Zero sum trading, markets and the clever people resource

In highly efficient markets, however, educated guesses are no more accurate than blind guesses   –  Daniel Kahneman

I am currently thoroughly enjoying Daniel Kahneman’s new book “Thinking, Fast and Slow”. I’m currently half way through, and have just finished his summary destruction of the common belief that the most successful stock pickers on Wall Street are the most skilled. Instead Kahneman shows quite cleanly, with real trade data and interpretation difficult to refute, that success is mostly due to chance and that those traders that trade the most, lose the most. The best strategy, it seems, is to barely trade at all!

The classic stock market model is that the share price reflects all the information that is known about a certain stock. When a share is traded, certainly amongst professionals, it is very likely that both sides of the trade have the same information available, they are just interpreting this information differently. Essentially one side must believe the price will rise, the other that it will fall.

So far, all so good, nothing odd going on? This seems to indicate that there must be a skill involved, the accurate analysis of the data. Well, to some extent this is true. Much like with skill in poker, which is realised as profit by seeking out and beating fundamentally weaker opponents, so there are investors with poor fundamental knowledge. There is  a class of trader that does indeed make a consistent profit from these ‘amateur’ investors.

And that’s fine, caveat emptor and all that.

Success in trading, however, needs to beat the market. You can buy the market in a number of different ways, tracker funds and the like, so  hedge funds et al, they have to beat the market otherwise they have no purpose. The scary question, therefore, is this…

Why does either side of the trade think that their analysis and interpretation of the data will be more accurate than the market itself? Pricing a stock is what a market does.

If a market produces stock that is priced correctly and reflects the true value of a company’s assets, then a market is said to be efficient. It has done its job. This of course is the underlying belief that underpins free market ideology, that markets know best.

Is that quote at the top making sense now?

In an efficient market, all the data correctly analysed will suggest that the stock is priced correctly, the analyst’s estimation of a stock’s value will match the market’s. Any assumption of movement will be a guess. Obviously, even in efficient markets stock prices change. Why is there no skill in accurately predicting which way it will go? Because you have no data to analyse, its all already reflected in the market price. There is no immediate profit in the trade of an accurately priced stock, and accurate predictions of future movements in price are by definition, lucky guesses.

So, do we have highly efficient market’s? No not really, but over the years since Thatcher and Reagan they have been getting closer and closer with every passing relaxation of market regulation. Each time we increase the freedom in a market,, the whole business of trading stock moves closer and closer to a game of roulette.

Nothing here tells us that these traders are fools or idiots, although of course I’m sure some of them are. No. Rather, stock picking and investment banking, has of recent years been the destination of many of our finest. The best brains. These are sharp intellects and they make good money.

This, then, is the, so what? Here is the true crime of the situation; that our very finest are dedicating their lives to a zero sum game.

For every successful trade, there is an unsuccessful trade. Zero sum. To society, no value.

This is a view mirrored in this fascinating profile of Ray Dalio, an investor in the mould of George Soros, the chief force behind Bridgewater Associates, a hedge fund with a great record, a fund seemingly beating the market over the long term. His company has been accused of cult practices and has been the butt of jokes, but nonetheless in many ways is very impressive! A fascinating article actually.

Today, C.E.O.s and star traders routinely demand vastly higher sums to keep up with their counterparts at hedge funds. In addition to distorting salary structures elsewhere, the rewards that hedge-fund managers reap draw some of the very brightest science and mathematics graduates to the industry. Can it really be in America’s interest to have so much of its young talent playing a zero-sum game?


3D printing – the next big disruptor?


Padlock and key

It’s well documented, and quite frankly, voraciously experienced, in almost all aspects of modern life, how disruptive the influence of the internet and the world wide web have been. It’s also well documented how information and knowledge acquisition, at the species level, has been ever accelerating leading to more discoveries of disruptive technology, arriving at ever shorter intervals.

3D printing is a good candidate for being the next big one (or one of the next big ones). There’s even speculation that the changes it might spawn, could be as wide reaching and transformative as the internet itself (although as an aside, I rather like the mischievous assertion from Ha-Joon Chang that the washing machine had a greater impact than the internet).

Certainly the sort of people who look at these things for governments, have been looking at these things for governments and they have been talking in exactly these kind of terms. The next big disruption. In fact they have been looking in depth for some years now.

This comprehensive overview was produced for the US Office of Science and Technology. This wonderfully named report, it will be awesome if they don’t screw it up, provides a very clean and neutral view of the IP protection issues as current law stands. Both these documents were produced in 2010.

So, let’s begin by defining exactly what it is.

3D printing is the machinery and process that allows us to build 3 dimensional objects using technology that prints material as successive layers building up into potentially complex artefacts. All that is required is a computer, a data file and a materials printer. Which, if we are being honest, doesn’t sound terribly revolutionary?

What’s is new, however, is the fact that the material printer part of the equation, is approaching levels of accessibility, function and cost that make it attractive for usage at the entirely domestic level.

Out of the 3 factors cost is clearly the easiest to measure and most fluid, function is fairly easy to describe and accessibility largely a function of the previous two.

A Reprap kit from, which would need assembly, would set you back £435 (at least as of 22/3/12).


A makerbot replicator might set you back between $1800 to $2000. Prices go up from there, I’ve seen mention of printers in Universities costing $800k and being described as obsolete

So, whereas it’s not pocket money, the lower end of the spectrum certainly is the sort of money that people commonly spend on household utility products of a complex nature. And, of course, it’s only going to get cheaper.

A nice overview of the function available in today’s market can be demonstrated by a quick whizz through the Reprap project itself. A 3D printing machine expressly designed such that it has the ability to print almost all the parts required for its own assembly. Moreover it’s an open source project that to date has been populated with very enthusiastic hobbyists whose hobby allows them to make alterations to the machine, in exactly the same way that open source code can be amended through interactive communities. Allied with the communicative power of the internet the Reprap project isn’t just inherently self-replicating it’s also, via its project DNA self-improving. If you think it’d be great if that nozzle was just 1mm wider? Fine, you have in your possession a machine that can make you that exact part!

If you can use a £400 pound machine to make something as complicated as the Reprap then I think it’s safe to suggest that the functionality offered by this concept is indeed starting to look like the sort of value that, eventually, might achieve a significant domestic penetration.

However great it is that we might all have these machines at home one day, if we consider 3D printing only from the domestic angle we will miss a lot of the potential. The vanguard of this technology change, as with many other previously, is small tech businesses and academia.

So whereas 3D printing is starting to become available as a domestic appliance, it is also highly instructive that we try to look at this technology at different geographic levels, which may well operate and innovate over different timescales, potentially quicker timescales.

I can imagine 3D printing at 3 levels.

  • The home
  • Local business
  • Specialist business and academia

The geographic location of specialist printing could be quite disparate. They will be selling scarce skills and machinery to produce high level specification prints that will likely be shipped to the customer. As the breadth of the wider technology base increases, and we can use a wider range of materials, or as has been show recently, we can print at larger or smaller scales, I can see the specialist sector being very interesting and disruptive in and of itself.

Tiny cathedrals

A lot of this change, at local and specialist levels, will be happening underneath the surface for most of us. For example take any currently available plastic toy product, mass manufactured in China and shipped across the world which you might buy for your child for £12.99 at some online retailer, or high street for that matter. Would it matter to you if that object had been fabricated in Sheffield instead as a result of the Chinese manufacturer licencing the data file to a small family business? You’d still have to buy it through the internet or in retail. What’s the difference? Does the method of production mean anything for today’s customer, will they (we) care? Probably not, if we’re being honest with ourselves.

Indeed, the fact is that the world’s first franchised 3D printing company already exists, in Brazil! So we really aren’t talking about a few years hence. These changes are underway right now. Imprimate is a 3D printing company providing services to architects, engineers and designers, producing bespoke / one-time 3D models and operating on a franchise basis.

Imprimate is a business built around a wonderful example of one of the key benefits  that 3D printing brings at the local and specialist level, and subsequently to society in general, quick prototyping. Indeed quick prototyping may well be one of the key business problems that drives a great deal of development revenue into 3D technology itself.

To understand why quick prototyping is so valuable consider the world of formula one racing. It’s a world where cutting edge technology is constantly being brought to bear season on season on season.

Whether it be the shape of a wing panel, or a brand new engine widget with a peculiar shape the prototyping cycle can be massively reduced because of the speed of production via 3D printing, in some cases from 3 weeks to 2 days. This allows test programs to batch test ideas and produce many small variations (or large for that matter!). This acceleration in R&D programs is enormously valuable. Formula One has been using quick prototyping via 3D printing since the 1980’s, but now it’s available to a much wider range of industries and businesses.

But say you do have a printer at home. How is that going to change things for you?

The dying art of DIY is going to get a shot in the arm. We are living in a society that has seen a marked increase in disposability over recent times, either through excessive and unjustifiable consumption (loadsamoney!!!!) or through product design or product complexity.  Say you accidently knock your Dyson vacuum cleaner down the stairs and crack the plastic container of the main chamber. It’s a trivial job to replace it, if only you had a spare one to replace it with! Today you’d either, send it off to a repair shop, wait for the part in the post or throw it away and buy a new one. At some stage in the not so distant future you’ll be able to simply print yourself a replacement instead.

We might see custom fit products that can evolve. Children’s shoes get replaced a lot as their feet grow. This can be a problem of the past. Imagine getting a data file built to your child’s foot specification (maybe someone will build a machine that allows you to scan your child’s feet and converts that data to a 3D object data file) and containing the data (and permissions ?) for the latest Nike trainers. As your child grows you could either reprint the shoe at a slightly larger magnification, or if you wanted to you could rescan the child’s feet. The cost implication is only the marginal increase in raw material.

No. 8 in the list

Want to have a different dining table every 2 weeks? In a world of 3D printing you’d just smash it up into the component raw material and start again. Same material, new table, fraction of the cost!

Want a truly unique table? One that fits very specifically into that weirdly shaped corner in your kitchen? You can have that. Want to change it every month? You can do that too.

That beautiful suit / dress you liked that is now a size too small? Chop it up and press the button.

All of a sudden the fashion for jackets changes, it’s now all about 3 buttons not 2. But you love the cloth on your 2 button jacket….no problem.

Now, these are all speculation, fairly solid speculation I’d say but nothing here is the 3D equivalent of Facebook, or Google. But then, I don’t think anyone could have predicted Facebook, in its current form, even 10 years ago. It’s highly plausible that the most impactful changes that 3D will spawn will be similarly unforecastable, a good measure of a new paradigm. We will have to wait and see.

In the meantime we can continue to ponder. There will be more subtle changes as well.

There will inevitably be some emerging hacker culture, both in terms of illegally obtaining shaping data, but also in the cultural sense, a driving force within the melting pot that is modern culture.

Many bloggers have hypothesised illegal 3D scanning. The idea that a new product on release will be scanned in shop and the scan data used to make illegally distributed files for said product. That might happen, it might not. But illegal scanning aside for the moment, I’m pretty sure that portable and cost attractive scanners will be available.

I can imagine a certain kind of object fetishism. An obsession reminiscent of the obsessions many designers display today. I can see hackers scanning and trading 3D curved spaces, as artefacts in and of themselves. I can imagine a need, an obsessive need, to scan these, wherever they are found. Not even for commercial gain necessarily, although that is quite likely too.

But in terms of culture this is how we will get our derivative works. This is how the 3D world will create a new category of mashup, mimicking the flexibility and impermanence of digital media in the realm of the solid and the functional.

It’s also going to put a whole new world of pressure on the already shaky intellectual property law. I’m not going to go into detail here, as it’s all relatively involved and this article does a much better job than I can, but the essential tussle will revolve around the transmission of the data files.

Should we apply patent law? Which in current law is the IP protection built specifically to protect functional objects. Or, does it become an issue that should be resolved by copyright law because the data files are essentially software, because copyright is the appropriate law to apply to software?

The differences are distinctive and essential.

Copyright exists the moment you have created a work. Patents must be applied for. Copyright is protection for the life of the creator +70 years (more in certain circumstances), whereas patent law only protects for 20 years. These are not trivial differences, nor are they the only significant differences.

One thing we can be sure of is that the incumbent industries will lobby for law changes that give them ever greater degrees of protection. Considering that IP law is about protecting innovation as a societal dynamic, as opposed to protecting the revenues of a specific set of industries, I find the prospect of copyright protection levels creeping into the world of functional objects quite disturbing.

I personally think we need a root and branch reform of the whole IP protection system, so I hope that the solution will be neither copyright nor patent, but some new body of law that encapsulates the dynamics of today’s digital world, not yesterday’s industrial one.

If 3D does turn out to be as big as some are suggesting then we can expect to see changes that affect our children. There might be a change to the way we educate children. The logistic process of design will be non-trivial, certainly in the near future, writing CAD files (the current accepted protocol for computerised 3D objects) is a specific skill. It’s a rare person who can simply sit down at a CAD terminal and be proficient from the get go.

Understanding geometry and materials science will, hopefully, become more popular. The connection between imagination, creation and the concepts that facilitate creation should spark fertile minds earlier than before when geometry was abstract, and not a route to the latest [insert latest cool toy].

It reminds of Daniel Kahneman’s observation about the future of science.

The only way I know to predict the future of science is to look at the choices of beginning graduate students. The specialization they acquire now will probably determine their activities for the next 15-20 years

In years to come we should look to see if the curriculum has indeed developed.

What about standards? When we are all able to fab replacement car parts how will we manage quality control processes for essential mechanical function? Will we need to? What about the public space. Will we see evolving art? Can we open up communal space for creative expression?

Here’s a thought. Imagine ubiquitous 3D printing, creating the new aesthetic linked to the internet of things and serviced by the robot readable world.

Now if that lot hasn’t set your head spinning watch this informative TED talk which takes us into even more seemingly fantastic ground. Except this isn’t a talk about what might happen. This is about what is already happening, highlighting where 3D printing is already making significant contributions.

A lot of very clever people are making some big claims for this technology, and whereas exactly where this goes, how the big issues play out, what unseen innovations arrive is still very much up for debate, it is surely beyond doubt this technology will drive (has already driven) significant changes of some kind, throughout society.

Robots: autonomy and cooperation






r/pics March

We, the Web Kids

One more thing: we do not want to pay for our memories. The films that remind us of our childhood, the music that accompanied us ten years ago: in the external memory network these are simply memories. Remembering them, exchanging them, and developing them is to us something as natural as the memory of ‘Casablanca’ is to you. We find online the films that we watched as children and we show them to our children, just as you told us the story about the Little Red Riding Hood or Goldilocks. Can you imagine that someone could accuse you of breaking the law in this way? We cannot, either

Someone who was 6 years old on the 7th of September 1998 will be 20 years old on the same day this year, 2012.

That’s a really important date, the 7th of September, particularly in 1998, because that’s the day that Google was founded. Google is only 14 years old!

Here’s something even more surprising…. The first Harry Potter book was published in June the year previously, 1997. Harry Potter is older than google. JK Rowling is 47 now, and was 32 or thereabouts when she started writing the series. All information retrieval and storage in the Harry Potter books is built along the classic lines of libraries and literature. Which isn’t surprising considering the series conception predates Google. Nonetheless, even if JK had started 10 years later I suspect that we would still have had the same basic knowledge structure. JK is a child of books and libraries, after all.

I’m looking forward to finding out how children’s fantasy stories will add elements of magic into the mundane (think talking books et al in Hogwart’s libraries) now that so much that was once only in the gift of magic is available via your iPad (think talking books et al in Hogwart’s libraries).

We will be finding out soon. Back to that anonymous 6 year old, who will be 20 years old this coming September. That’s the first wave of true internet children. There’s even going to be a whole bunch of 20 year olds who have now got their own children.

In short, the internet kids have become adults.

I’ve been hearing, and repeating, for years the old adages about generational adoption of new technologies and have long considered it axiomatic that past the relatively simple behaviour of early adopters and affluent population segments, there comes a point where the culture is driven by people who have known no other state of affairs, have only known of the technology being considered.

In September this year will see a whole bunch of people hit 20 years of age who have never understood, or experienced, a world without Google.

And so, we can finally start to look for answers to the question of how the internet is changing us. Marshall McLuhan told us that the characteristics of the medium, will change us, regardless of the message transmitted and I see no reason to doubt his insight.

(as an aside, I’ve heard so many people use the phrase ‘the medium is the message’ to justify advertising spend being placed online that I’m convinced that McLuhan is fairly widely misinterpreted, at least within the advertising industry)

This rather wonderful essay is a great place to start. We, the Web Kids by Piotr Czerski This is the ‘web kids’ telling us with clarity and intelligence how they approach this world and its inhabitants and structures. Some of it is wonderful, some of it some people may find unsettling. It is, however, most certainly authentic and heartfelt.

The original Polish piece

A bit more surround information


Its a real place (part 4 of 5)

So far in this series I have made 3 broad points.

Part 1 explored the thought that it is no longer OK to NOT know how the internet works.

Part 2 examined what we can learn from the containerisation of global trade; standardisation, innovation and legal protection for the essential carrier class.

Part 3 demonstrated how the current issues of copyright enforcement (SOPA, PIPA, ACTA etc) are forcing society into making a choice between the incumbent content industries priorities, and the healthy functioning of the modern information economy.

In this post I intend to look at some of the basic economic principles at play, with regard to modern content businesses, and why I feel the need for significant copyright reform is massively preferable to more stringent and effective copyright enforcement.

Red Dwarf

So, here’s the thing. The economics of the existing model are fundamentally and utterly broken.

They are broken because they are built on theories (and historic actualities) of scarcity, where today incredibly cheap copying provides abundance instead. And they are broken fundamentally and utterly, because there is no rational relationship between supply and demand when the traded product is in a state of abundance.

Moving from scarcity to abundance is economically seismic, and when worlds collide, things get broken. In this case it’s the content industries incumbent business model that has broken, and it isn’t going to get fixed unless we break computers or limit access to them. Neither of which should be acceptable to society.

Now, we don’t have the abundance much written about in science fiction, at least not yet. However, we are in a situation where the relationship has changed to such a degree that the tenets of selling a scarce product are no longer relevant.

The essential problem is this.  In a world where increasing numbers of products are being sold as digital code, instead of physical artefacts, the ability for a general purpose computer to make an unending supply of copies tilts the relationship between supply and demand to favour the consumer and not the producer.

A world where the cost of copying is negligible trending towards zero, is a world with incredibly high supply trending towards infinite.

A world where supply is trending towards infinite is a world that will never see demand outstrip supply. The pressure on price, in a classic model, is ever downwards.

A world that is increasingly designing life vectors dependant on easily available computing, trending to ubiquitous, is a world that cannot afford to restrict access to computing, or to reduce the functionality of computation itself.

It’s not abundance as science fiction would have you believe, but it’s not scarcity either.

Here is the reason why getting this stuff right, is so important, and it’s nothing to do with getting ‘free’ stuff. This is about the on-going ability of humans to continue contributing developing and interacting with our cultural heritage and cultural artefacts.

If we don’t work out an economic model that efficiently distributes financial rewards in such a way as is judicial, and also which provides economic incentive to maintain infrastructure and encourage business innovation, then we will not have any content to consume beyond the inanity of our friends social output. And as essential as social discourse is it is only one part of the human experience, one furthermore that is commonly enriched by cultural creation. If we don’t get this right, there will be no TV to discuss, no music to enthuse about, no writing to make us think.

This is not a ‘no poem’ argument, the thought that people only make content if they will be remunerated. This is an infrastructure argument. Culture today has a new dimension, the GLOBAL masses. And access to the global masses is enabled by the global industrial infrastructure of the internet. Similarly, if we give everyone the ability to create and post, we will want ever more quality control in both creation and curation. Well, these things cost money, and that money has to come from, at least at some point, the end users of products.

Here’s the kicker, not necessarily from all end users, and not necessarily for all products.

Perhaps the most famous fictional account of a society built on abundance is the world of Star Trek. We are all familiar with the replicator that creates anything you need or want, it is, if you will the poster boy of abundance technology. However, there are other important conditions that would need to be met for a society to be deemed one of true abundance.

Alongside the need for replication, you would also need an unending power source and a level of automation (both mechanical and AI) that could efficiently cover all menial tasks. Then there are the issues of social change and status, governance and enforcement, rights and privilege. It’s a lovely idea, but it does bend the brain a little thinking about it. It is, if you like, the very definition of paradigm shift. One of the characteristics of paradigm shift is that it is very difficult nigh impossible, to foresee solutions for the next paradigm’s challenges from the confines of the present one. You can get awfully tied up trying to think your way through this stuff.

Now, fortunately, we clearly aren’t at such a stage. Our situation, how we are going to fund content production, isn’t nearly so difficult, although many would have you believe otherwise.

As an aside it is rather wonderful to point out that in a post abundance society one of the big things that would confer status would be artistic and cultural ability, talent. The talented, the truly talented would be cosseted and lauded, but cajoled for performance in return. The authentic will rule. It is slightly perverse that so much opposition to these required changes comes from some of the most artistically talented members of society.

Anyway that’s not us.  We still need to find a way to take money from users and give it to creators. We aren’t going to transform into a post abundance society any time soon, so we are stuck with a simple challenge.

How can we refocus commercial transactions to areas that have natural scarcity?

I say refocus, because there is still substantial revenue being collected under existing schemes. There is no need to throw the baby out with the bathwater.

I’m also making an important distinction between artificial and natural scarcity. Simply making it hard to consume products, in order to restrict unlawful copying eventually degrades the original experience to the point that the law abiding will yearn for untrammelled unfettered access. We need to find points of difference that consumers will value.

  1. Essential quality – in a truly abundant society the greatest artists and talents will be among those that can garner actual status in the absence of economic reward. We should never lose sight of the fact that it has never been easy to make a living as an artist, or in today’s parlance a content creator. No-one deserves a free lunch just yet. The internet will just make it easier and easier to compare product. Quality will be valuable.
  2. Access – delivery, interface, technical quality, sociability, speed, ubiquity
  3. Unique – live performance, interaction, communion (be available), limited edition artefacts
  4. Computing infrastructure – none of this happens without computers, the internet and a wide array of internet access points or communities and tools. We pay for all of this right now, and happily. If these industries end up being the big winners of this power transition I truly see no reason why they can’t also be the providers of the required industrial infrastructure.

Every single one of these points provides ample space for there to exist differentials in service across the market, and hence for there to be a real element of competition amongst providers.

What should be discarded is limitation of access to the digitised product. It’s the only part of the picture that is currently being attacked by abundance. In short, you have to be comfortable with it being distributed for free, outside of your control. It doesn’t have any economic value in and of itself so let it go as far and wide as quickly and cheaply as possible. Get it into the experience of as many people as possible. Turning it into quasi-advertising may be the only way to recoup value from the digitised product. Much like radio airplay used to be essential for selling music; widespread consumption will become the gateway to generating subsequent and incremental revenues in our new content economy.

As I sit here typing, this all sounds alarmingly straightforward to me, where of course it simply isn’t. There are risks involved, these are new economic spaces and there will be trailblazers and spectacular failures. Humans are a loss averse creature, our essential nature would prefer to maintain the existing, the comfortable, the known, the understood. This transition will be bloody. It is highly unlikely that we will achieve consensus, one party will eventually feel aggrieved and it will take longer than it should. I have no idea how to avoid this.

Still the fact is that the economics of the incumbent content production and distribution models have been dealt a killer blow and they will not recover. That said, I see no reason why the incumbents can’t maintain some position in the new landscape; it is the business models that are gone, after all, not the brands themselves. There is still a role for them. They retain a huge and valuable knowledge base. They are where the talent currently resides. As I have said, talent is only going to be ever more valuable. There is much to be retained from the incumbents.

Call me an optimist, if you like, but I earnestly believe that wherever this all finishes up, and however long it takes we will eventually be in a better place. The seductive call of abundance is just starting to make itself heard in our economic reality, the inevitable disturbance of the necessary transformation aside, this is a wonderful thing isn’t it?

Star trek