Kent and Bob have been huffing and puffing and blowing each others's straw men down for a few stochastically-determined rounds....

Sorry. It's Edgar Peters, "Chaos and Order in the Capital Markets", John Wiley, 1991. I'm sure you will rush out and buy a copy :-)

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Chaotic is not the same as stochastic. ... Clearly, you don't know what you are talking about. Strictly speaking, chaotic behavior (as mathematically defined in chaos theory) is completely *deterministic*, not random.

By that definition, markets, whether for capital or assassins, are distinctly _not_ chaotic*, since most people's decisions [* Unless Life, The Universe, and Everything are really deterministic, but fate has decreed that I don't believe that...] about what stocks to buy/sell, and particularly the timing, are influenced by lots of random events - when they hear what information, whether they were busy doing something else when they heard, whether they'd just blown their disposable income on a new car because that freak windstorm dropped a tree on their car the same week the Post Office ate their car insurance payment, whether Alan Greenspan had a bad pizza the night before the quarterly interest rates came out or too much caffeine before his latest speech.... Much of the market is driven by the large institutional trading houses, and increasingly by their computer models, but a lot of it's random, and those functions that are chaotic are driven by random inputs. To the extent that the interactions are chaotic rather than linear, it is hard to develop good models of what the market might do and squeeze a few more bits of predictive information out of the vast quantity of observable random data; even with good computer models and Nuclear Physics PhDs on Wall Street there'll probably always be enough inefficiency left in the market for people to squeeze a few more megabucks worth of arbitrage out of it. [Of course, one of the most effective ways to make money in the market has always been to provide high-priced (or low-priced high-volume) investment advice to investors - and chaos theory has contributed not only to the profitability of some investors but to the buzzword-supply of hucksters in many fields, and selling buzzwords can make a lot of short-term money...]

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Most of the physicists hired by Wall Street were people who discovered market analogs to physical processes.

The one physicist I knew well who went to Wall Street did it during the stock market boom of 1987. (Oops...) He was fortunate to avoid getting caught in one of the major fallouts of the '87 stock crash, which was the '87-'88 stock market job crash, though.

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Obviously I can't "prove" markets are not efficient -- that's an empirical matter, not a mathematical matter.

The standard way to prove that a market is inefficient is to go tap some money out of it. Doing so does eliminate that particular inefficiency after a while, but there keep being enough people employed on Wall Street to suggest that there's always inefficiency.

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"Whip me! Beat me! Savage me in Cypherpunks!" I didn't come here for an argument....

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