Clarifying, I do think of humans (participation) as chaotic systems of the "second order". Natural chaotic systems, especially those of smaller scales, usually belong to the first order because mostly local influences play a part.
However, humans introduce a whole set of chaos into a system because events far away, insignificant events and other non-local influences have a hand in influencing human decisions. In a system with high (individual) human control and interactions with other humans, then chaos of a second order will break out, especially if these humans do not think rationally (in the context of predictability).
With prediction software, one causes a "third order" chaos to occur. By attempting to predict the market (and assuming that one acts on the prediction), then the market would enter a highly chaotic state quite to the extent of unpredictability. The unpredictability increases as the influence of the "prediction" software increases to the extent of making the predictions no better than chance.
A system with first order chaos must have a predictive solution with non-linear equations, but a system with second order chaos would require something more complex like a simulation using hybrid AI systems. As for a system of the third order, I would like to know what others had discovered about this.
> A brief glimpse at the circumstances under which markets
> have ceased to have "chaotic" price movements shows that it is better that
> they do. Such movements generally stop only when the markets cease to
I do not wish to make judgment whether a non-chaotic market will always suit our societies better. However, I do think that minimizing market chaotic-ness by providing free information flow and reducing deception (perhaps by an obligation of "Free Speech") will increase market efficiency as a whole. I do not believe that minimizing chaos by imposing strict central control will increase efficiency.
I do not advocate this for all societies, but think of this more as a thought experiment.
> If so, I must
> point out that there are very powerful self-correcting features to the stock
> market which work to solve the problem you are talking about. No better
> solution has been found.
I would like to know about this systems, especially if you don't mean Adam Smith's invisible hand.
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