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The Role of Emotions

 
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I've been working on the idea of a fully automated futures trading system for a few years now. It's been demonstrated that although there exist fairly simple trading strategies that are consistently profitable over extended periods of time, some 90% of all traders in the futures trading business consistently lose money. The reason for such an apparent contradiction, it's been conjectured, is that trading is 90% psychology and 10% the method. The market is driven by fear and greed, and it's how you control your emotions that matters when it comes to success in trading.
In the psychological experiments, it was demonstrated that people often react irrationaly in the sense that they rely on emotion rather than logic in their decision making process. For example, given the following choices:
A. Take a sure loss of $1,000
B. Take a 50% chance that you recover the loss and the 50% chance that you lose another $1,100 (for a total $2,100 loss)
Most people would choose option B. For obvious reasons, this is completely irrational and leads to bancrupcy over the long run.
More generally, people tend to switch to the mode of denial and self-sabotage when put in the unfavorable environment. The solution for success (in trading, at least) seems to exclude the human (emotional) element entirely from the process. That is, not only should the machine (software) make the trading decisions, but it should also perform trade execution, account monitoring, risk management, and all other related activities. I have a "proof of concept" version of such a system working, and it remains to be seen who successful it will be.
With that introduction, let me state the questions that I am interested in discussing in this thread. Why do human beings need emotions? What's the purpose? What would the intelligent life be if the agents relied on reason and logic only, and had no concept of emotions? Now, I am not talking about the machines running the Matrix, but about humans with the good old neocortex and everything else, except amygdala, an an almond-shaped part of brain believed to be responsible for motivational and emotional behavior.
Now, I must profess that although I know quite a bit about trading, I am an absolute ( ) dilettante in the field of human psychology. So, what do you cowboys and cowgirls think?
 
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EK: Why do human beings need emotions?
So that people like you can enjoy the life teasing the hell out of those unfortunate "intellectual beings with emotions" in forums like MD
EK: What would the intelligent life be if the agents relied on reason and logic only, and had no concept of emotions?
Then there would be no MD and things would be boring I think.
 
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Why do human beings need emotions?
I tried to imagine my life without any emotions, and the immediate thought that came to mind was - whats the point of life without emotions?
But then looking a little deeper and referring to ancient teachings - all of which state that to achieve a state of absolute peace we must let go of all material and emotional attachments.
What are emotions - a state of mind; where we might be agitated (anger), envious, in love, happy etc. When are we really happy? Most ppl IMHO misunderstand temporary material / emotional gratification as happiness. Happiness is really a state of total peace within yourself.
Emotions need to be mastered. We need to control our emotions and not the other way around. In that respect, if everyone had total mastery over their emotions, life would be perfect.

EK: Why do human beings need emotions? What's the purpose?
To seperate us from God
 
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Emotions are an in-built control to the biological system in animal and plant kingdoms.(Have you tried talking to your plants?). Trust it implicitly. One can use reasoning and experience to stablise emotions but cannot rely on the first two alone. Another Trinity.


regards
[ September 19, 2003: Message edited by: HS Thomas ]
 
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Originally posted by Eugene Kononov:

Why do human beings need emotions? What's the purpose?


Emotions is the reason for human existence. People act or not to act to satisfy their emotional needs. Some of our emotional needs are: Personal Power, Ego, Curiosity, Love, Security, Belonging, Recognition, Creativity, Freedom, Privacy, Success, Respect, Winning, Self esteem. Human without emotions is dead or is in advanced stage of mental dementia. Stock trading is part of this game, we do it because it satisfy some of our needs.
 
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Without emotions we'd be like ants. I find it hard to see how we'd be human without them, just unemotional, (physical) pain avoiders and pleasure seakers.
Is having an interest in something an emotion? Does emotion drive creative thinking? Any Vulcans among us?
 
HS Thomas
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What would the intelligent life be if the agents relied on reason and logic only, and had no concept of emotions? Now, I am not talking about the machines running the Matrix, but about humans with the good old neocortex and everything else, except amygdala, an an almond-shaped part of brain believed to be responsible for motivational and emotional behavior.



I think therefore I AM - without emotions
I feel therefore I AM - with emotions but no reasoning
I AM - with both, much more profound
Do traders go on courses to deal with emotions ? I am sure learning how to use emotions must be a great part of the course.Emotions can be triggered in a second. Reasoning and logic can take much longer. I don't think stock traders working from home will work well.
They'll need the emotional rollercoaster of the trading floor. This is now probably triggerred by pressing buttons now rather than a trader jumping up flapping his arms shouting Buy, Sell,Sell, Buy.....
Dunno, perhaps they can work from home nose to screen, finger on trigger?
Reasoning and logic will be handled by a superior trader the rest is then a play on emotions.
regards
[ September 19, 2003: Message edited by: HS Thomas ]
 
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I cannot remember where I read it, so I can be Wrong, but from what I remember, emotions are our "ancient brain". They work faster than intellect, with all the following evolutional advantages. Again, I forgot detail, but there was a person who suffered brain trauma that left him essentially emotionless while kept all intellectual functions intact. As a result, he couldn't normally function in a society, because he couldn't make any decision. He analyzed all the alternatives, all possible consequences of his decisions ad infinitum, as there was no apparent reason for him to prefer one or another. Am I want to drink a tea or coffee? Hm, let me think...
On the other hand, strong emotions are detrimental for logical thinking. Basically, our brain reduces its ability to deal with complex issues, and our thinking becomes more "black-and-white". Jim knew what he was talking about when he said he prefers "detached" style of discussions (well, if our goal is a pursuit of knowledge, rather than driving each other crazy and having fun in the process).
On the third hand , many scientists acknowledge that a notion of "beauty" plays at least some role in their endeavor, and many find inspiration in art, music etc. So there is certain synergy between emotions and intellect at the highest level. Now what you are talking about, trading, I do not know, maybe you are right and emotions have no place there. It's just too early to extrapolate it to all other intellectual tasks. Maybe in the future mankind will get rid of emotions, but I somehow doubt it.
 
HS Thomas
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Moving from stages of being emotionally involved with an issue to being detached is part of the human psyche. Too much emotional involvement can also lead to catastrophe or atatrophe. Perhaps it's something to do with the make up of neurones - nerve centre for feelings.The brain needs to work these neurones in a way that they function at their best all the time.
But creative people also suffer from sudden onset of Alzheimers which could be a case of detachment at it's extreme.

regards
[ September 24, 2003: Message edited by: HS Thomas ]
 
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I cannot remember where I read it, so I can be Wrong, but from what I remember, emotions are our "ancient brain".


An idea like this is in Emotional Intelligence by Daniel Goleman. Bantam Books, 1995, and a coast to coast best seller. I finished the first 100 of 300 pages before I got bored.
The thing I remember most is that people who say "I don't mind stress. It doesn't bother me." are liars.
 
John Smith
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An idea like this is in Emotional Intelligence by Daniel Goleman. Bantam Books, 1995, and a coast to coast best seller.
Thanks for the reference, Rufus, I'll pick it up.
 
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Eugene,
I'm reading this book at the moment
http://www.amazon.co.uk/exec/obidos/ASIN/0521627494/
I suggest you checkout the forums on www.wilmott.com also. Actually futures are generally correctly priced. Any divergence from the 'correct' price is usally reversed in the next trade. Also be aware that transaction costs wipe out even proven working trading strategies. Valueline is the most cited example.
 
John Smith
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I'm reading this book at the moment
http://www.amazon.co.uk/exec/obidos/ASIN/0521627494/
[/b]
I don't know how I missed it, thanks Simon.
Actually futures are generally correctly priced. Any divergence from the 'correct' price is usally reversed in the next trade.
Right, and I am not doing the arbitrage. When I mentioned the "simple trading strategies", I meant the basic ideas from the technical analysis and risk management: trendlines, moving averages crossovers, moving stops, position sizing, etc.
[ September 24, 2003: Message edited by: Eugene Kononov ]
 
HS Thomas
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This book was recommended to me by someone who I then discovered to be a rather sick person with no morals or conscience. I hadn't touched it since.
Perhaps it should come with a health warning !
regards
 
Rufus BugleWeed
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Maybe I should not have said bored. Ran out of time is a closer truth.
HS Thomas - I think your statement is about a person not the book.
 
HS Thomas
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HS Thomas - I think your statement is about a person not the book.


Oh OK ! I picked up the book and checked it through! It does say a lot I wanted to say but couldn't. I think it also panders to the Sex,Lies and Videotape variety of IQ which shouldn't have credence at the work place.
If this book is taught as part of a professional course (Analysis or Psychology) I will read it wholely.
EI and Leadership - Resonance or Dissonance
"A third group of scholars rejects emotional intelligence on the grounds that emotions are socially constructed. Situational constraints and cultural norms govern emotional meaning and expression. Shame, guilt, and embarrassment come from falling short of social expectations, for instance (Fischer & Tangney, 1995), and cultures define positive and negative emotions differently. Love is desirable in the US and Italy but is labeled as a negative feeling in China ("sad love"). American attempts to demonstrate friendliness are seen as shallow by many Japanese (Planalp, 1999). There are also cultural variations in whose emotions should be expressed. While Westerners express their own feelings, lower caste members of the Wolof tribe of Senegal transmit the emotional messages of the upper caste (Planalp, 1999)."
There's another book that should be read in conjunction. Transactional Analysis :
"Games people play - This is a book that encourages and trains you to think twice and read between the lines when considering the real motives of people in social situations and relationships."
It needs to be updated but still very sound, and more appropriate to a striving professional.

Originally posted by Eugene Kononov:
That is, not only should the machine (software) make the trading decisions, but it should also perform trade execution, account monitoring, risk management, and all other related activities.


Eugene, would the system do leadership tasks as well ? Why not , if all that is required is just the cognitive element of the role.
regards
[ September 24, 2003: Message edited by: HS Thomas ]
 
John Smith
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HT: Eugene, would the system do leadership tasks as well ? Why not , if all that is required is just the cognitive element of the role.
There is no leadership tasks to play when it comes to trading, -- the system has no concept of mass phsycology, crowd following, mania, or politics. That's the whole point, -- to isolate the decision making process from the emotions. The system "thinks" only in terms of probabilities of the possible outcomes, and excersizes the preprogrammed strategies without being affeted by fear and greed.
 
HS Thomas
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the system has no concept of mass phsycology, crowd following, mania, or politics.


I can't imagine users of the system being able to interact with such a system. Some indicators of the factors you have mentioned must be input to the system otherwise it's doomed to fail.
Exchange rates must be one such indicator.
How would people interact with your system, Eugene ?
Worth considering are ideas from Marx and Durkheim on "evolutionary psychology". And work by Adam Westoby on the transmission of ideas paraphrased (badly) in the following :

What about the apparent autonomy of culture transmitted from one human mind to another on which trading was based - preferences for salt, sugar, fatty foods , autos? A cultural trait is one that passes reasonably successfully, in recoogniseable form, from mind to mind, and is independent of particular minds and psychologies, greatly encouraged by mass manufacture and mass education.
New born baby minds are blank slates,neuro-psychological "wetware", or "general purpose" software - ready for the learning imprinted by their cultures - "cultural software". This independence of cultural "software" from neuro-psychological "wetware" is an emphatic anti-psychologism, such as that which Durkheim expressed:
"The determining cause of a social fact should be sought among the social facts preceding it and not among the states of individual consciousness."
However, over the last few years ideas from human biology, in the form of "evolutionary psychology", have laid seige to views of human psyches as blank sheets of paper on which cultures autonomously evolve their messages. "Evolutionary psychologists" take aim at social science's assertion, or assumption, of cultural autonomy. They argue it is wrong to suppose that social and cultural regularities are all sui generis, not dependent on human beings' evolved biology. The life sciences are now starting to explain many important components of human psychology as adaptations of the hunter-gatherer life lived by human beings until the relatively recent evolutionary past (up to about 10-12,000 years ago, when agriculture began to take root in the Near East). Human beings' assymetries of sexual preferences; patterns of male jealousy and of female adultery; the propensity of young men to form agressive coalitions for war; children's play fighting; attachment (and grief) between carers and children; our sex differences of spatial perception; our colour categories; our body language; our tastes for salt, sugar, fatty foods and open landscapes - all these (argue "evolutionary psychologists") may in principle be understood as universally human, "species typical" adaptations of hunter-gatherer life in a largely untouched nature.
Can we separate out genetically transmitted adaptations from culturally transmitted ones? Can we combine genetic and cultural transmission within a single ("co-evolutionary") framework ?"
So I think the system should consider cultural trends which evolve from minds and/or emotions but take on an independent existence (and also consider their impact or risks). Emotions should only be considered when designing the system from the point of view of the users of the system. As to how this in turn impacts the system is anybody's guess.
You need to define what you mean by system :
A system is not just the software and hardware: it's also people, many socio-economic-systems !
JavaRanch is a system.
The sheriffs and bartenders have to re-evaluate many times over what risks it's customers pose to the system vs their added values, "cultural", technical.
Trading systems cater to a more rigid sets of customers and may also be customers of their customers.The sheriffs and bartenders would have a hard time defining (or do I mean refining) their customers, I think!

regards
[ September 25, 2003: Message edited by: HS Thomas ]
 
John Smith
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HT: I can't imagine users of the system being able to interact with such a system. Some indicators of the factors you have mentioned must be input to the system otherwise it's doomed to fail. Exchange rates must be one such indicator. How would people interact with your system, Eugene?
I am not sure I follow you, -- maybe you are thinking about some other type of system. The system I have is a Java program that I wrote for my personal trading account. The program simply monitors the price action of a specified stock/future/index during the day, identifies the price pattern, makes a trading decision (long or short), submits the order to my online brokerage account, gets the notification when the buy/sell order is executed, and continues to monitor the price action until the next price pattern emerges. All of that is done completely without my intervention. I just start the system in the morning, go to my day job, and when I come back in the evening, I look at the generated logs to see how profitable the system was during the day.
 
HS Thomas
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Oh I see ! So you are protecting yourself from your own fear and greed. (I could do with something like that.)
Ignore all the codswallop, in that case. I shall save it for later.
Emotional Intelligence may be just the ticket for you on your single-user system. But I shall breathe fire if anyone quotes it to me in a work related way.
regards
 
John Smith
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Oh I see ! So you are protecting yourself from your own fear and greed.
That's the idea, exactly.
 
HS Thomas
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Do you think your culture is part of your 'emotional' makeup ?
In which case not many people here could relate to your fears and the degree to which you might be greedy.
Peope who have been generally 'safe' throughout their earlier lives get to have a sense of security , however false, and react less speedily to threats or see no threats.
For culture you can also read background. Some are perfectly happy in their backgrounds / cultures others want to leave that behind as speedily as possible having bought into another culture.

Why do human beings need emotions? What's the purpose? What would the intelligent life be if the agents relied on reason and logic only, and had no concept of emotions?


Back to your original questions!
As in my excerpts : human beings just aren't just beings - the is,period.
There are precursor stages that occur randomly in their background / culture that is part of their emotional make-up. Reason and logic is only secondary to this and wouldn't make any sense without reference to their background/their culture/emotional part of their make-up..
Does this make sense to you?
Your computer will be using reasoning and logic obtained from a broader evolved culture. So I think your strategy of detaching your system from your self is a sound one.
regards
[ September 25, 2003: Message edited by: HS Thomas ]
 
John Smith
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HS T: Do you think your culture is part of your 'emotional' makeup ?
In which case not many people here could relate to your fears and the degree to which you might be greedy.

I don't think culture has much to do with it. Greed and fear apply to Rusians, Americans, Germans, or Chineese. When people are upset, they make irrational decisions, -- kill their children and spouses, go to war, become obsessive with food, etc. And when people are in a state of exhaltation, they also make irrational decisions, -- take enormous risks, think highly of themselves, and ultimately make mistakes.
True, some people in some cultures have different factors and priorities that affect their emotions, and some people/cultures are better than others in handling their emotions, yet it's undeniable that emotions often negatively affect the rationality.
 
Mapraputa Is
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Transactional Analysis: Games people play - This is a book that encourages and trains you to think twice and read between the lines when considering the real motives of people in social situations and relationships.
I read the book, it was translated into Russian. I thought it's more for the layman than for professional psychologists. It isn't bad, and it was certainly useful for me to help to realize when I was being manipulative or manipulated. It's not the book I would like to read twice, though. It mostly deals with rituals, manipulative behaviors, in other words with situations when we are being social automates, while the most interesting part is about when we are not. But this is only my highly unpractical opinion, YMMV.
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Actually, can I use, "Can I use it as my signature?" as my signature? - Ernest Friedman-Hill
 
HS Thomas
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Map, I followed your link and came across The Ever-Transcending Spirit : The Psychology of Human Relationships, Consciousness, and Development has good reviews.
"A newer book called "The Ever-transcending Spirit" by Toru Sato provides a excellent account of why we play these games and how it relates to our development as human beings. Sato puts all of this in a larger context and enables us to see the light as well. Excellent book! All I can say is, both books (referring to this and Games People Play ) are pure gold."
This working paper sounds interesting; the author even more so.
Ecology of Intentions and puts what Eugene says :

Greed and fear apply to Rusians, Americans, Germans, or Chineese.

in a broader context.

But I still maintain that what is considered greed in one culture is acceptable to another.A Culture is not just race but institutions also. A missionary may have a hard time of it working on the trading floor and a trader vice-versa. A human being can belong to many cultures and emotions are affected similarly.
Extracted from Ecology Of Intentions:
  • Feelings (team spirit, in this case) are what allows human dolls to link to other dolls, and together manipulate the world. We do not need uniforms to recognise each others' feelings and act through them, but we do need some links. Uniforms depend on feelings at least as much as feelings depend on uniforms.
  • Immortality. This feature also subordinates individual humans to memes, but across time rather than space. Memes can endure across many human generations. A church provides a good exammple. So does a language or a state. So - to take more modest instances - does a song, or an accent. Rather as a candle flame, or an organism, can remain the same while most or all the atoms which make it up are changed, such memes endure historically through the replacement of the human atoms which compose them. A football team largely lacks this characteristic, since it is assembled for a period and for purposes shorter than the typical human life-span. But a football club has it - changing its players from season to season and its fans from generation to generation. For many people their football club, indeed, binds them more tightly than their church. I term this the immortality or eternal flame aspect of memes.

  • Memes within memes. Memes are constituted not just of "raw" humans, but also of other memes. Memes ingest, parasitise, inhabit, invade, include and conjugate with other memes. If we examine either the external or the internal environment - the anatomy - of a meme, much of what we see consists of other memes. (Though the distinction between inside and outside is an even more difficult one for memes than it is for organisms.{Footnote 11})
  • Values. Memes link humans by means of values as well as feelings. The members of the football team (and the club) are integrated by the common value they place on kicking the ball between the other side's goal posts - and, through and beyond that, on getting the particular vehicle for doing this nearer to the head of the league table. Values may also include commandments, rules, ideals, orderings and faded dreams. Change key values and you may destroy the meme. We can imagine a Martian studying our football match. S/he/it might easily draw the conclusion that if twenty-two grown persons wanted to propel a leather sphere as often as possible through a wooden hole, they should do so in concert. That would, however, be failing to see the memes for the people. Like memes, values derive from other values.


  • regards
    [ September 26, 2003: Message edited by: HS Thomas ]
     
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