October 13, 2005

The Best of All Possible Worlds?

I've written before about the short time horizons prevalent today. Now there is a study suggesting that the best traders are likely to be, well, psychopaths. This brings many thoughts to mind. It certainly is consistent with the increased use of computers in finance, especially for shorter-term trading. We've seen a parallel in chess, where computers can now beat the best grandmasters (although a computer plus a human is stronger than either alone). But I cannot shake the feeling that we are getting it wrong. Capital allocation is one of the most important tasks in our society. I find it hard to believe that a group of psychopaths operating on a short time horizon are going to do it in the best possible way.

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