Quantum physics, or quantum mechanics, is a scientific field focused on the behavior of subatomic particles. It is notoriously arcane, using math to describe phenomena that run counter to common-sense assumptions. Particles, for instance, can exist in a state of “superposition,” where such properties as location or speed are defined by a probability distribution rather than a single, definite number.
To illustrate that point, much popular-level writing about quantum mechanics has invoked “Schrödinger’s cat,” an imaginary scenario (discussed by physicist Erwin Schrödinger in the 1930s) in which a cat in a box supposedly can be both dead and alive, since its fate was determined by a particle process that yielded only probabilities.
Contrary to the impression one might get from reading some popular treatments, however, most physicists are not inclined to believe in dead-and-alive cats. Rather, they see superposition as a delicate state that is difficult to maintain in systems involving numerous particles (and effectively impossible in a large, active object such as a cat).
Such matters might seem far removed from the everyday concerns of financial advisors. But actually, quantum mechanics may end up being a subject of pressing importance in the advice industry. Whether that is the case depends on what happens with quantum computing, a technology that is now in its infancy but which—if its proponents’ ambitious visions are on target—could reshape finance and much else.
Bits to Qubits
The basic idea of quantum computing is to make direct use of quantum effects in processing information. Whereas a traditional computer works with information in streams of zero-or-one bits, a quantum computer manipulates “qubits” that take on multiple values in keeping with the superposition of carefully arranged particles.
Theoretically, this will enable quantum computers to crunch data far faster and more efficiently than any regular computer. To date, quantum computing has been done only with prototypes using small numbers of qubits. However, interest in developing practical quantum computers is running high in industry, academia and government.
Google, for instance, recently announced an initiative to develop its own quantum computing hardware. The tech giant also is collaborating with NASA on experiments with a system built by a privately held Canadian company called D-Wave Systems, which describes itself as “the first commercial quantum computing company.”
Future quantum computers may be able to tackle various problems, particularly ones involving complex calculations that have numerous variables and possible answers. Such machines might enable more precise weather forecasting, for instance, or search through diverse molecular configurations to discover new drugs.
Quantum computers might transform cryptography (and unsurprisingly, the National Security Agency is reported to be an active participant in quantum computing research). Quantum number crunching holds the potential to overcome conventional forms of encryption, and thus could pose a challenge to financial institutions, among other organizations, by making it harder to keep proprietary and client data secure.
Having vast new computer power on tap could change the financial world in many other ways, as well. Possibilities include better risk modeling and more sophisticated trading algorithms. Will economies and markets become subject to more accurate forecasting? Maybe, though it also seems plausible they will get even less predictable than they are today, as complex, quantum-enabled strategies proliferate.
Just one way quantum computers may shake up portfolio management is by putting to the test concepts that have been introduced in recent years in a nascent field dubbed “quantum finance.” Theorists in that interdisciplinary area have been working, for example, on using equations derived from the subatomic realm to revamp options pricing models in an effort to more closely reflect the flux of volatile markets.
Quantum computing, in short, seems to hold enormous potential, in finance and elsewhere. However, developing fully functional quantum computers is a formidable technological challenge. Moreover, computer users have become accustomed to devices getting progressively smaller and cheaper—and quantum computers may not fit that bill.