Irrational expectations
Frydman and Goldberg (authors of Imperfect Knowledge Economics , which I still must get around to reading) are in the Economists' Forum with the sexily titled article "An economics of magical thinking". They believe that nobody can predict economic crises and that swings in asset prices are natural. Because all knowledge is intrinsically uncertain, and nobody has access to it all, the market cannot find a "true" price for assets. So far I agree. But the next part of the argument is suspect: Behavioural economists have uncovered much evidence that market participants do not act like conventional economists would predict “rational individuals” to act. But, instead of jettisoning the bogus standard of rationality underlying those predictions, behavioral economists have clung to it... The behavioural view suggests that swings in asset prices serve no useful social function. If the state could somehow eliminate them through a large intervention, or ban irrational pl...