Markets are Efficient if and Only if P = NP
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Markets are Efficient if and Only if P = NP
1–10 of 86 posts
Re: Markets are Efficient if and Only if P = NP
#2It feels to me that all he's done is show that the "instantly" in the usual definition of markets being "efficient" is a nonsense. Prices must take time to compute, you can't know the correct price instantly even with access to all the past information.
He proves that, but it doesn't seem that surprising to me.
Re: Markets are Efficient if and Only if P = NP
#3It feels to me that all he's done is show that the "instantly" in the usual definition of markets being "efficient" is a nonsense. Prices must take time to compute, you can't know the correct price instantly even with access to all the past information. He proves that, but it doesn't seem that surprising to me.
If it's true it uproots a lot of conventional wisdom about trading and the ability to time the market.
Re: Markets are Efficient if and Only if P = NP
#4Title should read: "If markets are perfectly efficient P=NP" rather than "Markets are efficient if and only if P = NP". For example, say P = NP, but the only person that knows the proof is me. If I start using my knowledge that P = NP to trade I will not have enough capital to swing the market to truly reflect the efficient price. Therefore it does not follow that if P = NP the market will be perfectly efficient, which is required in an "if and only if" proof.
Re: Markets are Efficient if and Only if P = NP
#5It feels to me that all he's done is show that the "instantly" in the usual definition of markets being "efficient" is a nonsense. Prices must take time to compute, you can't know the correct price instantly even with access to all the past information. He proves that, but it doesn't seem that surprising to me.
I was coming here to write almost exactly this.
Markets are provably not 'instantly' efficient because arbitrage exists. Arbitrage is simply not possible in an efficient market, because it's an exploit of inefficiency.
However, exploitation of abitrage (and of knowledge generally) is what makes markets largely efficient.
Re: Markets are Efficient if and Only if P = NP
#6It feels to me that all he's done is show that the "instantly" in the usual definition of markets being "efficient" is a nonsense. Prices must take time to compute, you can't know the correct price instantly even with access to all the past information. He proves that, but it doesn't seem that surprising to me.
While I'm pretty much a free-market zealot, I'm also a Hayek groupie. It seems to me that Hayek's work should show us that markets approach perfect efficiency.
Because the market is a hideously complex system that only produces its information as an evolved, emergent system, then it is likely that its output is not precise but only extremely close to optimal.
Re: Markets are Efficient if and Only if P = NP
#7It feels to me that all he's done is show that the "instantly" in the usual definition of markets being "efficient" is a nonsense. Prices must take time to compute, you can't know the correct price instantly even with access to all the past information. He proves that, but it doesn't seem that surprising to me.
If it's true it uproots a lot of conventional wisdom about trading and the ability to time the market.
No, it doesn't. Relevant conclusions about markets in a theoretical sense all depend on (from the link) "current prices...[reflecting]...information available in past prices," which isn't even approximately true in the real world; current prices are driven by irrational actors with incomplete information.
Re: Markets are Efficient if and Only if P = NP
#8It feels to me that all he's done is show that the "instantly" in the usual definition of markets being "efficient" is a nonsense. Prices must take time to compute, you can't know the correct price instantly even with access to all the past information. He proves that, but it doesn't seem that surprising to me.
While I'm pretty much a free-market zealot, I'm also a Hayek groupie. It seems to me that Hayek's work should show us that markets approach perfect efficiency. Because the market is a hideously complex system that only produces its information as an evolved, emergent system, then it is likely that its output is not precise but only extremely close to optimal.
Was the fall of 2008 "extremely close" to optimal?
I'd submit that worldviews based on 1-dimensional criteria like "market!" or "hayek!" fall pretty far short of the mark. Although I can see the attraction. It's nice to simplify things to a level where a human being can actually have the answers with a high degree of confidence.
Both the tea-party-hayekians and the linked paper fall into this trap.. what about information asymmetry? What about borked incentives? What about just plain stupid? "I played golf with the guy so I'll buy it"? "I know these instruments are crap but I'll sell them to my clients to get them off my balance sheet"?
A friend was telling me at his old job, they actually worked in season tickets to a luxury booth at Yankee stadium into a very significant tech purchase. Is that market efficiency?
Re: Markets are Efficient if and Only if P = NP
#9Hacker News submission and discussion from 540 days ago of previous version of same author's paper:
Re: Markets are Efficient if and Only if P = NP
#10"The majority of financial academics believe in market efficiency and the majority of computer scientists believe that P ≠ NP. The result of this paper is that they cannot both be right: either P = NP and the markets are efficient, or P ≠ NP and the markets are not efficient."
I'll hazard a guess the computer scientists are right, but most financial academics will probably get by just fine if markets are approximately efficient - if prices can be estimated in probabilistic polynomial time.