81–90 of 94 posts
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For a sufficiently large market, over time, one would expect the Central Limit Theorem to kick in and filter the noise. The "Efficient Market" can be seen as an Eternal Steady State, neglecting all transient signals.
but doesnt the central limit theorem require each event to be i.i.d. ? I dont think the efficient market is a result of the central limit theorem, since each transaction affecting the market is not independent of each other.
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> The price of something and the value of something were never expected to be the same While I agree with you (quite firmly: it’s a great starting point to put on the table to challenge orthodoxy in this space), and think you’re agreeing with the parent comment, it is a fundamental tenet of mainstream economics and the political arguments of neoliberal (aka current mainstream) policy that [price == (market averaged)…
Mainstream economists believe that value >= price. This is where economic surplus comes from. This is why trade is not zero sum, and it's why trade causes societies to get wealthier. Friendship and love fit into this framework just fine, as the price is $0, but the value is greater than $0.
This is perhaps the broader point, which is that to the degree economics acknowledges non-priced value it’s a hand wave to “there’s some economic surplus here otherwise these people wouldn’t reach agreement to exchange”.
But to the degree that senses of value are the motivating factor behind economic exchange it’s oddly absent from the discussion. I get the reasons: philosophical inquiries about value and aesthetics are a lot more challenging to work through than concepts of utility reflected by measurable actions, but this goes to the overall point about the limitation and overreduction of current mainstream economics, and the criticism of people like Graeber of its politicised and somewhat arbitrary intellectual grounds.
To the degree mainstream economic reduction is useful to support understanding that’s fine - it absolutely allows reasoning and insight in many scenarios, especially microeconomics - but to the degree that decision-makers double down on it (especially macro) despite it being incomplete or absolutely wrong in certain environments and contexts because it promotes certain power structures and power plays that is highly problematic, especially when people jump to its defence out of misplaced loyalty to a school of expertise.
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It seems like Bookstaber argues not that it's liquidity demand over information change, but that it is both . The tariff announcements are actually a great example, because it was triggered by new information, and diversification still kind of worked (at least some government bonds gained value during the drop in other assets classes). The main question, I suppose, is why correlations were so high after the tariff an…
"was triggered by new information," Trump had been threatening tariffs for the campaign and mentioning them before. There wasn't that much new information that should have caused the plummet. Also I will point out that it's more like the avoidance of information that caused some of it Nvidia's stock plunged on an announcement that went something like: Sentence 1: we are putting tarrifs on Taiwan Sentence 2: except se…
Trump made many empty threats his first term, so many didn't believe he would follow through to the degree he's done this term.
> The EMH would assert that a casual observer like me wouldn't see the price gap between the time it took for people to read sentence 2. But it took several business days.
This is a good point and surely sounds like an effect of liquidity demand. The same investors had to dump Nvidia also to pay for other losses and that briefly removed liquidity providers who wanted none or the volatility, until things calmed down a little.
Does the EMH state that prices will reflect on the price of a stock instantly? If not, I don’t think there’s a paradox. EMH would just mean it will eventually converge? I guess that makes it pretty toothless in practice then. I feel like the stock market is pretty divorced from fundamentals at this point i.e. speculation makes it more like a Keynesian beauty contest (picking stocks you think other people will think a…
> I feel like the stock market is pretty divorced from fundamentals at this point i.e. speculation makes it more like a Keynesian beauty contest (picking stocks you think other people will think are valuable). Momentum investing is a thing: * https://www.investopedia.com/terms/m/momentum.asp * https://en.wikipedia.org/wiki/Momentum_investing A number of people make / made money when The Market became "divorced from f…
Earlier quoted context omitted.
> The price of something and the value of something were never expected to be the same While I agree with you (quite firmly: it’s a great starting point to put on the table to challenge orthodoxy in this space), and think you’re agreeing with the parent comment, it is a fundamental tenet of mainstream economics and the political arguments of neoliberal (aka current mainstream) policy that [price == (market averaged)…
Mainstream economists believe that value >= price. This is where economic surplus comes from. This is why trade is not zero sum, and it's why trade causes societies to get wealthier. Friendship and love fit into this framework just fine, as the price is $0, but the value is greater than $0.
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All models are flawed; some are useful. I would argue the EMH is an imperfect but useful model of market behaviour.
You make a good point and I’m open to changing my mind. How do you think it’s useful? Can it be used to make predictions about the future, for example?
Yes: most invested dollars will be unable to beat the market, on a risk adjusted basis and net of costs.
Earlier quoted context omitted.
Mainstream economists believe that value >= price. This is where economic surplus comes from. This is why trade is not zero sum, and it's why trade causes societies to get wealthier. Friendship and love fit into this framework just fine, as the price is $0, but the value is greater than $0.
is value the same as utility?
Earlier quoted context omitted.
> The price of something and the value of something were never expected to be the same While I agree with you (quite firmly: it’s a great starting point to put on the table to challenge orthodoxy in this space), and think you’re agreeing with the parent comment, it is a fundamental tenet of mainstream economics and the political arguments of neoliberal (aka current mainstream) policy that [price == (market averaged)…
Mainstream economists believe that value >= price. This is where economic surplus comes from. This is why trade is not zero sum, and it's why trade causes societies to get wealthier. Friendship and love fit into this framework just fine, as the price is $0, but the value is greater than $0.
Trade very much is zero sum, at least some of the time. Prices are set by power disparities, not by abstract concepts of relative value.
One of the many problems with mainstream econ is that gloms together a whole set of unrelated interactions in a single crude concept of "price."
In reality share dealing, corporate wage bargaining, negotiations between farmers and supermarket chains, lemonade stands, and tourists haggling with craft vendors on vacation are all completely different kinds of interactions.
They end up with a price because they're mediated in currency, but their differences are far more interesting and economically revealing than their very superficial similarities.
Earlier quoted context omitted.
Mainstream economists believe that value >= price. This is where economic surplus comes from. This is why trade is not zero sum, and it's why trade causes societies to get wealthier. Friendship and love fit into this framework just fine, as the price is $0, but the value is greater than $0.
How often is "You should pay me much more, it will make both of us wealthier" a winning argument when asking for a raise? Trade very much is zero sum, at least some of the time. Prices are set by power disparities, not by abstract concepts of relative value. One of the many problems with mainstream econ is that gloms together a whole set of unrelated interactions in a single crude concept of "price." In reality share…
> How often is "You should pay me much more, it will make both of us wealthier" a winning argument when asking for a raise?
A great deal. If you don't pay me, I will quit, and you will be worse off, so it's a win-win proposition for you to give me a raise. That's what labor market competition is about.
> They end up with a price because they're mediated in currency, but their differences are far more interesting and economically revealing than their very superficial similarities.
Hence microeconomics, labor economics, financial economics, and the various other mainstream economics disciplines that do try to split those hairs.
Anyone who has lived through a market correction (the tariff announcements in early April this year being a recent example, though there have been far worse) should be able to see that market prices do not always accurately reflect even the consensus view of value (which itself can be wrong). As people are forced to de-lever, everything goes down at once, often by very similar amounts, even though it cannot be possib…
> As people are forced to de-lever, everything goes down at once, often by very similar amounts, even though it cannot be possible that everything suddenly lost the same amount of value simultaneously. The price of something and the value of something were never expected to be the same. What's the value of food? If you have none you die, so the value is quite high, but the price is much lower than that because there…
This is a (un)surprisingly deep rabbit hole.
Human Society and the Global Economy by Kit Sims Taylor, Chapter 6: Theories of Value
https://www.d.umn.edu/cla/faculty/jhamlin/4111/2111-home/val...