Cognitive Scaffold

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MENTAL MODEL · M3153

Random Walk Hypothesis

Random Walk Hypothesis
BusinessHigh supportFinance
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

The belief that stock price movements are random and unpredictable, like a drunkard's walk. Past movements cannot predict future movements.

SCAFFOLDING EFFECT

psychology

Reduce cognitive load

Prediction skepticism. It reminds us to be wary of experts who claim to predict short-term future through "technical analysis" or "chart reading." For most people, acknowledging unpredictability and opting for index investing is a more rational choice.

anchor

Anchor fast decisions

The random walk hypothesis holds that asset price movements approximate a random walk, and historical prices are not useful for predicting the future. It is a core expression of the weak-form efficient market hypothesis.

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Source support: Explicit

  • link
    en.wikipedia.orghttps://en.wikipedia.org/wiki/Random_walk_hypothesisZH · Explicit
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