Is it Real, or is it Randomized?: A Financial Turing Test
Andrew W. Lo
Massachusetts Institute of Technology (MIT) - Sloan School of Management; Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL); National Bureau of Economic Research (NBER)
February 23, 2010
We construct a financial "Turing test" to determine whether human subjects can differentiate between actual vs. randomized financial returns. The experiment consists of an online video-game where players are challenged to distinguish actual financial market returns from random temporal permutations of those returns. We find overwhelming statistical evidence (p-values no greater than 0.5%) that subjects can consistently distinguish between the two types of time series, thereby refuting the widespread belief that financial markets "look random". A key feature of the experiment is that subjects are given immediate feedback regarding the validity of their choices, allowing them to learn and adapt. We suggest that such novel interfaces can harness human capabilities to process and extract information from financial data in ways that computers cannot.
Number of Pages in PDF File: 12
Keywords: Market Efficiency, Human Pattern Recognition, Machine/Human Interfaces, Technical Analysis, Video Games
JEL Classification: G14, G17, D81working papers series
Date posted: February 26, 2010 ; Last revised: March 17, 2010
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