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I do tend to think of financial markets as a giant computer whose function is to allocate capital in the economy, and which just happens to use a really weird a

I do tend to think of financial markets as a giant computer whose function is to allocate capital in the economy, and which just happens to use a really weird architecture/computational model that incorporates human brains as computational nodes, sort of like The Matrix if they hadn't gone with the goofy energy-extraction motivation instead. It's probably an analogy with limited applicability, but I do think it might be interesting to examine the computational properties of financial markets, try to see to what extent arbitrary programs can be encoded in them, etc.

yummyfajitas 16y ago
It's actually an analogy with great applicability. Quite a bit of work has been done on this topic - see the work of Pennock at Yahoo. One result: completely efficient prediction market is a general purpose computer. Such an object also requires a ridiculous number of market participants, since it can solve NP complete problems. http://dpennock.com/publications.html http://dpennock.com/publications.html One very popular result (major media attention) along these lines is this paper, which proves that pricing a certain type of CDO is an NP-complete problem: http://www.cs.princeton.edu/~rongge/derivative.pdf http://www.cs.princeton.edu/~rongge/derivative.pdf (Side note: this paper really pisses me off because they did not cite ANY of the prediction market literature. It's hard to believe this was not on purpose.)