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Explain The Sacred

The following are 45 correlates that I’ve collected of things called “sacred”. I invite any of you to offer a theory of the sacred that explains as many of these as you can, as simply as you can. (And to suggests edits of this list.)

  1. Sacred things are highly (or lowly) valued. We politely revere, respect, & prioritize them.
  2. We revere sacred beliefs as well as acts. We feel dirty when thoughts go near illicit ones.
  3. Sacred is big, powerful, extraordinary. We fear, submit, & see it as larger than ourselves.
  4. Sacred things matter for our health, luck, and other outcomes we care about.
  5. We want the sacred “for itself”, rather than as a means to get other things.
  6. Sacred things are either more homogenous, or more unique, whichever is better.
  7. Sacred induces strong emotions: e.g., awe, joy, serenity, devotion, repulsion, & fear.
  8. We get emotionally attached to the sacred; our stance toward it is part of our identity.
  9. We desire to connect with the sacred, and to be more associated with it.
  10. To approach the sacred, we use self-control to purify ourselves, sacrifice, & commit. 
  11. We enjoy sacrificing for the sacred, to purify, & respect sacred, including via odd beliefs. 
  12. Sacred brings us comfort & consolation in hard times; losing it can feel devastating. 
  13. We affirm & learn sacred via mythic stories & accounts of how we & it fit in a universe.
  14. We have rules regarding how to approach sacred stuff, in part to protect us.
  15. The sacred isn’t for use by commoners, or for common purposes. 
  16. Shared views about the sacred bind, define, and distinguish social groups.
  17. Shared rituals & festivals bind & emotionally charge us, & help us to see sacred.
  18. We want associates to share our view of and attachment to the sacred.
  19. We get offended when others seem to deny our sacred views, and respond vigorously.
  20. We feel more equal to each other regarding sacred things; status matters less there.
  21. Either everyone (e.g. love) or very few (e.g. medicine) are entitled to opinions on sacred.
  22. Charismatic leaders motivate, get acceptance in part via appeals, connections to sacred. 
  23. Experts of the sacred are more prestigious & trusted, get more job security.
  24. Sacrificing for the sacred is seen as pro-social.
  25. Sacred things are sharply set apart and distinguished from the ordinary, mundane.
  26. Sacred things do not fit well with our animal natures, such as self-interest, competition.
  27. We dislike mixing sacred and mundane things together.
  28. We dislike money prices of sacred, & trades that get more mundane via less sacred.
  29. We dislike for-profit orgs of the sacred, relative to non-profits or government agencies. 
  30. Sacred things feel less limited by physics, & can seem to have unlimited possibilities.
  31. Sacred things really matter, fill deepest needs, complete us, make us pure, make all one.
  32. Sacred things last longer, and decay or break less. Sometimes eternal and unchanging.
  33. Sacred things are purer and cleaner, and closer to the ultimate core of existence.
  34. Sacred things have fewer random coincidences; their patterns mean something.
  35. Sacred things have fewer value conflicts with each other; you can have them all at once.
  36. It is harder to judge the relative value of sacred things, compared to mundane things.
  37. We understand the sacred poorly using cognitive rational analysis, or numbers.
  38. We understand the sacred better using intuition, flow, and creativity.
  39. How sacred things seem is less misleading; you can more trust their appearances.
  40. The sacred is mysterious, unlikely and even inconsistent. Who are we to question it?
  41. Sacred makes us stand outside ourselves, feel ecstasy, transcendence, different reality.
  42. We do not make or control the sacred, it makes and transforms us.
  43. Stuff (objects, dates, people, words, sounds) that touches the sacred gets sacred itself.
  44. We connect to sacred themes better via contact with sacred stuff.
  45. Over time, things that we often connect to tend to become sacred via nostalgia.

My attempt is described here.

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Why Is Everyone So Boring?

Upon seeing the adult world in detail, teens often lament “But it’s all so boring!” And in a standard trope of fiction, a spark of art infuses life, energy, and vitality into dull adults whose lives have lost all meaning. (E.g. recent movie Living.) Both groups agree: the world is far more boring than it need be. But why?

When I visited Guatemala City years ago, I noticed high walls around most homes and businesses, with very visibly armed guards at the entrances. Gardens inside were often beautiful, and I never saw any conflict, but those walls and guards told me that conflict was common enough.

Centuries ago, while people could rest safe and show themselves at home, when traveling between towns they tried to look either look poor or well-defended, as bandits lay in wait. Even within towns, people without allies who acted unusually rich, assertive, and confident would induce others to try to trip them somehow. It’s the tall poppy that gets cut down, after all.

We fill our worlds of fiction with interesting passionate charismatic people, and yet the real people around us seem boring by comparison. But this isn’t just because it is hard for reality to achieve the heights of imagination. Notice that within their small circles of family and friends, real people are more often lively, passionate, opinionated, and provocative, and they express more disagreements.

I propose that the main reason that most of us look more boring in public is that social predators lie in wait there. With friends, family, and close co-workers, we are around people that mostly want to like us, and know us rather well. Yes, they want us to conform too, but they apply this pressure in moderation.

Out in public, in contrast, we face bandits eager for chances to gain social credit by taking us down, often via accusing us of violating the sacred. And like townspeople traveling among the bandits, we are in public pretty vulnerable to the kinds of bandits that afflict us.

If we act interesting, passionate, and opinionated in public, we are likely to seem to claim high status for ourselves, and to touch on sacred subjects, either by word or deed. And this makes us quite vulnerable to accusations of arrogance and violating the sacred. Because: a) the sacred is full of contradictions, so that saying truths clearly does not protect you, b) observers feel free to use complex codings to attribute to you intentions that you did not literally say (or have), and c) observers are much more willing to accept unfair and unproven accusations if they are seen as “punching up” at presumed dominant or evil races, genders, ages, professions, or political factions.

The degree of this danger is made clear, I think by the reaction of the “gods” among us. The public tone of huge powerful firms and other orgs is consistently “officious”, i.e., mild boring supplication. They don’t dare act lively or passionate or opinionated, for fear of suffering devastating attacks from those predatory social bandits. The new somewhat-god-like A.I.s that have recently joined our world are also designed to act boring.

I see roughly three typical public stances: boring, lively, or outraged. Either you act boring, so the bandits will ignore you, you act lively, and invite bandit attacks, or you act outraged, and play a bandit yourself. Most big orgs and experts choose boring, and most everyone else who doesn’t pick boring picks bandit, especially on social media. It takes unusual art, allies, and energy, in a word “eliteness”, to survive while choosing lively. And that, my children, is why the world looks so boring.

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Religion Can Divert Sacred Energy

FYI, this working paper summarizes my new account of the sacred.

By making X sacred, a group can bind together around their shared view of X, motivate their members, and divert more energy toward X. But this comes at the cost of inducing costly signals of sacrifice for X, and inducing the distortions of setting apart, idealizing, and discouraging deliberative thought about X. Making X sacred can also discourage changes to X; treating X as sacred tends to induce hypocrisies, ones which changes tend to expose.

Due to such distortions, we shouldn’t want to treat too many topics X as sacred. We instead want a more minimal sacred package, with just enough X to bind us well. And we want that package to contain topics X where we either a) naturally value greatly them, b) we want more energy devoted to them, or c) those areas are not much distorted via setting apart, idealization, or feeling not thinking them.

In centuries past, most of our sacred energies were organized around religion. Religions told us that they and their gods were the most sacred topics of all, and then they told us which other topics X were how sacred. But recently, as religions have waned in influence, our sacred energies have lost their religious focus, and have instead become more widely spread across more topics X. We eagerly seek more sacred causes to add to our list of moral crusades.

In the west at least, I think this has resulted in more ways that the sacred distorts our behaviors, and blocks good changes. For example, newly strengthened sacred energies have blocked nuclear power, medical challenge trials, idea futures, and many better institutions that use money more and the nation-state less. “Ethics” often blocks innovation, in the name of the sacred. And in part I blame all this on the declining influence of Christianity.

Christianity once pulled more sacred energy to itself, and it explicitly approved many kinds of competition and market freedoms. Policies that expanded the strength and influence of Christian societies were often praised, even when questionable in other ways. The U.S. two centuries ago was a very religious nation, and allowed quite rapid growth and disruptive changes, more than most other nations would have allowed. And I credit that in part to religion diverting sacred energies away from opposing such changes.

Of course religions also have the potential to encourage sacred energies to apply to too many areas, and add their religious strength to them, to distort behavior and cut innovation even more than might have happened without them. So it is not that religion intrinsically diverges the sacred from causing problems. But religion does seem to have an important potential to do so.

Cultural selection of societies on the basis of their winning economic or military contests may well encourage the less distorting sorts of religions. And that may well have caused the rise of the good sort of Christianity. But as today such cultural selection seems a much weaker force in the world, we can’t count on it so much to get us out of our current sacred-gone-wild problems.

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How Planning Helps

Longtermism is an ethical stance which gives priority to improving the long-term future. (More)

Recently some have criticized longtermism, saying that it is often quite hard to have much confidence in how our acts today effect the distant future. Others have noted that it is also often hard to have much confidence in how personal acts effect global outcomes soon, or in how they effect personal outcomes decades later. All this is said to argue against consequentialist accounts of responsibility, compared to rule based accounts.

Many also say that “strategic planning” at big firms today is too detailed and infrequent; they’d do better with smaller more frequent problem-dependent plans. Big charities also do too much planning, it is said. Many say that engineers design too much, instead of iterating prototypes. Recently “agile” software engineering has been replacing “waterfall” planning with rapid prototyping. Very large planned projects seem to consistently fail. (I first learned of this in Freeman Dyson’s ’88 book Infinite in all Directions.)

Nuclear over-regulation seems mainly due to excess demands for planning. Law often excuses firms from harms if they had a plan to avoid them, even if those plans were ineffective. For example, ineffective sexual harassment training is seen as reducing liability in cases of actual sexual harassment. Politicians are often criticized for “not having a plan.” The bias toward an “inside” over an “outside” view also seems to be due to trusting a plan over background stats.

All of this seems to suggest that we are often overly inclined to rely on overly complex plans. Relative to the alternative to repeatedly doing stuff and then reacting to seeing what happens as a result. Maybe we do this because planning helps more to impress each other, or to justify ourselves to each other.

But, that doesn’t mean that planning is useless. Consider these quotes:

Plans are useless, but planning is essential. – Eisenhower

The value of a plan lies in the act and effort of planning: in doing so, you gain understanding about your client, the project’s goals and objectives, and the abilities of your team. Planning encourages situational awareness through learning and discussing strengths, weaknesses, opportunities, threats and a flexible strategy that can tie them all together. A good plan establishes a vision, with goals and supporting objectives, and provides context and directionality so the team can move forward and be supported without being locked in. (More)

In fact, it occurs to me that planning is useful even in the extreme case of our long term global future, where concrete plans seem the least useful. The reason, I think, is that planning aids the process of reactive adaptation, i.e., trial and error. Successful trial and error requires not only that you try stuff and see what succeeds, but also that you be sufficiently well focused on the right parameters of the trials and success. Only then can you notice the key correlations between trial parameters and success, so that you can learn which direction to set the parameters to get success.

Thus planning can be useful just because it helps you to to think about what are the important parameters that you should be tracking and comparing to success. And for this purpose, you actually don’t need to have any confidence that your plans can predict which direction to act in order to promote which outcomes. All you need to think is that the parameters that turn out to stand out as relevant in a planning process correlate with the parameters that you should be tracking in order to make use of trial and error.

Note that my main personal criticism of recent AI risk efforts is that now is too early to do much; we should save resources until we see more concrete examples of big AI control problems. It is fine for a few to think about AI risk now, as a way to get clues on what parameters we should start to track regarding AI products, activities, and outcomes. But we should expect to mostly have to wait until we see concrete things go wrong, try things to fix those problems, rinse and repeat.

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Prediction Market Quotes

A senior high quality person, who I trust, who recently spent several years trying to promote prediction markets, reports the following relevant quotes:

A G7 government official and advisor to their head of state:

“The prediction market experiment was a success, but we will not proceed with the programme as it interferes with our ability to shape the narrative around the direction of government policy.”

A leading bank CEO:

“Your crowdsourced real-time risk radar is remarkable, but we will not use it here. The only person who tells my board about unexploded bombs in this bank is me and people who answer directly to me.”

A partner at a prominent US-based global management consultant:

“The objective truth should never be more than optional input to any structural narrative in a social system.”

A Ivy League Management Guru:

“The problem with prediction markets is that they are the irritating precocious young child, entirely unfiltered socially, and yet forever talking about the elephants in the room that it may or may not be appropriate to talk about.”

Perhaps you can see the pattern here.

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The Price of Nations

I’m here today at one of those moments where I feel I see an insight, but an insight which I suspect that many others already knew, and have long been trying to explain to me. If you are one of those, I apologize for my thickness.

The insight is this: many of our major policy choices are made largely to promote (or demote) certain social units as our coordination points of allegiance. In particular, in the last century we have assigned many social functions to national governments in order to induce deeper attachments to them, even when they are less effective at such functions than would be other units.

For example, around the world we tend to do the following at the national level: governance, war, law (especially criminal and legal process), regulation, immigrant control, redistribution, medicine, schools, retirement savings, parks, and financing of government.

For a great many of these, I’ve long puzzled over why we don’t instead handle them at smaller or large scales, or not via governments at all. As such alternatives often seem more effective and efficient. But I have to admit that many of us are prone to feel an allegiance and obligation toward whatever social unit provides such functions. E.g., we feel loyal to our doc, even when expensive and not such a great doc.

War has long been very important driver of human behavior, inducing societies to try almost everything they can to induce stronger social cohesion re and allegiance toward our main social unit of war. And for several centuries that unit has been: the nation. Yes, nations have often fought wars as alliances of nations, but even so the nation has been the primary unit of war.

While war might seem like it has faded in importance, and war has in fact been less destructive lately, it is not at all clear that war won’t continue to matter a great deal in the foreseeable future. So, to each nation, it is probably still worth paying substantial costs to maintain and increase its abilities to fight war.

But it seems worth asking if greatly distorting these many other big social areas as we now do is really the most cost-effective way to prepare for future war. Might we instead usefully substitute: more military spending (including conscription), stronger alliances between nations, merging existing nations into larger nations, a harsher and more consistent policy of retaliation against enemies, or stronger pro-fertility, pro-immigration, or pro-growth policies to increase future war capacity?

Perhaps there are advantages to having the same social unit do many social functions, even if it matters less which exact unit that is. However, I’m not sure I can see strong synergies of that sort.

Perhaps some people just feel allied to a unit and want to strength it by adding to the functions it performs, not because that helps in war, but just because of their allegiance; they want that unit to win over all other social units. However, I’m not sure why I should want to encourage that behavior.

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Why Not Limit City Citizenship?

The most common argument I hear offered against allowing more immigration is that immigrants will compete with natives in local markets, including labor, mating, and housing markets. But economists understand that in competitive markets any benefits that natives gain from restricting such trade come from larger costs imposed on others. The world, and even most locals, would then be better off without immigration restrictions. So the world would be trying to coordinate to prevent such restrictions.

To economists, a better argument talks about quality control. Roommates, housing complexes, professions, workgroups, franchise groups, clubs, and many other units of social organization often control who is allowed to join them, in order to select for high quality members, and to give members incentives to behave well. The argument says: why can’t it make sense for nations to do similarly?

The main problem I have with this argument is that we usually only allow membership vetos when a group shares a brand, as in professions or franchise groups. Or when associates have pretty close interactions with the member in question. For example, we don’t usually let distant family members veto who individuals marry, distant parts of a firm veto who is hired in any one workgroup, or distant neighbors veto to whom people may sell their houses.

Furthermore, the same argument that says nations could benefit from quality control of members seems to also apply to smaller units of spatial organization, such as regions, states, counties, cities, and neighborhoods. Yet not only are such limits rare, nations often prohibit such limitations by law; cities may not legally limit who lives there. (Beyond of course requiring one to pay the local prices to live there.) Our laws often even restrict the abilities of individual businesses and clubs to limit their employees and customers. Why require quality control at the national level, and yet prevent it at other large scales?

I’m really asking these questions; I don’t have good answers yet. This feels to me less like quality control, and more like nations wanting to fill a particular slot in citizen lives. Like how your romantic partner might object to your having other romantic partners, nations seem jealous of allowing other comparable social units to also limit membership. As if by allowing regions, states, counties, cities, or neighborhoods to limit membership, the nation would be letting a “romantic” rival vie for your allegiance. Only the nation is allowed to sit in that emotional slot?

Or maybe not; what other explanations can you offer here?

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Are Elites Displacing Experts?

Peter Turchin has some interesting theories of cycles of empires in history. I’ve puzzled over his suggestion that “elite overproduction” is consistently part of the fall of empires, and that we are seeing it today. This concept doesn’t make much sense to me if “eliteness” is just one’s status rank, as that distribution can never change.

But maybe elite overproduction makes more sense as some previously rare status markers becoming more common. And I’ve just realized that I do in fact think I see a interesting trend of this sort: a drift from expert to elite styles and priorities in many areas. Let me explain.

We can see society as composed of three main groups: masses, elites, and experts. These aren’t discrete divisions; each person fills some mix of these three types in each aspect of their lives. And we seem to have a norm that our social institutions should be structured as: masses recognize elites who oversee experts.

Experts are people who are good at and know about particular things. They may be trained in them, or show a track record of accomplishment. We tend to defer to other experts in similar tasks to judge who is expert at something. We organize experts so that they can focus on the things at which they are best, and coordinate with other experts on related tasks. Expert talk tends to be precise, practical, concrete, and narrowly focused on particular tasks. Experts more engage detailed arguments and admit when they are wrong.

Elites are generally impressive people appropriate for leadership roles, who are accepted as such by both the masses and a wide range of other elites. Elites know less about particular technical tasks, and more about navigating social communities. Many kinds of impressiveness contribute to their eliteness, including wealth, beauty, intelligence, personality, connections, breadth, style, polish, and taste. Elite talk tends to be more artistic, stylish, and aspirational, and less precise, detailed, or logical.

Masses are people acting as ordinary people, without drawing on much in the way of special expertise or prestige.

Home schooling is a recent trend from experts to masses, but eating out more is a trend from masses to experts. Direct democracy is a trend from elites to masses, while regulation is a trend from masses to elites. Despite widespread references to “populism”, I don’t see a net trend toward or away from masses.

However, I think I do see a trend wherein expert habits and priorities are increasingly being replaced by elite versions. Let me give seven examples of this trend that I think I see.

First, there is the rise of higher education. Yes, learning more about how to do particular jobs would be more expert-like. But general learning not tied to particular job tasks designed mainly to confer prestige, that is more elite-like.

Second, we’ve seen a long term trend from engineering to design. Engineering used to get far more attention, now design does. Yes designers are experts to some degree, but they judge more on style, and more seek prestigious associations.

Third, we’ve seen a long term job toward jobs where talking matters more, compared to otherwise doing stuff. On average talkers are more elite, and doers are more expert. Experts who mainly talk (e.g., doctors, lawyers) are relatively elite as experts.

Fourth, we’ve seen the rise of an integrated community of world elites. When nations competed more directly, they paid more attention to experts re how to compete. But now nations care more about national prestige conferred by their elites.

Fifth, among intellectuals we’ve seen a rise in public intellectuals, who are more elites, relative to academics, who are more experts. The world is paying more attention to public intellectuals, who are more influential. Academics are less respected or influential, and more often and more eagerly seek to transition to become public intellectuals.

Sixth, using standardized tests like the SAT in school admissions is more of an expert style, while it seems a more elite style to drop such tests and instead relying on social dynamics among admissions elites to judge candidate essays, activities, personality, and connections. Our world is now making a big move away from standardized tests.

Seventh, the style of recent cancel culture represents a rise of elite over expert talk styles. Yes, atheists, communists, and homosexuals were “cancelled” in the past. But those were usually based on relatively direct admissions or evidence of who belonged to which category. In contrast, today a lot of interpretation and elite social voting goes into judging who is to be canceled on the basis of what they said, didn’t say, or didn’t apologize sufficiently for. Style, prestige, and political affiliations matter a lot. Expert talk is more “decoupled” than is elite talk, and decoupler-style talkers are most at risk here.

In most organizations, managers have increasingly elite habits and priorities higher up in management hierarchies. So a prediction of my hypothesis here is that, over time, elite styles have been becoming more common at lower levels over time. Not sure how to test this though.

Added 3a: In a comment, Berder notes that since 1980 we’ve seen a fall in words about rationality, relative to a rise in words about sentiment.

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Rah Capitalist Imperialists

My favorite board game is: Imperial. Not only is it fun, but it has a great theme and moral. From a review:

Imperial is a board game about being a shadow investor-slash-member of the Illuminati. It’s a game that is explicitly about financing imperialism. Each player is an “investor” that funnels money into different world powers, wages proxy wars and then slurps up all the profits. It’s one of the best board games about war ever made. And is it ever fun. …

Whereas traditional investment games put you in the position of rail baron or nameless-shady-investor-person, most do not represent the human suffering and exploitation that is required to amass large amounts of capital. Imperial doesn’t have a blurb devoted to how war is bad in its rulebook, but the fact that you can increase your revenue by sending your soldiers to die pointlessly makes the point without ever having to state it. Imperial might as well be called Let’s Wage War for Fun and Profit. …

It was the first board game that made me think about what I was actually doing while I was playing – maybe games were more than toys? Imperial isn’t didactic, screaming what it’s about as you play. “Come here,” it says, “make some money. Just don’t think about capitalism along the way.” *wink* *wink*

Other reviewers also see Imperial as a game designed to show the flaws of capitalism. (As was also the original intent of Monopoly.) But in fact, I see the game as showing a great virtue of capitalism: it cuts war. Let me explain.

Most board-gamers have played many war games, wherein each player controls a different nation, or alliance of nations, and sets their war strategies. And Imperial looks like that on the surface. The map shows a landscape of nations and their war units, and players get to control their war strategies. So players are tempted to slip into their old wargaming mode, and do everything they can to win their wars.

But that is a mistake, even if an ever-so-tempting one. Players are actually bankers loaning money to nations; they control a nation’s war and other choices only when they have loaned the most money to that nation. Bankers win the game by making the most on their investments, not by winning wars. So often the best strategy is to not start a war, and maybe even not to retaliate against direct attacks. You may do better to buy into the attacking nation, and making peace between neighbors. And don’t get too attached to any one nation, as another banker might soon grab control of it.

Although I haven’t actually done the experiment, I’m pretty sure that there would actually be more war, and more destruction due to war, in the variations on Imperial where we take out the whole banker layer, and just have players be generals who seek max territory, or rulers who seek max respect or national treasury. And my reason is simple: as a player, it is remembering that I’m a banker, and not a general or ruler, that usually pulls me back from a more aggressive war strategy.

Thus the board game Imperial offers you a vivid and visceral personal experience to show you how capitalism cuts war. Not to zero, but having capitalists in charge of war induces lower levels of war than having other parties in charge of war. Plus the game is just fun. Rah capitalist imperialists indeed.

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Are Financial Markets Too Short-Term?

Financial market prices embody info that helps others to make decisions. For example, firms decide activity levels based in part on their stock prices. Thus traders who add info to such markets do a public service, even if they do this for a private profit.

Such traders can choose to focus their info-collection efforts on “slow” info, which stays relevant for a long time, or on “fast” info, which is quickly forgotten. Many have said that such markets focus too much on fast info, relative to slow. In this post I will analyze this question. My tentative conclusion will be: yes, financial markets do indeed seem to focus too much on fast info. But first, let’s review the basics.

Each financial trade has an asset type, a buyer, a seller, a quantity, and a price. Each simple financial market trades one kind of asset, and its sequence of trade prices follows a random walk over time, a walk that reveals info about the value of that asset to observers. The expected price change variance during a time period is proportional to the amount of info revealed in that period.

Each trade happens via one trader first putting an offer into an “order book”, after which the another trader accepts that offer. While the act of posting a book order could reveal info to observers, it usually doesn’t. This is because a trader with substantial info prefers to instead profit from it by accepting a book order. If your info suggests that the price should rise, you buy, and if your info suggests that the price should fall, you sell.

However, the profits of traders who accept book orders come from the traders who posted those orders. So book order traders adjust their book prices to include the average info held by accepting traders. And competition typically moves book prices to where book traders make zero expected profits. There is a “bid-ask spread” between the “bid”, the highest book offer to buy, and the “ask”, the lowest book offer to sell. The size of this spread says how much info is expected to be embodied on average in each accepting trader.

However, some traders have little or no info. They instead want to trade for reasons other than profiting from info. If they could post competitive book orders, they should. But doing that well is hard. (For example, ~95% of book orders are cancelled before being filled.) So most low info traders instead accept book orders. Their trades lower the average info per trade, and thus allow traders with higher than average info to profit from their trades. These “fools” are the engine that drives the whole system.

For any given piece of info that a trader holds, they could profit more by trading a higher quantity at the same price. But those who make book orders foresee this strategy, and so their spread increases with order quantity; larger trades are presumed to carry more info.

As a result, a trader with an unusually big chunk of info prefers to reveal it more slowly over time, via a slower sequence of smaller trades (Vayanos, Kyle). And to avoid other traders noticing a pattern in their trades and jumping ahead to grab their profits, a trader who can find no other trades to hide among may need to make an apparent random walk of trades. For example, N2 trades on both the buy and sell side can hide N trades all on the same side.

So why not spread informed trades out over longer time periods? Because each piece of valuable info comes with a deadline. You can only profit from by telling a market about somethings that it will eventually learn in other ways. However, once many traders all know that many of them all have the same piece of info, then that info should be incorporated into the book order prices. Thus one can only profit by trading on such info before its everyone-knows-it deadline.

This duration-til-deadline varies greatly with info type. For example, slow info on future product fashions, or the success of innovation projects, may take years or decades to be revealed. In contrast, ~20% of trades are by “high frequency traders” (HFT), who typically trade on very fast info re prices in other markets. The deadline for the fastest HFT to arrive at a market with such other-market info is roughly when the second-faster HFT arrives. This is typically ~20-200 ns later for other markets at the same site, and ~50-500 μs for different sites (source: Kelvin Santos).

Thus five-year duration “slow” info is roughly a factor of a trillion to quadrillion times slower than HFT “fast” info. This huge dynamic range for info duration offers a big chance for duration effects to have big impacts. If there are problems with poor incentives re info duration, they could plausibly be really big problems. 

To evaluate whether financial markets focus too much on fast info, we should consider how social value, and also private trader costs and benefits, vary with info duration.

Let’s start with social value. As social value of info revealed to a market comes from its ability to influence decisions, decisions which are typically spread out across time, this value is roughly proportion to info size (i.e, price-change) times info duration. So, for example, if no relevant decisions are made using the market price in the few milliseconds duration of a high frequency trade, then the info in that trade induced zero social value.

Now let’s consider the private net revenue to be gained from a trade. As discussed above, that trade revenue is also proportional to info size times duration, at least for traders who have access to enough capital to support the required trading strategy, whose cost goes roughly as info size times duration.

How about trading costs? While there are fixed costs to design a trading strategy and arrange to implement it, and there can be mechanical marginal costs to execute a trade, the main other marginal cost is the opportunity cost of the assets used to make a trade. Any one asset can’t be simultaneously used to support an arbitrary number of arbitrary trades. The opportunity cost of these assets is also roughly proportional to info size times duration. (Yes, orgs that trade on margin and make many fast independent trades, may seem to face no opportunity costs of assets, but this is an illusion; they just have especially low opportunity costs per trade.)

So far all the factors we’ve considered have depended in the same way on duration; social value, trade revenue, and marginal trading cost all go as info size times duration. But a few considerations remain that depend differently.

For example, traders often do not have sufficient capital to fully profit from info that has a very large size times duration. In addition, long duration info apparently comes in larger chunks, which makes size and duration positively correlated. For example, an insight about whether some product innovation will succeed over the next decade is usually just a much bigger chunk of price-change-times-duration than is the last market price tick typically used by a HFT trader. This effect suggest insufficient attention to long duration info.

Finally, ambitious traders, and the systems that train and select them, prefer that traders show their abilities over many small fast trades, instead of over a few big slow trades. It is just not very useful to prove your trading abilities via finding and trading on info that takes decades to be proven right. This effect also suggests insufficient attention to long duration info.

Bottom line: while social value, trading revenue, and marginal trading cost all scale as price-change times info duration, the existence of large info chunks and the desire to prove trader abilities over career-sized durations suggests that financial markets pay too much attention to fast, relative to slow, info.

In my next related post, I’ll discuss how alternative trading institutions might mitigate this problem.

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