In the science-fiction television and film series Star Trek: The Next Generation, there is a species called the Borg, a collective of techno-organic drones acting in concert as a single organism. In their pursuit of perfection, they roam the galaxy in search of other species, whose capabilities they acquire through a process of assimilation turning their captives into Borg and effectively absorbing their knowledge into the hive mind. Modern finance itself appears to be something of a techno-organic life form, with inspired theoretical and empirical work combined with, and both augmented and circumscribed by, complex mathematics, massive data sets, and esoteric statistical tests. And the current encounter between modern finance and behavioral finance is not unlike the encounters between the Borg and the Starship Enterprise. Modern finance is attempting to assimilate behavioral finance, adding its capabilities, including a smattering of experimental methods, but without experiencing any fundamental changes in its own methodology―just as the Borg assimilate humans, acquiring their knowledge but destroying their humanity and turning them into drones.

Alpha, Alpha Whose got the Alpha?
Schneeweis, Thomas (University of Massachusetts, October 5, 1999)

Alice in Alice in Wonderland asked the Cheshire cat what path to take. The cat answered where she wanted to go. Alice replied that she had no idea. The cat responded, then it really doesn't matter which path you take. Managers must know which path they wish to take; that is, alpha as a marketing devise or as a measure of comparable risk/return performance. If managers wish to define alpha to fit their own marketing purpose and use alpha to sell a product, it is understandable. However, one should never mistake a 'marketing' alpha from a relative-performance alpha. If the manager can chose [sic] asset positions with a higher return (but the same ex ante risk) to some comparable naive investment position then that person can be said to achieve a positive alpha. Managers may say that investors' never care about relative return, but only absolute return. But performance alpha is all about properly measured relative return. Unfortunately, we have no simple method for establishing this benchmark except under vary restrictive situations. However, at least we do know that because any investment decision involves some risk, the riskless rate is probably not appropriate as a benchmark. How much return should be added and what method should be used to determine the incremental return to add to the risk free rate to obtain the appropriate return comparison is still open for discussion. Despite the difficulty it is an attempt worth the effort.

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