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John Cant

John Cant

John Cant - MPI Europe Ltd

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Trends in Financial Services

Trends in Financial Services

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Cross words over Sudoku, well then use poker?

31 May 2008  |  4905 views  |  1

So why this cryptic title? Well, if, like me, you have picked up a newspaper one evening over recent weeks and flicked through past the natural disasters, credit crunch and housing crises to try to find some lighter material, you may have ended up on the “puzzles” page. The typical page will have a selection of brain teasers including the traditional crossword and also the more recent Sudoku puzzles. What struck me - as I was trying to decide between which of these two to start, get half way through, get stuck and then switch to the other – was how these two were an analogue for the changing face of financial trading. The crossword is more old school with the need for a good grounding in the vocabulary of the market, being able to spot relationships, language skills, deduction and being able to decode cryptic clues. Many of these skills are suited to solving by people. Sudoku, the new kid on the block, is far more about numbers, algorithms, calculations, processing power – more suited in many ways to being solved by computer.

We should not take this analogy too far. For example, crosswords also rely on good search skills – one way of finding the answers to that tricky clue is to type the key words into your favourite search engine. Searching is something that computers – given enough processing power – are really quite good at.

Also Sudoku has a major difference to modern markets in that it is a game of perfect information i.e. the rules are clear and there is no information required from outside the puzzle to solve it. Those trying to understand why the price of a barrel of oil has shot beyond $135 know that it does not just rely simply on the fundamentals of supply and demand – there is also psychology, fear, greed, bluff and double bluff. These are all things that people know about, but with which computers have struggled in the past. However, there has been the news recently that computer programmes took on some strong poker players. In the first “man versus machine” poker championship in Vancouver, the world's best poker-playing programme Polaris took on human poker champions Ali Eslami and Phil Laak and, after some interesting competition, the computer won. So what is the big deal about poker you may ask? Well poker, given its mix of incomplete information (you don’t see all the cards) and the softer aspects of the game, aggressive strategies and at the same time the need to use bluff and to hide your intentions – it is not called a poker face for nothing – has been viewed as a model for some financial markets. So the ability of a computer programme to handle these aspects in a world of incomplete information is a major step forward for the application of computing to real life environments going beyond pure economic and rational analysis.

It is surely a matter of time – if they are not there already – that similar techniques are put to use in the more secretive world of investment banks algorithmic trading engines.

NB A version of this blog appeared in my monthly Financial Sector bulletin. To receive a copy each month send an email containing the word SUBSCRIBE in the title to contact at mpi-europe.com

TagsWholesale banking

Comments: (1)

A Finextra member
A Finextra member | 14 June, 2008, 00:21

Hi John, it is inevitable that someone will try and feeding a lot of data and rules etc, into something like a Roadrunner may do it (the new Los Alamos >petaflops supercomputer). 

The proposed uses of the Roadrunner include the usual super weapon simulations and also things like climate modeling, the latter being useful to commodities investors for instance.

In theory if you started out knowing where all the money was and could track it along with prices in real time and knew enough market factors you could predict opportunities. For the moment it's probably still more about how much timely and relevant information you can get, rather than how fast you can process it and act.

A couple of trillion operations per second from the Roadrunner just might make the difference.

Sounds a little like what we see already, just taken to the limit of what might be possible right now in the race for bigger, faster smarter.

If you can afford an investment of say $300-400 million it's probably well worth a try and a fairly good risk. There could be additional lucrative income opportunities for a Roadrunner owner and it might also serve as a great poker or chess coach.

As for games, I occasionally play, despite little time available to enjoy them, the University of Virginia’s Timothy Salthouse found that rigorous training fails to halt the rate of decline of our mindpower. Be it TV, chess or sudoku, we'll just be better at either watching TV, playing chess or basic maths than someone who may not practice, and we'll generally decline at the same rate whatever we do.

I know it's really meant to be all about relaxation and fun, but I recollect a brain strain playing chess with a particularly talented uncle. Maybe TV is actually better as I can't ever recollect any brain strain while watching the telly.

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I lead MPI Europe a niche financial sector consulting firm focussing on regulatory driven, risk, technology and operational change

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