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The given example - $10 v. $20 so you pay $12 - is an example of the principle of consumer surplus. Not the EMH. "The efficient markets hypothesis" is not prec

The given example - $10 v. $20 so you pay $12 - is an example of the principle of consumer surplus. Not the EMH. "The efficient markets hypothesis" is not precisely the same as "consumer surplus". The EMH is dependent on consumer surplus, but the EMH could be wrong and consumer surplus would still not be. Consumer surplus is a microeconomics concept; the EMH is macro. This error isn't critical to the rest of the article, but it's jarring to see something like that in the first few paragraphs.

ccostes 10y ago
He does say in the footnote that he was kidding and that this is simply called "economics", if that makes you feel better.
- ArkyBeagle 10y ago
  It does not. :)
SilasX 10y ago
True, but the concept of consumer surplus fundamentally changes in financial markets, in which both parties want the same thing -- more money. In most markets, people want different things, so it's understandable for both parties to be better off, since each value's the other's stuff more. Nothing funny about Alice valuing Bob's widget more than her wadget, and vice versa. But when both parties want "the thing that throws off the most money", it's a lot harder to come up with a scenario in which (reflectively consistent) preference sets allow for a range of possible sale/purchase values. IOW, it's fine for a worker to be (hypothetically) willing to take a lower-than-market value for their labor ... but if a financial seller is, then there's (probably) a misvaluation somewhere, and thus an EMH violation.
- ArkyBeagle 10y ago
  Shhhh! The Commies might be listening! :) The only reason I ... tolerate markets ( and I tolerate them quite well ) is that they act as a price discovery mechanism, a way of constructing decision trees using dynamic information. I have enough bandwidth to understand that basic trade - someone selling vegetables on the side of the road - is a win-win. Beyond that? I dunno. Hypothetically, Bob and Alice are specialized to each widget, which makes them more efficient. If we cannot come up with a preference-relation in which a range of possible sale/purchase values is allowed, then we can't really even hoist consumer surplus into use to support the EMH, can we? Isn't it at its core now a phony, game-playing exercise? There's no there there; it's curve-fitting nonsense on stilts at best. Self-referential systems are known to be deep pools of unmanageable complexity. And M&A seems to be a widely ignored disaster. I suspect - but really lack the chops to prove - that Adam Smith had it right all along, but that humans will always revert to isolated pools of mercantilist rent-seeking. That "markets" require beings who do not exist, or who have managed to get just enough ethical boilerplate to avoid the rent seeking. Just as Progressivism requires philosopher kings, so do ( apparently ) markets. So we're down to "well, it keeps the people who might otherwise be violent busy." When asked about American democracy, Ghandi said "I think it would be a good idea." I think capitalism would be just such a good idea. ObDisclosure: I have an old Usenet contact who is quite wealthy from a hedge fund. This guy's a PhD in applied math. He reports "I refute the EMH thusly" by kicking the logo of his firm.
  - goldenkey 10y ago
    EMH is probably undecidable given like what you said "Self-referential systems are known to be deep pools of unmanageable complexity." An entangled web of horrible horribly reactive code/systems that percolate from some perverted sense of fundamentals to the furthest farthest markets an "efficient price." Knowing what we know about "markets" and the implementation of these markets, HFT, market makers, and the clusterfuck that is all the "financial" industry that tries to capitalize on little tiny arbitrage amounts..Yeah, the markets efficient, if efficient is a synonym for reactively retarded. The market is an elephant with the tail of a donkey that has nerves that propagate at the speed of light. Efficiency really doesn't mean much if the quality of the information that is efficiently transferred is between a retarded chameleon and a groundhog with a bad hair day. But as long as everyone agrees its an elephant and believes the myth that elephant prices make sense...
squeaky-clean 10y ago
> I kid, I kid. It is called "economics." Is the footnote for that line, so I think the EMH thing is a joke.
facepalm 10y ago
In the footnotes it says he made a joke there.

ccostes 10y ago

He does say in the footnote that he was kidding and that this is simply called "economics", if that makes you feel better.

ArkyBeagle 10y ago
It does not. :)

SilasX 10y ago

True, but the concept of consumer surplus fundamentally changes in financial markets, in which both parties want the same thing -- more money. In most markets, people want different things, so it's understandable for both parties to be better off, since each value's the other's stuff more. Nothing funny about Alice valuing Bob's widget more than her wadget, and vice versa. But when both parties want "the thing that throws off the most money", it's a lot harder to come up with a scenario in which (reflectively consistent) preference sets allow for a range of possible sale/purchase values. IOW, it's fine for a worker to be (hypothetically) willing to take a lower-than-market value for their labor ... but if a financial seller is, then there's (probably) a misvaluation somewhere, and thus an EMH violation.

ArkyBeagle 10y ago
Shhhh! The Commies might be listening! :) The only reason I ... tolerate markets ( and I tolerate them quite well ) is that they act as a price discovery mechanism, a way of constructing decision trees using dynamic information. I have enough bandwidth to understand that basic trade - someone selling vegetables on the side of the road - is a win-win. Beyond that? I dunno. Hypothetically, Bob and Alice are specialized to each widget, which makes them more efficient. If we cannot come up with a preference-relation in which a range of possible sale/purchase values is allowed, then we can't really even hoist consumer surplus into use to support the EMH, can we? Isn't it at its core now a phony, game-playing exercise? There's no there there; it's curve-fitting nonsense on stilts at best. Self-referential systems are known to be deep pools of unmanageable complexity. And M&A seems to be a widely ignored disaster. I suspect - but really lack the chops to prove - that Adam Smith had it right all along, but that humans will always revert to isolated pools of mercantilist rent-seeking. That "markets" require beings who do not exist, or who have managed to get just enough ethical boilerplate to avoid the rent seeking. Just as Progressivism requires philosopher kings, so do ( apparently ) markets. So we're down to "well, it keeps the people who might otherwise be violent busy." When asked about American democracy, Ghandi said "I think it would be a good idea." I think capitalism would be just such a good idea. ObDisclosure: I have an old Usenet contact who is quite wealthy from a hedge fund. This guy's a PhD in applied math. He reports "I refute the EMH thusly" by kicking the logo of his firm.
- goldenkey 10y ago
  EMH is probably undecidable given like what you said "Self-referential systems are known to be deep pools of unmanageable complexity." An entangled web of horrible horribly reactive code/systems that percolate from some perverted sense of fundamentals to the furthest farthest markets an "efficient price." Knowing what we know about "markets" and the implementation of these markets, HFT, market makers, and the clusterfuck that is all the "financial" industry that tries to capitalize on little tiny arbitrage amounts..Yeah, the markets efficient, if efficient is a synonym for reactively retarded. The market is an elephant with the tail of a donkey that has nerves that propagate at the speed of light. Efficiency really doesn't mean much if the quality of the information that is efficiently transferred is between a retarded chameleon and a groundhog with a bad hair day. But as long as everyone agrees its an elephant and believes the myth that elephant prices make sense...

squeaky-clean 10y ago

> I kid, I kid. It is called "economics." Is the footnote for that line, so I think the EMH thing is a joke.

facepalm 10y ago

In the footnotes it says he made a joke there.