Wednesday, April 6, 2011

Horwitz gives me a final exam

“As soon as we draw the cost and revenue curves facing the firm, no matter what their shape, we have created a theoretical case in which all competitive behavior has by definition been ruled out.”
Entry into the market alters the priors, so one gets an eigen value problem. Actually the best examples of the error are the robo trading algorithms that don't estimate the signal to noise ratio in the market.   The firm needs to estimate the signal to noise ratio, and from that the firm can adjust  the signal they introduce vs the convergence rate of the market.

Software companies avoid this problem.

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