In his new book, Adaptive Markets: Financial Evolution at the Speed of Thought, M.I.T. finance professor Andrew Lo attempts to account for the messier, more feeling realities of human behavior. A key premise is that markets evolve, like species, but much faster: “evolution at the speed of thought.” And that this evolution happens in fits and starts, in response to changes in the environment—hence, what he calls the “adaptive” markets hypothesis. It’s during these times of change that human emotions play their biggest role. Lo believes we are in one of those times now and, in his book, he applies biology, psychology, neuroscience, and history toward the goal of improving on the efficient markets hypothesis—which, Lo says, is not only flawed but is becoming increasingly so as the financial environment continues to change. ... The efficient markets hypothesis is a special case of adaptive markets. Markets are efficient if the environment is stable and investors interact with each other and natural selection operates over a long period of time.
The most intriguing part of the antenna, though, is that it gives him an ability the rest of us don’t have. He looked at the lamps on the roof deck and sensed that the infrared lights that activate them were off. He glanced at the planters and could “see” the ultraviolet markings that show where nectar is located at the centers of the flowers. He has not just matched ordinary human skills; he has exceeded them. ... He is, then, a first step toward the goal that visionary futurists have always had, an early example of what Ray Kurzweil in his well-known book The Singularity Is Near calls “the vast expansion of human potential.” ... But are we on the way to redefining how we evolve? Does evolution now mean not just the slow grind of natural selection spreading desirable genes, but also everything that we can do to amplify our powers and the powers of the things we make—a union of genes, culture, and technology? And if so, where is it taking us? ... Conventional evolution is alive and well in our species. Not long ago we knew the makeup of only a handful of the roughly 20,000 protein-encoding genes in our cells; today we know the function of about 12,000. But genes are only a tiny percentage of the DNA in our genome. More discoveries are certain to come—and quickly. From this trove of genetic information, researchers have already identified dozens of examples of relatively recent evolution. ... In our world now, the primary mover for reproductive success—and thus evolutionary change—is culture, and its weaponized cousin, technology. ... One human trait with a strong genetic component continues to increase in value, even more so as technology grows more dominant. The universal ambition of humanity remains greater intelligence.