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What does 'irrational in important ways' even mean? What Shiller has shown is simply that the idea of a perfectly effecient market is self-contradictory. Effici
by taffer 6y ago
What does 'irrational in important ways' even mean?
What Shiller has shown is simply that the idea of a perfectly effecient market is self-contradictory.
Efficiency is just a very good approximation in practice.
- grey-area 6y agoI believe he shows in that book it's not a very good approximation - the market oscillates from overshooting to undershooting actual returns, and I don't think he believes market movements are always based on rational decisions, hence the title of the book.
- taffer 6y ago> I believe he shows in that book it's not a very good approximation But what does that mean? What is a good predictor of future returns and what is not? If markets are not, what is? > the market wildly overshoots and undershoots actual returns Well, the actual returns are only known retrospectively, but the current prices have to reflect all future returns. So, of course, current prices will always be wrong, that's not surprising at all.
- TheOtherHobbes 6y agoYou seem to be saying that current prices are always wrong, but less wrong than estimates of future prices based on current prices. I have to admit to being surprised by this line of argument.