Hunting In Packs, or Robots and Ethics

"If everyone out there has a trading robot, won't that affect the market?", is the sort of question we find follows on from, "Are you barking mad? Who would let a bit of software loose with their cash? Look what happened in 1987", etc.

The world appears to fit into two distinct camps on this last question. Those who feel that an airplane flies better and more reliably when on autopilot. And those who don't. Mostly this latter group is composed of pilots. I suspect that professional and serious amateur traders fall into the pilot category. Most of my unfortunate friends (and fellow travellers on trains and planes) who have asked me what my latest inventing adventure is, have much less of a problem with the idea.

Which leads nicely back to the first question because there are many more passengers than there are pilots out there. What happens when every man and his best friend's dog have robots of their own? The universe of traded stocks is not so large that chasing the latest hot move isn't going to be affected by every robot under the sun jumping on it. This issue became a problem early on in our discussions and work with making a robot.

My glib answer was the robots needed a sense of ethics about eating. Only eat when hungry. There are plenty of opportunities to graze lightly without hunting down every last quarry flushed out of the bush. Let some pass by, eat too much and the crop will suffer. We only need look at the Atlantic Cod fish stock levels to understand this.

Our back testing data indicated that for a significant size of robot population it was not unreasonable for them to gang-up and hunt as a single pack of a given size. But if the overall pack size could be kept lower then so much the better. Numbers suggest that for trading a limited stock pool (the robot constantly monitors the trading pattern of a number of stock) and if each robot was only trading capital of the average online portfolio amount, a pack size of 25,000 robots is acceptable.

In the short term we will be artificially limiting the pack size to 2,500 live robots while we test the effects of implementing alternative pack hunting strategies.

An only eat when hungry analogy is not as "barking mad" as you might first think. It means you eliminate the effect of excessive greed from the equation. Conversely, enabling every robot to work towards maximising its gain at every conceivable opportunity has the effect of quickly reducing gain for everyone, so it is ultimately self defeating.

We also know the trading characteristics of taking lots of small profits and can use this to help the robot adjust its behaviour in line with its growth and risk targets. If moral behaviour is the visible effect of an ethical set of values, the robot now has the tools for making additional judgements about its trading decisions in an ethical manner.