Cocktail Economics: Discovering Investment Truths from Everyday Conversations

Chapter 11. Turning Smoke into Signals: How to Make the Most Out of Price Data

Centuries ago, natives in North and South America communicated over long distances by deftly working blankets over small fires. This process sent puffs of smoke into the air; the number, size, and intervals between these puffs varied in relation to the message being sent. These smoke discussions might have concerned the movements of prey, the position of the enemy, warnings of illness or danger, or the details of upcoming events. And although it was a crude technology by today’s standards, the system worked well enough: Information in the form of smoke moved across the sky, with the only stipulation being that both sender and receiver needed to know the code behind ...