Stock Traders and the Attention-Driven Economy

Barry Ritholtz in the flesh! How could I resist? His talk at the Princeton Club sounded interesting, on what he called "The attention-driven economy". The basic thesis was actually formulated by Herbert Simon, back in 1971:

What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.

What's more, a quick email was sufficient to sign me up as Barry's guest: I realized when I got to the club and they asked me for a $40 entry fee that being Barry's guest is actually a very valuable thing!

Barry's talk was actually quite short, and most of the 90 minutes was spent in Q&A mode, with Barry using questions as an excuse to discourse upon an impressively broad range of subjects, which may or may not have been peripherally related to what he was originally talking about.

One recurrent theme was the disappearance of the individual stock-market investor, who went away after the 2000 stock-market crash, and never really returned. People don't talk about stocks the way they used to; when you walk into a bar, the TVs are never tuned to CNBC like they once were; online trading volumes are a shadow of their former selves.

To which I say: Good. Individuals have neither the time nor the expertise to even think about beating professional investors at their own game, and they should go off and do something more worthwhile instead, like sipping excellent cappuccinos while reading a middlebrow periodical, or playing fetch with the dog.

But Barry's attention-driven economy thesis is relevant too. In the era of YouTube, there's more clamor for peoples' attention than ever before. And in the era of the Great Moderation, stocks just aren't as exciting as they used to be. So people move on to the next thing, especially since the big money is being made in prop trading and private equity and lots of other places which are utterly off-limits to individual investors.

Barry is a stock trader: he thinks in terms of stocks, judges economies by how their stocks are doing, and always seems to bring everything back to the stock market, somehow. That's fine; he's a professional, and that's what he does. But you and I shouldn't be thinking like that. In fact, we'd be better off spending our time watching David Hasselhoff trying to eat a hamburger.