Because when it's easy to outguess the market, the people who are good at it get richer and invest more money in it until it gets hard again.
It's not in perfect equilibrium constantly. I've heard of someone working out some new method that made it easy which took off over the course of a few years until enough people used it that outguessing the market was hard again.
Because when it's easy to outguess the market, the people who are good at it get richer and invest more money in it until it gets hard again.
This is an extremely impoverished framework for thinking about financial markets.
Let's introduce uncertainty. Can Alice outguess the market? Um, I don't know. And you don't know. And Alice doesn't know. All people involved can have opinions and guesses, but no one knows.
Okay then, so let's move into the realm of random variables and probability distributions. Say, Alice has come up with strategy Z. What's the expec...
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