Should Efficient Market Theory Be a Hypothesis?

Alex Tabarrok, at Marginal Revolution, has a short post up concerning the game Marketocracy. Alex’s description of the game.

"Marketocracy is a game where investors are given $1 million in virtual money to build a mutual fund, much like fantasy baseball. Currently some 55,000 players manage 65,000 fantasy mutual funds. But at Marketocracy fantasy becomes reality (I ought to be paid for that line) because the sponsoring firm monitors and ranks the performance of all the traders using an algorithm incorporating short and long-term analysis, market sector, risk and so forth. The stock picks of the top 100 portfolios are then used to create a real portfolio of stocks, the M100 (MOFQX). In addition to fame, the players have an incentive to trade carefully because top managers are paid a percentage of the assets in the fund!"

Alex had an opportunity to invest in one of these funds, but passed it up, because,

"I demurred based on efficient market theory and bought Webvan instead. Ugh."

Lesson:  Question everything and think for yourself.

Posted by on 02/06 at 11:06 AM

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