Thursday, February 02, 2006

Neurofinance in the News

A Bloomberg article released yesterday ("Inside the Trader's Brain") describes the potential (and the controversy) surrounding neurofinance.

There is a lot of development here, but not a lot of hard facts yet (I'm quoted in the article saying as much). Brian Knutson and I took Adam Levy (the article's author) on a quick tour of Stanford and the neuroimaging lab last August. Adam was, helpfully, silent about the research we discussed, much of which is on-going.
But we have some excellent clues pointing to a revolution in the way markets are analyzed and traded.

One area of advance is in trader assessment using advanced technology. I've recently received interest in trader evaluations using portable devices such as that worn by Andrew Lo in one of the article photos. These devices are actually incredibly primitive, and it's still hasn't been conclusively proven that there is any predictive power in the data they report (mostly cardiac and electrophysiological variables). They are like a lie-detector. Traders don't know in advance when they're making a bad trade. This is crucially unlike liars, who are caught because they are trying to repress the true answer. However, we've recently made a breakthrough in that regard as well.

Additional advances have occurred in the way market data is analyzed, exploiting new predictive advantages. I'm starting a hedge fund based on those advances. And that's all you'll hear about that.

Of course, I'm being vague here. I just wanted to drop a note that things are definitely happening in neurofinance, and much of it is already a reality in our proprietary work - hence the lack of specifics.

One thing of immense importance in advancing this field is research grants. Currently, most research is funded by the National Institute of Health and related goverment agencies. No funds are currently available (to us at Stanford) for applied research, using real traders and investors. So if you know someone interested in sponsoring some neurofinance research.... Send an email to Richard on info@marketpsych.com or Brian Knutson.

Best wishes,
Richard

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