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John_Maxwell comments on Markets are Anti-Inductive - Less Wrong

30 Post author: Eliezer_Yudkowsky 26 February 2009 12:55AM

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Comment author: John_Maxwell 26 February 2009 05:36:03AM 3 points [-]

Eliezer does a good job of explaining a mechanism by which two investments with negatively correlated returns can switch to having positively correlated returns. But he doesn't do a good job of convincing me that a stock's price has a tendency to go down when it has just gone up, and vice versa.

I can think of an argument against this position. It seems plausible that stock traders see the past movement of a stock as an indicator of it's future movement. If a majority of traders share this belief, this will compel them to buy the stock from those who don't, inflating it's value and reinforcing the cycle. This would indicate that markets are inductive, which is the opposite of what the title suggests.

Comment author: MTGandP 04 September 2017 08:36:18PM 0 points [-]

At some point, all traders with this belief will have already bought the stock and the price will stop going up at that point, thus making the price movement anti-inductive.