[ExI] Greed + Incompetence + A Belief in Market Efficiency = Disaster

Emlyn emlynoregan at gmail.com
Fri Jan 30 09:19:37 UTC 2009

2009/1/30 BillK <pharos at gmail.com>:
> On Thu, Jan 29, 2009 at 10:55 PM, painlord2k wrote:
>> Market are not perfect because they are run by human beings.
>> Like governments.
>> But market are adaptable and the loop is very short, so the negative
>> feedback is able to function better. People doing bad choices pay for them
>> so they learn to don't do them again. The same is for good choices.
> That's a restatement of the 'efficient' market theory and it just
> isn't what happens in real life. Nice and neat in theory but nothing
> to do with what actually happens.
> Booms and busts happen because of the human 'herd' mentality. The
> recent boom had everybody piling on because they didn't want to miss
> out on the profits everyone else appeared to be making. Like a ponzi
> scheme, it was great for those who got in early and got out before the
> boom collapsed. (Also great for the facilitators who just sat there
> raking in commissions on every trade).
> The point is they were all making good choices on the way up and the
> feedback encouraged more of the same behavior. Then the house of cards
> fell in.
> BillK

Apparently this is not a new insight.


Creator: Mackay, Charles, 1814-1889
Title: Memoirs of Extraordinary Popular Delusions and the Madness of Crowds
Contents: The Mississippi scheme -- The south-sea bubble -- The
tulipomania -- The alchymists -- Modern prophecies -- Fortune-telling
-- The magnetisers -- Influence of politics and religion on the hair
and beard -- The crusades -- The witch mania -- The slow poisoners --
Haunted houses -- Popular follies of great cities -- Popular
admiration of great thieves -- Duels and ordeals -- Relics.

Published in 1852


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