Are Markets Efficient? A Quantum Mechanics View

In this paper we adopt some ideas from Quantum mechanics, and particularly the well-known Schrödinger’s cat (1935) thought experiment in order to present some new views on the big question whether the markets are efficient or not. There are two main conflicting approaches in financial economics: the behavioral approach and the Efficient Market Hypothesis (EMH). The behavioral approach usually uses psychological theories in order to explain what the Efficient Market Hypothesis (EMH) cannot. However, behavioral finance does not have a specific model to suggest, and this is one major counterargument put forth by EMH supporters. Using the well-known CUBA fund case as an example, we show that EMH seems to be in superposition (simultaneously correct and incorrect), but suddenly collapses into one configuration. These dominant economics approaches are supplementary, so it is better for scholars that support either the EMH or behavioral finance to incorporate their ideas into one model, than to continue debating the accuracy of the EMH. The Quantum approach enables us to distinguish the unexpectable from the irrational. Adopting the quantum way of thinking we can build more accurate models and work toward the goal that most scholars pursue: to understand how the world works.