Sublime

This is a new kind of caveat emptor, where consumers are going to have to search more to make sure that the offered price is fair. Consumers are going to have to engage in a kind of number crunching of their own, creating and comparing datasets of (quality-adjusted) competitive prices.

Understanding and dealing correctly with the trade-off between risk and return is a fundamental, but poorly understood, challenge faced by all gamblers and investors.

so deeply uncomfortable saying, “I don’t know” or “it depends,” especially in finance.

Rather, this is a graphic example of what economists call the principal-agent problem.

In my Far from Equilibrium Economics and Finance course, the first two articles I have my PhD students read are Friedrich von Hayek’s Economics and Knowledge (1937) and The Use of Knowledge in Society (1945) , von Hayek’s classic papers that describe a market economy as a solution to the division of knowledge problem. The third article I have them

Markets can remain irrational a lot longer than you and I can remain solvent.

Non-financial businesses turn liquid capital into illiquid capital — higher and higher forms of complex good — in an attempt to satisfy a perceived customer demand. If they make revenue, they are correct in a demand existing for such a good or service. If they make a profit, they have satisfied this demand efficiently; they have produced more than

Were there no uncertainty, but merely quantifiable risk in patterns of production and consumption, competition would drive all prices to a stable and commoditized equilibrium.

There is a kind of symbiosis between the irrational traders and the skilled ones—just as, in a poker game, good players need some fish at the table to make the game profitable to play in. In the financial literature, these irrational traders are known as “noise traders.” As the economist Fisher Black wrote in a 1986 essay simply called “Noise”: Noi