becoming increasingly important in the market-place, especially as strategies used by high-tech alternative investment firms, such as some hedge funds. Business cycles A particular type of trader Black makes special mention of is the entrepreneur. Like the above-mentioned traders, entrepreneurs have theories about what will happen and what is happening. In this case, though, they have theories as to what people want. When they are correct, there is a little boom; I make what you want, you make what I want, we trade and we are happy. But the world has noise and entrepreneurs make mistakes. They make things others don't want. Thus, they don't work as hard, money is wasted and the economy is harmed. When this happens on a massive scale, there is a bust. Critics argue that this disobeys the law of large numbers; with so many entrepreneurs trying, the aggregate success rate will be constant. (This assumes that producers are more or less independent; critics say they are, proponents say they're more interconnected.) Econometrics Black argues that econometrics is filled with it in the forms of unobservables and mis-measurement. No matter how many variables one puts into a model, there are always more to add but can't (ones you can't observe) and the ones you have will always have error. This is how noise manifests in econometrics (as well as poor interpretation of regressions, such as assuming correlation means causation). References Noise. Fischer Black. Journal of Finance, 1986. How Noise Matters to Finance. N. Adriana Knouf. University of Minnesota Press, 2016. Pricing