Is It Time to Hire a Rodent to Manage Your Money?

Photo: Sextoacto/Shutterstock

Laboratory rats trained to trade in the commodity and foreign-exchange markets have “outperformed some of the world’s leading human fund managers.”

The rats were trained to press a red or green button to give buy or sell signals, after listening to ticker tape movements represented as sounds. If they called the market right they were fed, if they called it wrong they got a small electric shock. Male and female rats performed equally well. The second generation of rat traders, cross-bred from the best performers in the first generation, appeared to have even better performance, although this is a preliminary result.

The story is lighting up economics and finance blogs this week — perhaps because it is less an outlandish outcome than it might seem. Humans are terrible stock pickers. Actively managed mutual funds underperform relative to index funds. Hedge funds underperform relative to index funds. In other words, investments with less human involvement routinely perform better than investments with more human involvement. Maybe murine involvement is the answer. Or perhaps traders just need a simpler, mouselike incentive structure — cheese for good trades, little electric shocks for bad ones. 

But take it all with a heaping of salt. The story has scurried around the internet a few times before. The experiment’s progenitor is Michael Marcovici, an Austrian conceptual artist, not a biologist or a financial-markets researcher, hence the modernist cages. Starting by training 80 rats, he ended up with four “reliable” ones that he named Ms. Kleinworth, Ms. Coutts, Mr. Morgan, and Mr. Lehmann. The most successful second-generation rat came from the, ahem, corporate merger of Kleinworth and Morgan.

Still, capitalists interested in those sweet returns — rats do love the cheddar — might have a chance to buy in. Marcovici has said he would like to breed enough rats to start a hedge fund.

Is It Time to Hire a Rat to Manage Your Money?