I’m looking for a word...

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Rick Ferri
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I’m looking for a word...

Post by Rick Ferri » Thu Mar 22, 2018 11:12 am

I’m looking for the word or phrase that describes how a complex system changes either predictably or unpredictability when a pasive observer becomes an active market participate. Any ideas?
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AerialP
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Re: I’m looking for a word...

Post by AerialP » Thu Mar 22, 2018 11:16 am

Feedback loop?

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Re: I’m looking for a word...

Post by oldcomputerguy » Thu Mar 22, 2018 11:16 am

Butterfly effect?
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: I’m looking for a word...

Post by rgs92 » Thu Mar 22, 2018 11:19 am


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Pajamas
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Re: I’m looking for a word...

Post by Pajamas » Thu Mar 22, 2018 11:22 am

Would it matter whether or not the new participant was previously an observer?

This brings to mind the Heisenberg Uncertainty Principle as well as the concept of participant observation in sociology.

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Re: I’m looking for a word...

Post by Rick Ferri » Thu Mar 22, 2018 11:25 am

Those are on the right track. There’s got to be some phrase in economics, science, engineering etc. that eloquently describes how adding one more thing changes the nature of things. For example, public’s interest and then participation in “smart beta” changes the markets in ways that make all past research unreliable.
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Svensk Anga
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Re: I’m looking for a word...

Post by Svensk Anga » Thu Mar 22, 2018 11:51 am

Sounds like you are heading for the "Rekenthaler Rule" - When the Bozos know about it, it does not work any more.

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Re: I’m looking for a word...

Post by InnocentAbroad » Thu Mar 22, 2018 11:55 am

In physics there is the Observer Effect, whereby the act of measuring something influences the result. There is something similar for human behavioural studies, called the Hawthorne Effect. The idea is that people change their behaviour when they know the are being monitored.

There is also Reflexivity: https://www.investopedia.com/terms/r/reflexivity.asp which is about the relationship between cause and effect.
Last edited by InnocentAbroad on Thu Mar 22, 2018 12:02 pm, edited 1 time in total.

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Re: I’m looking for a word...

Post by tractorguy » Thu Mar 22, 2018 11:59 am

I'm also going to vote for the Butterfly effect. From the wikipedia article on Chaos Theory. "The butterfly effect describes how a small change in one state of a deterministic nonlinear system can result in large differences in a later state, e.g. a butterfly flapping its wings in China can cause a hurricane in Texas."
Lorne

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Re: I’m looking for a word...

Post by livesoft » Thu Mar 22, 2018 12:01 pm

unintended consequences

But I like what InnocentAbroad posted, too.
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Re: I’m looking for a word...

Post by timmy » Thu Mar 22, 2018 12:03 pm

InnocentAbroad wrote:
Thu Mar 22, 2018 11:55 am
In physics there is the Observer Effect, whereby the act of measuring something influences the result. There is something similar for human behavioural studies, called the Hawthorne Effect. The idea is that people change their behaviour when they know the are being monitored.

There is also Reflexivity: https://www.investopedia.com/terms/r/reflexivity.asp which is about the relationship between cause and effect.
+1

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Pajamas
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Re: I’m looking for a word...

Post by Pajamas » Thu Mar 22, 2018 12:07 pm

Disruption of equilibrium.

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Re: I’m looking for a word...

Post by jriding » Thu Mar 22, 2018 12:09 pm

Tipping point?

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Re: I’m looking for a word...

Post by Flobes » Thu Mar 22, 2018 12:12 pm

Hundredth Monkey.

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Re: I’m looking for a word...

Post by cantos » Thu Mar 22, 2018 12:15 pm

Rick Ferri wrote:
Thu Mar 22, 2018 11:12 am
I’m looking for the word or phrase that describes how a complex system changes either predictably or unpredictability when a pasive observer becomes an active market participate. Any ideas?
Three-body problem..... at least, when compared with the two-body problem. lol.

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Re: I’m looking for a word...

Post by timmy » Thu Mar 22, 2018 12:17 pm

The Joker :oops:

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Re: I’m looking for a word...

Post by General Disarray » Thu Mar 22, 2018 12:20 pm

Social movement? Synergy?

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Re: I’m looking for a word...

Post by Howard Donnelly » Thu Mar 22, 2018 12:25 pm


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Re: I’m looking for a word...

Post by pinot3 » Thu Mar 22, 2018 12:41 pm

Confirmation bias
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Re: I’m looking for a word...

Post by Nestegg_User » Thu Mar 22, 2018 12:46 pm

Innocent Abroad has it.... although you could call it
Shrodinger’s Catatude


https://9gag.com/gag/aXb6Nod/schrodingers-cat

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Re: I’m looking for a word...

Post by General Disarray » Thu Mar 22, 2018 12:48 pm

Emergent structures?

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Re: I’m looking for a word...

Post by Random Walker » Thu Mar 22, 2018 12:48 pm


PVW
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Re: I’m looking for a word...

Post by PVW » Thu Mar 22, 2018 12:49 pm

Rick Ferri wrote:
Thu Mar 22, 2018 11:12 am
I’m looking for the word or phrase that describes how a complex system changes either predictably or unpredictability when a pasive observer becomes an active market participate. Any ideas?
That is basically the definition of a dynamical system. Controlling these unpredictable systems is called Robust Control.

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Re: I’m looking for a word...

Post by k66 » Thu Mar 22, 2018 12:49 pm

Fluid Mechanics uses the terms Laminar and Non-laminar or Turbulent flows to describe the difference between perfectly flowing (idealized) fluids/gasses and when that same flow becomes disrupted and "chaotic" under increased flow rate. The gross properties of the system can still be determined (i.e. we can still know how much water comes out the end of the hose), but the particulars of the flow are non-linear (e.g. it becomes chaotic and we may not be able to say much about how it behaved getting to the end of the hose).
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Re: I’m looking for a word...

Post by Random Walker » Thu Mar 22, 2018 12:52 pm

Of course this post elicits thoughts of Bozos and skating where puck was. It’s also a reminder that the efficient market hypothesis is a theory that gets stronger as people work to find anomalies.

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Re: I’m looking for a word...

Post by zengolf2011 » Thu Mar 22, 2018 1:40 pm

Many moons ago I recall studying deviation-amplifying and deviation-attenuating mutual causal systems. It was an interesting paradigm dealing with the interactive effect between causes and effects.

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Re: I’m looking for a word...

Post by triceratop » Thu Mar 22, 2018 1:57 pm

I think the suggestions having to do with dynamical systems are a bit off the mark in terms of what you're describing.
InnocentAbroad wrote:
Thu Mar 22, 2018 11:55 am
In physics there is the Observer Effect, whereby the act of measuring something influences the result. There is something similar for human behavioural studies, called the Hawthorne Effect. The idea is that people change their behaviour when they know the are being monitored.

There is also Reflexivity: https://www.investopedia.com/terms/r/reflexivity.asp which is about the relationship between cause and effect.
livesoft wrote:
Thu Mar 22, 2018 12:01 pm
unintended consequences

But I like what InnocentAbroad posted, too.
Agree with this. Some related concepts: heteroskedasticity (e.g. effect of smart beta participants on market behavior versus rate of participation of investors in smart beta) and non-stationarity.
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Re: I’m looking for a word...

Post by ResearchMed » Thu Mar 22, 2018 1:59 pm

For your purposes, does it really matter that there is a passive observer who becomes active, or would any new active participant work for this purpose? If so, that may simplify what you are trying to capture.

RM
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Re: I’m looking for a word...

Post by 2015 » Thu Mar 22, 2018 2:03 pm

Are you thinking of The Sandpile Effect? Admittedly this link is from Wikipedia, but the quote I include is how I came to understand from other sources the Effect's impact in human endeavors (including investing, economics, and personal finance):

https://en.wikipedia.org/wiki/Abelian_s ... _principle
The original interest behind the model stemmed from the fact that in simulations on lattices, it is attracted to its critical state, at which point the correlation length of the system and the correlation time of the system go to infinity, without any fine tuning of a system parameter. This contrasts with earlier examples of critical phenomena, such as the phase transitions between solid and liquid, or liquid and gas, where the critical point can only be reached by precise tuning (e.g., of temperature). Hence, in the sandpile model we can say that the criticality is self-organized.

Once the sandpile model reaches its critical state there is no correlation between the system's response to a perturbation and the details of a perturbation. Generally this means that dropping another grain of sand onto the pile may cause nothing to happen, or it may cause the entire pile to collapse in a massive slide. The model also displays 1/ƒ noise, a feature common to many complex systems in nature.
Emphasis added

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Re: I’m looking for a word...

Post by cfs » Thu Mar 22, 2018 2:08 pm

By the time we finish with this one we will have a new one . . . "The Ferri Effect" . . . gracias por leer ~cfs~
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Re: I’m looking for a word...

Post by rkhusky » Thu Mar 22, 2018 2:26 pm

InnocentAbroad wrote:
Thu Mar 22, 2018 11:55 am
In physics there is the Observer Effect, whereby the act of measuring something influences the result.
In physics (quantum mechanics) you can't have a passive observer. To observe is to interact. For macroscopic systems, the observer doesn't affect things too much.

In investing, to participate is to interact, to some degree at least, probably similar to above.

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Re: I’m looking for a word...

Post by goingup » Thu Mar 22, 2018 2:27 pm

Selective perception?

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Re: I’m looking for a word...

Post by bertilak » Thu Mar 22, 2018 2:33 pm

The Warren Buffett effect?
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Re: I’m looking for a word...

Post by alex_686 » Thu Mar 22, 2018 2:41 pm

Chaos Theory describes Fractals. Non-liner dynamic systems. These systems may have multiple "strange attractors" that are quasi-equilibrium points which the system oscillates between.

Or maybe Secular Changes would be better. This describes when the fundamental nature of the underlying system changes. A very common in word in economics and finances to denote the evolving nature of system, pointing to break in different times.

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Re: I’m looking for a word...

Post by 2015 » Thu Mar 22, 2018 2:47 pm

rkhusky wrote:
Thu Mar 22, 2018 2:26 pm
InnocentAbroad wrote:
Thu Mar 22, 2018 11:55 am
In physics there is the Observer Effect, whereby the act of measuring something influences the result.
In physics (quantum mechanics) you can't have a passive observer. To observe is to interact. For macroscopic systems, the observer doesn't affect things too much.

In investing, to participate is to interact, to some degree at least, probably similar to above.
Can you explain this? Complex adaptive systems can be both microscopic (e.g., components of the immune system) and macroscopic (the stock market). As such, any CAS is made up of multiple interacting, adaptive agents. Each of these agents have unpredictable influences on the system individually and as a whole. As such, life itself is a probabilistic exercise and is subject to Reflexivity, as noted above.

Equilibrium is definitely affected by Reflexivity. Chaos Theory holds that even if you know all the determining factors in a system, you may not be able to predict the course it will take, because of the way different causes can interact with each other. Even simply determined systems can behave chaotically. They do so partly because of Reflexivity, whereby one action affects the starting action of the next action, so small effects become larger causes. George Soros writes, “Reflexivity is, in effect, a two-way feedback mechanism in which reality helps shape the participants’ thinking and the participants’ thinking helps shape reality in an unending process in which thinking and reality may come to approach each other but can never become identical.”

My first thought when seeing this thread was that Rick might be working on something demonstrating why predictions in CAS such as investing are worthless.

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Re: I’m looking for a word...

Post by FrankLUSMC » Thu Mar 22, 2018 3:19 pm

Murphy's Law

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Re: I’m looking for a word...

Post by Rick Ferri » Thu Mar 22, 2018 3:26 pm

cfs wrote:
Thu Mar 22, 2018 2:08 pm
By the time we finish with this one we will have a new one . . . "The Ferri Effect" . . . gracias por leer ~cfs~
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Re: I’m looking for a word...

Post by rkhusky » Thu Mar 22, 2018 3:45 pm

2015 wrote:
Thu Mar 22, 2018 2:47 pm
rkhusky wrote:
Thu Mar 22, 2018 2:26 pm
InnocentAbroad wrote:
Thu Mar 22, 2018 11:55 am
In physics there is the Observer Effect, whereby the act of measuring something influences the result.
In physics (quantum mechanics) you can't have a passive observer. To observe is to interact. For macroscopic systems, the observer doesn't affect things too much.

In investing, to participate is to interact, to some degree at least, probably similar to above.
Can you explain this?
This is what I was thinking about:
If I see a car driving down the road, the fact that I can see it doesn't change the trajectory much.
If I am trying to observe an electron, I need to bounce something off it to observe it. The impact from that "something" changes the electron's state.

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Re: I’m looking for a word...

Post by vested1 » Thu Mar 22, 2018 3:54 pm

Reactive Dissonance

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Re: I’m looking for a word...

Post by NotWhoYouThink » Thu Mar 22, 2018 4:02 pm

Whatever the opposite of scalability is.

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Re: I’m looking for a word...

Post by Rick Ferri » Thu Mar 22, 2018 4:36 pm

Dilution
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Re: I’m looking for a word...

Post by 21&lewis » Thu Mar 22, 2018 4:37 pm

Scrumtrulescent

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Re: I’m looking for a word...

Post by SGM » Thu Mar 22, 2018 4:59 pm

Confounder or confounding variable.

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Re: I’m looking for a word...

Post by scone » Thu Mar 22, 2018 5:05 pm

"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: I’m looking for a word...

Post by clutchied » Thu Mar 22, 2018 5:08 pm

disruption of the bystander effect.

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Re: I’m looking for a word...

Post by Socal77 » Thu Mar 22, 2018 5:15 pm

scone wrote:
Thu Mar 22, 2018 5:05 pm
Reflexivity.

https://en.wikipedia.org/wiki/Reflexivi ... al_theory)
Beat me to it. I heard it form George Soros in one of his interviews.

Reflexivity- Feedback loops between a market and market participants.

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Re: I’m looking for a word...

Post by VictoriaF » Thu Mar 22, 2018 6:11 pm

The last straw.

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Re: I’m looking for a word...

Post by tennisplyr » Thu Mar 22, 2018 6:40 pm

Unplanned outcome.
Human intervention.
Human bias.
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Re: I’m looking for a word...

Post by LadyGeek » Thu Mar 22, 2018 6:42 pm

I think InnocentAbroad is correct (reflexivity), as I googled Rick's statement "complex system changes either predictably or unpredictability when a pasive observer becomes an active market participate" and came up with: Fallibility, reflexivity, and the human uncertainty principle - 1350178X.2013.859415
For example, if investors believe that markets are efficient then that belief will change the way they invest, which in turn will change the nature of the markets in which they are participating (though not necessarily making them more efficient). That is the principle of reflexivity.
George Soros (2013) Fallibility, reflexivity, and the human uncertainty principle, Journal of Economic Methodology, 20:4, 309-329, DOI:
10.1080/1350178X.2013.859415.

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Re: I’m looking for a word...

Post by Rick Ferri » Thu Mar 22, 2018 6:54 pm

Socal77 wrote:
Thu Mar 22, 2018 5:15 pm
scone wrote:
Thu Mar 22, 2018 5:05 pm
Reflexivity.

https://en.wikipedia.org/wiki/Reflexivi ... al_theory)
Beat me to it. I heard it form George Soros in one of his interviews.

Reflexivity- Feedback loops between a market and market participants.
Soros also refers to this as a type of momentum, whereby markets go up because they have gone up.
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