Let’s say you’re a hedge fund billionaire who has made his fortune pioneering algorithmically-backed investment strategies. What do you do when you are looking for a new challenge?
Well, David Elliot Shaw, computer wizard and former employer of Amazon’s Jeff Bezos, founded his own biotech laboratory and turned his attention to the scientific discipline of studying molecular dynamics. It seems the skillset required for computational finance will also equip you with just the right tools for becoming a leading researcher in computational biology.
Financial super-structure
Finding the hidden signal in the noise of overflowing financial market data is a hyper-complex task that provides valuable lessons for the equally ambitious goal of modeling the structure and interaction of proteins, data needed for the development of new drugs. Shaw’s amazing biography makes you wonder: If a quant successfully applies his skills to biology, can a biologist use his knowledge to understand finance?
The global financial super-structure is alive. The exchange rates at the foreign exchange markets are the surface ripples of an unimaginable confluence of data and information. It is no coincidence that the long-term ups and downs of a price index have an uncanny resemblance to the graphs that result from plotting the electrical activity of a brain.
German popular science writer Bernhard Kegel has described human biology as an “organismic joint venture” referring to the growing realization among researchers that our bodies are co-inhabited by a vast array of various symbiotic microorganisms all of which are essential to our own survival.
Long live the holobiont!
Past estimates put the ratio of bacteria to human cells in a single person at 10:1. The latest numbers have since been revised to a staggering 1:1 ratio. One bacterium for every human cell. This translates to 0.2 kg of bacterial biomass in a 70 kg person. Thus, the human body can be thought of as a composite life form with many stakeholders.
"Biologists refer to the strategic partnership among organisms of varying orders of magnitude as a “holobiont.” Below us the bacteria, and above?"
With biology waking up to the insight that different species assemble into gigantic coalitions,the notion becomes increasingly likely that human beings themselves might be positioned at an intermediary level of the edifice of life, not at the top. Medieval thought conceived of man as being but one of the elements in the “great chain of being.”
In modern terms, we might say that human beings are nested at a middle layer of a vast hierarchical scale-free network. These networks are characterized by a property called self-similarity: Many highly integrated small modules group into larger modules, which in turn can be integrated into even larger modules.
"Human-made systems, such as the Internet or finance, mirror molecular networks that carry out essential life functions."
Around the same time that David E. Shaw began his own work on computational biology in 2002, Hungarian researchers Albert-László Barabási and Zoltán N. Oltvai discovered the deep organizational principle of self-similarity in metabolic, transcriptional (the way genes are read) and protein-protein interaction networks.
Essentially, the same mathematical network models that are used to describe how different proteins interact with each other can also be applied to identify shared motifs in large-scale phenomena across the ecosphere and the technology space. Quite literally, systems such as the World Wide Web and global finance seem to have acquired a “life of their own”.
What is the super-entity?
Englishman Thomas Hobbes was one of the most influential theorists of statecraft of all time. Writing in the 17th century, Hobbes foresaw that in the centuries to come, the state – which he named the “Leviathan” – would become a kind of superorganism regulating all political, economic and social activity. Hobbes seems to have accurately predicted the emergence of a higher-order structure subordinating and organizing human activity in the same manner that bacteria are integrated into the holobiont. A famous 2011 study titled “The Network of Global Corporate Control” reveals that:
“The structure of the control network of transnational corporations affects global market competition and financial stability. […] We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.”
By mapping ownership ties among large transnational corporations, the researchers from ETH Zurich identified a power center of roughly 147 cross-shareholding companies, mostly banks, that exerted a strong influence over the peripheral companies which were found to be not as profitable as those settled at the inner core. The power hub in the global company network discovered by the researchers was named “super-entity.” Did this “super-entity” grow organically or is the existence of such a structure the result of human agency? Or a mix of both?
As we are now beginning to understand through systems biology, the entirety of biochemical reactions occurring in a cell is also organized in a bow-tie, just as the “super-entity.” In a bow-tie, many different inputs (e.g. nutrients) are broken up into a smaller set of intermediaries, i.e. universally usable energy “carriers” and building blocks which, after having been channeled through a bottleneck, are then reassembled again into larger chains of biomolecules such as proteins or DNA and RNA – the outputs. Such a process can also be described as “fan-in, fan-out.” The bow-tie is a universal pattern that we find in biology, technology and in the economy.
Disentangling the knot
The “super-entity” would not exist if it was not for the invention of the joint-stock company which is generally thought to have originated in England in the 16th century.
"In his “Wealth of Nations,” Adam Smith famously underestimated the vast impact that the stock company would have on the future of business."
Smith was pessimistic about the potential of an organizational innovation in redefining economic interaction. For Smith, the stock company was merely a way of outsourcing capital-intensive state services, such as foreign trade, to alliances of investors. What Smith did not foresee was that company shares would facilitate the process of firms literally growing together like symbionts.
"Blockchain is the most important organizational innovation in the history of the firm since the stock company."
Just as there are macro-transitions in the evolution of organisms, there are macro-transitions in the evolution of organizations. As demonstrated by the study unveiling the “super-entity,” the world economy is already largely interconnected. Most people will agree that the network of corporate control embodied by the “super-entity” does not represent a desirable configuration of economic power and wealth distribution.
Only now do we start to envision the potential of Blockchain-enabled technology like Decentralized Autonomous Organizations (DAOs) that could replace the “super-entity” with genuinely transparent, secure and efficient peer-to-peer networks able to accommodate the complexities of global business without the inherent risk of corruption, monopolization and cronyism. In a sense, the “super-entity” has naturally evolved. It represents a bow-tie structure that we find all across nature as well as in technological artifacts. But should the status quo remain unchallenged forever? Untying the knot of the global economic bow-tie will have unpredictable results for all of us.
- by Claudio Flores, Danilo Flores.
Claudio Flores, M. Sc., and Danilo Flores are the founders of Kybernesia, a lab for thought experiments and biomimetics based in Hamburg, Germany. They adopt a non-reductionist approach towards technology and nature, taking inspiration from the writings of Schopenhauer, Russian philosophy, linguistics, complexity science, tradition, ambient music, cognitive neuroscience, legal history and geopolitics.