Q1 • 2020 | GLOBALTRADING

OPINION | 17

When we think about disrup-tion, we generally tend to think about technology and the impact it has had on our indus-try, and its influence on our daily lives. But the reality is that is just the tip of the iceberg.

When we dig below the surface, and if you have read any news headlines recently (setting aside the fact that an algorithm may have fed you those), you may have noticed that disrup-tion doesn’t stop there. We

HERE’S TO THE CRAZY ONES: THE EARTH IS FLAT!

By Raj Mathur, Co-head of AES, APAC, Credit Suisse

are witnessing a sea change in political, social, and environmen-tal views. Even the dinner plate is not immune: What food should we eat, is the plant-based diet or the meat-based diet better? (I will save that topic for another time..)

GLOBALTRADING | Q1 • 2020

18 | OPINION

This ‘Philosophical’ disruption has important ramifications for all of us, and it is a lead indica-tor that should inform us that everything we know is due for a re-think. Let’s try a little thought

experiment: What would you say if I told you that the Earth was flat?

I know, it sounds crazy, but before you dismiss the idea entirely, let me take you on a quick flat earth tour:

What are the inherent philo-sophical differences between a Round Earther vs a Flat Earther?The world of modern psychology describes Flat Earthers as being sub-ject to the Dunning Kruger effect, which states that non-experts overestimate their understanding based on simplistic facts, that lead them to extrapolate ideas that have little scientific basis. Equally, the Flat Earth camp allege that Round Earthers are subject to confirma-tion bias, where they pay more attention to people and ideas that they agree with or that they have been taught. The key argument is that that they do this without independent first-hand experience.

I am guessing that this far in, most people have already dismissed the Flat Earthers, but wait, not so fast! There are some essential truths hiding behind that gigantic ice wall:

• What do we know through our own experience? Have any of you ever been on the International Space Station to actually observe the curvature of the earth? Has anyone ever conducted any experiments to test the hypothesis?

• Do we ‘know’ that the earth is round, or do we simply ‘believe’ that the earth is round, because we were taught that?

• Who are we programmed to trust? Do the ideas of Neil DeGrasse Tyson, the archetypal scientist, hold more weight than self-proclaimed flat earth activist Mark Sargent? If so, what drives that?

So is the earth flat or round? (Drum roll). Okay, breathe, it is (probably) round, but what emerges from this debate is:

The earth used to be flat: Up until as late as the 17th century it was not up for debate. Early philosophers and “scientists” were convinced due to the highly observational nature of what they could gather, as well as the widely held belief of the human centric universe

The current flat earth theory has seen a big resurgence in the last few years due in part to increasing distrust of the science community and the resurgence of government conspiracy theories. This has been aided more recently through social media. Go onto YouTube and disappear into the rabbit hole at your peril

The number of people that “subscribe” to the idea of a flat earth might shock you: A YouGov survey conducted in 2018 amongst 8,215 adults in the US, found that 34% of millennials, and 16% of the overall population believed the earth to be flat, or were unsure! (source: Forbes)

A Gigantic ice wall surrounds the earth. Game of Thrones style!

Arctic in the Center (North Pole is the only Pole)

Sun and Moon revolve around a flat plane!

Welcome to Flat Earth

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Earth is surrounded by a drone. Like the Truman Show!

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Q1 • 2020 | GLOBALTRADING

OPINION | 19

Whether we like it or not, a lot of what we know is not from our direct experience, rather we learn it from someone else, and that is continually rein-forced throughout our lives. Our biases can also play a big part in deciding whom we trust, and therefore what information we are willing to absorb or discard.

What on this Flat Earth has any of this got to do with trading?Could it be time for us to embrace some of these ideas, and chal-lenge the current order of things? Can we step outside (mind the dome) and re-examine the way we think about our own little world of trading and execution?

It IS what it IS or IS it?As in life, in trading, everything is fair game for a rethink -- includ-ing the most tightly held notions of what provides for the best implementation shortfall returns. Robert Almgren, one of the pio-neers in the research into optimal execution strategies (Almgren-Chriss), had his own flat-earth moment, when he was quoted in an article “Why Robert Almgren no longer trades using Almgren Chriss” (Risk.net Magazine July 2017) – because he now believes that the model he co-authored,

requires a radical rethink that chal-lenges some of the fundamental assertions that formed the basis of his initial theory. If Almgren can take a view that challenges the current order (that he created!), it means that we as an industry should be open to questioning our own historical approaches, either to verify or challenge the way things have been done.

Spinning wheels In my previous article ‘Letting go of the wheel’ I touched upon some of the more macro philosophical issues that we have seen play out after the introduction of The Wheel. If the goal is to continu-ally improve execution quality and ultimately investor returns:

Raj Mathur, Credit Suisse

• How might the buy side and sell side work together to integrate the PM invest-ment process to inform our algo trading decisions, to capitalize on the valuable information that precipi-tates trading activity?

• How can the sell side use new research and technologies to optimize trade planning and execution: Can we look at IS in a new light, by taking a leaf out of the new research from Almgren and others?

• How might the buy side balance the dilemma of encouraging competition for best execution on the Wheel, while still ensuring that the results do not end up self-fulfilling and tying them to their methodology(s), given that our ideas of what is ‘best’ will also likely change?

In light of the current wave of disruption that we are living through, this is the perfect time for us to challenge and rethink our assumptions. Not just in pursuit of change alone, but to be honest and ready to re-pivot our ideas as we craft new ways to move forward as an industry. Can all the buy side and sell side Flat Earthers please step forward! •

Neil DeGrasse Tyson - Scientist Mark Sargent - Flat Earther

Who Do We Trust?