MICHEL PIREU: Beware the spin when hopping on the markets merry-go-round
Ever since Adam Smith, the central tenet of economics has been that free markets provide us with material wellbeing, as if by an invisible hand. But “conventional economics fails to see that competitive markets by their very nature spawn deception and trickery, as a result of the same profit motives that give us our prosperity”, warn Robert Shiller and George Akerlof in their book, Phishing for Phools. “Just as much as the baker and the butcher and the brewer will be there if we have the resources to pay for what it takes them to supply the bread and the beer and the meat, so too the tricksters will be there to ‘phish us for phools’.”
Perhaps nowhere does the assertion hold more truth than in the stock market. The decision to invest in stocks requires not only an assessment of the risk — return trade-off given the information we have access to — but also in an act of faith that the information is trustworthy and the overall system is fair...
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