/biz/ - Business & Finance

[Anonymous No.55320516]

>the market is always right

[Anonymous No.55320556]

what's the market?

[Anonymous No.55320580]

>>55320516
I mean, it sort of self-creates its reality by driving prices towards expectations and thereby inductively justifying the principle that future predictions will always be correct. Because the realized price had been "predicted", people think that the market conformed to the prediction was was "correct". The market conformed to the prediction because it was a prediction; the prediction in the system caused the system to drift towards fulfilling that prediction.

[Anonymous No.55320648]

>>55320580
There is, of course, no external guarantee by which a prediction is correct, it doesn't have to predict anything in the external world. It gets realized by the system by virtue of being a prediction. Market participants tend to make the prediction come true by steering outcomes towards what's been "predicted" (bit like putting the cart before the horse). As long as there is no external "reality-check", the prediction can be whatever, it's something someone said. But people rush out and make that "something someone said" into reality themselves, and then wondering "oh wow, that really happened! Who could've thought?"
The market has no magical ability to "be right"; it reflects what people "price in". People's predictions are usually quite good, but they're themselves self-caused: people expect a recession, therefore they stop spending. Then reduced spending leads to less revenues, and thus a recession becomes more likely. This isn't strictly speaking irrational behavior, but it can produce such spurious results.