1. I was expecting to read about a gamma squeeze... (people buy far out-of-the-money calls on GME (low delta), option seller is short, buys a bit of GME to get flat, more people buy & price goes up, delta goes up, option seller needs to buy more stock to hedge, and you have your feedback loop going (until option is far in-the-money, delta is one, and option seller doesn't need to buy anymore).)<p>But that never came... it was just positive feedback in perception.<p>2. It's not "usually" crazier than you expect. Most everywhere, we have feedback loops that keep things stable. Demand rises, prices rise, people think, eh, too expensive, and demand and supply are in balance again. Airplane gets bumped nose-up a bit, angle of attack increases on the wing and the horizontal stabiliser creating upward forces, but everything (centre of gravity, tail volume, etc.) is carefully designed such that this results in a nose-down momentum until the plane is in equilibrium again. And I could go on.<p>That's why it is so <i>unusual</i> when things spin out of control (nuclear bomb, anyone?).<p>3. As for GME, I trust that the forces of the market will pull it back down where it belongs soon enough.<p>EDIT: closed parenthesis
An article last week referred to this as "reflexivity".<p>* Reflexivity is a theory that positive feedback loops between expectations and economic fundamentals can cause price trends that substantially and persistently deviate from equilibrium prices.<p>* Reflexivity’s primary proponent is George Soros, who credits it with much of his success as an investor.<p>* Soros believes that reflexivity contradicts most of mainstream economic theory.<p><a href="https://www.investopedia.com/terms/r/reflexivity.asp" rel="nofollow">https://www.investopedia.com/terms/r/reflexivity.asp</a> has some additional info.<p>I wonder if there's a way to marry "efficient market hypothesis" with "reflexivity on the edges" somehow. <i>Well</i> outside my ballywick, in any event.
The ideas discussed in his post, especially the idea of rapidly expanding spheres of civilizations consuming all resources in their path, were beautifully explored in Stephen Baxter's sci-fi book, Manifold: Space (a spin-off of his earlier book, Manifold: Time, which is also excellent). In his book, alien intelligences are common; once they become sufficiently advanced, their civilizations tend to rapidly expand and consume all available resources, often to the detriment of other civilizations in their path. This pattern leads to some interesting phenomena: first, while the night sky might seem quiet at first, once we do encounter aliens, we tend to see their signals across many star systems in rapid succession. The reason is pretty obvious: there is only a brief period of time when we are on the surface of a sphere - a few years after our first observations of aliens, we are engulfed within their sphere and observe their signals from all over our stellar neighborhood. Another idea he plays with is the idea of "refugee" species, who attempt to flee oncoming spheres by evacuating ahead of their path instead of being consumed.<p>Actually, he pushes this idea even further: in the book, our solar system was <i>already</i> engulfed in a few spheres millions of years ago. He suggests that this why Venus is such a hellscape: the aliens came, took the resources they wanted, and left behind a polluted mess. In the case of Venus, they left lots of greenhouse gases behind as the result of some chemical process used to extract resources; as a result, Venus quickly became the warmest planet in the solar system. It's a fun twist on the Fermi paradox: signs of aliens are actually all around us, we are just too dumb to notice them.<p>Another interesting idea he explores a bit is "ownership" of resources. Do the resource-rich asteroids in our solar system really belong to us? Or are they available to any alien race who happens to pass through? In the book, we first notice aliens by observing unexplainable infrared radiation from the asteroid belt (later revealed to be thermal emissions from their resource extraction). He suggests that these aliens will potentially crowd out humans; even if they are not overtly hostile, they could gobble up all the resources we would have used to expand our civilization.<p>Highly recommend this book.
Seems like a potential confirmation bias here with regards to GME. GME may be in a feedback loop right now, but how many other stocks had the beginnings of a feedback loop but fizzled out? How many companies started to win but didn't attract the best employees?<p>Put it another way, is there any predictive power here or is it only something that can be observed after the fact? Seems like the latter.
> As the number of elephants declines, tusks become rare. Rarity pushes prices up. High prices make hunters excited about how much money they can make if they find an elephant. So they work overtime. Then fewer elephants remain, tusk prices rise even more, more hunters catch on, they work triple-time, on and on until the number of hunters explodes as everyone chases the last herd of elephants<p>This is almost the opposite of Jevon's Paradox:<p>> <i>the Jevons paradox occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the rate of consumption of that resource rises due to increasing demand.</i><p><a href="https://en.wikipedia.org/wiki/Jevons_paradox" rel="nofollow">https://en.wikipedia.org/wiki/Jevons_paradox</a>
This article is solely about positive feedback loops (even though the author never says "positive.") If positive feedback loops were the whole story every stock that rose a little would take off like a rocket. Clearly that doesn't happen, and it's because there are also <i>negative</i> feedback loops, like noticing that a stock is overvalued and refusing to buy it until the price comes down.<p>What makes the future difficult to predict is that negative feedback loops and positive feedback loops are often fighting each other and you never know early on which will ultimately dominate.
Isn't Collaborative Fund the one that got smeared by the CEO of one of its portfolio companies?<p>Previously: <a href="https://news.ycombinator.com/item?id=24793170" rel="nofollow">https://news.ycombinator.com/item?id=24793170</a>
It usually is crazier than you expect but I feel the authors answer “small trends” is a cop out answer. Small trends can be found in any success, the contrarian view is more interesting: why do things go right when they’re not supposed to? “Small trends” is a bad answer for GameStop, the answer is more complex and the variables aren’t covered in this article
Interesting read about feedback loops and self-fulfilling prophecies.<p>However, the author made it sound as if "momentum" is the only thing that drives human behavior. While it's certainly a part, I wouldn't say it's the only force driving human decisions.
>It’s simple: As the number of elephants declines, tusks become rare. Rarity pushes prices up. High prices make hunters excited about how much money they can make if they find an elephant. So they work overtime. Then fewer elephants remain, tusk prices rise even more, more hunters catch on, they work triple-time, on and on until the number of hunters explodes as everyone chases the last herd of elephants whose super-rare tusks are suddenly worth a fortune.<p>Or maybe simply selling tusks is profitable and there does not need to be a feedback loop for elephants to go extinct.
Seems like another way to read this is to say that unchecked capitalism leads to some pretty unhealthy behaviors.<p>If people weren’t trying to get rich selling tusks we would have more elephants and if people weren’t trying to get rich with GME stock we would have less fear of our other investments being randomly targeted.