The discussion around the diametrically different views between the three winners of last year’s Nobel Memorial Prize for Economic Sciences is still playing in my mind. Recently, from my own experiences in the way men and women handle information, some thoughts have occurred to me that I would like to propose here.
The official website says that the Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel 2013 was awarded jointly to Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller “for their empirical analysis of asset prices”. More specifically, a recognition of their work in predicting asset prices, which then went on to form the basis of indexed funds and the investment methodologies we have today.
But in my view, beneath the three views on “guessing” asset prices, is their views on how information itself is treated by the financial asset. Eugene Fama’s efficient markets theory argues that share prices always reflect the actions of investors absorbing the information available on the underlying asset. This view was a perfectly reasonable focus for Fama in the 1960s, during a time when the information infrastructure as we know it today and available to all investors was only just being created, even in the US. The effect of markets absorbing all kinds of information made available through the then new media such as the telex, teletext, the radio and television and traditional newspapers on any stock was immediately was profoundly more visible then as it is today.
Robert Shiller and Hansen on the other hand, came into the research about 10 years later, after the institutional investor community and the investment banks were in a more recognizable shape. So it was natural that the added element of the psychological make-up, the risk appetite and the irrational behaviour of institutional investors featured more prominently in their work. Shiller viewed Fama as being rather simplistic to suggest that there is a causal link between the availability of information and markets.
Shiller did not think that either investors or markets are inherently logical, as they trade with a wide variety of possible goals and outcomes. At the time Shiller was making these assertions, banking regulation were being dismantled and market regulation was only taking shape. Traders were already using both symmetric and asymmetric information to manipulate the market. So in making his criticisms, Shiller refused to accept Fama’s pioneering work at a time when the institutional distortions to markets were not in place yet.
The vehemence with which Fama and Shiller view each other was in my view quite unnecessary and reflective of the bigotry in the academic cesspool rather than a recognition of the limitations of their respective work. I think it is amazing that academics build a lifetime of research to protect their own little dogma that explains everything as if they were religion, without acknowledging that these views might be valid at specific points in time and needed to evolve.
It is possible to see how Fama’s views took shape in the days when an explosion in the amount of primary information released into the market was influencing it greatly. Likewise, it is possible to see why Schiller and Hansen’s contributions are important 10 years later given the growing sophistication of institutional investors into the aggressive algorithmic and speed traders they have become today, and the existence of dark pools and alternative platforms to distort the impact of information.
While all three winners based their research on the performance of financial assets, such as funds and stocks, the theories were also intended to be applied to any kind of asset, more recently the price of commodities. The supply and demand of the underlying asset in commodities present another form of complexity in ascertaining the price. In the area of mortgaged backed securities, the quality of the underlying asset and how these were originated presented yet another source of distortion on the price.
If however it is the impact of achieving symmetry of information that we wish to study, then the price of financial assets, or the dividends thereof, are just limited receptacle because they are themselves constantly evolving. We are nowhere near today in taking a much holistic approach. The theories of Fama and Shiller are really just two in the earlier phases in the evolution of the behaviour of financial assets themselves. During Fama’s earlier investigations, only the equities markets were developed enough to make any inferences at all. By the time Schiller and Hansen developed their views, the bond and money markets, and the institutional investors behind them, were much more developed. To apply their theories to derivatives and FX present yet other distortions.
Then it struck me that the best receptacle ever that demonstrates the impact on the absorption of information are the men and women who handle them. Studying how men and women apply themselves differently to gathering information, and how these are acted upon, provide a much more sophisticated and comprehensive understanding of the impact of information on the value of anything – whether of assets, relationships or decisions.
I happen to think that women are the ultimate purveyors of the “efficient market” theory. Schiller’s theory that symmetry of information creates an efficient market is exemplified in women in the way they crave for symmetry of information much more than men do in all situations. Whether it is in meeting a new person for the first time or studying a problem to be resolved, a woman would generally tick many more data points, more inclusively and less judgmentally, about a person or a situation than a man would.
So, when meeting a new person for example, a woman will absorb facts from the tip of the shoes, to the colour of the belt and the whiff of the scent as much as she would from what was said or not said in the conversation on the subject matter itself. She makes no distinction between relevant and irrelevant information and can relate to all seamlessly.
Women also have a sophisticated array of social mechanisms to procure the information they do not already have for the purposes of achieving that symmetry. So for example, if a particularly unattractive man is accompanied by an attractive woman friend, a woman’s interest in that man might pique on the expectation that the man’s companion knows something about him that is not obvious to her. So, she will ask the attractive woman a series of questions that would seek to close the asymmetry of information that she has on the otherwise unattractive man. That is why it is sometimes said that a man is more likely to make new women friends at a party if he went with another attractive woman rather than if he went alone. He will be using this craving for asymmetry inherent in women to make himself an interesting species.
A man who is foolish enough to reveal a lot more about himself in a first conversation with a woman would find the woman losing interest very quickly once her information data points are satiated. So here, the “silent type” would piques the interest of a woman more than the live-of-the-party kind of guy. The need to act on the void of information is so strong in women that it also makes them vulnerable. It sets the stage for a man or another woman to keep her interests alive by manipulating the asymmetry.
A second feature of a woman’s desire to achieve symmetry of information is that she does not achieve it alone. Research in financial assets currently seeks to affirm the impact of information on an individual asset. Women do not store information in any one receptacle. The information does not rest with her alone, and she is never looking to achieve an encyclopaedic completeness. She is happy for the symmetry to be distributed and reside in her cohort of friends, peers and significant others, so that she can constantly validate its quality, relevance and completeness.
(To be edited)