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Quantum Mechanics and the Markets

Posted By Barry Ritholtz On August 7, 2003 @ 6:42 am In Finance,Science | Comments Disabled

Physics, in my opinion, is as much a valid study for those planning a career in the markets as is economics or business administration.

Why is this? The markets are non-linear, dynamic systems, subject to the rules of Chaos Theory. Market prices are highly random, with a short to intermediate term trend component. They are highly dependent on initial conditions. Markets also show qualities of fractals — self-similar in the sense that the individual parts are related to the whole. The structure of ripples, waves, and tides look similar; So do market charts on a hourly, daily, weekly and monthly basis.

In short, they represent all the factors associated with Chaotic systems. There’s a terrific introductory article on the subject here: Chaos Theory and Market Reality [1]

I did a piece a few years ago (Angells & Blodgetts & Schrodinger’s Cat [2]) on a related quantum subject which generated accusations of “my losing it” from most of the economists in my crowd; I simply believe that understanding Chaos Theory helps you comprehend why the markets can be so inscrutable.

Which brings us, as so many other things eventually do, to Dilbert:

How many comics can make a sly reference to the Heisenberg Uncertainty Principle [3] and still be funny?

Not many:


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/08/quantum-mechanics-and-the-markets/

URLs in this post:

[1] Chaos Theory and Market Reality: http://www.rb-trading.com/article4.html

[2] Angells & Blodgetts & Schrodinger’s Cat: http://www.geocities.com/ritholtz/rr/fedcat.html

[3] Heisenberg Uncertainty Principle: http://www.wikipedia.org/wiki/Uncertainty_Principle

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