The distribution of ignorance on financial markets

Abstract

In the economists’ old conception of a market, perfection would arrive when all participants had complete knowledge. However, economists and psychologists have lately realized that ignorance and bias more accurately describe the state of human knowledge even around those hallowed moments of transactional decision making. In these new academic stories, these models of irrationality and bias often take the form of basic cognitive features or evolutionary mal-adaptations. However, it’s just, as is often the case, that there is also a historically specific story about local culture to be told about ignorance. This paper will report back from field-work conducted with contemporary, computerized stock traders, develop a typology of the things they say they don’t know, and then suggest what this has to do with some of the more durable features and behaviours of contemporary financial markets.