Session 7: Market Efficiency - Laying the Groundwork

Our beliefs about market efficiency and inefficiency determine how we invest. In this session, we look at what an efficient market is and note that market efficiency does not preclude market mistakes (price can be different from value) or investors beating the market (though they tend to be few and far between). We also look at the requirements for a market to be efficient: liquidity in markets and traders/investors who are trying to exploit the inefficiencies. Finally, we eke out the implications: markets are likely to be less efficient if trading costs and trading frictions are high and value-seeking investors are few and far between. While most markets are efficient for most people at most points in time, there are pockets of inefficiency that we can be exploited in investing.

[orwahassan]

Hello! is there slides available for this lecture?

[kytv]

About the loss aversion theory, the two scenarios are: 1. certain gain of $250 over uncertain gain of $200; 2. uncertain loss of $250 over certain loss of $200 (irrational). However I don't think this example is symmetrical??
To have symmetrical scenarios, the 2nd should be optioning between "uncertain loss of $200 and certain loss of $250"? But in that case, the result seems to be too obvious and does not explain any loss aversion theory.
I'm thinking the first scenario should be "certain gain of $200 over uncertain gain of $250", which will make it symmetrical.