The Drunkard’s Walk

BROWNIAN-MOTION

Proof of Randomness

In 1827 Robert Brown saw a random movement of pollen particles in water. Pollen particles were jumping around randomly. This was called Brownian motion aka the drunkard’s walk. In 1902 Einstein proved this phenomenon and confirmed the presence of atoms and molecules. This was 100 years after atomic theory was proposed by Dalton and was the first attempt to reconcile wave and particle theory in science. The debate has taken another form now as classical physics can’t be reconciled with quantum entanglement (superdeterminism), which meant that free will does not work, a particle can’t make his fate by hard work and awareness, his fate was predetermined.

Is it all random?

A few Physicists have extended the same debate to portfolio performance suggesting investment management is a vain business, where money is made not because of skill but because of luck, stock picking cannot be done and outperformance cannot be delivered and profit is nothing but hot hands. In his book, The Drunkard’s walk, Leonard Mlodinow, unequivocally suggests that “success or outperformance is a myth”. Suddenly the physicist’s societal framework for randomness resembles Malcolm Gladwell’s sequel.

Is societal success just because of chance? There is nothing wrong in accepting chance. But what is new here? Despite all uncertainty, generations of thinkers have spent lifetimes estimating that chance be it Gerolamo Cardano, Abraham de Moivre or Joseph Jaggar (The man who broke the Monte Carlo bank). Though Mlodinow goes about detailing the chronology of randomness driven by the evolution of probability and human understanding of universal patterns, he fails to address the subject (randomness) in totality and simply gives in to a subjective conclusion, of fighting it out and persistence as possible answers to success. “Social behavior has other dynamics than physics.”

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Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


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