Efficient Markets Hypothesis

There have been a couple of blog posts about the Efficient Markets Hypothesis in the past week:

How To Dis EMH By Robin Hanson January 9, 2010 11:15 am on Overcoming Bias

Then The Efficient Markets Hypothesis by Steve Sailer, Friday, January 15, 2010 on his blog.

According to the Efficient Markets Hypothesis markets reflect ALL relevant information, not just public, since any purchase or sale in a market, even that based entirely on private information is reflected in the price. And if someone has private information but does not act on it, by buying or selling, then it is not relevant as it does not affect the market price.

Two, collapses and delayed effects are PART of the EMH. No one who wasn't out of touch with reality has ever claimed that markets instantly reflect all possible information. I am sure someone, probably an academic somewhere, has made that claim.

Three, the biggest claim is obviously true, that there is NOTHING that produces more accurate prices and hence more efficient exchanges than the market. It's not some magic wand, just there is no humanly better alternative.

Markets are in a way a set of "distributed algorithms" for establishing and managing exchanges. But instead of being established across computers which are much to slow and weak, they work across human minds. Each mind only deals with a small fraction of the available information and outputs its decisions in the form of buy or don't buy or sell decisions; that is a decision as to whether the "market price" is lower, close to, or higher than their evaluation of value.

When we have "minds" more powerful than our own, markets may become obsolete, like in the "Economics 2.0" of Charles Stross's novel Accelerando (Singularity).

But until then there is no viable alternative for humans either to markets or to crippled command-type economies. The so-called "mixed economies" are not stable; special interests, especially the interests of government bureaucrats and politicians in increasing their power, inevitably leads to growth of the command side of the economy at the expense of the market.

Substantially edited to correct poor wording, 1:15 PM.

Is high IQ a curse? - Hacker News

From a question posted on Hacker News Is high IQ a curse?

Potential problems:
* unrealistic expectations of what you can accomplish
* difficulty in dealing with average people
* more likely to question things and annoy people in the process
* less likely to accept traditions
* less likely to enjoy the simple pleasures of life
* less likely to find a job as an employee rewarding

I first responded:
If it is a curse to you, then you probably have other specific difficulties. I am a high-functioning autistic with an IQ of 156; I have trouble with all but the last 2. In fact, working as an employee helps offset my problems with "unrealistic expectations" since my biggest problem with that is lack of focus, and when employed my employer provides the focus. Unfortunately, since my last good employer died in 2001, I have been bouncing around between low level jobs ever since. I cannot work closely with others more than briefly, so I either have to work alone, which is what I mostly did in the 1990s, or switch jobs every few years, and with the economy and the torture looking for work is for me, I have been mostly out of work since last October.

Then in response to a suggestion that maybe I didn't really need a job, I responded:
That's my biggest problem, I don't have any particular passion. I NEED an external source of focus; when I'm not working I read and study more or less at random when something catches my attention. I have tried all sorts of things to try to maintain a single focus, but so far nothing has worked at all. And I need income even more, I'm already in debt, I just have to take whatever I can get for work.

I came back to the site after taking a nap, thinking that maybe I came across as too whiny. After rereading what I wrote, I wanted to edit it and add more useful content, but it was too late to edit or delete it, so I decided to add to it here, where it will be easier to maintain. (Finding HN entries after they've left the front page can be a bit tedious.)

I am going to respond more specifically to each point:

unrealistic expectations of what you can accomplish
If this is a problem for you, then you probably just aren't as smart as you think you are. You just need a more realistic self-assessment. My problem here is that I can accomplish a lot in a day, but staying focused for a sustained effort is impossible without help.

difficulty in dealing with average people
Being autistic, I have real trouble with this one, but I have learned and can deal with normal people in a relatively structured setting, where I know the parameters of the interaction in advance (I did okay working a Greyhound bus agency for a couple of years), if taken unawares I still can't. I also can't deal regularly with the same people for very long, since no one seems to learn from their mistakes, they keep doing the same stuff over and over and it gets on my nerves very quickly. To avoid this I usually work alone, night stocking in Walmart produce worked pretty well, but the best I had from this aspect was I spent the entire 1990s working for an architect and landscaper who dealt with the clients, then left me alone to get the work done.

more likely to question things and annoy people in the process
If you can't learn to keep your mouth shut, you really aren't very bright at all. I learned this very early in life, getting your ass kicked on the way home from school almost every day will do that.

less likely to accept traditions
Maybe not just because they are traditions, except that Friedrich Hayek, Thomas Sowell, and many others have pointed out that traditional knowledge may not be optimal, but it has survived the test of real world use, sometimes over substantial periods of time. (As a side note, many "traditions" aren't very old, despite what some seem to think.) Questioning traditions is good, just don't throw them out until you understand why they exist and have something better to replace them.

less likely to enjoy the simple pleasures of life
This depends too much on your definition of the "simple pleasures", but from what I have seen there is little difference, and what there is goes the other way; more intelligent people are generally more capable of enjoying "the simple pleasures", and indeed any pleasures.

less likely to find a job as an employee rewarding
I don't understand this one at all. Just as when you are doing independent contracting or have your own small business, you are providing a service to someone that the other values enough to pay you to do. In many ways, doing a job as an employee can be more rewarding if you like what you are doing, because you don't have to deal with the parts you may not like, such as collections, paying other employees, renting workspace, and the hundreds of other details needed to operate a successful business.

Some of the books by Thomas Sowell I have read and definitely recommend:
A Conflict of Visions: Ideological Origins of Political Struggles
How to understand the fundamental difference between American liberals and small government conservatives. Does not defend Republicans nor the Judeo-Christian Socialists that have more recently been mis-labeled "conservatives".

Knowledge And Decisions
This is the single best book on the role of knowledge in the economy, and why planning does not work. Not as theoretical as some, but with more examples.

The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy
Sequel to A Conflict of Visions above; I do not recommend the third book in the series The Quest for Cosmic Justice. But even though I think it's weaker than the others, it is equally highly ranked on Amazon, so maybe you'll get more out of it than I did.

I've read and recommend others by Sowell, but these are the ones that bear most directly on the value of traditions. Hayek's books are more formally written, but I don't really think they are better than Sowell's in any real sense.

The single most accessible for general readers and referring to the value of tradition is The Fatal Conceit: The Errors of Socialism (The Collected Works of F. A. Hayek). Individualism and Economic Order is a collection of essays, and is harder reading, but I think it worth the effort.

To Spread The Enlightenment and Western Civilization

From Scott Aaronson's "The Singularity Is Far"

And I can’t help thinking that, before we transcend the human condition and upload our brains to computers, a reasonable first step might be to bring the 18th-century Enlightenment to the 98% of the world that still hasn’t gotten the message.

No doubt lead by the sort of liberal halfwits that supported the Soviet Union and who try and fail to manage a couple dozen 9 year olds (ie, professional academics and teachers).

This is like the quote, which I can't find so can't attribute properly, that said intellectual supporters of revolutionaries expected to find themselves running things after the revolution, and in every real world revolution were unpleasantly surprised. But their intellectual descendants never seem to learn. Here what Scott wants to happen should happen; but most people don't want to become civilized, most in Western countries are actively or passively against the very civilization that they depend upon for their lives. The only reason civilization hasn't collapsed under the sheer weight of democratic arrogance and stupidity is that market forces have helped to counterbalance their incompetence and evil. And the only way to raise the rest of the world is by extending the market, and especially protecting it from gov't power, into the rest of the world.

Earlier in the post he wrote,

I see a few fragile and improbable victories against a backdrop of malice, stupidity, and greed—the tiny amount of good humans have accomplished in constant danger of drowning in a sea of blood and tears

Since destroying things is MUCH easier than building, if humans weren't substantially inclined toward helpful and constructive values, civilization would never have existed in the first place nor could it continue to exist at all. Of course, most of the world doesn't have much, largely because they aren't very civilized.

The Austrian Method

Based on Economic Science and the Austrian Method by Hans-Hermann Hoppe.

This book is very dry and difficult reading, as bad as Mises "Human Action", though thankfully much shorter, or I never would have read it, as I never finished "Human Action".

The Austrians try to base everything on fundamental ideas, what they call "synthetic a priori" after Kant; I have never read Kant so I can't tell you whether their claim that their ideas are Kant's "synthetic a priori" or not; but they are the same types of ideas I have been calling for years "undefinable primitives". These ideas that they try to base everything on, "action", "value", "cause and effect" aren't some mystical information from nowhere, which is what earlier reading about Kant had suggested he thought - I think they are ideas absorbed from observation of reality and how humans act (and, unfortunately, what people have absorbed through reading and stories, which is why so much "intuition" on larger issues where people don't have direct experience is often so irrational), but they are so basic that they are hard even to discuss intelligibly, much less define.

A second part of the Austrians' disagreement with conventional economics is based on the supposed differences between human motivations and interests and the natural world - "the impossiblity of causal predictions in the field of human knowledge and actions" (p.43). Human preditions must be based on actions and goals, and what the particular human knows at the time he chooses his actions and goals. The particualrity of what a human knows is another reason they dislike and distrust statistical knowledge, like the GDP, it loses too much necessary information.

"... empirical knowledge which is based on understanding - just as according to our intuitions economic propositions claim to be based on understanding - rather than on observations." (p.57) Actually, as I suggested above, our intuitions and understanding are based on internalized observations and knowledge received from others.

"In explicitly understanding knowledge as displayed in argumentation as a peculiar category of action, it becomes clear immediately why the perennial rationalist claim that the laws of logic - ... - are a priori true propositions about reality and not mere verbal stipulations regarding the transformation rules of arbitrarily chosen signs, as empiricist-formalists would have it, is indeed correct." (p.71)

A part of Hoppe's argument in the book is a misguided (in my opinion) attack on a sort of naive empiricism that I have never actually encountered. I haven't read much technical economics literature, so it's possible some economists are making these sort of shallow mistakes, but what I have read in economics suggests this is unlikely.

Another part of his argument is an attack on historicism in economics, I think this is even more misguided, without historical knowledge Austrian economics could not have been developed. Also, some of the best economic reading I have done has been by Thomas Sowell, an economic historian. Another good economics writer is David D Friedman, a non-economist.

The best part of Austrian economics is that they give a clear rational account of the few things nearly all economists agree on: minimum wages increase unemployment, wage and price and rent controls cause other (non-price) forms of rationing, and so on.