Today my coworker Marcello pointed out to me an interesting anti-majoritarian effect. There are three major interpretations of probability: the "subjective" view of probabilities as measuring the uncertainty of agents, the "propensity" view of probabilities as chances inherent within objects, and the "frequentist" view of probabilities as the limiting value of long-run frequencies. I was remarking on how odd it was that frequentism, the predominant view in mainstream statistics, is the worst of the three major alternatives (in my view, you have to presume either uncertainty or propensity in order to talk about the limiting frequency of events that have not yet happened).
And Marcello said something along the lines of, "Well, of course. If anything were worse than frequentism, it wouldn't be there." I said, "What?" And Marcello said, "Like the saying that Mac users have, 'If Macs really were worse than Windows PCs, no one would use them.'"
At this point the light bulb went on over my head - a fluorescent light bulb - and I understood what Marcello was saying: an alternative to frequentism that was even worse than frequentism would have dropped off the radar screens long ago. You can survive by being popular, or by being superior, but alternatives that are neither popular nor superior quickly go extinct.
I can personally testify that Dvorak seems to be much easier on the fingers than Qwerty - but this is not surprising, since if Dvorak really were inferior to Qwerty, it would soon cease to exist. (Yes, I am familiar with the controversy in this area - bear in mind that this is a politically charged topic since it has been used to make accusations of market failure. Nonetheless, my fingers now sweat less, my hands feel less tired, my carpal tunnel syndrome went away, and none of this is surprising because I can feel my fingers traveling shorter distances.)
In any case where you've got (1) a popularity effect (it's easier to use something other people are using) and (2) a most dominant alternative, plus a few smaller niche alternatives, then the most dominant alternative will probably be the worst of the lot - or at least strictly superior to none of the others.
Can anyone else think of examples from their experience where there are several major alternatives that you've heard of, and a popularity effect (which may be as simple as journal editors preferring well-known usages), and the most popular alternative seems to be noticeably the worst?
Addendum: Metahacker said of this hypothesis, "It's wrong, but only sometimes." Sounds about right to me.
knackeredhack,
Forecasting markets in general is a mug's game, only made worse when bubbles go on. Go read all the debates about the (maybe) housing bubble going on over at Econbrowser. There is a deep argument, which Jim Hamilton has long been one of the main promulgators of, that one can never identify for certain econometrically if one is in a bubble or not, although one may be able to do so pretty much for certain sometimes with closed-end funds, where there is a well-defined fundamental in the net asset value of the fund.
Regarding Sornette, his model is one of a rational stochastically crashing bubble, which requires a sharp upward acceleration to provide risk premia for the rising probability of the inevitable crash. These tend to go to infinity at a certain point, which is the basis for forecasting the crash that Sornette uses. Of course there is plenty of reason to believe that people in bubbles are not fully rational, and therefore it is not surprising that Sornette has had a rather mixed record in his forecasting.