the market just efficiented my face

Alex Tabarrok links to a lovely story Lars Christensen tells about how the mean guesstimate of his weight was superior to his own, then uses this story to conclude that “the market doesn’t lie.” Sorry, but, no.

Firstly, this doesn’t have anything to do with information asymmetry, which is a massive problem with market valuations. It is really very easy to guess someone’s weight, within a relatively narrow band, from their appearance, so certain the average of a large enough group of people will almost certainly be correct. If he had swallowed a brick, however, that guess would be wrong. Now, that might fall under Tabarrok’s qualification of “market manipulation,” but I would argue that even without conscious manipulation information asymmetry is endemic to markets and therefore the wisdom of crowds is much less useful in most cases than this metaphor would imply.

But the bigger irony is that Tabarrok’s metaphor for the market is absurdly egalitarian, in such a way that if someone proposed applying it to actual markets Tabarrok would probably be stridently opposed. In the “market” of guessing Lars’ weight everyone had a guess, everyone’s guess was equal, and nobody had anything meaningful at stake. This is totally the opposite of both how markets work and how libertarians always suggest solving problems! None of these participants had any “skin in the game,” for example, which is often a proposed marketeer solution to health care-related policy issues.  And further, as I’ve written before, the efficient markets hypothesis is best stated as “prices reflect the average opinion of market participants’ money” – not reflecting the average opinion of every person. We refer to the latter as elections, the results of which libertarians chronically decry.

Once again, libertarian fables fail to account for things like “prior distribution of material and memetic wealth” that in large part determine who participates in specific markets and who shapes the outcomes in those markets.

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