The thing to keep in mind is that a perfectly efficient market is like an ideal gas. It’s a useful tool for thinking about what’s likely to happen if you go messing with variables, but it basically never actually exists in nature.
We use markets in real life not because they’re perfect, but because, on average, they get a more correct answer more often and for less effort than any other system we know of.
Could there be something better? Of course. We just haven’t discovered it yet.
Are there situations where, in hindsight, we can see that some other system would have performed better than a market? Yup. Hindsight’s awesome that way.
Can we predict well in advance when to use some other system? Not particularly. And if we could then that ability would become part of the market, so the market would still be likely to perform better when used globally.
So yeah, markets can remain horribly inefficient for a long time under some circumstances. Just remember that the same things that keep a market inefficient will likely also cause mistakes by other methods of calculation. So when you switch away from the market you’re basically going double-or-nothing and the odds generally aren’t in your favor.
The thing to keep in mind is that a perfectly efficient market is like an ideal gas. It’s a useful tool for thinking about what’s likely to happen if you go messing with variables, but it basically never actually exists in nature.
We use markets in real life not because they’re perfect, but because, on average, they get a more correct answer more often and for less effort than any other system we know of.
Could there be something better? Of course. We just haven’t discovered it yet.
Are there situations where, in hindsight, we can see that some other system would have performed better than a market? Yup. Hindsight’s awesome that way.
Can we predict well in advance when to use some other system? Not particularly. And if we could then that ability would become part of the market, so the market would still be likely to perform better when used globally.
So yeah, markets can remain horribly inefficient for a long time under some circumstances. Just remember that the same things that keep a market inefficient will likely also cause mistakes by other methods of calculation. So when you switch away from the market you’re basically going double-or-nothing and the odds generally aren’t in your favor.