Friedman continues, but I shortened the quote to make it punchier. Essentially he says that, (1) given a large number of individuals irrationality will average out in the aggregate, (2) In most cases that an economist would be interested in (eg. investors, CEOs) the individuals have been selected to be good at the task they are performing, i.e. not irrational in that domain.
In some contexts it makes sense to talk about errors in opposite directions canceling out but in others it does not as errors only accumulate. Suppose one person overestimates how much they'll enjoy having an iPad and buys one when they'd be better off without one, and another person underestimates how much they'll enjoy having an iPad and doesn't buy one when they'd be better off with one. Looking at the total number of iPads sold, these errors cancel out. But looking at total human welfare, the errors just add up - two people are each less happy than ...
Here's the new quotes thread, for all those quotes you were going to post.
Rules: