F. A, Hayek vs the Efficient Markets Hypothesis

“The general fact that booms have always appeared with a great increase of investment, a large part of which proved to be erroneous [is part of the basis for asserting that expectations regarding the future can be systematically mistaken].” — F. A. Hayek

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3 Responses to F. A, Hayek vs the Efficient Markets Hypothesis

  1. Martin says:

    That’s a fair point, but EMH doesn’t state that expectations are correct, rather than on average those expectations will be better than your own.

  2. Greg Ransom says:

    Martin, there is no single thing which is the “EMH” — there are several different versions, and each version is interpreted differently by different people at different times, and each gets its meaning in turn from differently interpreted and essentially contested stipulated ostensive referents (e.g. limited and shifting sets of time series data).

    But the bottom line is that macroeconomists like Scott Sumner attempt to use shifting accounts of what they claim is “the” EMH as an a priori objection against Hayekian macroeconomics.

    Hayek’s empirical counter-example makes it clear that we need to work in the other direction when it comes to the relation between entrepreneurial judgments and the coordination of production processes across time, and not from a priori dictates from professors sitting in a chair in an ivory tower, who are misusing a limited stock of statistical time series data to make bogus objections against macroeconomic science they haven’t mastered and could not explain.

  3. This is a great quote. Besides, you can only consider in your expectations of what you know of.

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