Markets are not efficient \ stacker news ~econ

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148 sats \ 11 comments \ @byzantine 19h econ

Markets are not efficient, but they are effective.

They are effective at finding the current price.

22 sats \ 0 replies \ @Undisciplined 17h

The "current price" presumably refers to the market clearing price, otherwise it's not a meaningful statement.

The market clearing price is the one that allocates scarce resources to those who want them most: i.e. there are no remaining mutually beneficial trades. That's exactly what "efficient" means in economics.

5 sats \ 3 replies \ @Undisciplined 19h

What do you mean by "efficient"? It seems like you must have a very high bar.

33 sats \ 2 replies \ @byzantine OP 18h

efficient is the lowest energy way of finding an outcome.

for example, in a bubble, we know that that price is way too high, but it still "the price". In a depression, we know that the price is way too low, but that still is "the price". The market is always effective at finding "a price". It's just not efficient at finding "the price" due to wild swings.

The volatility of a market is a way of being effective, but volatility is not always the most efficient way of getting to the correct answer.

42 sats \ 0 replies \ @denlillaapan 17h

we don't know that the price is "way too high" -- that is, to quote The Big Short what "makes it a bubble."

Regardless, we can only establish that in hindsight.

and efficient, in the efficient-market hypothesis framework here means something like "the globally, best guess, of current/publically available information about the future."

= point being: there's no model/idea/conviction/belief that provides an improved pricing compared to it.

(Maybe there's a relevant MONEY CLASS in here for the Stackers... who knows)