Arnold Kling

Dumb Mobs

Arnold Kling, Great Questions of Economics
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Does the information available on the Internet make for a more efficient stock market? Not the way I see it.

I believe that the spectacular rise and fall of the stock market in the United States in the last several years can be attributed to the behavior of swarms of investors that were fostered by the Internet. We might call these "dumb mobs."

Discussion Question. Robert Shiller, author of Irrational Exuberance, is another economist who believes in mob behavior. This theory implies that in the long run stock returns will exhibit mean reversion--periods of unusually high returns will be followed by periods of unusually low returns. How does this hypothesis violate the theory of efficient markets?

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