Knowing and Making

I presented this paper today at the conference of the Cass Behavioural Finance Working Group . In summary, it replaces the concept of "news" or "information" in the Efficient Markets Hypothesis with a model of beliefs , reflecting the idea that nobody in a market has objective, indisputable knowledge  about anything, only beliefs of different levels of confidence. Slides here ; will tell you more later.

The lack of postings in recent days has been partly due to attending a conference: " Behavioural perspectives on the financial crisis " at Cass Business School (no relation to Cass Sunstein). It turned out not to be quite as billed. An interesting selection of short research presentations but barely any mention of the crisis at all. Highlights of the first day included: Addressing the psychology of financial markets : a good qualitative insight from David Tuckett, a psychologist from UCL, into the psychological factors which affect finance. He identified a very intriguing difference between finance markets and other markets: which I'd express as saying that finance markets have no referent. Other markets involve real assets which are traded, and which provide real and direct utility. Financial markets provide no direct utility feedback from a purchase - investors hold an asset whose only utility is from its (unpredictable) future value. Thus emotional factors take t...