Collaborating Authors


The stockmarket is now run by computers, algorithms and passive managers


FIFTY YEARS ago investing was a distinctly human affair. "People would have to take each other out, and dealers would entertain fund managers, and no one would know what the prices were," says Ray Dalio, who worked on the trading floor of the New York Stock Exchange (NYSE) in the early 1970s before founding Bridgewater Associates, now the world's largest hedge fund. Kenneth Jacobs, the boss of Lazard, an investment bank, remembers using a pocket calculator to analyse figures gleaned from company reports. His older colleagues used slide rules. Even by the 1980s "reading the Wall Street Journal on your way into work, a television on the trading floor and a ticker tape" offered a significant information advantage, recalls one investor. Since then the role humans play in trading has diminished rapidly. In their place have come computers, algorithms and passive managers--institutions which offer an index fund that holds a basket of shares to match the return of the stockmarket, or sectors of it, rather than trying to beat it (see chart 1).

Agents of creation

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THEY certainly cannot be faulted for a lack of ambition. The scientists and engineers who gathered this week in Oxford for the first International Workshop on Complex Agent-Based Dynamic Networks are seeking to explain much of the world's behaviour through the use of "agents". In this context, an agent is a program that acts in a self-interested manner in its dealings with numerous other agents inside a computer. This arrangement can mimic almost any interactive system: a stockmarket; a habitat; even a business supply-chain. If the constituent parts can be understood, the reasoning goes, some insight into the whole will follow.