Stock Market Predictions: I Wish!
Sometimes I am asked to pick stocks which I do with about the same rate of success as monkey with darts. My models are about strategic interaction in situations in which negotiation is possible and so is the threat or realization of coercion, bullying, or simple pressure. A properly functioning market does not have the threat of bullying and coercion as a characteristic. Now to be sure, regulators engage in pressuring, cajoling, coaxing, and sometimes beating up the misbehaved or those alleged to be misbehaved. So, it is possible to use models like mine to forecast market movements in particular sectors that are subject to changes in regulations or government oversight. That’s mostly the domain of concerns for hedge fund managers but it is an appropriate arena for the sort of forecasting I do. Straight markets, not so much!
Maybe someone out there will be stimulated to try her or his hand at designing a stock market game. Meanwhile I hope you are enjoying the apprentice version of the game. We are working at a web version and then the downloadable will go away. It is set up anyway for limited time use — I really want to get the web version up and running.
2 Comments Add your own
1. Jonathan Sandlund | October 12th, 2009 at 8:42 pm
If you believe people are rational, and thus predictable, is it not fair to assume the market must be rational as well? Afterall, it is merely a function of its participants.
I have to say, I disagree with the notion that people, and the market for that matter, are rational but I see a disconnect in your theory that people are predictable but markets are not…
Even though we disagree, I’ve thoroughly enjoyed reading your material! Best,
Jonathan Sandlund
2. admin | October 12th, 2009 at 9:32 pm
Hi Jonathan,
Thanks for the comment. I have clearly not stated my case adequately. I do not mean to suggest that markets are unpredictable in general; only that they are not predictable by my model. My model assumes more than rationality. It also assumes that it is examining a situation involving the opportunity for negotiation in the shadow of the potential threat of the use of coercion or threats. In a pure market setting this condition is not met. It is met when it comes to predicting, for instance, how regulators and regulations may influence markets because regulators often have threat-power. Each additional assumption to a model necessarily restricts the domain of things it applies to. I am coinfident that there are many clever economists and others using game theory to play markets. that just is not what my particular models are designed to do.
Bruce
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