“Traditionally when Brad Katsuyama’s trading screens showed 10,000 shares of Intel offered at $22 a share, it meant that he could buy 10,000 shares of Intel for $22 a share. He had only to push a button. However by the spring of 2007, when his screens showed 10,000 shares of Intel offered at $22, and he pushed the button, the offers vanished”
Flash Boys is an explosive book written by Michael Lewis which looks inside the black boxes of Wall Street and the murky world of high-frequency-trading. In this secretive arena, computers and algorithms compete against each other in a digital race to profit from small discrepancies in the market. Information gathered on one exchange can be used to front-run orders and sell/buy stock at tiny gains. Repeated in huge volumes, these tiny gains add up… big time.
Using a slight leap of imagination, it struck me that parallels can be drawn between the HFT algorithms and cognitive forces buried deep inside our own minds.
The human brain is a marvel of biological engineering. Over millennia of evolution, more and more layers have been added to this impressive super-computer empowering us with increasingly complex thinking, emotional capabilities and reasoning. However, lurking deep inside the brain remain older, more primitive structures. One such structure is the basal ganglia, an oval of cells which scientists have recently connected to the automation of habits and behaviour.
It is here, inside the basal ganglia, where our best intentions to make healthy choices can be undermined. Like the high-frequency traders of Wall Street, the basal ganglia has a competitive speed advantage over our conscious mind and when presented with a particular cue, an automatic habit is set in motion which drives behaviour. From a practical point of view, this process is extremely useful as it frees up our brain to focus on more important things. The problem arises when our autopilot settings are tuned into less than desirable behaviours.
THE HABIT LOOP
So how can you stop your best intentions being front-run by unhealthy habits? To help answer this question let’s first take a look at how habits form.
At the heart of every habit exists a simple neurological loop which was discovered by research scientists at MIT. A cue triggers a routine and a resulting reward reinforces the loop. Repeated enough times, this loop installs itself as a habit in our primal brain.
Take for example my annoying (and rather pointless) habit of checking my email every five minutes. The cue is having my smartphone within arms reach, the routine is hitting the email refresh button and the reward is the anticipation of an exciting new message. I have performed this loop thousands of times and it has unfortunately become a habit which wastes a lot of time and ruins my concentration.
There is no single antidote to overcoming the speed of unhealthy habits. Different people, different habits, different situations will respond to different remedies. However, by understanding the loop at the core of every habit you can begin to plan your counterattack. A good place to start is the cue which triggers the unwanted habit. Successfully identify the cue and you can oftentimes devise an environment which bypasses the cue, and therefore the habit loop altogether.
In Flash Boys, Brad Katsuyama and his team put a great amount of effort into investigating where the high frequency traders were gaining their edge (identifying the cue) and then set about creating their own exchange, IEX, which attempted to eliminate these advantages (change the environment)
We can use a similar strategy to change our own habits. For example, if you know walking past a certain confectionary stand on your commute home from work triggers the urge to buy a chocolate bar then eliminate the cue and take a different route. By changing our environment, we can loosen the stranglehold of unhealthy behaviours. Using this same concept I have tried tackling my time-wasting email habit using the following steps;
- Turn my phone off when I am working
- Move my email app off the main screen
The results have not been perfect but definitely a step in the right direction. Further examples include.
- Emptying your cupboards of junk food so you can’t reach for it when hungry
- Batch cooking healthy meals so you don’t have to cook at the end a long day
- Building a garage gym so you don’t have to commute to do a workout
- Taking the TV out of your bedroom so you can’t stay up late channel hopping
It may not sound like much but making subtle changes to your environment can have a big impact on your health and fitness. Wherever possible, eliminate the opportunity for bad habits to front-run your healthy decisions.
- Flash Boys by Michael Lewis
- The Power Of Habit by Charles Duhigg