Is it Real, or is it Randomized?: A Financial Turing Test
12 Pages Posted: 26 Feb 2010 Last revised: 25 Jan 2015
Date Written: 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.
Keywords: Market Efficiency, Human Pattern Recognition, Machine/Human Interfaces, Technical Analysis, Video Games
JEL Classification: G14, G17, D81
Suggested Citation: Suggested Citation