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ETpro's avatar

Can you help me recall a phrase about economic theory?

Asked by ETpro (34469points) April 18th, 2010

Some time ago, I read in an article about the recent financial meltdown that a theory had emerged in the 1970s. It was originally pushed by Milton Friedman and became prevalent with what came to be known as the Chicago school of economic theory. It stated that sufficiently free markets always value every investment perfectly—and that things only get assigned incorrect values, leading to boom and bust economies—when governments control markets and not just monetary policy.

The idea was called something like “market excellence” or “market perfection” but I can’t recall just what words were paired together nor can I find it taking wild stabs on Google. Can anyone help me recall the term or point me to a source?

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8 Answers

bob_'s avatar

Furthermore, as an economist who works in investor relations, I can tell you with complete certainty: there’s no such thing as efficient markets.

ETpro's avatar

@bob_ Thanks so much. It’s been driving me to distraction trying to remember the exact wording. And how right you are about it being oxymoronic.

bob_'s avatar

I’m always right. Modest, too :)

cazzie's avatar

@bob_ Where do you see behavioural economics and behavioural finance beliefs being accepted and is it starting to change the way economists see fluctuations in markets and influence their explanations?

bob_'s avatar

@cazzie There are quite a few papers about them. I think it’s a matter of time before the economists who see the world (and the markets) as a mere math problem realize there’s something else. There’s no such thing as efficient markets ‘cause there’s no such thing as homo economicus.

ETpro's avatar

@bob_ & @cazzie Quants spending too much time in offices. They should take some time off, go to the track and bet on some horses or something. :-)

bob_'s avatar

@ETpro Indeed :)

Nowadays most trading is done by computers.

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