Maybe the real genius keeps to himself

If you could figure out the stock market (or any market) with a model or theory, why would you tell anyone?  Presumably, if you were correct, people would exploit the theory to make money until the theory no longer applied.  I can think of only one reason to step up on the soapbox and announce your theory; that is, if you're banking on fame.  By making predictions, an analyst has a chance at being correct.  If his or her timing is perfect and the idea predicts a large market event then the fame will land him book sales, a good job, and fame.  It's like playing the lottery - every time a prediction is made, a metaphorical ticket is bought.  Just like a real lottery, the only penalty for being wrong is not much of a loss, people just ignore you (the cost of the ticket is lost, you're time spent on the idea is lost).  The analyst or researcher is then free to play the lottery again by making more theories, predictions, models etc.

So there is no downside to stepping up to the podium if you're not sure how correct you are.  If anything, there is an incentive to announce all of your' questionable ideas, maybe by chance you'll be correct.  The data shows this to be true.  Those who have famously predicted big market moves, in aggregate, had usually made many false predictions as well.

Back to the original idea.  If your idea really has the ability to predict a market and you are sure of it, why tell anyone?  You could invest into it yourself, you would become rich before people caught on.  It only makes sense to announce what you are unsure of.

I'm sure there are a few people that are not driven by this incentive, but if my area of study is correct at all (in that one of the pillars of economics is that incentives matter), then it has to be true to some degree.  I like to keep this idea in the back of my mind when I read anything.

Maybe the real genius keeps to himself.

Makes you think

An excerpt from  a 1978 paper on seasonality:

"An extreme example is that of British egg prices in the early sixties.  The eggs were produced almost entirely by battery hens, who had no idea of the season as they existed in a closely controlled, stable environment, and, thus, production could be made steady throughout the year.  The egg prices were fixed by the Egg Marketing Board, who, on being asked why the prices contained a strong seasonal element, replied that "the housewives expect it."  The seasonal in egg prices vanished soon after the enquiry was made."

  - Seasonality: Causation, Interpretation, and Implications, pg. 34

 by Clive W. J. Granger

http://www.census.gov/ts/papers/Conference1978/Granger1978.pdf

Circular Blog on this Blog

I'm stepping up onto the proverbial soap box.  I'm not sure why, but I felt it must be done.  Yesterday I deactivated Facebook; an action at least not intentionally related to the starting of this blog.  At the very least I hope to waste my time in a more academic, thought provoking, manner.

This blog will be a simple collection of thoughts, ideas, and stories.  I am a student in economics and while I endorse the activity of studying economics, I do not cling to it's teachings as if they were absolutes.  Instead, I find the theories and ideas of economists merely as different points of view, albeit usually in a more constructive and factual manner than most non-economists (a sweeping generalization, I know, so take this statement at it's face value).  If there's one thing I've learned studying economics, it is that for every piece of conventional wisdom that would hold presence around the water cooler, there are handfuls of PhD's with contradictory points of view.  This to me, is worth knowing.  Not to accept every abstraction of every idea, but simply to know what all the abstractions are and to form my own ideas.

With that in mind, here I will cover topics in economics, finance, human behavior, and whatever else I feel is relevant to this idea that, for every thought printed on a sheet of paper, the contradiction should be printed on the back.