The SENTIMENT THEORIST Mukul Pal 24 May 08 ASCH. THREE LINES. EXPERI MIENT INTERMARKET CYCLES AND THE WORLD IN 2012 Intermarket cycles can changethe way we look at asset cycl es . St ar ti ng fr om 30 year mi rr or ing commodity and equitycycles, inflation and deflation cycles, the subject also re defi nes Sa m St ov al l’ s se ct or ro tation struct ur e gi vi ng newinsi ghts about the worl d or der ahead. It was not j ust investment gurus, but philosophers and painters who talked about simplicity being solved complexity and a very powerful investment approach. We also had a Nobel Prize awarded to a simple thought that there is no economics without psychology. Sentiment comes before rationality and human beings are nice and dumb and not profit maximizing smart souls. Crowds are accordingly involved primary with instincts, biological drives, compulsive behavior and emotions. Hence market success is less about economic but more about psychological competence. Many experiments regarding crowd behavior also prove that an individual transforms into another being when he becomes a part of the crowd, so much so that he completely abandons the logical and rational thought. He does not think but herds. Solomon Asch, Harvard conducted the matching Fig 1 In 1955 Herbert Simon sought to unify the observations of Zi f and ot he rs b fo rmul at in a s in le co mmon COPYRIGHT ORPHEUS CAPITALS SOURCE. WIKI PEDIAnes exper men g . . n v ua s an groups were asked to match the length of a line with three other lines. Individuals in isolation made a mistake less than 1 per cent. However, when placed in a group that had been instructed beforehand to claim the mismatched lines were actually the same, 75% of participants agreed with the majority. This was true even when the actual difference between the lines was very significant. Participants lacked the nerve to disagree explanatory model for many of the systems displaying power-law behavior, including language, population and wealth. Stock markets around the world also work on a power law. In 2003 in a paper submitted to Econophysics, Kaushik Matia and I illustrated the Indian price fluctuations exhibiting an intermediate form between Power Law and Gaussian behavior. This aberration also did not last long when Sitabhra Sinha, re . demonstrating the lack of rational thought was when a group exercise was conducted by Stanley Milgram of Yale. Individuals were ordered to inflict pain on an innocent victim (who was acting) in the interests of an important cause. More than 60% of the subjects were prepared to obey instructions and administer the highest and most lethal dose of electricity, even after the victim was, to all intents and purposes comatose. examined the prices in May 2006 finding the price fluctuations exhibiting a power law. ZIPF’S LAW And if all this infliction and pain seem closed door experiments different from the stock markets, we have numerous mathematicians and scientists proving the same simplicity mathematic ally. It was George Kingsley Zipf, an early twentieth century scientist who revolutionized our understanding of power law and revealed their astonishing presence throughout society and nature. Zipf's law (Fig 2.) st at es t at t e mo st common wo r use n an guag e s a constant factor (say two times) more common than the second most common, and the second most common word is twice as common as the third etc. The SENTIMENT THEORIST Orpheus CAPITALS Fig 2 COPYRIGHT ORPHEUS CAPITALS SOURCE. WIKI PEDIA
