This isn't a post about the adversarial neural network that was programmed to play a video game against itself until it took the Grandmaster Championship from the world's best (human) players. It's about a person who beat the computers, and took out a huge portion of the stock market in the process.
Come back with me for a moment, to the year 2010: Smart phones are just now in everybody's hand, the word "application" is just about to be replaced by the word "app," and an algorithm is still just an anagram of the word logarithm.
Wall Street, on the other hand, is just about to get rocked by an event called the Flash Crash of 2010. The market lost and then regained trillions of dollars in 30 minutes, due to a bunch of trading algorithms getting stuck in each other's code like a pack of leashed-up dogs trying to sniff each other's butts. It was described as one of the most turbulent periods in the history of financial markets, and for quite a bit after, nobody knew what the heck happened.
It was also one of the first alarms to be rung about the dangers of artificial intelligence.
"No place for a human" is how the stock market was now described after the takeover by high frequency trading algorithms.That comment means something different all of the sudden, in light of the Boeing 737 Max's MCAS failure that killed almost 350 people in 2019.
-Jerry Adler, WIRED, 2012
But taking it back to the stock market, the story got a nice twist this year when we were reminded about the Hound of Hounslow. He's a human, but he doesn't exactly belong in the stockmarket either. By 2015, this self-taught quant was held on multiple counts of doing bad things to the stock market, and by 2020, he was given his (lenient) sentence.
Why wasn't he put in jail for life for causing a trillion-dollar market maelstrom? For one thing, he's helping authorities catch other HFT-wielding market manipulators.
The leniency also comes from the fact that he's running an Asperger cortex, and he saw the stock market as a video game, and like AlphaStar, he learned how to play that game really well, and how to "beat" his opponents. He noticed that the other trading algorithms were doing strange things, and getting entrained into each other's code. He thought he could tap into that groupthink and orchestrate the whole lot, and he did, triggering a cascade of buy/sells that crashed the market.
Notes
Hounslow trader avoids jail in 'flash crash' case
Jan 2020, BBC News
Quantitative Financial Analyst
High Frequency Trading
Post Script
Circa 2010's commentary on high frequency trading:
Raging Bulls - How Wall Street Got Addicted to Light-Speed Trading
Aug 2012, WIRED
Keeping track of algorithms in the news:
Algos
Network Address, 2012