Is finance imitating physics?
75 years ago a European physicist came up with a thought-experiment that illustrated the paradoxical nature of quantum equations. They posited that a particle will be in several quantum states at once until it is observed. That is, a radioactive substance will both decay and not decay until measured, at which point it collapses to a single state.
Erwin Schroedinger showed how ridiculous this is by imagining a cat confined in a box, whose life depends on whether a single atom decays and hits a mechanism that might kill the cat. According to the theory, the cat would be both alive and dead until the box is opened and the cat is observed. “Schroedinger’s Cat” has become a famous example of indeterminacy, the notion that reality must be expressed as a probability.
With the debt crisis in Europe, the Euro is currently in a similar, indeterminate state. If the entire system collapses, it will be incredibly weak—no one will know what their Euros will be worth, as the nations go back to Deutschmarks and Guilders and Lira and Drachma. On the other hand, if the weaker nations like Greece and Portugal leave the Euro, it will strengthen dramatically, as Germany continues to run a significant trade surplus with the rest of the world.
In reality indeterminate states are unstable, and can’t exist with very large objects or for very long. Let’s hope that the Euro doesn’t collapse, and that the leaders meeting over there can stabilize their system.
Douglas R. Tengdin, CFA
Chief Investment Officer
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