I’ve been thinking about the GameStop Robinhood thing. The narrative is a bunch of kids got together and jammed the GameStop shorts which were short 140% of the stock float. Every short by definition is a levered bet since you are basically borrowing a share at some future price that is lower than today’s price. You are selling something you don’t own. Someone has to own a share that you can borrow as collateral. You pay to borrow that share and that’s called margin.
The average console gamer is a 40 year old professional male with 3 kids. He is not a pimply faced 17 year old. Think about that. The average game is an algorithm. Gamers spend their time whacking on the algorithm trying to figure out its idiosyncrasies and vulnerabilities. Another name for algorithms is artificial intelligence, so gamers go up against AI every day. Yesterday I was watching a youtube vid of someone in a combat flight simulator going up against 7 Mig 29’s against a single F 15C Eagle. This is a perfect example of taking on an AI
WallStreetBets is a kind of wet ware AI made up pf 3 million nodes (traders) The network complexity and power exists according to Metcalf’s law which states essentially as the number of nodes increases linearly the number of connections increases exponentially and hence the network has much more power from an information point of view than the linear increase. Think of a square with side A. The area is A^2 and hence a small change in A works to be a big change in area.
I was reading about max entropy (also known as heat death). It was in relation to a new piece of evidence against dark matter, which means when the universe reaches max entropy it won’t contract and start anew it will suffer heat death. Entropy has one property. In a system it either stays constant or grows, it never shrinks. Entropy is the reason Covid doesn’t die. It is the driver of the infection and the infection will continue until entropy stops increasing.
It occurs to me the WallStreetBets coup is merely the addition of Metcalf’s law and max entropy. A bunch of gamers using individual computers started betting against an anomaly aka 140% of leverage, using call option leverage. 3M decentralized nodes randomly started hammering on a poorly thought out (from a risk management perspective because of the overleverage, and through the random increase in entropy caused the Bayesain probabilities to explode in the favor of the 3M for a time and then the collapse resulted in a further increase in entropy to the accounts of the 3M (or whatever % continued to hold the trade). It’s an interesting speculation and I think closer than the notion a bunch of 15 year olds brought down Citadel. The reason the F15 won was it’s design AND pilot gave it a high probability of success.
5 Replies to “WallStreetBets”
Entropy is an interesting topic – have you ever read about or heard of what has become known as Maxwell’s Demon?
My own demon was that I spent time as a student in a building known as the James Clerk Maxwell Building abbreviated to the JCMB; the start of a life full of “Alphabetti Spaghetti”!
I’ve heard of the “experiment”. The relentless increase of entropy like the unopposed attraction of mass seem universal constraints on reality. Is the universe cyclical in expansion like an oscillator or singular? I once read in the Adams trilogy about Milkyway’s: a restaurant on the edge of time that rocked back and forth through time travel on the very edge of max entropy. I hear the fries are excellent. If entropy is cyclical and gravity bipolar what is there to preclude time travel?
Now that would have been an excellent question to ask John Delorean!
Wow, you are triggering memories. I distinctly recall one of my professors in the mid 80’s writing in large block letter on the chalk board “THE HEAT DEATH OF THE UNIVERSE” as a prelude to his discussion of entropy.
I swear those physics professors are so damn dramatic. Sagan was always blubbering about billions and billions of billions and billions.