The Teleological Walk
Towards better models of financial markets
The Aimless Stagger and the Purposeful Stride
Two images of movement dominate our thinking about the world. The first is the aimless, memoryless, drunken stagger, where each step is utterly independent of the last. This is the “random walk,” the foundational myth of 20th-century finance, popularized by Burton Malkiel in his seminal work, A Random Walk Down Wall Street. It paints a picture of a market that is fundamentally mindless, a passive recipient of random external news, where prices fluctuate with the capriciousness of a coin toss. The second image is the purposeful, adaptive stride, like that of an organism navigating a complex and often hostile environment. This walk has memory, it has an internal logic, and it has an intrinsic goal. It is a teleological walk.
As has been established in prior explorations on this blog, the world of markets is not the tame, predictable, bell-curved reality of “Mediocristan.” It is “Extremistan,” a realm governed by wild, unpredictable dynamics, where power laws dictate that a tiny fraction of events accounts for the vast majority of the impact.1 It is a world of “fat tails,” where extreme events that should be impossibly rare according to standard models occur with unsettling frequency, and of “self-organized criticality,” where complex systems naturally evolve to a poised state where any small disturbance can trigger an avalanche of unpredictable size. The random walk hypothesis, with its mathematical assumption of Gaussian statistics, has been empirically falsified by the very structure of the world it purports to describe. The observed “cubic law” of returns, a power-law distribution where extreme events are an inherent feature, stands as a stark refutation of the old model. The crucial question is not that the old map is wrong, but what new map can account for the territory as it truly is.
This essay proposes that the market’s movements are not random but are, in the most rigorous sense of the word, teleological. Its dynamics are best understood not as a statistical coin toss but as a target-directed process whose fundamental “purpose” is the perpetuation of its own existence. This analysis will build this concept, the teleological walk, from the first principles of thermodynamics, drawing heavily on the groundbreaking work of Terrence Deacon and Miguel García-Valdecasas in “A thermodynamic basis for teleological causality” on the physical basis of purpose itself.2 It will be shown that the very power-law dynamics that falsify the random walk are, in fact, the inevitable statistical fingerprint of this deeper, teleological nature.