CorporateNature No 151
The world of finance bears a striking resemblance to the quantum world, which has led to the emergence of a new discipline: Quantum Finance. Here are three examples:
A) CONTINUOUS VS. DISCRETE
A beam of light may seem continuous but is actually a stream of photons, which are discrete packets of energy. Similarly, an organisation's cash flows appear to be a constant trickle but each payment forms a distinct chunk.
B) CHANGE THROGH MEASUREMENT
Just like the position of a particle in quantum uncertainty is unknown until the moment of measuring it, the real price of an asset is unknowable until it is measured through a market transaction. Yet, this very transaction changes the valuation, just like pinning down the particle to measure it changes its characteristics.
C) UNCERTAINTY IN THE SYSTEM
Uncertainty in the quantum world and Risk in the finance world are not a peripheral source of error, but are a fundamental feature of the system.
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Canadian mathematician and writer David Orrell has a forthcoming book on this subject: “Money, Magic, and How to Dismantle a Financial Bomb” in which he models markets using the toolbox of quantum mechanics. A summary has been published in The Economist ("A quantum walk down Wall Street")
