I am aware of the mathematical definitions and its general results of the polyps urn process. For example if you draw a green ball, you add (replacement) the same colored ball back in to the urn (in this case green). I let this process continue indefinitely. Now, I am generally confused to how I can apply this in a real life setting. Like the mathematical abstractions of the model makes sense, but could anyone give me any real life practical setting which is not too technical where it may imply this process?
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Well, it's one of the simplest processes that exhibits trend following in a natural way. Stocks sometimes exhibit that sort of behavior, or genetic drifting in some population. Usually, of course, you need to modify the underlying process to suit the context, but the core principle is sound. – lulu Feb 10 '20 at 13:50
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Like I also read on wikipedia its applications, but like maybe I do not know how those practical examples actually function to understand this process properly. I want to know for instance a general idea why polyps profess works for say in stocks. – Aurora Borealis Feb 10 '20 at 13:52
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By its very nature it captures trend following. Even if all the stocks in a pool start out with "equal" price expectations, as one (randomly) begins to break free from the pack the probability distribution shifts, and the outlier becomes more and more likely to continue breaking out. Of course, in the core model, nothing restrains this process which becomes physically unrealistic, but locally it is good. – lulu Feb 10 '20 at 13:54