As I mentioned in an earlier post, the idea of going to work at a hedge fund changed me a lot, whether it’s for the better or worse, where I started reading books after books about finance, markets, and history and stories around money. People around me recommended Adaptive Market Hypothesis and so I started reading it at the end of the summer, after I finished Flash Boys, by Michael Lewis.

AMH is the theory where Andrew Lo models the financial system as an ecosystem and claim that instead of everyone behaving rationally and responding to incentives as in the model in Efficient Market Hypothesis, people are evolving, and the ecosystem of financial system is also evolving. The key to evolution is that it’s not always perfect or ideal, and it’s often by chance. But over time, people and the system adapt and learn from experiences and mistakes from the past.

In the first few chapters, Dr. Lo went in depth and in breadth about neuroscience, behavioral pyschology, and many analogies to the Darwin theory of evolution. It was a bit of a stretch for me because I read mostly non-ficitons and many of them talk about the same set of concepts, about the same social experiments, the human brian, the neurochemistry, and the same history of biological evolution.

In addition, I wasn’t very impressed by the idea of Adaptive Market at the beginning, because to me, it sounded like saying “things are changing and adapting and this explains why sometime it’s good and sometime it fails”. However, as I continued reading, I started to appreciate more of implications of what modeling economy as an adapting ecosystem means, and why we should include more comprehensive human characteristics such as psycological constraints while explaining AND trying to predict the markets. I really like his analysis of the 2007 Quant Meltdown, his narration about authoritarian believes and the biases in human perception even when analyzing the 08 crisis.

But my favorite part about the book is probably the last chapter – “To Boldly Go Where No Financier Has Gone Before”. He talks about the utopian society in Star Trek where there’s no poverty, the future of automated investing, … I was deeply impacted when he pictured the world where the entire economy uses debts to support a diversified portfolio of cancer researches, where the risk is mitigated through diversification with a fund that will be large enough to support a pool of expensive biomedical researches.

He mentioned Prof. Harvey Lodish, who invented a treatment for the Gaucher disease in the late 80s. His story is inspiring because years after he invented the drug, his grandson was diagnosed of just this rare disease and because of the treatment that Lodish invented decades ago, his grandson was properly treated and saved.

Think about it: what you do now, for other people, for the society, will truly have a long-lasting impact on the future and I think this can be a truly motivating story to help us do good, create an impact and show more responsibilities for all our actions, both good and bad. For it’s not just a saying to change the world and make it a better place.