Nomura's Jellyfish (wikimedia)
Via Brad Delong, Richard Thaler’s admirably succinct summary of the problem with the Efficient Capital Markets Hypothesis:
The [Efficient Capital Markets] hypothesis has two parts, he says: the “no-free-lunch part and the price-is-right part, and if anything the first part has been strengthened as we have learned that some investment strategies are riskier than they look and it really is difficult to beat the market.” The idea that the market price is the right price, however, has been badly dented.
Brad says “A failure to distinguish between the no-free-lunch and the price-is-right versions of the efficient market hypothesis has been the source of a great deal of very bad economics over the past generation.” Eugene Fama explaining that there’s no such thing as bubbles based on evidence that at best supports the position “it’s extremely difficult to accurately assess bubbles in such a way as to make money off of them” is a nice illustration.
Meanwhile, I don’t have a good image with which to illustrate a post about the theory of finance, so here’s a link to a story about giant jellyfish menacing Japan to serve as pretext for a photo of a giant jellyfish.
Previous in TP Yglesias
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