Markets NOT efficient? Price of Anarchy Rampant??

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Markets NOT efficient? Price of Anarchy Rampant??

Post  KingTut on Sat Jun 06, 2009 12:59 am

As the Great recession proves, we see why the Price of Anarchy becomes abnormally high. Everyone vying for themselves seems to make EVERYONE do worse (even individually) - that is, according to this article.

How did this faith in the supremacy of market group-think do us harm? For one, as the dot-com and other manias demonstrated, the crowd occasionally gets it wrong. The mistaken faith in markets turned regulators into fawning groupies. Notably, former Fed chairman Alan Greenspan doubted that he or anyone else could detect -- or regulate -- a bubble in advance.

The power of the doctrine was its grand design: the comforting notion that the financial universe adhered to absolute laws. But that was also its flaw. Prices couldn't be wrong; if they were, someone would seek to profit from the error and correct it. The illustrative joke was of two economists who spot a $10 bill on the ground. One stoops to pick it up, whereupon the other interjects, "Don't. If it were really $10, it wouldn't be there anymore."

Happy Reading!!


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