Sorry, but this doesn’t cut it as a refutation of EMH. What you need to show is that markets have been wildly, incorrigibly, spectacularly and PREDICTABLY wrong.

How much did you make betting against Fama at Ladbrokes?

Barry, you seem to not like the ‘efficient market’ characterization. I don’t care personally at all about the efficiency being good or not, I’m sure that if somebody stuck a gun in my face and told me to be more efficient I probably would work harder. What I care about is freedom and liberty and that is what a ‘free’ market is. If I decide to spend the day fishing, somebody will say that I’ve made a bad or irrational decision because my family needs me to work, work, work or they might not get to go on that vacation to the lake.

This behavior based crap is just another justification for some beurocrat to tell me how to spend my days and which way to wipe … ‘for the good of the many’ I suppose. If I manage to lay a golden egg in my sleep and decide to use it for a paperweight, there will be some creep pounding on the door telling me that I’m inefficient because I didn’t invest that egg in some market somewhere and that justifies the egg being stolen from me … ‘for the good of the many’.

Anyway … I don’t need the current fassionable trend in economics to tell me what to do with my stuff. Live and let live – a lost concept.

Mr Williamson and Ms Ostrom work independently of each other but both have contributed plenty to economists’ understanding of which institutions—firms, markets, governments, or informal systems of social norms, for example—are best suited for conducting different types of economic transactions. Why, for example, do some transactions take place within firms, while others are carried out in competitive markets?

Ronald Coase, a British economist who won the Nobel prize in 1991, argued that in some situations, and for some kinds of transactions, administrative decision-making within a single legal entity (ie, a company) is more efficient than a straightforward market transaction. Mr Coase’s arguments were influential and convinced economists that the internal workings of organisations were worth paying attention to explicitly. But it was left to Mr Williamson to refine Mr Coase’s theory and clarify what features of certain transactions made carrying them out more efficient within a firm rather than in the market.

Mr Williamson showed that complex transactions involving investment decisions that are much more valuable within a relationship than to a third party are best done within a firm. Part of the problem, he argued, was that some economic transactions are so complicated, and involve so many things which could go wrong, that writing a legally enforceable contract that takes all possibilities into account is impossible. Simpler transactions are completed easily in markets; more complicated ones may demand firms. But in later work he also showed that organising matters within companies had costs: in particular, it relied on internal authority to get things done, and this could be abused.

Ms Ostrom has concentrated on a different aspect of economic governance. She has spent her life studying how human societies manage common resources such as forests, rivers, pastures or wildlife. Just as with public goods, it is difficult to prevent people from using the commons. But unlike public goods, and like private ones, what one person takes leaves less for others. Economic theory then predicts that rational individuals will overuse these resources.

Economists (including Mr Coase) have tended to emphasise property rights as a solution to the problem of managing common resources. Typically that involves either privatisation or putting the resource in government hands. But Ms Ostrom, who is a political scientist by training, spent much of her early career studying how communities managed such common resources. She found that groups of people tended to have complex sets of rules, norms and penalties to ensure that such resources were used sustainably. Such self-governance often worked well.

Successful informal institutions, she found, have certain features in common, which sets them apart from institutions that fail. The principles of game theory, particularly the theory of repeated interactions, proved remarkably useful in formulating general principles of how common resources ought to be managed without necessarily resorting to private or state ownership.

Mr Williamson launched an entire branch of economic theorising which looks more deeply into firms than economists had tended to do previously. His theories have also helped with understanding the choice between equity and debt, and corporate finance more generally. Ms Ostrom’s research has spawned many experiments about how people interact strategically. Some of these have influenced game theory, which originally provided Ms Ostrom with her analytical tools.

The Nobel committee’s decision, like earlier awards to Amartya Sen and Daniel Kahneman, is a welcome shot in the arm for research that crosses disciplinary boundaries in the social sciences.

A massive understatement. The economic gene pool is in desperate need of non-familial inputs , as this graphic illustrates :

http://well-formed.eigenfactor.org/radial.html

( It takes a few seconds to load. ‘ Economics’ is at about 1 o’clock on the circle. )

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BR: As I noted in the page on odds, he had the BEST odds to win of all economists.

That made him the favorite . . .

Nowhere does the EMH claim that markets perfectly predict future events, let alone the decisions of a five-man committee with a leftist political agenda. To the contrary, surprise outcomes (and for that matter, volatility, precipitous price increases, and declines) are central predictions of market efficiency. Predictability, if it existed, would be a violation of market efficiency.

Yet whenever something unexpected happens—or even when markets go down—people accuse the EMH of “misleading” us. This is convenient for Behaviorists, but also for Statists who want to villainize capitalism. After all, if markets don’t work and consistently misallocate resources, the idea of a philosopher king ruling the economy begins to make sense. But markets DO work; the evidence is all around us that capitalism allocates resources very well. This couldn’t happen if prices were constantly “wrong.”

The betting market rationally favored Fama because he’s an obvious and overdue choice. The only thing this says about an efficient market is that it has better judgment than a handful of Swedish market-hating socialists and their blogging buddies.

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BR: It doesn’t have to be perfect — but you must admit that markets have been, on a frequent basis, wildly, incorrigibly, specatacularly wrong!

Obama fails to win Nobel prize in economics

“LONDON (MarketWatch) — In a decision as shocking as Friday’s surprise peace prize win, President Obama failed to win the Nobel Memorial Prize in Economic Sciences Monday.”…….

…Ah, yes, it appears Leftback has now started working at Marketwatch. This man, Tom Bemis, he’s the kind of snarkist of the Obaminable Showman after my own heart…

Sarcasm rules!