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The Neural Network We Call the Market

Fri, Apr 8, 2016 - 12:00am

The market is a neural network—a massive computation on society. Though many scientists around the world spend their efforts attempting to create brain-like neural networks in their laboratory, they are completely unaware of the fact that the most advanced re-creation of the brain has been long underway outwardly through the collective, self-organizing behavior of human beings.

Upon reception of the Nobel Prize in 1974, the famous social theorist, economist, and philosopher Frederick Hayek said,

“We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based—a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.”

Hayek was not only correct but way ahead of his time.

Today, we recognize the commonality of the brain, global economy, and market as complex adaptive systems. If human intelligence is the result of both the staggering complexity and astounding adaptiveness of our own neural networks, which continually rewire themselves at the molecular and biological level as they learn and respond to the world, should we expect to achieve the same results from anything less?

In recent years, there has been a move in the right direction by attempting to mimic the human brain with the use artificial neural networks. However, this still represents a decrease in the scale of complexity and is unlikely to produce general human intelligence.

Again, rather than scaling down, what if we scale up instead?

This leads us back to society itself, which, through technology, may be producing its own kind of higher scale neural network, or Global Brain:

“The Global Brain can be defined as the self-organizing network formed by all people on this planet together with the information and communication technologies that connect and support them. As the Internet becomes faster, smarter, and more encompassing, it increasingly links its users into a single information processing system, which functions like a nervous system for the planet Earth. The intelligence of this system is collective and distributed: it is not localized in any particular individual, organization or computer system. It rather emerges from the interactions between all its components—a property characteristic of a complex adaptive system.”

Even among those who take this view, there are few who truly understand the critical role of the market. The similar architecture of the human brain and the internet is quite easy to see, however, architecture alone, though necessary, is not sufficient—there must be a common language by which external information is mapped and processed. The internet, with its billions of web pages in multiple languages, doesn’t exhibit the type of highly synchronized system-wide communication patterns we see in the human brain.

But the market does.

As Hayek uniquely perceived many decades ago, the curious invention we call the market reveals to us the most “efficient mechanism for digesting dispersed information than any that man has deliberately designed.” In fact, it is so efficient in its communication and processing of information, which includes the full range and display of collective human emotion—including irrationality, fear, greed, and self-interest—that it is the closest approximation to the inner workings of the human brain, and greatest expression of human behavior outside of a human body.

Earlier I referred to the market as a computation on society. This is true. Computation infers the use of numerical calculation. First, you must convert analog information from the physical world into symbols or numbers that are easily classified, stored, and processed. Modern computation found the simplest and most efficient method of doing this via binary code. Though 1s and 0s are the symbols of choice for computers, binary code predates computers by thousands of years as a means of representing information in discrete, digital units. For example, yes or no, on or off, broken or unbroken lines (in the case of the I Ching) and so on.

The market’s conversion of analog information from the outside world into a binary computable code takes the form of buy and sell signals. Because of this universal conversion, all information across the globe—social, economic, geopolitical, or otherwise—can be instantly digested, processed, or “priced in” to the market through the means of price and price signals. The market is unique in this regards because it acts as the highest-scale information processing mechanism we have ever created. It truly is a computation on society.

The most amazing thing, however, is the astounding similarity between the human brain and the market when it comes to their non-linear, highly synchronous behavior. Instead of neurons firing in complex synchrony in the human brain, wiring their activity into functional networks, humans and machines fire patterns of trades that ripple across the market, which also reflect the continual re-wiring of the global economy. Distributed among both people and machines in response to sensory information or data from their environment, most of this takes place at an unconscious level.

This too is profound. As Gustav Le Bon recognized many years ago,

“Crowds, doubtless, are always unconscious but this very unconsciousness is perhaps one of the secrets of their strength. In the natural world beings exclusively governed by instinct accomplish acts whose marvelous complexity astounds us. Reason is an attribute of humanity of too recent date and still too imperfect to reveal to us the laws of the unconscious, and still more to take its place. The part played by the unconscious in all our acts is immense, and that played by reason very small. The unconscious acts like a force still unknown.”

Coming back to the subject of AI and neural networks, it is clear to me that we are unconsciously creating a global neural network that rivals the complexity of any computational system deliberately designed by man. Though futurists and many well-known scientists of our day fear the creation of a superintelligent AI, I believe they fail to notice that it is already in the process of being created and has been with us for quite some time.

Is it artificial? No. It is the market—a collective, cybernetic intelligence, which sits on the throne of global governance. Part human, part machine; synthetically human, virtually omniscient.

As Mark Twain once said, "A thing long expected takes the form of the unexpected when at last it comes."

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