Efficient mouse traps

Research from Northwestern University (1) exposes the fallibility of and predictable patterns in on-line auctions, ultimately proving that large markets will almost always tend towards efficient outcomes. Market efficiency has been challenged on anecdotal evidence – Wall street physicists making inexplicable alpha – only to succumb to more down to earth explanations of fraud or luck. Ego is an inexplicable thing – and most suffering from the disease, generally believe they are winning battles only to be taken out in an outright war. Her fellow traders have had the same idea in a different corner of the same building or a few blocks away from the penthouse.

Mouse trap – an algorithm used at Northwestern (2) in 1986 to naively search design spaces in an attempt to teach students better outcomes in engineering design may still be valid for optimization. Bidding for better outcomes, after all, is an optimization problem with a foundation in game theory. The problem remains to be that there are too many people in the world who sport brain cells disallowing a single genius to capture alpha or discover arbitrage. Although every grand school in the world has been teaching its graduates that they are special and hence will be able to rob the idiots – defined as those who did not go to the elite schools – of their money and pride, the proof is in the pudding. There has not been any alpha in bidding and trading – none without fraud and insider information.

Market efficiency – an almost archaic concept – still is the most simplistic explanation of how markets behave. Those who do not believe may make money today and lose it tomorrow.

(1)Who wouldn't pay a penny for a sports car? Published: Friday, March 16, 2012 - 15:33 in Mathematics & Economics. Source: Northwestern University

(2) Gill R. Eapen, (with S. Shah and E. Rossow), Computer Aided Design and Optimization of Concrete Columns" Source: www.civil.northwestern.edu/docs/Rossow/cv144-ECRBIOS.doc