At law school pub night I was talking with a second year and an economics grad student. The economist was very happy when I told him that I had studied economics in undergrad:
Him: Awesome, reinforcements! I've been arguing with this guy all night (the second year), he's trying to tell me that economics is not a science.
Me: Economics is not a science, nor should it be considered one.
Him: ....buh...bwa?....What? Whose side are you on? Of course it's a science!
Me: Long Term Capital Management (LTCM), managed according to "scientific" economic principles, blew up.
Him: ....Shut up!
Me: The efficient markets hypothesis is bunk.
Him: You, you....JUDAS!!!!
It's possible that it could have been dorkier, but I'm not sure how.
The title of this post is a reference to an old joke making fun of economists for creating theories that heroically ignore the real world. Google it.
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Frankly I had no idea what most of your post talks about (well, the economics behind it)... so being a child of our digital generation, of course I googled it. Good reading. But, is the efficient markets hypothesis a widely held theory with economists? I may know no (little) economic theoretical underpinnings, but it doesn't seem that hard to think up examples which disprove it. Seems like complete garbage to me
ReplyDeleteIt's been incredibly influential. Heck, disagreeing with it got me called Judas. It was used in a lot of financial industry models. This article provides a good overview (just read the first bit and skim):
ReplyDeletehttp://www.economist.com/displaystory.cfm?story_id=14030296
A weak version of it probably provides good investing advice: if you read about something in a newspaper or somewhere else that everyone has access to, odds are others have already acted on that information faster than you can.
But that's just common sense.