Econ23.4: Who is More Rational? You or the Market?

Markets are sometimes imperfect or irrational. What does Professor Cowen think about this? - Because markets are sometimes imperfect or irrational, you can beat the market if you try. - Markets are never imperfect or irrational since traders, the people in markets, are never irrational. - Markets are even harder to beat given the fact that they are sometimes imperfect or irrational. - Even if markets are sometimes imperfect or irrational, you should not try to beat the market.

Even if markets are sometimes imperfect or irrational, you should not try to beat the market.

Who is more rational? You or the market? -The market, because the typical person is a little crazier than the average trader. -You, because the market suffers from the irrationality of all traders combined. -The market, even if all of the traders in the market are a little crazy sometimes. -You, because markets can be efficient, not rational.

The market, even if all of the traders in the market are a little crazy sometimes.

Which of these is NOT one of the sources of irrationality on the part of traders that Professor Cowen mentions? -They are constrained by the market's rationality. -They're not always very numerate. -They tend to follow the herd. -They can be overconfident.

They are constrained by the market's rationality.

Which of the following is NOT one of the reasons that Professor Cowen says that you shouldn't try to beat the market? -You may over respond to new information. -You may tend to be overconfident. -You are likely to behave more emotionally than you should. -You probably don't update probabilities perfectly efficiently.

You may over respond to new information.

The existence of market inefficiencies: -does not change the fact that it is easy to beat the market. -makes it easier for the average investor to beat the market. -makes it harder for a highly-skilled investor to beat the market. -does not change the fact that it is hard to beat the market.

does not change the fact that it is hard to beat the market.

Buying past winning stocks can sometimes yield extra profits because: -investors sometimes over respond to information. -stock prices are a random walk with a positive upward drift. -past performance always predicts future performance. -investors sometimes under respond to information.

investors sometimes under respond to information.

Markets tend to be: -more rational than might be expected from rational factors alone -more stable than might be expected from rational factors alone. -more volatile than might be expected from rational factors alone. -more efficient than might be expected from rational factors alone.

more volatile than might be expected from rational factors alone.

Successful professional investor Warren Buffett advises people: -to do what he has done and to try to pick winners. -not to do what he has done and to try to pick winners instead. -not to do what he has done and to diversify instead. -to do what he has done and to practice extreme diversification.

not to do what he has done and to diversify instead.

The Monday effect is the observation that: -IPOs tend to occur less often on Mondays than on other days. -stock prices tend to rise more on Mondays than on other days. -stock prices tend to fall more on Mondays than on other days. -IPOs tend to occur more often on Mondays than on other days.

stock prices tend to fall more on Mondays than on other days.

Because markets are constrained by the rationality of traders: - they cannot be evaluated in terms of efficiency. - they always behave efficiently. - they do not always behave efficiently. - they never behave efficiently.

they do not always behave efficiently.