tjbresearch.com
Wednesday, July 17th, 2013
donning the goggles

An April inTHOUGHT research piece from Inferential FocusInferential Focus | This links to the firm’s site.  You can find two earlier postings about it from me by putting its name in the search box on this page. was provocatively titled “Digital Capabilities Take (You) Over: Disintermediating Human Thought and Experience.”  It provided the inspiration for this posting.

The article begins with the story of an “immersive video headset” called Oculus Rift, which the New York Times said resembled an “intimidating pair of ski goggles.”New York Times | Here is the article from the Times.  Someone wearing the device, or others like it, can find themselves at a point where reality and fantasy blurs.  Inferential Focus raises a number of interesting issues about using similar tools, including the blending of memory and imagination (they share many brain processes), the nature of experience, and the myriad changes that will likely come from “the increasing interdependence between technology and humans.”

I won’t try to do justice to the range of considerations that Inferential Focus identifies; suffice it to say that I was transfixed by the examples, many of which have implications for investment professionals and asset owners.  One aspect that affects us all:  The increased use of technology results in modifications to our decision making and even our cognitive skills, in line with evidence that “the brain has a high level of plasticity at all ages.”

Consider, for example, that a review of more than forty studies on human thought by Patricia Greenfield shows that “while visual-spatial skills are enhanced with certain screen-based activities, other skills . . . were lost, specifically ‘deep processing,’ which underpins, in her words, ‘mindful knowledge acquisition, inductive analysis, critical thinking, imagination and reflection.’”  I dare say that investment decision makers need little of the former and lots of the latter, which is arguably in short supply already.

So, enough background.  Imagine that you are given a set of goggles that allow you to see the investment landscape in new ways.  In one respect, you could be presented with fantastic new visualizations as compared to the rudimentary ones that are found in investment materials in print and online.  And, it could be real-time information, but a key question is, since you are not a high-frequency-trading computer (are you?), what’s the point?  Much of that temporal power would be lost on you.

Switch over for a few minutes to observe the behavioral finance channel.  There, as you make decisions (or the market makes them for you as it reprices over time), you can get alerts based upon common behavioral errors and, more importantly, the ones you in particular seem to make over and over.

Or, check out the quant stream and see things like evolving valuation maps with multiple metrics and more statistical frameworks than you can imagine.  Over in the technical analysis environment, you can choose from a variety of choices, each matching one of the many styles of decision making that fall under that rubric.

We could go on (what would the plan sponsor channel have or the investment advisor one?), but let’s look at it in a different way:  Who will control the view of the market that you see?  It is unlikely that you will control it yourself.  It will be created for you.

Should the creator be an entity through which you will transact your buys and sells, some questions come to mind.  Would the purveyor be obligated to watch out for your best interests, to put them above its own?  If so, perhaps you’d be presented with checklists for consideration along with any recommendations given to you, including estimated odds of winning over the investment time horizon that you have identified, the distribution of returns that might occur, disaster scenarios that could befall you should you proceed, and how the new idea would fit with everything else you have.  All of that could be presented with significant visual power.

Or would you want the operator of your investing world to have a different standard of care, being charged with identifying transactions that are “suitable” for you?  You could see that the offerings that flash in front of you might look similar to other virtual pitches that you see every day:  “People like you have bought this stock.”  “Your friends are looking at this idea.”  “Based upon your search patterns we think that this is the deal for you.”  Online merchants have honed those messages to a fine art, to produce results that they want to see.  Talk about an attractive capability for the sellers of investment products.

Whether they look like goggles or not, the tools through which you view tomorrow’s investment world will be offered up to you by brokers, advisors, consultants, website operators, etc.  When you put them on, what will you see?  Reality and fantasy can get mixed up when you are living in someone else’s world.