Is the Efficient Market Theory correct?

As Matt said, the two basic assumptions of the efficient theory has some problems.

I would like to make my statement clearer.

1. People invest on their decisions, not information.

Different people may make different decisions even based on the same information. Since we do not know all people’s tastes or transformations of tastes, it is very difficult to tell or even predict where the demand curve actually is.

Take the impact of the financial crisis on the stock market as an example. If we explain the phenomenon by the changes of tastes of most inventors, we actually explain nothing because it a tautological theory. On the other hand, if we assume the tastes of all investors remain the same, we have to figure out the changes of the opportunity costs of holding,selling, or purchasing the stocks, so that we can tell what changes will be in the stock market. This is a refutable theory but it is also not easy to achieve. That’s why most economists are unable to predict the crisis. (I would also like to point out the anyone who claims that he predict a crisis successfully, he is based on luck more than ability.)

Further, if we can know all the constraints, the “Pareto condition” will always be achieved, which means the market is always efficient(being cleared). This explanation fits the efficient theory, but it is also a tautology, which has few explanatory power. We are still unable to tell when would the whole market generally goes down or up.

2. In an economic theory that has explanatory power, it is unnecessary to assume that people are rational. We only need to assume that people are oriented by their own interests(or selfishness).
Since the latter assumption can let us draw a demand curve with negative slope(which means a person tends to buy more if a good is cheaper than before), which can create refutable theory to explain or predict people’s behaviors. However there is no exact definition of “ration,” we can not build up any refutable theory based on the rational assumption.

Conclusively, it means the efficient theory is to be a tautology at all.

Here I wrote.

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Human Are Born Evil?

Hereafter is the question by my friend and my opinion.

“Human are born evil?"

It depends how do you define “good” and “evil.”
Selfishness is not necessarily good or evil.

What I mean is that we have no objective and valuable ways to define “good” or “evil.” Some definitions may be accepted by some groups of people, but it does not mean they are correct. If we carefully exam each definition, we will easily notice that all of them, no matter from philosophy, ethics, or religions, are nothing but only preferences among the people, especially in different peoples.

On the other hand, the concept of ethics is only a costless way for us to make some convenient decisions, especially when a person want to live in a specific society. However, it doesn’t guarantee the rules we apply.

Take selfishness as an example. People who provide high-quality goods or services to us are not based on their love for us but their love for money. We all know it. Selfishness performs in a good way, if we define that everyone get benefits from a trade is good. Selfishness can also be evil. If we define that someone kills thousands or million people for keeping his presidency or power is evil, then Mao and Kim Jong-il are apparently evil.

However, some standards are not that prevailed. In most societies, a son cannot marry his mother-in-law; but the same behavior is allowed in some societies, like the Mongolian in the Yuan Dynasty. Some economists believe that it is due to the limited resources in Mongolia. It is apparently difficult to tell whether this behavior is good or evil. Chinese in that time took this as a barbarian behavior.

Conclusively, as we are unable to have an exactly correct standard to make a judgement of being good or evil, we just cannot tell whether the infant is born in good or not.

PS: I wrote here.