The Instigator
ProHobo
Con (against)
Winning
13 Points
The Contender
rmkiller
Pro (for)
Losing
0 Points

Stock Market is a Random Walk

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Post Voting Period
The voting period for this debate has ended.
after 2 votes the winner is...
ProHobo
Voting Style: Open Point System: 7 Point
Started: 6/16/2010 Category: Miscellaneous
Updated: 6 years ago Status: Post Voting Period
Viewed: 3,248 times Debate No: 12358
Debate Rounds (3)
Comments (26)
Votes (2)

 

ProHobo

Con

I contend the financial market (listed products - including but not limited to; stock, options, and futures) is not strictly a random walk and will allow my opponent to have the opportunity to prove that it is.

I contend that the market is predictable with a certain degree of probability, under certain circumstances and certain degrees. Prediction may included, but not limited to; direction, volatility, and/or time. The ability to predict any and/or all variables will prove that the market does not STRICTLY behave based on a random walk hypothesis. While I do contend the market is always a perceived value until actual value is resolved (in the two extreme cases in which the value is absorbed or removed (taken over or busted)), additionally outside influences are measurable as well as market pricing based on order flow. In these cases (but not limited to), the market (with enough data) is predictive with in degrees of probability in one or more variables.

In order to win this debate the opponent must be able to defend that the market is strictly a random event. The opponent must support a random walk hypothesis that the market prices are completely random. The market is not predictive at any level or degree. The opponent must not defend his/her position by asserting that any prediction is mere luck and thus supports the random walk hypothesis.

1. Random Walk Hypothesis http://en.wikipedia.org......

As this is my first debate, I hope that I have made my opening argument clear.

Thank you...
rmkiller

Pro

I will argue that the market must be random in the sense that it cannot be predictable on a quantum level because of the Heisenberg Uncertainty principle.

Let me begin with probability density. See Wikipedia page, http://en.wikipedia.org..., if you don't know what that is. We can give a probability density p(x) such that p(x)Δx is the probability that a particle will be found between x and x + Δx. We then specify the velocity of the particle by means of a probability density p(v), with p(v)Δv the probability that the velocity will be found between v and v + Δv.

It is one of the results of quantum mechanics that two functions p(x) and p(v) cannot be chosen independently, and cannot both be made arbitrarily narrow. If we call the "width" of p(x) curve Δx, and that of p(v) curve Δv, nature demands that the product of the two widths be at least as big as the number h/m, where m is the mass of the particle and h is a fundamental physical constant called Planck's constant.

We can write this basic relationship as follows: [Δx][Δv] must be greater than or equal to h/m

This equation is a statement of the Heisenberg uncertainty principle. From it follows the fact there is a necessary uncertainty in our specification of the position of a particle. In essence, it requires that the world is unpredictable.

Therefore, on a quantum level, I argue that the market is in fact unpredictable. Because the quantum level is the fundamental level of the physical world, I argue that all other levels of description can be reduced to a quantum level. And therefore, I argue that the market is unpredictable on all levels.

Below, I quote Wikipedia's article on the principle, for those who want to hear this from another place:

"Heisenberg Uncertainty principle states by precise inequalities that certain pairs of physical properties, like position and momentum, cannot simultaneously be known to arbitrary precision. That is, the more precisely one property is measured, the less precisely the other can be measured. In other words, the more you know the position of a particle, the less you can know about its velocity, and the more you know about the velocity of a particle, the less you can know about its instantaneous position.

"According to Heisenberg its meaning is that it is impossible to determine simultaneously both the position and velocity of an electron or any other particle with any great degree of accuracy or certainty."

I will now hear the arguments of my opponent.
Debate Round No. 1
ProHobo

Con

My opponent states, "I will argue that the market must be random in the sense that it cannot be predictable on a quantum level because of the Heisenberg Uncertainty principle."

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The Uncertainty Principal is Non-Deterministic, but that does not mean it is completely random:

First it is important to understand that the Uncertainty Principal has nothing to do with Randomness, all though the lay public interprets it that way.

Quantum Mechanics is non-deterministic and this is probably where the confusion lies in that some may believe that non-deterministic is synonymous with random (it is not). We find the wave function (Psi) and using the Schrodinger wave equation, we look at time evolution of the wave function. A wave packet of a single electron spreads out over time and therefore the uncertainty equation holds quite well. The best that Quantum Mechanics can give is the probability of the event happening, which certainly is NOT completely Random.

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The Quantum Level becomes indistinguishable from the classical system with scale:

My opponent explains measurements at the Quantum level, however when we increase the size and slow the speed - we eventually reach a size and speed in which the initial momentum p (t=0) and position x(t=0). We have now moved from the Quantum level to the Classical level (the world that we experience).

In physics, the correspondence principle states that the behavior of systems described by a theory of quantum mechanics reproduces classical physics in the limit of large quantum numbers. As the number of discrete states in the quantum-mechanical system becomes very large, the system becomes indistinguishable from the classical system and the classical system IS deterministic.

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Classical Mechanics are deterministic:

Newtonian Physics (Classical Mechanics) IS deterministic. When momentum p(t=0) and position x(t=0) along with the forces acting on an object of mass will determine with absolute accuracy the position and momentum of the object at any time later (t>0).

An example is ballistics, which uses Classical (Newton) Mechanics, IS deterministic. We use mass, velocity, wind, gravity, and other variables to determine accuracy of a bullet to its target. No doubt that the Heisenberg Uncertainty principle still applies on the quantum level as electrons in the actual bullet flying through the air are moving in a non-deterministic manner, but that uncertainty principal does not affect the accuracy (level of measurement in the classical world – our world) at the scale needed to produce the results.

==============================================

My opponents logic fails at the Classical Level:

Using my opponents logic, "Therefore, on a quantum level, I argue that the [bullet] is in fact unpredictable. Because the quantum level is the fundamental level of the physical world, I argue that all other levels of description can be reduced to a quantum level. And therefore, I argue that the [bullet] is unpredictable on all levels."

In our "world" we experience 99.9999% Classical effects, not quantum effects. That doesn't mean that quantum effects are not in play, they just are not a factor on a larger scale of measurement. Quantum mechanics does not determine the bullets accuracy any more than it can be used to determine randomness of the stock market.

===================================

Classical Scale and the world we live in:

The 4 areas of physics are divided based on speed and size. Classical Physics / Quantum Mechanics / Special Realitivity / Quantum Electro Dynamics QED. We experience (in our observable world) "Classical Physics" - it is the slowest and largest scale of the 4 areas, it is the observable.

My opponent argues that everything can be reduced to the quantum level, that is true when we break everything down to single discrete states and at that level it becomes non-deterministic (not random). However, as we scale back up – the number of discrete states become large and indistinguishable from the classical system and the classical system IS deterministic.

The scale that we (humans) operate, observe, measure, and interact with is at the Classical Mechanical Level. The stock market, bullets, cars, sports, planes, and almost everything we experience is measured in the classical level.
This doesn't mean the quantum level doesn't have any effect, but that effect is discrete – like the electrons moving non-deterministically in the bullet. When the bullet is fired it will hit and damage its target. No doubt before, during, and after the bullet has been fired the uncertainty principal continues to operate, but at that quantum level – which did not determine the accuracy or the damage the bullet caused. The accuracy and damage are determined by Classical Mechanics.

==============================================

My opponent failed to prove the market is completely random:

Vote Con, as my opponent has failed to prove the market is completely random - as the Heisenberg Uncertainty Principle -while non-deterministic is not completely random and only applies on the sub-electron level. I further proved that as the number of discrete states becomes larger, the system becomes indistinguishable from the classical system. And the classical system is deterministic as easily demonstrated by ballistics.

It would be unwise to argue with the man with the pointy end of the gun that is aimed at your head, that the bullet's accuracy is random because of the uncertainly principal at the quantum level.
rmkiller

Pro

My opponent presents strong arguments the Heisenberg Uncertainty Principle is non-deterministic but not random. However, the mathematics show that the Uncertainty Principle is derived from the random walk. I argue that it is therefore completely random.

Probability density arises when we consider a slight modification of the random walk. Suppose that in addition to random choice of direction for each step (this is basically the random walk), the length of each step is also varied in an unpredictable way (in some sense, even more random than the random walk). If we call the length of a step S, then S may have any value at all, but most often will be near 1. We shall let = 1. When this is the case, the probability that distance D will be any value after N steps will always be 0. The probability is zero that D will be any particular value, since there is no chance at all that the sum of the backward steps (of varying lengths) would exactly equal the sum of forward steps. Now, to obtain the function for probability density, we ask not what the probability is of finding a particular value for D, but instead ask what is the probability of obtaining D near some value. We define P(x, delta x) as the probability that D will lie in the interval delta x located at x. We expect for small delta x the chance of D landing in the interval is proportional to delta x, the width of the interval. As a result, we can write P(x, delta x) = p(x)(delta x) The function p(x) is the probability density.

So, when my opponent says the Uncertainty principle has nothing to do with randomness, he is actually wrong since probability density is derived from the random walk. Probability density does not guarantee predictability. And, as the equation I found in my first argument shows, the Uncertainty principle is derived from probability density for a particle's location. This result demonstrates that everything -- EVERYTHING -- is completely random.

My opponent argues that quantum effects are irrelevant on the classical level. He raises the concept of a correspondence limit to argue that quantum mechanics reproduces physics in the limit of large quantum numbers. The problem with this argument is that the "correspondence principle" or correspondence limit is arbitrary. In other words, a correspondence limit arbitrarily limits the operators that correspond to physical quantities or measurements such that they reproduce classical mechanics. As my opponent himself states, it requires a limit of large quantum numbers. This limit is theoretical and arbitrary in that it is neither necessary nor wholly accurate.

Also, another problem with my opponent's argument is that classical mechanics are inaccurate. They are an approximation of the behavior of the physical world. As a result, they are not applicable as any prediction with them will necessarily be inaccurate. It will never be a prediction because a prediction is something that is accurate and based off of theories that do model the physical world accurately.

My opponent also argues that we do not experience quantum effects in our world. This is not true. We may not notice or be aware of quantum effects, but we do experience them. As evidence that we do experience quantum effects in our world, I present the findings of Andrew Cleland and colleagues of the University of California, Santa Barbara. In a remarkable finding, they showed quantum effects in a visible object. I present below the abstract of the article in which this finding was published:

"Quantum mechanics provides a highly accurate description of a wide variety of physical systems. However, a demonstration that quantum mechanics applies equally to macroscopic mechanical systems has been a long-standing challenge, hindered by the difficulty of cooling a mechanical mode to its quantum ground state. The temperatures required are typically far below those attainable with standard cryogenic methods, so significant effort has been devoted to developing alternative cooling techniques. Once in the ground state, quantum-limited measurements must then be demonstrated. Here, using conventional cryogenic refrigeration, we show that we can cool a mechanical mode to its quantum ground state by using a microwave-frequency mechanical oscillator—a ‘quantum drum'—coupled to a quantum bit, which is used to measure the quantum state of the resonator. We further show that we can controllably create single quantum excitations (phonons) in the resonator, thus taking the first steps to complete quantum control of a mechanical system."
http://www.nature.com...

This experiment was able to show a strip of medal in a state of superposition. In other words, it occupied two places at once. This experiment demonstrates the reality that quantum effects do affect our world. We just do not notice them.

Vote Pro, as I have shown quantum effects to be derived from the random walk and therefore be random. I have also shown that quantum effects do exist in our world.
Debate Round No. 2
ProHobo

Con

My opponent has attempted to use Quantum Mechanics (QM), in particular the Heisenberg Uncertainty Principle (HUP), to demonstrate "that everything -- EVERYTHING -- is completely random." Much to my chagrin, my opponent has misconstrued what many agree to be the greatest scientific achievement of the 20th century - namely, the Quantum Theory.

At this stage it becomes important to remember that science is concerned only with observable things and that we can observe an object only by letting it interact with some outside influence, e.g. light. An act of observation is thus necessarily accompanied by some disturbance of the object observed. We may define an object to be big when the disturbance accompanying our observation of it may be neglected (example the lack of sub-atomic particles effects used in ballistics) and small when the disturbance cannot be neglected.

It is usually assumed that, by being careful, we may cut down the disturbance accompanying our observation to any desired extent. The concepts of big and small are then purely relative (as my opponent asserts) and refer to the gentleness of our means of observation as well as to the object being described. This is simply not true according to Heisenberg and Quantum Theory. In order to give absolute meaning to size, such as is required for any theory of the ultimate structure of matter, we have to assume that there is a limit to the fineness of our powers of observation and the smallness of the accompanying disturbance – a limit which is inherent in the nature of things and can never be surpassed by improved technique or increased skill on the part of the observer. If the object under observation is such that the unavoidable limiting disturbance is negligible, then the object is big in the absolute sense and we may apply Classical Mechanics (CM) to it. If, on the other hand, the limiting disturbance is not negligible, then the object is small in the absolute sense and we require QM for dealing with it. THIS IS THE PROFOUND MEANING OF HEISENBERG'S UNCERTAINTY PRINCIPLE!

At the most fundamental level the uncertainty principle has nothing to do with randomness.

Therefore, there are absolute regimes where QM is accurate and others where CM is accurate. This is a key point, which my opponent fails to recognize. A scientific theory is only as good as its ability to predict the outcome of repeatable experiments to the desired degree of accuracy. Both theories, QM and CM, have acceptable levels of accuracy in their own regimes.

In addition to the position-momentum HUP misconstrued by my opponent's assertions, there exists an energy-time uncertainty principle, which states that delta (E) x delta (t) is greater than or equal to Planck's constant divided by 4 pi. Notice that this relation is in the exact form of the position-momentum HUP, where delta stands for the standard deviation of the variable in question. The meaning of the energy-time uncertainty relation is exactly the same (with different variables of course).

Let me now move from the qualitative to the quantitative analysis of HUP to shed more light (pun intended) on the different regimes of QM and CM. I believe that the following problem concisely illustrates all of the concepts that I have illuminated on thus far. Problem 1.15b of Quantum Mechanics, Concepts and Applications, by Nouredine Zettili (2001, John Wiley & Sons, LTD), states the following: Calculate the times required for the wave packets of a 25 eV electron with an initial width of 1 micron, and a 100 g object of size 1 cm moving at a speed of 50 m/s to spread to 10 mm and 10 cm, respectively. Discuss the results obtained. I will not bore you with the mathematics, but I will give you the quantitative results given in the book. The time required for the electron to spread to 10 mm is t = 0.17 milliseconds, and the time required for the object to spread to 10 cm is t = 1.9 x 10^30 seconds. "The result shows that the size of the electron's wave packet grows in a matter of 0.17 milliseconds from 1 micron to 10 millimeters, a very large spread in a very short time. As for [the 100 g object], it shows that the object has to be constantly in motion for about 1.9 x 10^30 seconds for its wave packet to grow from 1 cm to 10 cm, a small spread for such an absurdly large time; this time is absurd because it is much larger than the age of the universe, which is about 4.7 x 10^17 seconds. We see that the spread of macroscopic objects becomes appreciable only if the motion lasts for a long, long time. However, the spread of microscopic objects is fast and large."

The electron's properties described above are typical for a microscopic, atomic event; thus, QM and HUP are necessary for accuracy. On the other hand, for a macroscopic particle about the size, weight, and speed of a bullet, the spread becomes appreciable only after absurdly long times; times that are much longer than the lifetime of the universe itself. Thus, it is obvious that for macroscopic objects HUP and QM have negligible effects in realistic time and length scales that humans observe. Because the quantum mechanical effects on the "bullet" are negligible, CM is sufficient for accuracy.

In order to win this debate the opponent must be able to defend that the market is strictly a random event. The opponent must support a random walk hypothesis that the market prices are completely random. The market is not predictive at any level or degree.

1.Vote Con: I have shown that my opponent's assertion that HUP implies randomness is simply false. HUP refers to the inability (not the limit) to measure with COMPLETE accuracy. Because we are not able to measure something with an EXACT degree of accuracy to the sub-atomic level does not mean "that everything -- EVERYTHING -- is completely random."

2.Vote Con: I have shown that CM is valid in the macroscopic regime, and thusly, in the length and time scales that we experience in 99.99% of our everyday lives. CM's accuracy in the macroscopic regime is seen in the prediction of ballistics, the engineering of autos, planes, and rockets, watch making, etc.

3.Vote Con: The semantic argument alone that if ""that everything -- EVERYTHING -- is completely random" we would not even be having this debate, for it would be completely random for him to stumble onto this website, randomly type in his password, and then randomly type a coherent reply. This alone shows that CM offers enough accuracy in the macroscopic regime for computers and communication to function.

4.Vote Con: As my opponent is stuck in a paradoxical circle, as he uses QM and HUP to show that everything is random, and thus CM is inaccurate. However, CM is used to build the tools needed to observe QM and HUP, and if CM is inaccurate, then the tools to observe QM and HUP are inaccurate, which means any theories derived from QM and HUP are inaccurate and thus my opponent fails.

5.Vote Con: As my opponent has not shown that the stock market exists solely in the QM regime thus making CM invalid as a method of observing and/or measuring.

6.Vote Con: Heisenberg did NOT use Random Walk to derive or postulate HUP. PDF in QM is NOT random walk, but rather the modulus of the wave function squared.

7.Vote Randomly: If you actually believe that everything is completely random.
rmkiller

Pro

rmkiller forfeited this round.
Debate Round No. 3
26 comments have been posted on this debate. Showing 1 through 10 records.
Posted by ProHobo 6 years ago
ProHobo
Vote Con: My opponent forfeited in the third round, which is bad conduct (without reason). Thus he failed to refute any of my arguments and failed in proving that HUP can be associated to the stock market or even random walk.

Too bad, I really wanted to hear what my opponent had to say.

Additionally, (as I stated earlier in my comments) - I would have rewritten the initial argument to make it less lop-sided. My opponent choose (to some extents) derail the point into a Quantum Physics debate to explain Random Walk - as Richard Feynman said "....No one really understands Quantum Physics...". I really was hoping for a different type of debate - about order flow, liquidity and hedging (as a good example of non-random events vs. Random Walk Theory).

Oh well.... maybe next time.
Posted by ProHobo 6 years ago
ProHobo
"My opponent also argues that we do not experience quantum effects in our world. This is not true."

I actually said: " In our "world" we experience 99.9999% Classical effects, not quantum effects."

What is actually ROFL is that you defend you argument with an experiment that states "However, a demonstration that quantum mechanics applies equally to macroscopic mechanical systems has been a long-standing challenge, hindered by the difficulty of cooling a mechanical mode to its quantum ground state. The temperatures required are typically far below those attainable with standard cryogenic methods, so significant effort has been devoted to developing alternative cooling techniques."

That's f'n colder than anything in the known natural universe. My god – you need to create a man-made super freeze chamber of coldness unknown in the natural universe just to make you point. That is why I said we experience 99.9999% classical effects, not quantum effects.

You just happen to pick the one experiment that is .0001% observable and I might add it is probably only observable to .0001% of the population. Of course that is if they can get Dr. Freeze Ray's Legendary Ice Prison of Death cold enough.
Posted by ProHobo 6 years ago
ProHobo
rmkiller,

I understand that "Δ" is the symbol for delta (in the context of your post), but you don't really mean the "change" of x.
Posted by ProHobo 6 years ago
ProHobo
Atheism,

You are right, I also find it interesting that it is my opponents first debate. I was ready to edit it over the weekend, but a last I was struck down.

Ironically - I have heard the uncertainty principal argument before (and not just on this topic). I don't know what the fascination is with using it as an argument in the classical world. Interesting - will have to see how he responds.

I do find it odd that my opponent would choose this as his first debate, unless (wink - wink) it is not...
Posted by Atheism 6 years ago
Atheism
Ah, and someone gives semantics. I told you, you should've edited it.
Posted by rmkiller 6 years ago
rmkiller
No worries. You have until the timer goes down.
Posted by ProHobo 6 years ago
ProHobo
I will post my argument tomorrow - just going to be pre-occupied today.
Posted by rmkiller 6 years ago
rmkiller
I just looked at my posted argument, and I've realized that this website has not properly pictured the symbol for delta. So that my opponent understands, the places where I write "Δ" I actually intend the symbol delta. This symbol signifies the change. So when I say delta x, as I do, I intend the change in x. Thank you.
Posted by RoyLatham 6 years ago
RoyLatham
Con has set up the debate so he wins by citing a single case of a non-random event driving a stock. For example, an insider knows that there is fraud going on and that his compn's stock will crash when the fraud is exposed. So while that is true, and Con is set to win, it doesn't challenge the interesting premise that the market as a whole is statistically indistinguishable from a random process with an upward bias due to overall growth in the economy.
Posted by Xer 6 years ago
Xer
None of the Keynesians (whom would usually forward the Pro) on this site are well versed in economics, so I doubt you'll get any challengers.
2 votes have been placed for this debate. Showing 1 through 2 records.
Vote Placed by hagbard 6 years ago
hagbard
ProHobormkillerTied
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Vote Placed by ProHobo 6 years ago
ProHobo
ProHobormkillerTied
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