Using random investments to stabilize markets

While randomness and uncertainty are often seen as undesirable, that needn't always be the case.  What if, for example, central banks could use random investment strategies to make markets more stable, to protect markets from human instinct and old habit?


The authors suggest that one way that markets could be stabilized in the long run would be for central banks to adopt random investment strategies to reduce volatility.

The benefit of that central bank strategy, the authors state, might be two-fold: 'From an individual point of view, agents would suffer less for asymmetric or insider information, due to the consciousness of a 'fog of uncertainty’ created by the random investments. From a systemic point of view, again the herding behavior would be consequently reduced and eventual bubbles would burst when they are still small and are less dangerous; thus, the entire financial system would be less prone to the speculative behaviour of credible ‘guru’ traders.'

Wikipedia: econophysics

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