Thursday, August 25, 2011

The Revenge Of HAL

Remember that most poignant of cinematic scenes, that defining moment in the developing relationship between human beings and computers. David Bowman, the enigmatic leader of the 2001 Mission to Jupiter, eventually realises that the on-board HAL 9000 computer is trying to kill him in order to prevent its own disconnection. HAL locks Bowman out of the space capsule, but he eventually manages to force his way back in and shut down the machine by progressively removing HAL's computer modules one by one. As HAL's consciousness degrades he regurgitates material that was programmed into him during his initial programming and this culminates with an ever-slowing rendition of the song "Daisy Bell". As the final lines of "Daisy, Daisy, Give me your answer do", grind to a final stop we realise that, on this occasion, man has managed to outwit artificial intelligence.

Those of us of a cautious disposition have spent the last 43 years since the release of 2001 : A Space Odyssey looking for signs of a new attack by artificial intelligence on the primacy of humanity. If there is one thing that computers are good at, it is learning from their own mistakes, so we should expect something a little more sophisticated than locking us out of an air lock. I think I have found it : it is not HAL it is HFT. I might be wrong, but I strongly suspect that HFT is a more powerful threat to humanity than a wagon-load of Gaddafi's or a sea container full of HAL 9000 computers. HFT is High Frequency Trading.

Cast your mind back to how stock exchanges and financial markets used to work. City gents with bowler hats would study the financial papers as they took the morning commuter train into the city from either leafy Surbiton or Sleepy Hollow, identify firms that were on their way up and decide to buy shares in the business. Firms with potential would receive much-needed investment and our city gent would receive a useful dividend at the end of the financial year. It is a comforting and a rather clever system : but in terms of the way financial markets work in the twenty-first century it is total fiction. 

These days the majority of decisions to buy or sell shares, trade in commodities or move into currencies are not taken by human beings, they are taken by sophisticated computer programmes. Such programmes seek to beat the system by buying and selling over extremely short periods, holding the stock for seconds or even micro-seconds and making a very small profit on the trade. But they make so many trades that the aggregate profit is immense. The programmes are not concerned whether the extremely small movement in price is being brought about by positive or negative expectations, rumour or the phases of the moon : the programmes make their millions by anticipating fractional movements and betting on them. This is the strange, some would say horrifying world, of High Frequency Trading (HFT). In the US financial markets it has been estimated that something like 75% of all market trades are HFT's, on the London markets the percentage is around 40% and increasing all the time.

So when you turn to the financial pages and see the wild fluctuations in the markets, see your pension pot dissolve in front of your eyes, see mindless speculation rip the flesh off financial probity, think of HAL and recognise his revenge. All together now, "Daisy, daisy ......."

19 comments:

  1. when i saw the first few lines on my blogroll, i expected something clever. i wasn't disappointed. i heard about that and someone came on tv earlier this year and explained it in details, but you've summarized it well. as for it being Hal's revenge, i find this is inconclusive yet, but perhaps a foresign of what's to come... a frightening thought!!
    :)~
    HUGZ

    ReplyDelete
  2. Oh Daisy, please don't give me your answer. I don't think I could stand it!

    ReplyDelete
  3. Fortunately, I don't dabble in the stock market.

    ReplyDelete
  4. Sounds quite scary indeed, but then again we shall see. Hopefully it doesn't go all Terminator on us too.

    ReplyDelete
  5. Alan, You've done an excellent job of making the current situation understandable and understandably spooky. You've really provided the perfect analogy.

    ReplyDelete
  6. Hmmmmm... Maybe the machines will bankrupt themselves with such risky trading; then we won't have to worry about them.

    BTW, the "Bicycle Built for Two" sung by HAL was actually a bit of computer music programming by pioneer Max Matthews at the birthplace of much of today's digital music and processing, the Bell Labs. Max created the MUSIC program in 1957, and that version of "Bicycle Built for Two" was the demonstration for how the program worked. Just a little history lesson for your Thursday!

    ReplyDelete
  7. Thanks Roy, one of the greatest delights of blogging is how posts attract such additional fascinating facts as they crawl around the web.

    ReplyDelete
  8. google will be our master....skynet for sure...smiles.

    ReplyDelete
  9. Ouch! Woman rolls into another room to check her stocks...

    Hair raising, Alan!

    ReplyDelete
  10. I’m not sure just how much incentive we can attribute to your exposure, but I’ve just read, that Brandon Rowley (an expert in HFT strategies) has announced he is ceasing to write for the "Trading Wall Street Investments" Blog. He split HFT Strategies into three categories, namely Liquidity Provision, “Trading the Tape” and Statistical Trading and further divided each into two sub-categories.
    Are we being bled by sub-division?

    ReplyDelete
  11. The other clever bit about HAL is that it is arrived at by just displacing each letter in IBM by one.

    ReplyDelete
  12. Alan: even when these decision are made by humans, they are made by drones who react with the herd mentality; plus ca change c'est la meme chose.

    ReplyDelete
  13. I’ve just been browsing Wikipedia (as you do) and I think you are definitely on to something. It is all in the name.

    HAL comes from (Heuristically programmed ALgorithmic computer) and the alternative name for HFT is Algorithmic Trading.

    Clearly the problem lies in the gorithmics, but can they be treated, is there an ointment?

    ReplyDelete
  14. I might have to have a lie-down now I've read all that!

    ReplyDelete
  15. Scary really. Combine that with the 'fear factor' and you have a crash like the ones we've been having lately. Fortunately computers might build the scenario but people still trade. . . then again . . .computers might make a better, less emotional hash of it.

    ReplyDelete
  16. As something of a control freak, I find the thought of computers making such decisions (even within the parameters set by human programming) decidedly worrying!

    ReplyDelete
  17. That was a clear & succinct explanation of a fairly horrifying phenomenon, especially considering how much effect that has on our lives--& it doesn't make that much difference whether one is "in the market," or even whether one has a pension or 401K--these financial markets have an impact on us all, willy-nilly.

    ReplyDelete
  18. I'll start praying for us all now, surely the computer can't beat that!!!

    ReplyDelete