all of our discussions and arguments and negotiations online to make them more

• articulate
• defined
• accountable
• machine readable
• measurable
• transparent
• organized
• scalable
• searchable
• reverse-engineerable
• replicable
• repeatable
• testable
• correctable
• extensible
• replaceable
• dynamic
• self-organizing
• generative
• sustained
• effective
• adaptable

I’m sure there are a lot more characteristics we could add to that list. The gist is that the web gives us tools to make our political and moral and business discussions a lot more open and objective, like science.

One important mindset-change we’ll need to make is to remember that all of our institutions, policies, programs, and ideas are works in progress. Business leaders like Roger Martin and Tim Brown call this design thinking.

Instead of reacting to crises by panicking and throwing around blame (or conversely, getting defensive), we need to start looking at our failures and crises (and successes) as evidence — information for us to build on, like the kind observed in science — to demonstrate how our policies and practices are performing.

We shouldn’t be surprised by crises. We should be watching for them the way geneticists watch for mutations, or the way programmers watch for bugs.

More importantly, we need to learn the habit of hypothesizing and anticipating specific outcomes.

Whenever we “solve” a problem, or make any kind of decision, we shouldn’t just say, “There’s that problem solved” and forget about it. Solutions are actually beta models that need to be followed-up on and assessed. We need to actively watch the results to see how the solution is performing — and not be surprised or defensive when it performs poorly — and make adjustments accordingly.

So the decision-making process needs to involve just as much predicting as planning. Instead of simply saying, “we’ll implement A and then B, and finally C,” we should frame it as, “we’ll see how A performs; if x occurs then we’ll implement to B, if y occurs then we’ll implement B2… and if z occurs then we might have to go back and change A to A2…” etc.

That’s why decision-making needs to be fully documented and digitized and opened up: monitoring and assessing and adjusting to performance is a big, big process — far too big for any old-fashioned, top-down organization that existed before the web.

Fortunately there are plenty of skilled, passionate, and knowledgeable people around who would do that work voluntarily… not merely out of a sense of duty (though that may be part of it), but because it’s a fulfilling challenge — a way to feel relevant, responsible, and respectable — as well as being a great opportunity to learn and work with complementary people.

The reason people don’t do more of this kind of voluntary work now is the whole system conspires to discourage it. Even within an organization: projects are divided and tasks are cordoned-off to specific people; nobody wants to step on toes (or have their toes stepped on) so people stay silent about obvious problems and opportunities; people guard their own little areas of responsibility to ensure coworkers and up-and-comers don’t undermine them, or make their job redundant.

But in politics and civics, participation is already encouraged, right?

Sure, but mainly the kind that reinforces an established player’s authority. Too many volunteers are still expected to be deferent and grateful for being bestowed with the opportunity. And the people assigning tasks don’t know what exactly everyone has to offer; knowledge and energy are wasted.

The only person who knows what one is capable of, creatively, is oneself (albeit with a little mentoring and nudging-along). Further, we don’t know exactly how we’re best able to contribute, creatively, until we actually start interacting and learning within the task.

You can’t plan where all of the best contributions will come from. A large part of what motivates us to get involved is that it’s an opportunity to find out exactly what we can do…

This whole transformation is going to require not just learning new practices and attitudes; it’s going to require substantial sacrifices in the short-term (and “short-term” in my scale can stretch to span a generation). A lot of organizations and people will have to give up some of their authority, influence, and competitive advantage — which they maintain by keeping things closed-off and under wraps.

This movement is very bad news for anyone used to playing at politics and business like a card game in which the object is to get as much as you can while preventing your competitors from getting anything, whether that means market share, information, whatever.

That cut-throat style worked for a time but that time is coming to an end. The web is naturally tilting the table towards greater openness. The game is changing whether we like it or not. Competitive advantage is increasingly going to the most nimble and adaptive, not the most robust and fortified.

More importantly, changing the game is in everyone’s best interest in the long-term. Considering the magnitude of power at mankind’s disposal, and the potential for tremendous harm that can occur when that power is concentrated around too-few decision-makers, we need everyone to be involved in the process of making decisions, and we need it all to be accounted for.

To get an idea of what I mean by making it “accountable,” see Jeff Jarvis’s last post on metadata for news.

As these processes become more developed, as everyone becomes their own publicist, we’ll start to get a better sense of how journalists can benefit by uploading much of their work to people and organizations themselves. We’ll increasingly expect organizations and institutions (and anyone “important” — or anyone who aspires to be) to syndicate everything about themselves into information feeds.

(If you’re worried about honesty, I expect that as our cultural expectations evolve towards openness, attempts to hide or withhold information will become taboo to the point of ruining those who are caught. The risks will be too great — or at least that’s what we should aim for.)

Journalists will specialize more in selecting from that, editing, scrutinizing and checking it, adding commentary, and turning it into stories.

Meanwhile, politicians and businesses can benefit because much of their thinking and decision-making will be downloaded to journalists and on to the general public. For example, what’s the point of polling and running focus groups when you’re already getting both quantified and qualitative feedback in real-time?

I realize this picture is fairly idealistic at this point, but that’s why I titled it an aim. And don’t forget it’s still in beta. I’m still in the process of deciding and discovering exactly how these ideas might work…

Related posts:

1. The Best Disinfectant
2. Processing Deliberative Democracy