Just found a remarkable blog called the The Physics of Finance. It has a couple of interesting papers on there with the math behind it supplied. Considering my math/ hard science background is not as strong as I would like it, this blog is a godsend. Mark Buchanan and his peers, I think are on to something about people and how they behave.
He writes about this perspective based on the thought that stock traders operate kind of like young 20 something scenesters who are constantly looking for something awesome to do but yet are trying to avoid it becoming mainstream. In his example he provides for only a binary outcome; there is only one spot to go to (a chill bar with decent prices). So you either take the gamble and go there hoping the masses wont be there with their NASCAR hats or you stay in. He admits this model is quite simple but the importance of this thought experiment comes from what happens. You end up with A) people making guesses on how everyone else will act and then having them act opposite to their personal view B) a vicious cycle of learning occurs (The winning solution eventually hits a tipping point thus becoming the wrong answer).
These two outcomes are important for pricing in modern finance (remember the flash crash?) but also shed light on human behavior in other situations. Have you ever been stuck in traffic after you thought you were being sneaky during rush hour? No one likes being stuck in a car for an hour half to go 5 miles thus they will try out other solutions. The best solution to avoiding the traffic will always change. This is also true in life. A college degree is not what it was worth a decade or two ago thanks to society agreeing it's the best way to move "forward" in life.
Guess what I am trying to say is that there's math behind not following the yellow brick road. Everyone's situation is unique to a degree. Utilize that uniqueness and for the time being, don't allow the crowds dictate your moves!
He writes about this perspective based on the thought that stock traders operate kind of like young 20 something scenesters who are constantly looking for something awesome to do but yet are trying to avoid it becoming mainstream. In his example he provides for only a binary outcome; there is only one spot to go to (a chill bar with decent prices). So you either take the gamble and go there hoping the masses wont be there with their NASCAR hats or you stay in. He admits this model is quite simple but the importance of this thought experiment comes from what happens. You end up with A) people making guesses on how everyone else will act and then having them act opposite to their personal view B) a vicious cycle of learning occurs (The winning solution eventually hits a tipping point thus becoming the wrong answer).
These two outcomes are important for pricing in modern finance (remember the flash crash?) but also shed light on human behavior in other situations. Have you ever been stuck in traffic after you thought you were being sneaky during rush hour? No one likes being stuck in a car for an hour half to go 5 miles thus they will try out other solutions. The best solution to avoiding the traffic will always change. This is also true in life. A college degree is not what it was worth a decade or two ago thanks to society agreeing it's the best way to move "forward" in life.
Guess what I am trying to say is that there's math behind not following the yellow brick road. Everyone's situation is unique to a degree. Utilize that uniqueness and for the time being, don't allow the crowds dictate your moves!
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