Irrational Investors in an Efficient Marketplace : Biases, Randomness and Futility

Abstract

The intention of this project was to present prevailing theoretical positions explaining market efficiency and to test their viability using an equity simulation. The primary questions were concerned with whether tenability of market price predictability and investor rationality was reasonable. Furthermore, are certain investor characteristics consistent with certain investor behaviors? Subsequent to that, the concern was for whether certain characteristics and behaviors lead to superior performance as measured by return. Intention and result can diverge. In some ways, that was the case in this endeavor. The key conclusions of this study are that while profit maximization, utility maximization and market price equilibrium remain as key concepts and arenas for debate, these arenas are crowded and beginning to obsolesce. Understanding the human mind and its actions in concert with the perspective of complex system theory, biology and ecology, time horizons and innovative sociological models comprise the next steps in establishing a better model for explaining and understanding the market.