Thursday, March 11, 2010

Ants and Neurons Firing

I have recently finished reading Mr. Douglas Hofstadter’s book, METAMAGICAL THEMAS: QUESTING FOR THE ESSENCE OF MIND AND PATTERN. Mr. Hofstadter is also well known for his Pulitzer Prize winning book, GODEL, ESCHER, BACH: AN ETERNAL GOLDEN BRAID. Both books cover a wide variety of topics involving mathematics, art, linguistics, genetics, computer programming, artificial intelligence, etc. Today I would like to discuss one of the topics he writes about; statistically emergent active symbols.

Mr. Hofstadter states the basis of the concept of statistically emergent active symbols is in E.O. Wilson’s comment:

“mass communication is the transfer, among groups, of information that a single individual could not pass to another.”

He makes the analogy of how we process information and how ant colonies process information. Ant colonies function on a variety of levels, as does the human brain and its neural networks. The idea is generally that on the lower, neuron level, signals will be fired from one neuron to another along the network. This is similar to how each ant will pass messages along to other ants in the colony. We, however, at higher levels of thought, are not aware, or conscious, of any of the firings of neurons at the lowest levels. In Mr. Hofstadter’s view, once the actions that occur at the lowest levels come to a critical point, statistically emergent active symbols can be created at higher levels. These active symbols, in turn, will react with other active symbols, and eventually a pattern, idea, or thought arises at even higher levels. What is important is that the process of active symbol creation, from his perspective, takes place from the bottom-up, not from the top-down.

He also states, “each individual ant’s action has no interpretation in terms of the overall colony’s goals; only when many such actions are considered at once does their statistical quality then emerge as purposeful, or interpretable.” Applying this concept to the market, one can sense that any tick by tick change in price, may, in itself, have no interpretable meaning, however, when our perspective “goes up a level,” a meaning or order may emerge.

Mr. Hofstadter’s writings made me wonder about how statistically emergent active symbols can arise in the marketplace. Can it be that neuron firings, ants passing messages, and tick by tick movements in price work in similar ways?...probably. Is it possible that prices at the very lowest time frames begin to form statistically emergent symbols, or patterns, on higher level time frames? I think so. Should we research price behavior with a microscopic, bottom-up process? Or is a top-down, macroscopic approach better? This depends on each person’s perspective and interpretation of the market. And just for philosophical kicks, are we like ants in the higher level, universal picture? Just some food for thought.

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