Nobel Laureate Harry Markowitz Was a Misunderstood Economist
https://www.washingtonpost.com/business/2023/06/26/nobel-laureate-harry-markowitz-was-a-misunderstood-economist/ff169e14-1442-11ee-9de3-ba1fa29e9bec_story.html
The real distinction between investing and gambling is that investors deal in the real economic risk that comes from economic activity, while gamblers create risk with dice or cards or sporting events or other devices in order to bet. But that economic point did not occur to Markowitz, none of his work recognized the connection between security risk and the economy, he optimized portfolios exactly the same way he would approach a gambling game.
Only when real economists picked up on Markowitz’s work did it become economics. The crucial added element was the Efficient Market Hypothesis, or EMH, which is an economic assumption, not a mathematical one. When the economics of EMH is added to the mathematics of MPT, you get the financial revolution that created the Capital Asset Pricing Model and its many descendants.
https://www.washingtonpost.com/business/2023/06/26/nobel-laureate-harry-markowitz-was-a-misunderstood-economist/ff169e14-1442-11ee-9de3-ba1fa29e9bec_story.html
The real distinction between investing and gambling is that investors deal in the real economic risk that comes from economic activity, while gamblers create risk with dice or cards or sporting events or other devices in order to bet. But that economic point did not occur to Markowitz, none of his work recognized the connection between security risk and the economy, he optimized portfolios exactly the same way he would approach a gambling game.
Only when real economists picked up on Markowitz’s work did it become economics. The crucial added element was the Efficient Market Hypothesis, or EMH, which is an economic assumption, not a mathematical one. When the economics of EMH is added to the mathematics of MPT, you get the financial revolution that created the Capital Asset Pricing Model and its many descendants.
Varian, Hal. 1993. "A Portfolio of Nobel
Laureates: Markowitz, Miller and Sharpe." Journal of Economic
Perspectives, 7 (1): 159-169.
https://www.aeaweb.org/articles/pdf/doi/10.1257/jep.7.1.159
https://www.aeaweb.org/articles/pdf/doi/10.1257/jep.7.1.159