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Friday, September 25, 2009

Are We But Crows? (Where Pattern is Noise)

Lets look at yet another way that the human mind gets tripped up and falters. Our propensity to find pattern makes us vulnerable to an inane form of overindulgence and counterproductive obsession with attributes of systems that do not carry essence or salience. Seems that our evolutionarily-shaped affinity for pattern make us particularly vulnerable to a level of indulgence that in smaller quantities is reasonable and healthy, even necessary.

Here is the problem. Most pattern is indicative of a lack of information or salience. If a system can get away with simple duplication along a scheme, it means that that part of the system is not very important. It means that it is cutting resource corners and systems can only get away with this type of cost cutting in areas that are not salient to the main purpose of the system at large.

Imagine going to a bookstore and obsessing over the fact that all of the books are made of the same stuff, of paper sheets cut and stacked in approximately the same geometric ratio. Imagine, in fact that this pattern overwhelmed your attention to such a degree that you could not be bothered with the content encoded as printed words on the pages of those books.

That would render all books equivalent. A book printed with random strings of words or with no words at all would be informationally equivalent to Darwin's, Origin Of The Species. In the face of an overwhelming attraction to inessential pattern, essential pattern is dismissed as noise, is ignored.

I call this the "Crow" problem… an obsessive attraction to shiny objects. There are so many examples of this type of cognitive distraction; rainbows, crystals, mirages, amber waves of grain, camouflage, fractals, golden rectangles, sacred numbers, etc.  It is where our own cognitive process amplifies some pattern in the world wether or not it is important in any information rich manor.

We are for instance, especially susceptible to and sensitive to right/left symmetry. Probably because filtering for this pattern allows you to quickly pull animals out of a complex sensory field. Having such a filter gave us evolutionary advantage, so we now have brains with a tendency to favor right/left symmetry in visual fields.

The rainbow is an other great example of pattern that is attractive but virtually meaningless. A rainbow is not actually a thing of course, but a mix of the refractive nature of light and a behavioral anomaly of our visual apparatus. A rainbow is like a hologram. What we are seeing is light reflected off of raindrops or fog. Of course it is a poor indicator of the location of rain in our visual field… there is rain in other parts of the sky than where the colored bands appear. The phenomena that is visible as a rainbow is happening every time rain is present but we only see the rainbow when our orientation to the sun is within certain fairly restrictive parameters. Yet, so attractive is the rainbow stimuli, under the influence of this pattern detection stimulus, we might just miss more pertinent information (a lion approaching?).

Another example of particular importance is the attraction to crystals and the latest crystal fad, fractal geometry.

Most people are interested in fractals (or think they should be). But what exactly do you actually KNOW about fractals? Does your knowledge of fractals include an understanding of the WHY of n-dimensional radial n-scale self-similar patterns, why they appear in dissipative systems that develop over time? Do you care to know or understand? I get the feeling that people who are the most attracted to fractals are more interested in some sort of pseudo-spiritual grooviness, the stare at your navel aspect of fractals, than the simple truth of least-energy dictated growth patterns.

What is abstracted in mathematics as the "fractal" is in fact the only pattern that nature can exhibit in systems that are dominated by parts that are very much the same. Sand is a good example. Homogenous liquids and gasses are another. Fractals are a map or abstraction of dissipative systems, and all systems are dissipative. But the events and situations that matter in the evolution of complexity, the WHY that makes US possible, are not the even dissipation within a scheme, but the CREATIVE events that allow for new (faster and bigger) dissipative paradigms. An explosion is fractal in the same way that a capillary web is fractal in the same way that both a tributary and alluvial plane is fractal. It is just the end result of a history where least energy dictates the most efficient moment to moment dissipation of energy. The way you are saying that fractals are important feels religious and rapturous. As though fractal patterns in nature are a THING or a GOAL. Fractals don't know they are fractals any more than the ink making up the word "Fractal" on a printed page "knows" or "wants" to be that particular word or any word at all.

People who act this way towards pattern scare me. What matters in process is the places where pattern breaks. Else we wouldn't be here. Else we couldn't find salience.

I am afraid of and purposefully vigilant against the grand attractors of human thought, virgin births, miracles of any kind, shiny baubles, trickery, omnipotence, anecdote, life ever after, self importance, power over others, a desire to know or have access to the prediction of future events, predetermination, and pertinent to this discussion, crystals and fractals and the types of pseudo-cyclical pattern that makes us think nature is more simple than it is and that nature is of our own imagination or invention.

All systems seek equilibrium. In systems made up of subsystems, each of these subsystems seek their own equilibrium or resonance. Frequently when the resonances of several co-systems fall into an overlapping cycles, additive standing waves can and do overwhelm the integrity of the system as a whole. Feedback loops are anti-complexity mechanisms. Overarching patterns overwhelm systems and keep them from creative or information rich activities and interactions. Systems that seek to compete in the edge of evolution game are systems that spend an inordinate amount of energy keeping feedback loops in check. A creative system is a system working overtime AGAINST the information killer that is natural tendency towards simple pattern (fractals).

If you are trying to get rid of a planet or smooth out the heat cline in an ocean, fractal patterns are important. If you are a member of a species that is carrying complexity forward through the accumulation and control over abstraction, dissipative pattern and the systems dominated by them, are like Kryptonite to the program at hand… best to avoid them at all cost.

It is important to know when to appreciate pattern and when to run like hell when you see it developing. The forces that produce pattern are information destroyers.

We had better look long and hard at this issue. Choosing a false god at this level in the evolutionary game could end up causing the death of the whole complexity scheme just as it is becoming aware of its purpose and salient pattern.

As another example of pattern distraction, I give you DNA.

My favorite morphological description of DNA: "the non-periodic crystal". It harnesses the strong self-organizing (but anti-information) properties that give rise to a crystal (in this case, an almost endless wound chain of identical and stable "double-helix" spiral twists) as a stable superstructure for that will carry the information (anti-crystal) bearing base-pairs at its axillary center. The crystal spiral holds and protects the integrity of the always-vulnerable low-entropy sequence that holds our genetic recipe… DNA's real structure of importance. Even so, we humans seem to be more attracted (like crows) to the simplicity of the simple and un-remarkable spiral crystal armature instead of the non-crystaline information the crystal armature makes possible!

The larger implication of our self-destructive crow-like attraction to simplicity is that we are romantic about the very things that don't matter and ignore-ant of the anti-crystal configurations that are complex and information rich… that are salient to the information we are and the information our information may yet create.

I suspect that our attraction to simplicity in pattern is an idiosyncratic after-effect of a salience detector within our thinking apparatus that is constantly looking for self-similarity. When computer scientists and logicians attempt to design compression schemes, they are looking for ways to algorithmically discover those sections or sequences of a set of information that are un-important to the overall structure… much of data is repetitive, if you can find these repetitions, patterns, you can reduce them to simple equations or pointers to prototypical modules that can be stored once and forever duplicated as filler. Obviously, these patters are compressible because they cary so little salient information.

While it is somewhat surprising that so much of an image, musical recording, even string of text, can, using fractal math, be detected as filler and deleted, the subsequent and predictable human reaction… that of honoring the trash simply because it is pretty, is to my mind, one of the most scary attributes of human proclivity. Fractals illustrate how much of nature's structure is non-salient, is the noise, the tailings of dissipation. That we would be enamored by the pattern of noise to such an extent that we ignore the real meat of information (that which is not pattern-able) is our potential downfall as a species.

A snail isn't trying to build spiral. A snail grows a shell that happens to be a spiral because that is THE ONLY SHAPE allowed in three dimensions that is both a cone (expanding tube) and dimensionally minimal of solid permanent material. The snail has better things to waste its limited energy on than the shape of its protective home. So it chooses the one shape that takes the least energy and most minimal construction algorithm to pull off. We dishonor the snail as a biological scheme by paying attention to the aspect of its survival that is the least interesting. That simplicity of that spiral shell is what should tell us not to pay attention to that aspect of its being or strategy.

But in this regard and others, we act as crows despite our 100 billion brain cells and the potential therein.

Sad.

Randall Reetz

Sunday, September 20, 2009

A Plan To Re-Invigorate Long-Term Capital Markets

Human behavior favors the immediate. Nobody willingly chooses to wait when an option allows instant or near-term gratification. This tendency naturally results in imbalanced systems. The recent investment market crash is evidence of what happens when short-term behavior is at odds with the medium and long term needs of a healthy economy.

To make matters worse, our tools evolve naturally in directions that mimic human proclivities, catalyzing the very natural and human obsession with the immediate. As investment securities markets are more and more influenced by and accelerated through the use of automation technologies (the computer and global communication networks), they trend naturally towards an over-valuation of short-run returns and under value long-run returns. Even if traders or fund managers start off with long-range, future-looking, wide-perspective goals, the competitive pressures placed on them simply for sharing trading facilities with companies that make money by trading on shorter and shorter time frames forces them towards similar behavior. When you are competing for money, and that money is changing hands in shorter and shorter cycles, money available for long range investments and the types of businesses and infrastructure plays becomes scarce. You either join the race towards the immediate, or you go without.

However, a thriving economy absolutely depends upon the continuous and long-range capitalization that actively supports basic science and the steady infrastructure improvements that build, promote, and maintain complex supply chains that constantly evolve towards greater productivity.

Though a healthy and vibrant economy profoundly depends upon capital fluidity, upon responsiveness to investment demand, the recent trifecta of market boom/bust cycles (energy, dot-com, and real estate securitization) has shown that revenue schemes that do nothing more than move money around can exert too much influence on the entire market landscape that shapes our national and international economies.

Three times in a row we have witnessed first-hand how second tier capitalization (business that make their money by repackaging investment risk) tend to quickly and fatally overwhelm the total investment market. These securitization schemes do better in the short term than standard capital markets because the value they trade is not directly tied to the success of the actual businesses and infrastructures that they capitalize. In market competition for investment dollars, abstraction schemes provide an artificial advantage that is impossible for real businesses to overcome.

If investors have the option of making a quick bet against market stability, an option that is not in and of itself dependent upon actual consumer or business to business demand for actual product or service, of course the capital will follow the quick and the fake over the slow and the real. This is a natural and predictable attribute of the behavior of capital markets.

So what is to be done?

There are many potential solutions and solution categories. Greater regulation of markets. Tariffs and taxes that are then redirected through government advisory boards that seek to determine the areas of funding that will have the greatest impact on future productivity. New kinds of markets and financial products that somehow reword long range investments. Public education directed towards society-wide changes in social morality and long range responsibility to future technologies and infrastructures. Switching to a benevolent dictatorship and appointing exactly the right leader with exactly the right understanding of productivity building economic mechanisms, and the will to make it so. Each of these options has deep potential for failure. Most are simply impossible or entirely romantic.

After some thinking, I came up with a plan that just might work.

Lets say the government set a Target Average Investment Period (TAIP). This TAIP (for sake of argument, lets say it is set at 'two years') would be the time delay before any investment you make could be evaluated, cashed in, or traded. It is an "Average" because you can make any number of investments but the average duration of your securities each time you invest has to be at least as long as the current TAIP setting. Some algorithm or official committee (Fed Board?) sets the value of the TAIP at some set interval (every year?) or, as is true of the Fed Rate, whenever the governing body decides the economy demands an adjustment.

In practice, what it means is this: If you purchase a thousand dollars in 1 year stock (one year 'less' than 2 year TAIP) you must offset this purchase with investments worth at least one thousand dollars in a 3 year stock (1 year 'more' than the current TAIP). An investor can offset securities purchases with periods shorter than the TAIP with any combination of investments longer than the TAIP so long as the total average of all purchases made at that time is equal to or greater than the the current TAIP setting.

In this way, securities are not simply tied to a company or fund or product, but also to the duration of the investment. If you want to partake in microsecond trading, cool, just as long as you offset those short run investments with an investments of equal value at the opposite end of the TAIP.

You don't just buy IBM, you buy IBM at duration. An investor can choose any combination of purchases (all of IBM or short term in IBM and long term in Intel). Alternatively, financial entities can be as creative as they want to be in designing investments products so long as the end result conforms to the current TAIP setting.

The government would fine-tune the TAIP the way it now fine-tunes the prime lending rate. Hell, if it works like I think it will, this adjustment will be more important and more reliable than prime rate manipulation.

Mostly, this scheme has the benefit of promoting the types of long-range investments that a strictly free market tends away from. And, it does so without restricting short range trades or the full range of trading period fluidity or investment products.

Randall Reetz

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