Schrödinger's Cat Claws Wall Street A New One

Wall Street, some have said, thrives on uncertainty, so long as the uncertainty is predictable.

Stated more intelligibly, it has also been noted that "the rich are always playing both sides of the game, they generally buy low and 'go long' but they keep a 'leveraged hedge position' ready to 'short the market' so that they can dump on the market in a downturn and bet that their dumping will drive prices lower". Thus, staying rich, if not necessarily getting richer, is a sort of balancing of equations. You get more wealth and grow that wealth as the market grows and you continue to hold what you've got, or paradoxically you can have more money as the market contracts when you dump what you've got while betting that things that you handle can be paid for with money borrowed at a lower cost than what you get paid for unloading those things right before the price drops. This is going short, and in most times it's a very risky game, and if the price goes up rather than down, you can lose a lot of money; it's generally not something that you actually own in the preferred transaction modes. But if you wind up having to pay for it, it's yours now, and you have to 'go long' or wait until the price rises, or you lose money. In a lot of ways, that's good for the market as this requires stability and growth, however slow that growth. For you, if your business is high-volume transaction skimming, suddenly you become a wealth holder with no cash-flow stream, and thus with no income. Thus, if you would rather have income than wealth, it behooves you to try to drive the market down... if you can do it fast enough to amount to transacting in short positions, rather than dumping your wealth at a loss.

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"Schrödinger's cat" is the name of an elegant thought experiment by Austrian physicist Erwin Schrödinger, used to demonstrate problems with the so-called Copenhagen Interpretation, in which possible states described by the mathematics of quantum theory could be collapsed from probability into certainty by the act of measurement.

More or less, Schrodinger described a cat in a box, invisible to those outside of the box, which was accompanied in the box by a device that could be electrically operated from outside of the box, which would release a poison gas that could instantly kill the cat. Leaving aside specious arguments of cruelty to animals, this experiment isn't about killing cats; it is about uncertainty.

The device in the box with the cat is electrically activated when an external counter detects a certain number of particles given off by the radioactive decay of a known quantity and quality of a radioisotope. Statistically, at a given time, you could predict that there was a 50/50 chance that a specific number of particles had been detected, and had activated the poison dispenser. Statistically, at that time, there is a 50/50 chance that the cat has been poisoned.

So, is the cat dead or not? It's neither, and it's both, all at the same time... until you look inside the box. Then, because you can see which it is -- alive or dead -- that's when it actually becomes "real". In physics jargon, "the probabilities collapsed into a certain state", a state where it's no longer probabilities or likelihood, but a cat, which is in exactly one of two possible conditions.

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The problem facing Wall Street at the moment is one of uncertainty.

Keep in mind that a lot of physicists have been employed on Wall Street recently, working their mathemagic on this market and that one. Mostly they've been involved in analysis. In effect, they've been looking at the box with the cat in it, from every possible angle and with all possible tools, including some that didn't exist until they invented them.

Part of the tookit they have brought to the market analysis business have included things analogous to counting the particles actually emitted by the radioisotope in the thought-experiment proposed by Professor Schrodinger. Of course, they can't count the actual particles emitted by the isotope in the direction of the counter; that would be cheating, but they can count all of the particles emitted in every other direction. (To pull you back to reality from the allegory, the rules in the real world against "insider trading" are comparable to the rules in Schrodinger's scenario.)

If you're turning the Schrodinger Cat experiment into a real-life business model, basically you are doing the experiment in a casino.

The real money is on exactly when is the last second that you can open the box and still have a live cat inside. If the average time that captured emissions statistically average to the number of scintillations that will trigger the poison gas is 1 hour, if you're betting that the cat will last 2 hours, you are almost certain to lose. If you are betting that the cat will be dead in 5 minutes after starting the experiment, you'll probably lose on that one, too. Betting to the extremes are sucker bets.

Thus, the interesting betting -- including side bets and leveraged bets and deriviative bets -- all happens right around the 1-hour mark, where it's just about exactly even odds that the cat will be in either state once you actually look.

There are certain rules that aren't meant to be bent, in this experiment. You're not allowed to peek in the box, there aren't any active cameras allowed in the box, and you're not allowed to listen to what's happening in the box. That would skew the betting.

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What we are seeing on Wall Street and elsewhere in the global economy is, more or less, the betting occurring from about 55 minutes into the experiment, to about 65 minutes into the experiment. It's certainly possible that the trigger went off at 55 minutes, and it's certainly possible that at 65 minutes it has not been tripped.

This is what's driving the market right now... the ticking of the clock, the slow decay of a radioisotope, a counter detecting the decay, and a cat in a box that's both alive and dead and neither, all at once.

Pretty soon now -- and all of the physicists know this -- one of the bettors is going to be driven mad by the suspense, and is going to open the box and look inside.

And at least half of the people betting -- because that's how bookmaking works -- are going to lose everything they bet, whichever way it goes.

Just keep in mind that the cat in the box might still be alive, and more than a bit ticked off at having been stuck in a box.

Then again, it might not be good for much other than as the raw material for some mittens.