The market and the story

I’m fascinated, more than troubled, by the interplay between the narrative impulse and theoretically rational pursuits. It’s why I love science (and the history of science) — you find some data, propose a story to fit it, then find some more and see if the story holds. Of course with the stock market, things move at a pace such that the half-life of a story is often rather short.

The point is that 60% of stock trades are being done by machines, operating according to a set of algorithms and inputs, which (I’m pretty sure) do not include natural language parsing of the news.

Yet whenever the stock market makes a move, the financial press constructs post hoc narratives that explain what’s happened as a reaction to the news of the day, as if the news is what was was motivating the trades. For example, here’s Reuters confidently explaining today’s nose-dive in terms of various events that made headlines, none of which are a computer glitch. (15 minutes later, Reuters tweeted the alternate explanation.)

This fascinates me. Most stock market trading is being done by machines, but the stories we tell ourselves are about humans responding to new information. You can’t interview an algorithm about why it made a certain choice. In the absence of that knowledge, it seems clear that the financial press just makes educated guesses and acts as if correlation is causation. It’s speculative fiction.

from “Glitch Trading,” by Tim Maly, Quiet Babylon, 8 May 2010

Originally published at

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