The Artist Who Trained Rats to Trade in Foreign-Exchange Markets

Mr. Lehman could predict the prices of foreign exchange futures more accurately than he could call a coin flip. But, being a rat, he needs the right bonus package to do it: a food pellet if he’s right, and a little shock if he’s wrong. (Also, being a rat, he’s not very good at flipping coins.)

Mr. Lehman is part of “Rat Traders,” a project directed by Austrian conceptual artist Michael Marcovici, whose work often comments on business and economics. For the project, Marcovici trained several rats to detect patterns in the foreign exchange futures market. To do this, he converts price fluctuations into a series of notes played on a piano—if the price goes up, the next note is higher—and then leaves it to the mouse to predict the tone of the note that follows. With some prompting, the rats began to predict price changes, and Marcovici says they outperformed human traders after a few months of training—a claim , however, that requires a much better test than the one done here.

As I exchanged emails with him, Marcovici never referred to his rats as part of an art project, and in a video interview he gave in 2009when the project was almost over, he never showed a little smile. But his satire is not hard to figure out: “Rat Traders” has own mock-corporate websitewhere it is said that the company located in the Cayman Islands.

Marcovici got the idea of ​​training rats to make investment decisions after thinking about high-paying jobs that humans will no longer need in the future. The default assumption is that these jobs will be taken over by robots, but Marcovici wonders if mice can recognize patterns in data that humans, with their messy biases and status quo anxieties, can’t. be noticed.

To test this, he established a semi-scientific training program. The rats spent five hours a day for three months making predictions in temperature-controlled boxes that Marcovici built for them. Correct picks are rewarded with food, and incorrect picks are punished with small shocks. “Good mice become very fat,” Marcovici wrote on his website.

As the months passed, he began weeding out rats that were trading with less than 52 percent accuracy. After tests with about 1,000 piano tracks, Marcovici was left with four “real master traders,” whom he cross-bred to create a generation superior to their ancestors. One rat of this second generation, Mr. Kleinworth Morgan Jr., had a 57 percent accuracy rate. “I have outperformed some of the top human fund managers in the world,” Marcovici wrote. (His findings did not pass tests for statistical significance, and the rigor of his experimental design was limited at best.)

Accuracy Rates for Descendants of Mr. Morgan and Ms. Kleinworth

on an interview five years agohe said several hedge funds were interested in testing his mice, but that interest didn’t stop. Although it has been proven that a rat can predict prices, Marcovici says now, a bottleneck is that a rat can only make about 20 trades before it gets tired—hence the funds of fence would require many rats to gather any useful amount of data. That said, he is still “out of touch” with some hedge funds, in case they change their minds. Marcovici himself retired from the project years ago. “With about 100 mice in the house I had to stop at some point in the experiment,” he said.

“Rat Traders” is built on the assumption, perhaps the universal desire, that historical market data can be used to predict prices. “Because people are the ones who influence the prices,” Marcovici insisted in an interview, there are patterns, shaped by human biases, that can be seen in the numbers. There is little in the way of literature to support that, however a 2011 study found that patterns can be used to predict stock prices up to a minute. Another new study found that stock prices can be predicted by Twitter activity.

But when Mashable spoke to one study author on Twitterhe said he wasn’t sure why he found that correlation. And that’s the point here: It’s pretty clear that the price of any given stock is unpredictable, and that anyone who tries to predict it, without a lot of luck, is doomed to fail. A distant survey of 60,000 households in the early ’90s conducted by researchers from the University of California Berkeley confirmed this: “Our central message is that trading is dangerous to your wealth,” they concluded.

Most forecasting strategies turn out to be hollow correlations that don’t last. However, people want to believe in the predictability of the stock market, perhaps as a way to cope with the stresses of investing, or even as a way to cope with the discomfort of dealing with a real which is a chaotic system. So, when people like Marcovici come along, many want to believe that his artwork is a shortcut to personal gain: Business Insiderno question tone of this contains “Merchants of the Earth” a few weeks ago prompted the site to issue a disclaimer (“NOTE: This is a joke.”) at the top of the post.

Money manager and author David Leinweber once sought to prove the random nature of predictions by finding any historical data that miraculously matched the stock market at that time. Finally, he found a promising indicator: Bangladesh’s butter production could be used to predict the volatility of the S&P 500 index with 75 percent accuracy over the course of more than a decade. When he took into account the production of cheese in the US and the number of sheep in the US and Bangladesh, his accuracy increased to 99 percent in the same period. After writing about the Bangladeshi butter correlation in his book, Leinweber SPOKE The Wall Street Journal that he received many requests from excessive traders hoping that he would share his data. “A depressing number of people don’t understand that it’s a joke,” he said.