- Markets aren’t perfect and nor should they be
- If they were perfectly rational and efficient, the smart money would no longer go there
All of which seems to suggest that human beings like the chaos and the risk and the uncertainty – the gamble – that is a stock market investment.
Professor Schiller, who teaches at Yale University and has just added a new chapter on the bond market to the third edition of his book ‘Irrational Exuberance’. And in support of his theory of people actually liking irrationality, he quotes a “classic paper” published by Joseph Stiglitz and Sanford Grossman 35 years ago.
It was titled ‘On the Impossibility of Informationally Efficient Markets’ and it contained the following gem: “Perfectly efficient markets require the effort of smart money to make them so; but if markets were perfect, smart money would give up trying.”
All of which says that the gamble of a good investment is more thrilling than a dead cert?
Isn’t it much the same for life?
(Tomorrow: Why smart investment machines and models may be a really dumb bet)