Books on Bots

It was only a coincidence that Christopher Steiner's Automate This: How Algorithms Came to Rule Our World and Michael's Lewis' Flash Boys: A Wall Street Revolt ended up in consecutive order in my reading que. Steiner's book was my way of treading water while I awaited Lewis' latest. But I could not have picked a better prelude for Flash Boys.

I have been a big fan of Lewis since reading Moneyball almost ten years ago. When I saw that he was releasing a new book, I pre-ordered and waited. In the meantime, I came across Steiner's interesting book about a brave new world where humans use computers to make complex decisions.

In it, Steiner aptly tells readers what, when, why, and how bots will come to make our lives different - sometimes better and sometimes not so much. Computers and the people who write the algorithms are helping humanity and at the same time gaining a huge edge over people who don't understand and use computers and have the capital to take advantage of their capabilities.

I found the narrative to be excellent even if slightly terrifying. He offers multiple illustrations of the double edged nature of automation. Trading algorithms allow investment houses to cash in on market imperfections. A robot pharmacist fills prescriptions flawlessly. A computer program composes new scores in the styles of 18th century masters. Those of us who earn a living through the application of specialized knowledge are under siege. Algorithms that fabricate our refined decision trees enable computers to do a day's work in the blink of an eye.

In Flash Boys, Michael Lewis again takes a complex scenario and zeroes in on the characters who made it interesting. This is his compelling, chilling account of how the equities markets have been systematically undermined in the past decade. 

Lewis does a great job of highlighting not just the technical arms-race, laid out quite well in Steiner's book, but the repercussions of it. Flash Boys reveals the true state of the public markets today.

He illustrates how high frequency traders add nothing to the operation of the capital markets but turn their intermediary role into huge profits. The big banks have their operations, including "dark pools," as well as the independent traders and none of them provide authentic records of transactions.

Flash Boys is an interesting story, but the most interesting part of the story is yet to be written. Three days after the publication of Lewis’ book, Attorney General Holder announced that the Department of Justice has an on-going investigation into high-frequency trading on stock exchanges. High-frequency traders may not be illegal in the strict sense, undoubtedly it has a detrimental and costly effect on the markets. 

It seems that the SEC is incapable of dealing with the advances in technology that this book explores. However, they weren't too capable of dealing with the rather unsophisticated ways of Bernie Madoff either. Bottom line: It is best to be looking out for yourself - no one else will be!