I have a couple thoughts related to your recent writing on the Humor of the Markets … There was an article in The Economist last year on theories of humor:

One description of how laughter is provoked is the incongruity theory … This theory says that all written jokes and many other humorous situations are based on an incongruity — something that is not quite right. In many jokes, the teller sets up the story with this incongruity present and the punch line then resolves it …

With the “incongruity theory” of humor, I’m reminded of something that interest rate analyst James Grant wrote a few years ago in Forbes when he was commenting on how he approaches the markets:

… I look for financial non sequiturs — ideas and prices that apparently make no sense … [The market] is not so efficient that it doesn’t propagate, occasionally, titanic errors and absurdities.

On a separate note, the stadium indicator is being flagged again. A nuclear waste disposer will follow Delta Air Lines as the sponsor of the arena for the Utah Jazz

Gary Rogan adds:

I also believe that success in dealing with the markets and telling jokes is based on the common theme of incongruity. In my opinion though, there are substantial enough differences between the two areas to warrant very different approaches.

Punchline-based jokes rely on the following property of human brain that is becoming better understood with the latest research: people are always predicting the very near future when seeing, hearing, etc. Therefore, perfect timing in telling jokes depends on waiting just long enough for the setup to register and the non-humorous version of the punchline predicted, and then surprising the listener.

Market “jokes” tend to be not jokes at all but fairy tales. They work by suspending disbelief and lulling the “listener” into a false sense of complacency with what starts to seem like a perfectly natural state of affairs. There is no general sense of timing, as the “punchline” is revealed after a fairly unpredictable interval.

While a good sense of incongruity is useful in both areas, dealing with humor involves quick and obvious surprises, and with markets, digging out the non-obvious ones.


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