Friday, July 10, 2009

Soros on the nature of markets

In an interview to the UK´s DIRECTOR magazine, Soros quarrels (as I do) with the academically-dominant hypothesis of "efficient markets" (that is, that prices are the efficient outcome of perfect knowledge in the market)

However, he puts the alternative much more succinctly and elegantly than I have ever done

He says that markets, so far from being self-correcting, are shaped by the ingorant biases of market players, and those biases can be self-fulfilling.

I take it that he means that those biases can be self-fulfilling at least in the short term. I would amplify that by adding, that such self-fulfilling biases can exist as long as the result is somewhere within shouting distance of reality. When the results of these biases get too far out of sync with reality, unfortunately reality always strikes back.

For the full interview, see Sphere: Related Content

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