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An Enjoyable Life Puzzling Over Modern Finance Theory


  • Paul A. Samuelson

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139)


This is a terse account of group creation of modern finance theory; and a sampling of my prosaic autobiographical investing and consulting for nonprofit academies. Eschewing 1900 Bachelier and 1905 Einstein white noise randomness, my martingale version of market micro efficiency invoked no violation of economic law. My attempts to establish pricing theory for options fell a bit short of the Black-Scholes-Merton Holy Grail. For life cycle investing, mathematicians’ maximum growth Kelly criterion was debunked, as were vulgar notions that necessarily riskiness is averaged downward for long-term investors. Popular Markowitz-Tobin quadratic programming was shown to hold generically only for smallest price variations or for unrealistic risk-aversion functions. Because economic history at best obeys only quasi-stationary probabilities, no sure-thing formulas will ever be definable. Excess returns—excess “alphas”—can result only from early new “insider” knowledge, however acquired—legally or illegally. Boo hoo.

Suggested Citation

  • Paul A. Samuelson, 2009. "An Enjoyable Life Puzzling Over Modern Finance Theory," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 19-35, November.
  • Handle: RePEc:anr:refeco:v:1:y:2009:p:19-35

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    Cited by:

    1. Fredrik Hansen, 2013. "The efficient-markets hypothesis after the crisis: a methodological analysis of the evidence," Chapters,in: Before and Beyond the Global Economic Crisis, chapter 3, pages 55-71 Edward Elgar Publishing.
    2. Andrew W. Lo & Mark T. Mueller, 2010. "WARNING: Physics Envy May Be Hazardous To Your Wealth!," Papers 1003.2688,, revised Mar 2010.

    More about this item

    JEL classification:

    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)


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