Thursday, January 31, 2008

Ape traders

There's an entertaining piece of research just published in PLoS which claims to be the first study to examine the circumstances under which chimpanzees will trade commodities - specifically, apples for grapes.

Such trades are assumed to have played a key stage in our own evolution towards Homo economicus. Previous studies involved training chimps to trade tokens for food - a less realistic model, given that apes tend not to carry round purses of tokens in the wild.

The researchers found that chimps do not spontaneously trade their food, but can be trained to do so. With training, they're willing to swap a less-liked food such as carrots for tastier fruit, but remained reluctant to engage in near-comparable trades such as apples for grapes. Lead author Mark Grady of UCLA’s Center for Law and Economics reckons this reflects the lack of ownership rights among our primate cousins.

Still, this must raise the possibility that apes could be trained to take over some roles in the mainstream markets. There might be initial problems with all the screeching, scratching and fighting for alpha-male dominance, but I'm sure the chimps could get used to it.

And, bearing in mind the old theorem about monkeys writing Shakespeare, how many chimps on how many trading desks would it take to fuck up as spectacularly as some human traders?


Sunday, January 20, 2008

Graduation day

Here's me just officially graduated with the MA in Economics and Finance, with Distinction, at the University of Sheffield. (Photo by the wife, on a rather dingy day.)

I was quite proud to share the stage with Nicholas Stern, who was receiving an honorary doctorate for his work in development and environmental economics. The 2006 Stern Review on the Economics of Climate Change played a large part in my own dissertation.

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Friday, January 04, 2008

$100 shenanigans

A good start to the year for the rational agent hypothesis, with the oil price hitting the $100 benchmark as a result of what appears to be a less than entirely rational act of self-aggrandisement.

As the Guardian reports:
Richie Arens, an independent trader who runs a brokerage called ABS, bought 1,000 barrels for $100 on Wednesday at a time when the prevailing price was $99.53. The price instantly settled back, although it jumped over $100 again yesterday, hitting $100.09 during the day before settling to end at $99.18.
Wednesday's trade appears to have made an instant loss of at least $500 - but market watchers believe Arens was motivated simply by being the first person to buy at more than $100. His actions have attracted criticism from experts who say that it risked artificially triggering automatic "stop orders" placed by others in the event that the price hit $100.
Stephen Schork, editor of the Schork Report market intelligence service, said: "This could have triggered a massive artificial rally. It creates a doubt that these kind of shenanigans could be commonplace - you begin to question the validity of prices and to ask 'are these markets really working?'"

OK. so one could argue that it can be rational to incur a financial cost in return for an enhanced reputation, but I'd love to see the utility function that could codify this. More generally, it really doesn't seem entirely rational that such attention should be paid to a price or index hitting any particular number - psychology aside, $100 isn't any more significant that $98.75 or any other price. Reminds me of other apparently paradigm-changing round-figure events, such as the Nasdaq hitting 5000 back in the day.

The Economist meanwhile looks at the broader implications of the $100 barrel. It ain't pretty. Happy new year, all.