52: What Math Models of Herding Cows Can Teach Us About Markets

SPEAKER_1 (0:00)

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Tracy Alloway (0:25)

Hello, and welcome to another episode of the Odd Lots Podcast. I am Tracy Alloway, executive editor of Bloomberg Markets.

And let me just say that I think what you are about to hear is probably the most random edition of Odd Lots that we've done so far. And just to give you an idea of how random it is, I have with me a special co-host. It is Lorcan Roche Kelly. He is our resident cow expert. That's how random this is. Say hello, Lorcan.

Lorcan Roche-Kelly (1:00)

Hi, Tracy. How's it going? I think I'm a cow expert. I think I'll definitely take that one as a compliment.

Cow owner, if nothing else.

Tracy Alloway (1:08)

It's meant to be a compliment, Lorcan. We don't have a lot of cow experts, so that's pretty special.

Lorcan Roche-Kelly (1:14)

You're reducing the compliment straight away, Tracy.

Tracy Alloway (1:18)

I should say that my normal co-host, Joe Weisenthal, is still on his epic business trip. And he's left me to do this podcast.

How do I intro this podcast? All right, so a couple weeks ago, I noticed a mathematical paper. It was called, quote, a mathematical model for the dynamics and synchronization of cows.

Lorcan, I think I sent it to you at the time.

Lorcan Roche-Kelly (1:47)

Yeah, I think you said to me this email subject was, can you believe this exists? I think may have been something in line with what the email subject was.

I was very excited to see it, I must say, because anything to do with cows excites me.

Tracy Alloway (2:01)

How many cows do you have now, Lorcan?

Lorcan Roche-Kelly (2:04)

I don't think you ever ask a farmer how many cows he has, because it's a way of working out what his income is. But I think enough to keep me busy is the standard answer, I think.

Tracy Alloway (2:12)

I'm sorry, I just made a bovine faux pas, I guess.

Enough to keep you busy. That's good enough for this podcast.

Okay. So we got this paper, A Mathematical Model for the Dynamics and Synchronization of Cows. It's written by, let's see, one, two, three, four mathematicians at various universities. And it talks about hurting behavior in cows, and mathematical models used to analyze that behavior. And I know you're all thinking, what in the world does this have to do with markets and investment and finance? But if you'll remember, we often talk about investors acting in markets like a herd. We often talk about hurting behavior, people crowding into the same types of investments, the same positions, basically following each other, seeking the safety of numbers. So it's not totally off the wall. Lorcan, am I stretching that a bit? I think that's fair.

Lorcan Roche-Kelly (3:11)

I don't think you're stretching it at all. I think, I suppose, I spend a lot of my time looking at markets and some of my time looking at cows. And while the similarities don't immediately jump out to me, I must say, when I'm working in either or both, there is generally a feeling that markets gain momentum. And the more, I suppose, more people talk about a trade, the more likely people are to get on a trade or to have an opinion on a trade anyway.

And much like with cows, if one cow finds good grass, the rest of the cows will see the good grass and run over and get some for themselves. So on the high level, the herding idea, I think, is being well established within markets and it comes from animals, it comes from herds of animals, that's where the word comes from. So I imagine to examine what cows do should tell us something about herding in markets, or at least give us a way of modeling herding in markets, which is why I found the paper very interesting.

Tracy Alloway (4:03)

Do you ever look out your window on your farm in Ireland and watch your cows and like ponder them as you think about markets? I have this image of you doing that.

Lorcan Roche-Kelly (4:12)

There is, I can see my cows from my window depending on what field they're in. Whether what I'm doing is pondering them or pining to be with them rather than staring at some unfinished coffee, unfortunately, I'm not sure.

Tracy Alloway (4:33)

All right, without further ado, we are going to bring in the authors of this paper. We have three of them with us. And because we have three guests, it's the first time I think we've ever had a trio of guests on this podcast, I'm going to ask them to quickly introduce themselves so that you all know who they are.