I've been sitting on this question for a while, and it came to mind again a 
couple of days ago when I heard Jack Gallant talk about some work by his 
student Alex Huth. He was showing multiple simultaneous recordings from 
prefrontal cortex (I think) and each neuron was carrying several signals, that 
(paraphrasing roughly) couldn't be extracted by looking at individual neurons 
but could be teased out by extracting components from the network activity. 
(John Maunsell and Bill Newsome also gave talks that similarly showed single 
neurons firing in response to lots of things, and pulling out the meaning 
required the context of the network.) The sense I was getting: this is not 
sparse coding.

In traditional neural network models (Hopfield-ish associative memories, 
perceptron networks and the like), generally what you need is not really 
sparseness but orthogonality. Sparseness is one way to get that, but it's a 
space-time tradeoff: you can often build a sparse representation quickly if you 
have plenty of space. There are other ways to get orthogonality, and a dense 
representation would be making a different tradeoff -- and big brains being 
metabolically expensive, space is a nontrivial constraint. A speculation I 
heard some years ago (and I wish I remember from whom; Google yields some 
echoes but no clear origin) is that the hippocampus and entorhinal cx are busy 
during sleep building more compact orthogonal representations of the day's 
input for use by higher association areas.

Pretty clearly the sensory periphery uses sparse representations, and similarly 
for areas with really-motor motor outputs. (Extreme example: V1 certainly uses 
sparse representation. V1 is really freakin' big.) Probably some sparse 
representations persist in, say, anterior temporal, parietal, and frontal cx, 
but I would suspect that compact orthogonal representations would be important 
in higher (and smaller) areas. Of course, my suspicions are not evidence, I'm 
ten years mostly away from the neurophysiology literature, and data beats my 
speculations. Is there direct evidence that higher cortical areas traffic 
exclusively or primarily in sparse representations?

That's the brain theory side. On the more immediately practical side: has 
anyone tried using compact orthogonal representations with NuPIC? Any success 
(or failure) stories? I don't even have a guess to what extent SDR is necessary 
versus just customary.

Thanks,

  - Kevin

p.s. Apologies for the theoretical bent of this question. Too many years 
hanging out in universities have left me tending to think too much rather than 
just getting started.

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