Financial markets as news institutions
In an insightful post on the blog Overcoming Bias, economist (and Alcor member) Robin Hanson argues that proposals to halt stock trading or short selling during times of crisis are akin to banning bad news:
“The fact that newspapers report a lot less news on this crisis on weekends shows that most crisis news now comes via financial markets. Don’t blame the messenger for telling you bad news; blame those who caused the bad news, and who keep you from learning sooner.”
Hanson also argues that “systems for detecting and punishing misleading reporters are far stronger and more effective in financial markets than in newspapers.” If Hanson is correct, this raises a number of intriguing questions about the relationship between financial incentives, competition, and the discovery of truth.
It seems that when people do not like the news, there is a strong urge to do something to someone without much regard for issues such as causality, consistency or justice. A good example is the recent fall in oil prices. As Hanson notes, oil speculators were blamed for rising but not for falling oil prices. Similarly, when stock prices are going up few commentators argue that trading should be halted because the higher prices do not reflect the truth.
