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Markets are efficient if and only if P = NP (2010)

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Re: Markets are efficient if and only if P = NP (2010)

#111

Post by zmk_ »

yellowstuff wrote: post #99
ianai wrote: post #60

Earlier quoted context omitted.

I don’t think economists claim markets are efficient. There’s far too many examples to the contrary - see amazon, wellsfargo, and Verizon as examples. While those companies do technically have competition, they operate with significant market power. Also, I once heard an Econ explain EH as “true if enough people operate under the assumption that it is not true” Edit-After waking up a little more, I’m not entirely sur…

The efficient market theory is that all information, public and private, is incorporated into all stock prices at all times, so there's no point to researching companies to try to outperform the stock market. I don't think anyone believes it is literally true, just that it is a good model for most stocks most of the time. If everyone believed it then no one would bother to research stocks, and the markets would be le…

Private information here refers to whatever insights you bring with your research. The point is that if you gain some private information (by being a quant, analyst, etc.) you would immediately trade on it and the price would then start reflecting your views.

Also EMH, and that's the point Fama uses a lot to battle critics, does not put a time frame on when the price adjustment happens.

Re: Markets are efficient if and only if P = NP (2010)

#112

Post by TekMol »

js8 wrote: post #61

Frankly, everybody with a bit of economic common sense knows that efficient market hypothesis (EMH) is just a weird theoretical nonsense which is nowhere close to describing real world. If you want a full critique, read Steve Keen's Debunking Economics, it has a chapter on EMH. Oh and by the way, there is quite a bit of people who believe that P=NP. Most famously Donald Knuth. I recently became convinced about that a…

    Frankly, everybody with a bit of economic common sense knows
Said every hot headed teenager with an attention span too short to think through scientific arguments.

Re: Markets are efficient if and only if P = NP (2010)

#113

Post by em70 »

This paper is rubbish. Trading is ultimately a partial information, sequential game with an unknown number of participants whose payoff functions (and utilities) are also unknown. Could the market be closer to being efficient if P=NP? Likely. Does P=NP imply efficiency? Not at all.

Re: Markets are efficient if and only if P = NP (2010)

#114

Post by pbhjpbhj »

babypistol wrote: post #97

I have always been puzzled by why we as computer scientists give such importance to P vs NP. I always thought that even if P = NP the solutions might still be much harder (but only polynomially) to find than to verify. I always get angry when people say that P = NP would mean that problems would be equally as easy to solve as to verify. So, because of that, P v NP always seemed irrelevant to me. But in the article, t…

Isn't finding the optimised solutions to market transactions something that is part of the market too?

So, not only do you have the resource problem highlighted in sibling posts but also a recursion problem:

Vis, when the problem becomes solvable the optimisation must add the market transactions for the sale of resources to solve the optimisation, so now one needs to optimise that larger problem ... which again involves transactions, which shift the original optimisation.

If you can predict the optimisational perturbations needed to solve the enlarged system, then you might be able to break the cycle .. but won't you need to transact the processing of the perturbation, the optimisations of which will shift the inner optimisation.

The solution itself would be marketable, perturbing the market and negating the optimisation?

My instinct may be wrong but it suggests the market can't be [perfectly] optimised (but in practise that probably doesn't matter).

Optimising markets might be the extent goal of capitalism, but it's not the extent goal of the rich (in general) who would rather remain rich than have perfect allocation of resources.

Re: Markets are efficient if and only if P = NP (2010)

#115

Post by [deleted] »

ayepif wrote: post #86
viraghr wrote: post #57

Have another account here but don't want to take the karma hit for being a crank. I published this 2-page proof that the EMH is false: https://arxiv.org/abs/1011.0423 (didn't set the date so in the document it's wrong, this was published 2010.) It doesn't depend on P = NP, it's simply a rigorous proof that EMH is false. Let's switch gears a second. Here's a famous elementary proof[1] that there are infinite primes. S…

Maybe I'm being super pedantic and possibly confrontational (I apologise in advance) but it jumped out on me here. I think you've misunderstood the 'famous elementary proof' that there are infinite primes. You do not create a new prime as you have suggested (quoted below). "Multiply them together and add one. No prime divides the new number (because "every" prime leaves a remainder 1), so you've just produced a new p…

[deleted]

Re: Markets are efficient if and only if P = NP (2010)

#116

Post by TekMol »

As I understand it, his argument is that there might be information available that needs time to interpret. And that the time the market took to interpret the available data is not sufficient to gain the maximum insight possible. So that somebody with more computing power then the market could beat the market.

I don't see that as an argument against the EMH. I think it is inherent in the EMH that the market has more computing power then any individual.

I would say that it is the core of the EMH. That more people make better predictions. Because they have more computing power.

I always found it strange that the EMH is often defined as the market price including all available data. As if the data can simply be added without interpretation.

Re: Markets are efficient if and only if P = NP (2010)

#117

Post by js8 »

psergeant wrote: post #93
js8 wrote: post #61

Frankly, everybody with a bit of economic common sense knows that efficient market hypothesis (EMH) is just a weird theoretical nonsense which is nowhere close to describing real world. If you want a full critique, read Steve Keen's Debunking Economics, it has a chapter on EMH. Oh and by the way, there is quite a bit of people who believe that P=NP. Most famously Donald Knuth. I recently became convinced about that a…

> Frankly, everybody with a bit of economic common sense knows Citation? True Scotsman fallacy?

I gave a citation. When I say "everybody with a bit of economic common sense", I mean everybody in economic profession who is able of some elementary reflection on what they are doing. Even most neoclassicals (which is probably the only school where somebody actually believes in EMH) know that many of the theoretical assumptions are bullshit. Another classic example, aside from EMH, is SMD theorem.

I am pretty sure that most economic Nobel prize winners do not believe in EMH, from the top of my head, Akerlof and Kahneman.

Re: Markets are efficient if and only if P = NP (2010)

#118

Post by inputcoffee »

The author’s claim only applies to weak form of market efficiency.

The original Fama paper distinguishes between three forms of the EMH: weak, semi strong and strong.

The weak form only alleges that historical price info is fully incorporated in the current price. You can still make money by working hard and figuring things out from outside the price history.

The weak form applies to purely technical trading that extracts value from price history like momentum and the simple moving averages cross over studies you see.

Re: Markets are efficient if and only if P = NP (2010)

#119

Post by mannykannot »

babypistol wrote: post #97

I have always been puzzled by why we as computer scientists give such importance to P vs NP. I always thought that even if P = NP the solutions might still be much harder (but only polynomially) to find than to verify. I always get angry when people say that P = NP would mean that problems would be equally as easy to solve as to verify. So, because of that, P v NP always seemed irrelevant to me. But in the article, t…

It is important to bear in mind that this paper does not attempt to quantify how much market inefficiency results from not having polynomial-time solutions to the problems in NP, or how much different things would be if we did [1].

The importance of the difference between P and NP appears to be much greater in domains that are starkly discrete, such as cryptography, than in those that are approximately continuous, like finance, where there are often approximate methods in P that are very effective and efficient, at least for most real-world cases.

[1] Only in the last section does the author look at all at real market data, and there only to look for evidence in support of a weak prediction from the thesis. This is so riddled with uncontrolled factors that it tells us nothing about the quantitative consequences of N != NP on market efficiency.

Re: Markets are efficient if and only if P = NP (2010)

#120

Post by viraghr »

ayepif wrote: post #86
viraghr wrote: post #57

Have another account here but don't want to take the karma hit for being a crank. I published this 2-page proof that the EMH is false: https://arxiv.org/abs/1011.0423 (didn't set the date so in the document it's wrong, this was published 2010.) It doesn't depend on P = NP, it's simply a rigorous proof that EMH is false. Let's switch gears a second. Here's a famous elementary proof[1] that there are infinite primes. S…

Maybe I'm being super pedantic and possibly confrontational (I apologise in advance) but it jumped out on me here. I think you've misunderstood the 'famous elementary proof' that there are infinite primes. You do not create a new prime as you have suggested (quoted below). "Multiply them together and add one. No prime divides the new number (because "every" prime leaves a remainder 1), so you've just produced a new p…

Suppose 2 and 7 are the only primes This little mental exercise proves that 2 and 7 can't be the only primes in existence. It doesn't really matter what 15 really is or isn't. No need to add noise about it. We only care about the supposition, which you cut out of your quote.

Hope this explains why I didn't deal with the true status of new_number! It just doesn't matter.

However, I'm disappointed in you, in the other respondent, and in the moderation here, and I'm glad I made this alternate account.

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