Does the market self-correct? Asymmetrical adjustment and the structure of economic error

Peter T. Leeson (), Christopher J. Coyne and Peter J. Boettke ()

Review of Political Economy, 2006, vol. 18, issue 1, pages 79-90

Abstract: While both errors of overoptimism and errors of overpessimism are possible in the face of imperfect information, the presence of option value from deferring a decision to exchange causes trader errors to be overpessimistically biased. This is problematic because, unlike errors of overoptimism, errors of overpessimism are not 'automatically’ revealed to the agents who make them. Furthermore, owing to the 'bad news principle of irreversible investment,’ these errors are likely to persist. We show how entrepreneurial activity corrects such errors and prevents their persistence, creating a tendency towards market efficiency despite the presence of imperfect information.

Date: 2006
View citations in EconPapers

Downloads: (external link)
http://taylorandfrancis.metapress.com/link.asp?tar ... &id=H4V0G8157N188H65 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:taf:revpoe:v:18:y:2006:i:1:p:79-90

Ordering information: This journal article can be ordered from
http://www.tandf.co.uk/journals/subscription.html

Access Statistics for this article

Review of Political Economy is edited by Gary Mongiovi and Steve Pressman

More articles in Review of Political Economy from Taylor and Francis Journals
Series data maintained by Christopher F. Baum ().