The Innovation Equation: Curiosity x the Scientific Method at Two Sigma

A powerful synergy between curiosity and the scientific method helps us find novel approaches to hard problems.

Picture a team of Two Sigma researchers at lunch, dissecting the algorithmic chaos of a pop concert selling out online in seconds. While frustrating for fans, this commonplace occurrence sparks a wave of questions in the researchers: What hidden patterns drove the surge in demand? Could the researchers have modeled and predicted them? How could they apply any insights they’d gleaned to understand, say, market behavior?

Allen, the systematic macro researcher who recently found himself discussing the ticket phenomenon with colleagues, sees a relationship between that lunch and making predictive models in finance: “It’s not uncommon for us to discover something in the data that just seems mysterious altogether. We believe there’s a cause, we believe there’s an effect. And we believe by using controlled experiments, we’ll be able to find the link between the cause and effect.”

At Two Sigma, we apply an empirical mindset, empowered by cutting-edge technology and massive amounts of data, to uncover hidden patterns and relationships in information. This mindset, the wellspring of innovation at the company, is the product of two fundamental aspects of our culture: curiosity and the scientific method.

In this article, we’ll explore the powerful, multiplicative relationship between these two concepts and how their synergy fosters a unique environment for groundbreaking advancements.

Curiosity’s impact: A constant desire to explore and connect

Curiosity, we believe, isn’t just a personality trait. It’s a powerful engine for exploration and progress. Accordingly, we seek out individuals who are driven by a desire to learn, connect, and push the boundaries of knowledge.

Probably, if you did an analysis on the things that I say, 50% or more would be questions…

Ris, a senior software engineering manager, reflects on her own sense of inquisitiveness: “I think I’ve always been a very naturally curious person. Probably, if you did an analysis on the things that I say, 50% or more would be questions that I ask in all the meetings that I’m in throughout the day. I think curiosity in general leads us to better answers than simply assuming that you know the outcome.”

This constant questioning, this desire to understand the “why” behind things, is a hallmark of a Two Sigma scientist. Melissa, head of end user services, describes a lifelong passion for figuring out how things work and finding ways to make them better. “As a kid,” she recalls, “I would take toy cars and trucks apart and go, ‘How does this work?’ and build toys out of bottle corks and whatever I could find.” This innate drive to tinker, understand, and improve, initially sparked in her childhood, continues to drive her approach in her professional life.

“[Curiosity] is why I got into electrical engineering,” she says “I always want to know how things work. Why do they work this way? How do I make them better? How do I make them the way I want them to be? Two Sigma does that, too.”

The power of a scientific mindset: empirical, experimental, and iterative

Since our earliest days as a start-up, we’ve embraced a scientific mindset, applying data-driven analysis and experimentation to every challenge, from developing novel trading algorithms to refining internal processes. A scientific approach ensures that decisions are grounded in evidence and continually optimized.

The company’s commitment to this approach  is evident in the emphasis we place on:

  • Data-driven decision-making: We believe in gathering and analyzing data to inform our choices and validate our assumptions.
  • Hypothesis testing: We encourage a culture of experimentation, where ideas are meticulously tested and refined based on real-world results.
  • Iterative process: We embrace an ongoing cycle of learning and improvement, recognizing that even the most successful strategies require continuous evaluation and adaptation.

Stan, a Two Sigma execution trader, illustrates how his team embraces this scientific approach: “Often we’ll set up a different version of an existing algorithm and perform a randomized trial. And we’ll begin to collect data over days, weeks, and months. If there is a real difference, we’ll be able to see that in the data. We’ll be able to draw conclusions from that and decide whether the new version is better or not.”

Similarly, Morgan, a portfolio manager, explains how this data-driven approach shapes his team’s understanding of markets and guides their investment decisions: “As we do our hypothesis testing, we examine what would have happened to a strategy historically through back tests. And then, very importantly, we decide how to implement the strategy going forward. We want to ensure that our conception of reality going forward adheres to what we thought happens historically, the parameters of our back tests. And we ensure that everything follows the scientific method.”

A synergy for innovation: How curiosity x the scientific method delivers breakthroughs

We’ve observed time and again over the years that significant advancements happen at the intersection of curiosity and the scientific method. This potent combination isn’t just about individuals’ personality traits; it’s about fostering a culture that empowers the whole company to push boundaries, challenge assumptions, and create truly innovative solutions.

The scientific method provides a framework for harnessing curiosity. It ensures that our explorations are grounded in data and rigorous analysis, leading to actionable insights.

Here’s how this unique synergy fuels our innovation engine:

  • Curiosity breeds experimentation: Curiosity isn’t satisfied with the status quo. It compels us to ask “why?” and “what if?” This questioning spirit is the seed of experimentation. The scientific method provides the framework for turning those questions into testable hypotheses, leading to a constant cycle of experimentation and iterative refinement.
  • Curiosity fuels collaboration: Complex challenges rarely have simple solutions, and no one has all the answers. Curiosity drives us to seek out diverse perspectives and expertise. A shared commitment to the scientific process provides a common language and analytical framework, enabling productive communication and collaboration across teams and disciplines. The result is a cross-pollination of ideas, typically leading to more creative and robust solutions.
  • Scientific rigor amplifies curiosity: The scientific method provides a framework for harnessing curiosity. It ensures that our explorations are grounded in data and rigorous analysis, leading to actionable insights.
  • Empowerment unleashes curiosity: An environment that values both curiosity and the scientific process empowers individuals to take ownership of their work, explore new ideas, and propose solutions. When people feel trusted and supported in pursuing their intellectual passions—and those passions are channeled through a thorough, data-driven approach—it unlocks a level of creativity and drive that is essential for true innovation.

A formula for continued success

At Two Sigma, we see abundant evidence that combining a deep cultural commitment to curiosity with adherence to scientific method is a potent formula for driving innovation. We foster a culture that celebrates these values, empowering our employees to ask challenging questions, seek out diverse perspectives, and leverage large amounts of data to unlock thoughtful, original solutions to some of the hardest problems in finance.

We are constantly learning, adapting, and pushing the boundaries of what’s possible. If you’re a curious scientist and might be interested in joining us, visit our Careers page to learn how to get started!

This article is not an endorsement by Two Sigma of the papers discussed, their viewpoints or the companies discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma Investments, LP or any of its affiliates (collectively, “Two Sigma”). The information presented above is only for informational and educational purposes and is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. Additionally, the above information is not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice. Two Sigma makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. Click here for other important disclaimers and disclosures.

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