¶ … Hilsenrath, suggests that there are several inferences, which can be drawn from the growing view that poorly informed investors can make markets less efficient than suggested by the "free market" theories of the 1980s. According to the author, the first major implication is that behaviorist theories were now gaining wider acceptance in mainstream economics. Second, the fact that investors can be irrational implies that governments may have to re-evaluate issues such as market regulation and Social Security privatization. Third, if markets are sometimes inefficient, corporations would now have to rethink the way they judge management performance and compensation so that executives become less focused on stock price movements. Fourth, the fact that irrational investor behavior can lead markets astray does not, however, mean that the global emphasis on free markets and open economies will be reversed. For, all it really signifies is that the efficient market theory does not hold valid in its purest form. Thus, in the final analysis, the author implies that the recent swing towards behaviorist views merely means that efficient market theorists are now seriously thinking about some of the issues raised by behaviorists.
The recent admission that markets can be less than efficient, in my view, bodes well for the future. For it is likely to lead to more realistic measures of corporate performance, as well as economic theories and management, which may succeed in preventing markets from either overheating or crashing. Ironically, by recognizing that human behavior is often driven by bounded rationality, willpower, and self-interest, economists may now be able to develop models that, in fact, result in markets that are more efficient. In effect, I believe that the answer to current issues lies in efficient market and behavioral economists being able to find a meeting ground especially since both now concede that investors can be irrational, and that the market is not easy to beat!
Works Cited
Hilsenrath, J. "As Two Economists Debate Markets, The Tide Shifts." The Wall Street
Journal. New York: October 18, 2004, p. A1.
These factors mean that the old economic theories are not always working properly and are not always properly adapted to the current globalization conditions. Following from this, as more importance is weighted towards behavioural economics, the old theories and rational behaviours of population are believed to weigh less now and thus give misleading guidance to the market players. 4. a. I believe that economic terms can be used for both examination
As economic crisis in the United States has caused families to save rather than spend, which will cause exports from these countries to decline. While these economists certainly understand the concepts of demand, the article suggests that economic pain for developing countries might not necessarily be the case. Instead, the article suggests that countries who have the ability to stimulate their own economies through savings will be able to
This is one of the fears that many people share, and that the Economist article deftly points out. The Fed's argument about keeping interest rates low as a mechanism for job creation has also been rather unproductive. The Fed argues that by offering low interest rates on borrowed money that businesses will take loans to grow. But in this recession, there is no reason to grow when there is decreased
The author noted that this was an important step to help ease the problems created by the collapse of non-bank funding. The author concludes by noting that the proposed package's tremendous size combined with its lack of clear details or forceful regulation leave the program open to criticisms that it is both too vague and too timid. Furthermore, he points out that the plan's failure to fully account for the
economist Approach The production and sale of alcoholic beverages contribute a small share in national product in the United States and in other advanced economies. However, the damaging effects of alcohol consumption on health and safety constitute a very significant economic burden, reducing our overall standard of living. Chronic heavy drinking causes organ damage that result in disability and early death. Other possible consequences include cognitive impairment, addiction, reduced productivity,
For example, if apple prices are higher than orange prices, consumers are likely to buy more oranges, since the fruits are virtually substitute goods for one another. So long as the apple growers can still make a profit, they will very likely lower their prices to meet consumer demand, until demand for apples increases again. Another example is that of gas prices. While gas 'gouging' certainly exists, it is
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now