The Emperor’s New Markets

Borderline

Markets often exhibit behavior bordering on the delusional – frequently from the wrong side of the border. Investors seem unable to disassociate specific investment opportunities from broader economic realities – how many corporations in the history of the world have ever justified a P/E of over 100? Yet, from time to time, people will fall over each other to invest in these "opportunities", seemingly oblivious to the enduring nature of competition in markets.

Of course, financial markets are just a peculiarly public forum for demonstrating this irrationality, and one in which it's possible to quantify the scale of it, albeit only in hindsight. But human mass delusional behavior isn't confined to markets, it's just other social settings make it more socially acceptable.  To be human is to be be mad, but we don't have to be poor as well.

Read Full Post >>

A Lollapalooza Effect – Capitalism & The Death of Wang Yue

Morality and Cuture

Wang Yue, a two-year old Chinese girl, has died after she was run down in the street, then run over again as the driver made off, then ignored by eighteen passers-by and a collection of market traders while she lay injured, before being hit again by another driver who also drove away before, finally, someone pulled her to safety. These events, caught on video by a security camera, have started a furious debate in China over whether the pursuit of profit has destroyed the country’s morality.

More likely, though, is that we’re seeing what happens when multiple behavioural effects combine in the same direction to create a lollapalooza cascade of otherwise inexplicable behavior. For while we may have basic moral principles these can be set aside if our culture encourages us so to do and, if that culture actually provides incentives for us to do so, what you get is children left to die in the street while people walk by.

Read Full Post >>