Decisions worth millions of dollars are made in just a few seconds on the stock market. To limit the risks involved, London-based start-up Essentia relies on a psychological analysis of traders.
The financial crisis of 2008 was partly the result of traders losing control when panic took hold. Such phases occur relatively regularly outside periods of major crisis or bear markets. That’s why, for large City or Wall Street firms, understanding emotion in traders has become key to better managing these phases of panic that usually lead to poor investment decisions.
Psychology and data in real time
Essentia Analytics, set up by former fund manager Clare Flynn Levy in 2013, is doing just that. It offers hedge funds and large banks a service that involves producing highly accurate analyses of psychological processes in traders through computer data collected in real time. Biometric and social data, relating to sleep, sport and interaction with others, can also be compiled and analysed to determine the correlation between various habits or actions and the resulting trading performance.
“With the constant flood of information you face, the trick is to capture your thought at the moment you have it, and then send it somewhere centralized and secure where it is automatically associated with the relevant positions”, explains Essentia.
As we move towards greater automation, robotisation and even replacement of human workers, the idea is not to eliminate emotion but to understand it, as a source of creativity and inventiveness. An experiment worth monitoring.
12/10/2016
