Re: Mahathir's Phobia of Speculators

From: John Conover <>
Subject: Re: Mahathir's Phobia of Speculators
Date: 20 Apr 1999 07:11:51 -0000

Hi Mark. You are right. It is puzzling. As J. Casti points out, the
EMH has some paradoxes, and is logically inconsistent. Brian Arthur
points out that the issue is that such things are a self-referential
system, and such indeterminism pervades all of economics and game

There are two papers on, "Inductive
Reasoning and Bounded Rationality, (The El Farol Bar Problem)" which
is a non-technical tautology, and "Complexity in Economic and
Financial Markets", which is a little more formal, that pursue the

Bear in mind, that I did not say the EMH didn't work, or wasn't
correct-just that it was logically inconsistent, (or incomplete.)


BTW, I guess it could be argued, too, that this newsgroup wouldn't
have much traffic if it was not for the problem of self-referentiality
in economics. I mean if economics was consistent and complete, what
would we argue about? (Or, on the other hand, self-referentiality is
job security for economists?)

Mark Patrick Witte writes:
> In article <XdSS2.989$>,  <> wrote:
> >Mark Patrick Witte writes:
> >
> >> Well, it's not that information is valueless, it's just that the
> >> marginal investor will earn, in expectation, at best the market rate of
> >> return.
> >>
> >
> >But then, at best, the marginal investor's optimal strategy is to buy
> >some of everything in the market, (in proportion to the capitalization
> >of the individual stocks,) which, as you point out is the best such an
> >investor can do.
> >
> >And since the investor does not have to have information to do that,
> >market information is valueless.
>    What would someone pay to pay for information that would enable them
> to be able to earn the market return?  Yeah, it's zero.  You're right.  The
> possible exceptions might be those who's other portfolio considerations
> create unusual correllations with market variables and those with trading
> cost advantages.  I think some incomplete market assumptions might be needed
> to make even these go though.
> >BTW, or the investor could just buy an index fund, which does, roughly
> >about the same thing. The vast majority of equity investors, although
> >they do make money investing in stocks, do not do as well as the
> >indices, in the long run, (long run being more than 8.6 years-only 20%
> >do better by some studies.) Of the several thousand mutual funds, only
> >a hand full have done at least as well as the indices over the past
> >eight years, or so.
> Yet our allegedly rational agents go on buying them.  Puzzling.


John Conover,,

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