the visual communication of quantitative finance · 2019. 2. 26. · 1 the visual communication of...

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The Visual Communication of Quantitative Finance

Pasha Roberts

Lineplot Productions LLC

Presentation to:

Northfield Annual Research Conference

October 24, 2006

© 2006 Lineplot Productions LLC 2

Two Primary Ideas

! Mind the Metacognitive Gap

! Behavioral and Emotional EffectsStill Apply to Rigorous Content

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Outline

! Definitions

! Tactical and Analytical Visualization

! The Metacognitive Gap

! Presentational Visualization

! Continuum of Approaches

! Examples


Information Visualization Defined

The use of visual representations ofabstract data to amplify cognition.

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Why Visualize?

! Tactical: To act on small patterns

! Analytical: To find big patterns

! Presentational: To explain


Tactical: Act on Small Patterns

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Tactical: Ameritrade QuoteScope

! Equity liquidity(Level II)

! Trade directlyfrom view

! Simple & lean


Tactical: Tick Visualization

! High/low/current price,price change, volume

! Trade in 3D

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Analytical: Find Big Patterns


Analytical: Spotfire

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The Assumption

! Visualization engages the human visual systemto detect patterns.

! The goal is to extend our “working memory”,using the view as an external memory bankand processor.

! But we assume that we can and willfind the patterns.


The Metacognitive Gap

! Human intuitions about how we see, hear, andremember are embarrassingly inflated

! For example:

• We are only capable of seeing 5 items at once

• We can only observe one change at a time

• Our intuition says we can see everything,all at once, indefinitely and automatically

! (Examples)

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Manifestations of the Gap

! Change blindness

! Vigilance fatigue

! Looking but not seeing

! And this is prior to the impact of emotions,intellect

Credits and references:

Ron Rensink, UBC, http://www.psych.ubc.ca/~viscoglab/

Harvard Vision Sciences Lab, http://visionlab.harvard.edu/


Therefore:Bearish on Tactical Visualization

! Let algorithms do their work

! Keep visual displays simple

! Many companies have failed trying

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Visualization for Presentation

ExplainEducateStorytellConvince

Sell


Edward R. Tufte

! Integrity & clarity

! Induce thought aboutsubstance

! Encourage comparison

! High data/ink ratio

! Integrate with text

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A Trading Example

! Stock rose from 46 to 51.125

! Single-day 11.14 % gain


Trading Example - Continued

! 9 ! event

! 1.02e-16 % probability

! “Emotional run on the market”

! “Propelled by rumors”

! “Securities fraud”

! (Example)

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Learning to Love the Gap

! Filmmakers have beenexploiting the gapfor >100 years

! Strong intent to influence

! A visual language, deeplyembedded in culture


Is this Relevant?

! Rigorous? Irresponsible? Manipulative?

! Tufte approach:

minimize cognitive bias and emotion

! Filmic approach:

maximize impact to broad audience

! Who is the audience? What is the goal?

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There is a Continuum

Normative ⇄ Descriptive

As people “should” beRational Choice Theory

As people “are”Behavioral Finance


As a Formula

HomoEconomicus

: HomoSapiens

:

: :

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Example: Barrier Risk


Example: AHP Derivation

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Example: Efficient Surface


Example: CUSUM Derivation

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Example: Portfolio Manufacturing


Two Primary Ideas

! Mind the Metacognitive Gap

! Behavioral and Emotional EffectsStill Apply to Rigorous Content

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Thank You

Pasha Roberts

[email protected]

617-864-8300

www.lineplot.com

the visual communication of quantitative finance · 2019. 2. 26. · 1 the visual communication of...

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