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.

Foresight versus Negativity and Pessimism

When I worked remodeling and landscaping I used to try to visualize what could go wrong and head potential problems off while we were still planning the work. I finally got tired of the man I was working for calling me a pessimist and complaining about my negativity and quit saying anything.

Stay well away from anyone who uses the word "negativity". Every time I have heard it used it was an attack on someone attempting to show some foresight.

Rationalists Should Win

Some Notes on Instrumental Rationality

a general response to several Less Wrong posts and comments

"Abandon reasonableness" is never necessary; though I think we may be using reasonable somewhat differently. I think "reasonable" includes the idea of "appropriate to the situation"

As to the overall point, I agree that rationalists should win. General randomness, unknowns, and opposition from other agents prevent consistent victories in the real world. But if you are not winning more than losing you definitely are not being rational.

Another reason for failure is a failure of knowledge. It's possible simply not to know something you need to succeed, at the time you need it. No one can know everything they might possibly need to. It is not irrational, if you did not know that you would need to know beforehand.

A bad reason for failure is the faulty assumption that something is possible to accomplish when it's not (eg, perpetual motion and its less obvious equivalents). And of course there's the complementary problem: "If the objection you think is real, is in fact real, well, then you've only lost a little time by trying. But if you believe an objection that isn't real, then you've lost much, much more than that.", P J Eby commenting on "Bad Reasons for Rationalist to Lose", that is not trying something because you wrongly think it is impossible.

Meaningless Philosophy

Philosophy that is not accessible to the field that is supposedly being analyzed, for example, philosophy of science that cannot be grasped by scientists because of idiosyncratic terms and proofs, is just intellectual masturbation.

Getting Things Right by Avoiding Mistakes

I recently sold my copy of :

What Made Gertie Gallop? : Learning From Project Failures

by O. P. Kharbanda and Jeffrey K. Pinto

and wrote this review for Amazon when I did:

Useful and Readable, March 8, 2009

The projects reviewed here are old enough that they have been analyzed well enough for fairly complete understanding to be possible. The mega-scale of the projects makes them less than directly applicable for most readers, but their large scale makes for a completeness in their management, smaller projects frequently skimp on their formal management and are usually less well documented, that makes for a better analysis.

The techniques are well illustrated by the projects chosen and the writing does not get in the way of the analyses. This book is very clearly written, the individual project analyses can almost be read like short stories, but with the added benefit of being factual.

For those more interested more in a popular treatment of engineering failure than project management failure I recommend Henry Petroski's To Engineer Is Human: The Role of Failure in Successful Design. I mention this because when I bought this I thought this book was more on engineering failure than it was; a lucky mistake since it turned out to be more interesting and useful than I expected.


I think that reading about mistakes and errors is more useful to improving your own functioning than reading about positive techniques. As Marcus Ranum put it in "The Six Dumbest Ideas in Computer Security", "It is often easier to not do something dumb, than to do something smart."

The single best means of getting things right is to not do them wrong. Doing some reading in advance of starting a project is a good idea, but much more important is being careful while working - stopping when necessary to think things through or check reference works.

G Harry Stine in his The Hopeful Future wrote, "A self-taught person is usually deficient in one or more areas of his learning expertise."

Stine is a technocratic engineer, one of what Postrel calls a stasist in her book The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress. Stine's book quoted above calls for planning the future, despite the inherent impossibility, and undesirability, of that task. Besides the general antagonism to his authoritarian, control-freak planning, I object to the quote above for more specific reasons. First, as phrased it is meaningless, what I think he meant is that a self-taught person may not be as "well-rounded" as he or some authority thinks they should be. Second, is why a self-taught person should care about someone else's judgement of them, unless that other is a potential employer, in first place. Third, if a self-taught person discovers he or she needs to know something that they missed earlier, they simply need to go find it out.

What Went Wrong?, Fourth Edition: Case Studies of Process Plant Disasters is a catalog of hundreds of things that have happened in chemical engineering plants. I own and have read an earlier edition not available from Amazon, but have examined this edition in a book store and it has even more case histories. Many of the case histories are widely applicable to many other situations.