Apr

26

"How Knowledge Can Make You Stupid" :

Being unable to assess somebody else's beliefs with 100% accuracy is a problem, and if it's your own knowledge that get in the way, that means it's even more important to ensure the beliefs you hold are the correct ones.

This research is very interesting. How can we know better where the market will go? Does it pay for one to know more than what the market does? Or is it worth it for a trader to spend all his effort to absorb all the information? The research seems to say no. Knowing more doesn't make one more correctly predict what others would do.

Another situation to which this may apply is financial bubbles. We believe that bubbles are caused by people's irrationality. But perhaps that understanding is not enough. A bubble may just be caused by people's inability to judge others' thoughts. Since mostly everyone knows something that others don't, that information gets magnified in the bubble when people who know it assume that others would also use it to value the situation when in actuality those others don't really have that information.


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