They haven't bought into the new field on its initial public offering. Within the dark recesses of proprietary financial research on and off Wall Street, an unreckoned but purportedly small number of stock analysts are building what they call black boxes. These computerized systems monitor current and past prices of a stock or asset, consult currency exchange rates or other factors that might serve as financial indicators, and spit out decisions from moment to moment about whether an investor should buy or sell. An ever-evolving formula instructs some black boxes as to which indicators to consult and how to factor them into the decisions. The boxes themselves may devise these formulas.
Many boxes evaluate stocks using programming that mirrors how brain-cell networks operate.
The computers effectively teach themselves as they go along how to forecast swings in price. Researchers have a strong disincentive to publish any innovations that would be useful for turning profits, since if everybody knew of them prevailing economic theory says they would cease to work. In these ways, the black box efforts differ from most of the physics research that has been newly dubbed econophysics. Physicists, nevertheless, number among those pursuing black boxes. They formed the Prediction Company in Santa Fe, N.M., which operates under contract with the United Bank of Switzerland.