On a Constructive Theory of Markets

TL;DR

This paper introduces a strategic and gambling-based perspective on financial markets, emphasizing its importance for understanding market inefficiencies and developing profitable trading strategies.

Contribution

It provides a foundational background for a broader theory linking gambling strategies to market behavior and inefficiencies.

Findings

Gambling is essential for real-world trading strategies

Strategic approaches outperform fundamentalist views

Background for a theory of market inefficiency

Abstract

This article is a prologue to the article "Why Markets are Inefficient: A Gambling 'Theory' of Financial Markets for Practitioners and Theorists." It presents important background for that article --- why gambling is important, even necessary, for real-world traders --- the reason for the superiority of the strategic/gambling approach to the competing market ideologies of market fundamentalism and the scientific approach --- and its potential to uncover profitable trading systems. Much of this article was drawn from Chapter 1 of the book "The Strategic Analysis of Financial Markets (in 2 volumes)" World Scientific, 2017.