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Markets are Efficient if and Only if P = NP

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Re: Markets are Efficient if and Only if P = NP

#71

Post by [deleted] »

jacoblyles wrote: post #59
jbooth wrote: post #49

Earlier quoted context omitted.

The original contention was "extremely close" to optimal. I'm merely contending that the markets fuck it up big occasionally here, pretty low hanging fruit for me. As for why I didn't exploit it? I don't know, I don't work on Wall Street, don't play that game? I could've told you that the mortgage thing was a problem long before the ratings agencies, apparently, but everyone knew in hindsight. Anyways, 10 years is pr…

jbooth, if you're going to accuse others of ignorance and "turning off their brain", you should probably educate yourself about the issues you are talking about. The size of Fannie and Freddie's balance sheets were around $500 billion and taxpayers have so far lost about $300 billion on the bailouts of the GSEs. So, they were not insignificant contributors to the crisis, and reasonable economists disagree about the s…

[deleted]

Re: Markets are Efficient if and Only if P = NP

#72

Post by jbooth »

doyoulikeworms wrote: post #61
jbooth wrote: post #55

Earlier quoted context omitted.

"Regulation, government intervention they're the same thing." Again. This subthread is not about turning your brain off. The fed changing interest rates is not regulation. It's not writing laws, it's not forcing anyone to do anything.

>Again. This subthread is not about turning your brain off. I'd appreciate it if you quieted your condescension. For someone who didn't even know that the United States had a central bank, you are extremely vocal about the topic of finance. We're all here to learn and exchange. Even if actions of The Fed are not necessarily regulations themselves, the fact that The Fed exists at all and is able to exert influence is…

The Fed isn't responsible for regulation and isn't a central bank like the bank of france or something. I immediately said, in that thread "if you mean the fed.." and explained why they have nothing to do with the noun regulation.

Thanks for the counter-condescension.

To the original point, they don't write regulation and it's hard to call a fixture of the last 80 years "regulation responsible for a recent incident", due to the fact that at some point there was a law.

Re: Markets are Efficient if and Only if P = NP

#73

Post by doyoulikeworms »

jbooth wrote: post #72
doyoulikeworms wrote: post #61

Earlier quoted context omitted.

>Again. This subthread is not about turning your brain off. I'd appreciate it if you quieted your condescension. For someone who didn't even know that the United States had a central bank, you are extremely vocal about the topic of finance. We're all here to learn and exchange. Even if actions of The Fed are not necessarily regulations themselves, the fact that The Fed exists at all and is able to exert influence is…

The Fed isn't responsible for regulation and isn't a central bank like the bank of france or something. I immediately said, in that thread "if you mean the fed.." and explained why they have nothing to do with the noun regulation. Thanks for the counter-condescension. To the original point, they don't write regulation and it's hard to call a fixture of the last 80 years "regulation responsible for a recent incident",…

Not sure if trolling. Either way, this is my last post in this silly thread of yours.

"reg·u·la·tion [reg-yuh-ley-shuhn] noun 1. a law, rule, or other order prescribed by authority, especially to regulate conduct. ..."

http://dictionary.reference.com/browse/regulation

"The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States.

Its duties today, according to official Federal Reserve documentation, are to conduct the nation's monetary policy, supervise and regulate banking institutions, maintain the stability of the financial system and provide financial services to depository institutions, the U.S. government, and foreign official institutions."

http://en.wikipedia.org/wiki/Federal_Reserve_System

"Mission... supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers..."

http://www.federalreserve.gov/aboutthefed/mission.htm

(Emphases mine)

Re: Markets are Efficient if and Only if P = NP

#74

Post by kragen »

gwern wrote: post #12
3pt14159 wrote: post #4

Title 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, whi…

> 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. How long would it take you to gain enough capital to start moving prices? If you have a systematic edge on all trades... In any event, I didn't find OP interesting the first time and I don't know. Most people aren't using OP's extremely strong definition of efficient market, bu…

Results like general equilibrium are conditional on the OP's extremely strong definition of efficient market. Whether or not you personally can get rich by beating the market is not the only possible interesting question about economics!

Re: Markets are Efficient if and Only if P = NP

#75

Post by nirvana »

CWuestefeld wrote: post #45
nirvana wrote: post #30

Earlier quoted context omitted.

I would say the fall of 2008 was pretty close to optimal, especially in terms of what Heyek would predict. That is not to say it was good for the population, but it was a reasonably efficient reaction to the information the market had about the state of affairs. Note that it didn't fully reflect the entire state of affairs because the market did not have sufficient information, and still doesn't. (I think if it did,…

I voted you back up because I don't think you deserve to be negative. But I'd challenge your claim that you can actually profit from the general economic ignorance. The reason I'm so skeptical is because the market is so good at working around inefficiencies that even when we think something's got to collapse, it finds a way to keep going. (if you'll excuse me for anthropomorphizing)

The anthropomorphizing is appropriate because it illustrates a very real phenomena, and the only thing I can say to that is you cannot predict the timing of events (or at least I can't) as well as you can recognize the fundamentals.

Buffett's approach is to invest based on the fundamentals, and then just wait for the timing to prove him right. And he can wait a long time.

I view all the people keeping the price down (or up) when the fundamentals say otherwise as contributing to market inefficiency. (to the extent that the market doesn't shoe the "perfect objective" price) I agree that the market may be very efficient at showing the balance of the demand from people who think the fundamentals are one way, vs, those who think the opposite. In fact, I think that's what makes for the "inefficiencies" I'm talking about.

EG: Many say gold is in a bubble, while others say gold is under priced. I would say the market is reasonably accurate at putting the gold price at the equilibrium of these two views, but that the fundamentals makes one of these views right and the other wrong.

Re: Markets are Efficient if and Only if P = NP

#77

Post by bugsy »

3pt14159 wrote: post #4

Title 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, whi…

In the paper he states "I also prove the converse", meaning the iff clause is justified.

Re: Markets are Efficient if and Only if P = NP

#78

Post by peteretep »

Rickasaurus wrote: post #67
peteretep wrote: post #5

Earlier quoted context omitted.

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.

The point though is that whoever has the most computational power has the most power to exploit arbitrage.

That's /a/ point. Whenever people start harping on about Market Efficiency, you need to find out "why do you care?". The answer to "Are markets efficient? I have this hot stock tip I read on Tech Crunch" then the answer is yes, because other people have more time, money, expertise and - as you point out - computational power - as well things like preferential data access and physical proximity to the exchange.

Re: Markets are Efficient if and Only if P = NP

#79

Post by JonnieCache »

artsrc wrote: post #63
wpietri wrote: post #21

Earlier quoted context omitted.

For those wanting to know more about the efficient-markets hypothesis, Wikipedia has a good article: http://en.wikipedia.org/wiki/Efficient_markets My amateur understanding is that most academics get that it's a simplifying assumption, but that a lot of other people treat it as a guarantee. It's sort of like people who learn a little about evolution and then conclude that a) we are the most highly evolved organism on…

> a) we are the most highly evolved organism on the planet I know little about evolution and assume that bacteria are the most evolved because they have a faster cycle of reproduction, and stronger selective pressure. > My amateur understanding is that most academics get that it's a simplifying assumption, but that a lot of other people treat it as a guarantee. Most practitioners do understand that it is a simplifyin…

>I know little about evolution and assume that bacteria are the most evolved because they have a faster cycle of reproduction, and stronger selective pressure.

That you know what selective pressure means probably puts you in the top couple of percentiles for evolution knowledge. The whole world is emphatically not like Hacker News.

Re: Markets are Efficient if and Only if P = NP

#80

Post by CWuestefeld »

yummyfajitas wrote: post #70
jbooth wrote: post #26

Earlier quoted context omitted.

I'm confused because everyone who follows Hayek seems to have the solution in hand before they've even heard the problem statement, and that solution doesn't acknowledge those concerns. I've never heard a self-proclaimed Hayek follower (note that word, follower not thinker) say "I'm worried that the private sector doesn't arrive at the correct incentives in this case" about anything, ever. That's why I'm confused.

You should try reading Hayek, rather than listening only to straw men who claim to have read his books. He was well aware of information problems, externalities, etc. You might dislike the fact that he believes politicians are also subject to these problems, but he is hardly unaware of them. If you want to see Hayek followers concerned about such issues, go read the blogs of assorted gmu economists (Tyler Cowen, Robi…

He was well aware of information problems

That's an understatement. It was a significant theme throughout his work.

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