Relying on a little-known doctoral dissertation written in 1900 by the French mathematician Louis Bachelier, Samuelson began to weave together a theory of market prices. Bachelier had argued that price changes in the market were impossible to predict. His reasoning was straightforward. “Contradictory opinions concerning market changes diverge so much,” he wrote, “that at the same time instant buyers believe in a price increase and sellers believe in price decrease.” Believing that, on average, neither buyers nor sellers possessed any great insight, Bachelier made a startling conclusion. “It
...more
