The market is not always right. In fact, it is full of deception and manipulation. The basic concept of economics is “equilibrium”. Therefore, as long as the current situation is favorable, there will always be someone who will seize the opportunity to make profits. At the same time, due to the pursuit of profits, the free market will also provide some wrong choices
On November 25, on the spot of “finance and economics annual meeting 2021: prediction and strategy”, a wonderful dialogue was staged.
George A. Akerlof, a famous American economist and winner of the Nobel Prize in economics in 2001, and Zhu Min, President of the National Institute of finance of Tsinghua University and former vice president of the International Monetary Fund, discussed the hot economic phenomenon and the social behavior and psychology behind it from the topics of financial market, economic equilibrium, capital story and human weakness.
1、 The market is full of “equilibrium” and “foolishness”, and the weakness of human nature brings profits
In the dialogue, George Akerlof shared his book “fishing for fools” with Robert shearer, hoping to challenge traditional economic views. The market is not always right, he says, but it is full of deception and manipulation. The basic concept of economics is “equilibrium”. Therefore, as long as the current situation is favorable, there will always be someone who will seize the opportunity to make profits. At the same time, due to the pursuit of profits, the free market will also provide some wrong choices.
In George Akerlof’s opinion, in the process of seeking business opportunities, businessmen will inevitably take advantage of human weakness to see whether they can create high profits for themselves. “Once they find such an opportunity, they will choose to take action.”. This phenomenon is called “fishing fool” by George Akerlof, and it is also a kind of “equilibrium”. In this process, if the market lacks restrictions, then every opportunity of excess profit will be fully utilized.
George Akerlof uses many interesting examples to illustrate his point of view. For example, he mentioned that many factories produce particularly cheap snacks. The slogan of a cinnamon roll chain store is “life needs a little sweetness”, which guides consumers to take sweet food as a matter of course and ignore health problems. This is the “equilibrium” and “fishing fool” phenomenon mentioned above.
In this regard, Zhu Min further explained that financial fraud also takes advantage of human weakness. Once they believe it, the cheater will “make up a story to convince themselves”, and things will become more and more serious, and even the financial crisis will happen.
2、 In the final analysis, behind market behavior is human nature
Zhu Min said that economics is a partial abstract theory. To extend economics to sociology, psychology and other disciplines, we should study the nature of human beings and the spread of stories, including how stories are made up, how to use human weakness to spread them, and how people finally convince themselves to accept the story. This is really a profound theory. For this reason, George Akerlof won the Nobel Prize in 2001.
This is a pure theoretical story, but the theory is so vivid that many things around us are the same. For example, people know that eating sweet food is not healthy, but they can’t help it; people know that smoking is unhealthy, but they can’t help it. So in this sense, we are far away from rational people. Adam Smith’s general equilibrium does not exist. This is a very important observation and a very important theoretical insight.
Zhu Min said that at this time of the day, it is still necessary for Caijing to invite a theoretical economist to talk about the theory. When we are concerned about the fluctuation of the stock market, the flow of the capital market, and the growth and fluctuation of the economy, we can see that behind the events, people are pushing forward. These are the forces of human nature playing a role and are all stories. Therefore, it is very important to understand market behavior and market equilibrium from the perspective of human weakness, and to understand the existence of error, foolishness, fraud and ignorance, which will make us far away from the concept of ideal equilibrium. In the final analysis, the market exists in the human society, and it is people who constitute all the actions to promote the development of the market. So when we look at the appearance of an event, we should still see people’s behavior and motivation from behind.
In the final analysis, to see people’s behavior, human weakness and the spread of stories is the most fundamental to understand all financial behaviors and financial markets today.
The following is the transcript of the dialogue:
Wang Boming: Good morning, ladies and gentlemen! Welcome to the annual Caijing annual meeting. Today, I would like to say that the annual meeting of Caijing was held in Tongzhou for the first time. Speaking of Tongzhou, I would like to say a few more words. Secretary Zeng is also here. In the past ten years, I have been to TongZhou twice. I am very sorry. I came here two months ago to attend the annual financial meeting of Tongzhou and heard about the development plan of Tongzhou. Just now, Secretary Zeng said that TongZhou’s future planning may require investment of nearly 800 billion yuan. What is the amount? Let’s imagine that when you go to Shanghai, you will see Pudong, which is shocked by the skyline of Pudong. In the next five to 10 years, if this plan is realized, we will also see a skyline of Beijing in Tongzhou. So I still say that. My mind is still in Tongzhou ten years ago. At that time, it was called Tongxian. Now it is called Tongzhou, the vice High School of Beijing Heart. In the next five to 10 years, it is hoped that the sub center of Beijing will be removed and TongZhou will become the real center of Beijing.
The annual meeting of Finance and economics in 2020 is indeed full of challenges, not one
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