[extropy-chat] You're Fired

BillK pharos at gmail.com
Tue Oct 17 09:31:26 UTC 2006


On 10/16/06, Robin Hanson wrote:
> Claiming that stock markets do not contain all possible information, and so are
> not perfectly "efficient," is very different from claiming that they
> are completely
> random and contain no info whatsoever.   My proposal only needs markets to
> contain a bit more info than the other processes one might use to fire CEOs.
>

Obviously markets do not contain all possible information. Equally
obviously markets contain *some* information. But markets also contain
much wrong information, 'noise', rumor, fashion, 'follow the herd' and
other nonsense. The accumulation of all that correct and incorrect
data makes stock movements unpredictable. i.e. random.

>
> If the CEO makes no difference, and markets recognized that fact, then my
> proposal will not advise firing the CEO.  The markets would only have an impact
> when they estimated that they would make a difference.
>

Markets don't recognize anything. They are random. Though they remain
within the general business cycle. i.e. they all tend to rise in the
boom cycle and they all tend to fall in the bear cycle, with
fluctuations around the trend line.

>
> Similar methods could be used to advise on CEO compensation.   If markets
> agree with you that CEOs are paid too much, they would advise cutting back.
>

*Everyone* (except CEOs)  think CEOs are over-rewarded.
When all companies share prices rise in a boom market, the papers are
full of CEOs explaining how their brilliant management has led their
company to success. When boom turns to slump, the same CEOs complain
that market conditions were against them, difficult trading
conditions, nobody could have done any better, etc. But they still
keep all their benefits, come boom or recession.

Robin, you don't seem to appreciate how random stock movements are,
within the general boom - slump business cycles.  Every year random
stock picking competitions are done which do just as well or better
than the financial professionals. (Leading to much huffing and puffing
and excusing by aforesaid professionals).

Market movements are unpredictable, meaningless and random.
It's not a problem. That's just the way life is.


BillK



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