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Re: <nettime> Flash: Currency Speculators [2x]
nettime's speculator on Tue, 22 Oct 2002 17:43:36 +0200 (CEST)


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Re: <nettime> Flash: Currency Speculators [2x]



Table of Contents:

   RE: <nettime> Flash: Currency Speculators Own Planet (idiotic markets)          
     "N Jett" <njett {AT} hotmail.com>                                                    

   RE: <nettime> Flash:  Currency Speculators Own Planet                           
     <douwe {AT} oberon.nl>                                                               



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Date: Tue, 22 Oct 2002 04:11:59 +0000
From: "N Jett" <njett {AT} hotmail.com>
Subject: RE: <nettime> Flash: Currency Speculators Own Planet (idiotic markets)


Isn't this <i>kind of</i> what Stiglitz won his Nobel for? "Asynchronous
information", or something along those lines? I'm not familiar with it,
but it sounds related.

Also, I'm not sure with I agree that in these situations, "the market
cannot act more intelligently than its stupidest member." I think "least
stupid member" is more likely. Regardless, it is an interesting idea... it
sort of reminds me of that saying that goes something like, "in a
democracy the people get the government they deserve."


- -jett (http://gogobot.blogspot.com)



><snip>
> > Most of the market traders know nothing of Lula and little about
> > Brazil; he just seems to match their Identikit stereotype
> > of a left-wing extremist, so they flee screaming.  Even those
> > who do their research cannot afford to act on their superior
> > knowledge of the situation, because they know that the majority
> > of their colleagues will react differently,and a successful trader
> > is one who guesses which way the herd will run and gets there first.
>
>If this is true (and it seems reasonable) then there is this alarming
>consequence: the moment the number of stupid people in a market passes a
>certain threshold, the market cannot act more intelligently than its
>stupidest member.  I guess this is self-evident when one considers the
>historical behaviour of stock markets, but seeing it put so starkly gives
>one pause for thought. Has any economist anywhere ever done some work
>towards determining what the stupidity threshold level is?
>
>pam


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Date: Tue, 22 Oct 2002 10:17:51 +0200
From: <douwe {AT} oberon.nl>
Subject: RE: <nettime> Flash:  Currency Speculators Own Planet


> <snip>
> > Most of the market traders know nothing of Lula and little about
> > Brazil; he just seems to match their Identikit stereotype
> > of a left-wing extremist, so they flee screaming.  Even those
> > who do their research cannot afford to act on their superior
> > knowledge of the situation, because they know that the majority
> > of their colleagues will react differently,and a successful trader
> > is one who guesses which way the herd will run and gets there first.
>
> If this is true (and it seems reasonable) then there is this alarming
> consequence: the moment the number of stupid people in a market passes a
> certain threshold, the market cannot act more intelligently than its
> stupidest member.  I guess this is self-evident when one considers the
> historical behaviour of stock markets, but seeing it put so starkly gives
> one pause for thought. Has any economist anywhere ever done some work
> towards determining what the stupidity threshold level is?

Why can the market in that case not act more intelligently than its
supidest member? Wouldn't it be more like the average member? Herd
behaviour arrises when the people with the most insight cannot risk a
wrong turn of the market, cannot wait for their insight to pay off in the
long run, so they get out of the market, leaving only the pure speculators
which will not try to research the fundamentals but indeed try to guess
the direction of the herd (this does not put the speculators in the
driver's seat, because they obviously cannot decide where to go either)

Douwe Osinga


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