Friday, October 31, 2003
Speaking of not knowing shit when it comes to economics, there's an interesting post entered in this week's New Blog Showcase from Professor Bainbridge. He discusses the "10,000 Ceiling" of the Dow Jones as an example of markets adjusting to irrational biases. In this case, investors have learned to sell on reaching numerical plateaus due to the perception that the rest of the invester herd is inclined to do so. He offers counter-examples to demonstrate that markets can learn to reward investors that recognize persistent pricing errors due to irrational behavior, and thus smooth out those irrational behaviors over time. He made me understand that. This is the sign of a good writer - the ability to make a technical and difficult point understandable to someone who is not trained in the field. The rest of his blog contains similarly lucid posts. I'm still working my way through his recent work, but this post about "precommittment strategy" is particularly striking. I'm thinking about blogrolling this guy. He may be a keeper.