Saturday, September 28, 2013


Tim Harford reports the experiment where students rated music with and without access to other peoples' opinion.  Unsurprisingly, other views are influential.

"Watts and his colleagues split the music fans at random into eight “worlds”. Some “worlds” were asocial: people listened to and rated songs without knowing what others were doing. In other “worlds”, people were shown what others in their world were rating and downloading. The social “worlds” produced two striking results. Inequality increased: the most popular songs were far more popular than in the asocial world, as people herded together. The unpopular songs were even less popular."

If this is the case with something that is very subjective, how much more in financial markets when there is assumed to be important information available that would influence the perceived value?  This is a good argument for momentum and a social aspect to valuation.

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