
Explaining big events
The truth is more subtle. The sum total of the decisions of many unseen people, market events (large and small) have causes. However, a good starting point for modelling markets is to assume complete ignorance of these causes. Expressed mathematically, this implies that market events are random. The Gaussian probability distribution follows naturally as the simplest expression of such assumed ignorance.
Where things go wrong is when practitioners fail to recognise that ignorance is only a
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