Regarding the exchange between W. Dickens and B. Caplan over decision heuristics:
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I encourage you to browse, if you haven't, the following:
FAMA, EUGENE F., "Market Efficiency, Long-term Returns, and Behavioral Finance," The
Journal of Financial Economics, 49 (1998).
I keep a copy of the article at home and enjoy revisiting it from time to time . .
.just as I enjoy watching a favorite comedy over and over again on television. In this
article, which grew out of Fama's Hyde Park on-campus philosophical tussles with
Richard Thaler and Company, we reach a very interesting conclusion. In short it goes
something like this:
[Yes, there are behavioral anomalies within investment markets. In fact, they often
appear quite systematic and predictable. Furthermore, they are tenacious little
"buggars" (that's my paraphrase). However, they'll cancel each other out in an
efficient market.]
Yes, that was the final answer after 40+ pages of statistical analysis and careful
consideration: They'll cancel each other out.
One morning, in the not-too-distant future, the folks in Stockholm will call Eugene in
the wee hours to inform him that he'll be splitting a $1 million check with Kenneth
French. I will smile over my morning coffee when I hear the news and applaud an
incredible body of work and lifetime of academic contribution. They'll do so (in my
opinion) in spite of that 1998 article.
New York, NY
