Paul Samuelson's Three Flavors of Randomness

Implications of the Efficient-Market Hypothesis

“The baseball announcer has it, of course, conveniently all wrong. Ted Williams is due to hit because he hasn’t hit for seven days. That’s red noise. Ted Williams is hot, he’s sure to hit tomorrow because he’s been hitting for seven days. That’s blue noise. The better description of an efficient market with random movements, which is white noise, is in between.” — Paul Samuelson

The above anecdote was made by economist Paul Samuelson in a 2004 interview conducted by fellow Nobel Laureate Robert C. Merton for the American Finance Association (AFA). Lauded for his many contributions and often hailed as the ‘last of the great general economists’, the interview regarded one of Samuelson’s main contributions to finance, work on the so-called efficient-market hypothesis (Fema, 1965). This essay relates the implications of that work to the later development of the field of behavioral economics. Continue reading


Read the full essay in Cantor’s Paradise on Medium