Adaptive Markets: Financial Evolution at the Speed of Thought

behavioral economists agree that sustained emotional stress impairs our ability to make rational decisions.

An “efficient” market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants.… In an efficient market, on the average, competition will cause the full effects of new information on intrinsic values to be reflected “instantaneously” in actual price

Samuelson reasoned as follows. If investors were able to incorporate all the potential impact of future events on an asset’s price today, then future price changes could not be predicted based on any of today’s information.