Saturday, August 13, 2011

the art and science of financial markets

(links to image here and here)

Trying to follow the ups and downs of the stock market is difficult, but it's not a science. While traditional theories of financial markets might like to assume that it is, this cartoon illustrates a different argument for why stock prices move the way they do. Investors must make their decisions based on information about a company that is far from complete, and they also must factor in what all the other investors are thinking about where the stock is headed. If anything, this makes their decisionmaking jobs more complex than science, not less so. And in such situations, frenzies can easily break out where a few small rumors can lead to wide fluctuations in a stock's price. This volatility seems to defy any logical or scientific explanation, as the above picture clearly suggests.

NOTE: This cartoon is part of an ongoing project at Imagining History to cull cartoons and other illustrations around the web as part of the Anti-Mankiw project (making critiques of mainstream economics accessible at the introductory level). See the link below for a list of all cartoons gathered thus far here:

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