Sunday, March 22, 2009

Scott Sumner on the efficient markets hypothesis

He doesn't find much use in discarding it.

It's along the same lines as Will Wilkinson's objections to "inefficient market" models of regulation: they don't include irrationality in the regulators. In fact they tend not to model the regulators at all. This is standard in economics; show a socially inefficient outcome according to the theory and suggest a regulation to fix it. Public Choice is the school that attempts to model government agents as well, but its conclusions are not as popular or oft-used as traditional models of markets. Sumner's entry has a small taste.

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