You can't effectively compete against people who are not accurately evaluating the consequences of their decisions.
So you're saying capitalism could not possibly work, right? X-/
For more clarification, I was thinking this over when considering rental properties in my area. A lot of people have complained that it is near impossible to make a profit on a rental property where I live. I think a lot of that is because there is a huge chunk of people who have bought property as an investment based on potential appreciation instead of based on cash flow. If your model is using only cash flow, but another model has a 5% appreciation of principle built in to it, it is going to be near impossible to be able to compete with them on rates...
"I looked at what I think of as the food chain that led to the financial crisis, which was that you had individual consumers buying houses they couldn't afford, sold to them by realtors and property people who were competing to sell more properties at a higher price and so on. [...] I thought, hang on a second, classic economy theory tells you that a competitive marketplace is superior because competition provides a diversity of products which is good for the consumer, and it also, therefore diversifies risk. And yet, in this instance, competition has led every single one of these companies to copy each other, which had concentrated the risk. And I thought, Wow, that's interesting. That's specifically what's not supposed to happen."
More here.