Tribal Reality and Financial Markets

This post is inspired by Noah Smith's Blog Post: Tribal Reality and Extant Reality.

It is about second-hand information vs finding out yourself. In Noah's sense Tribal Reality is a way of signaling "Hey I am in your tribe" (using the same symbols, convey the same informations, play the same game, ..). The problem starts when speculative stuff is mistaken with reality.

Tribal Reality and Technology

This is the part that I find so interesting. It is about the power of information and explorative learning. In low-tech societies, a few people took the lead by simply insisting that they can see more than others (as prophets, cult leaders, ..). Technology helps individuals to to explore and apply useful information, without taking a special lead.

I want to extend to low-abstraction vs high-abstraction societies (clear, I am a biased mathematician interested in the spiral of mathematical innovation).

The Wisdom of Crowds and Financial Markets

How to make money? Why the many are smarter than the few? When information is aggregated, the average guess of a tribe becomes more accurate than the individual guess. To outguess the crowd is not easy and it will cost (the idea of the EMH - remember EMH <==> P=NP)

I am interested in the operational aspects of tribal reality in quant finance. Up to 1987 the option traders played the simple Black Scholes Game. Then far out of the money options wre trade and the headache begun. BS has lost the innocence of being a game rule?

Based on abstraction and technology individual insight is possible - against The Macho of Financial Modeling.

Picture from sehfelder