The traditional answer is that the incentive to find and exploit market inefficiencies gets higher if more and more funds are parked in indexes (e.g., if $GE is

The traditional answer is that the incentive to find and exploit market inefficiencies gets higher if more and more funds are parked in indexes (e.g., if $GE is underpriced due to excessive indexing, savvy investors will swoop in and buy up more stock in $GE, this bringing the market back to efficiency).