Futures the Markets Can’t Forsee

…the “data” from which the economic calculus starts are never for the whole society “given” to a single mind which could work out the implications and can never be so given.~Hayek; The Use of Knowledge in Society

Markets can be used in some circumstances to brute force solutions that are otherwise unsolvable or effectively unsolvable. Conversely, in some circumstances, markets don’t seem to be able to determine the correct solution.

An example might be a vote as a solution to an impossible consensus.  Since the very nature of the problem arises from a divided population pool (ie near 50% Yes and 50% no), this might be of the most difficult problems for the markets to solve: which way will the population vote?

We can think of a simple scenario such as the Greek Referendum and imagine that an outcome of “No” might raise the price of a certain commodity such as a bitcoin (and so “yes” might lower the price of bitcoin). If the markets are to be a god-like super computer, we might expect the price of bitcoin to start to move well before the referendum is held, as if the computer could use Google and news feeds, or whatever other technological edge available, to correctly identify the winning side.

Furthermore, it might especially be in a tense scenario that we should expect some form of a domino effect in which the ultra intelligent markets are able to reveal the outcome of the vote before it happens.

But there are many times when this clearly isn’t the case (perhaps it will or won’t with the current crisis) but it should be easy to think of situations where “price” of a relevant commodity doesn’t at all “predict” certain outcomes or “solve” certain unknowns.

In the case of a vote, we might be able to show in hindsight that the markets did NOT in fact determine the outcome beforehand especially if the market prices move only after such a vote but do so in an obvious and intelligible way, based on the outcome.

There is then no doubt a centralization of energy because of the inability for value and information to most efficiently flow through the markets.


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