the basic laws of human stupidity by carlo cipolla

The First Basic Law prevents me from attributing a specific numerical value to the fraction of stupid people within the total population: any numerical estimate would turn out to be an underestimate. b) day after day, with unceasing monotony, one is harassed in one's activities by stupid individuals who appear suddenly and unexpectedly in the most inconvenient places and at the most improbable moments. No matter how high are one's estimates of human stupidity, one is repeatedly and recurrently startled by the fact that: a) people whom one had once judged rational and intelligent turn out to be unashamedly stupid. Closer scrutiny will however reveal its realistic veracity. At first, the statement sounds trivial, vague and horribly ungenerous. The first basic law of human stupidity asserts without ambiguity that: Always and inevitably everyone underestimates the number of stupid individuals in circulation. The adaptive markets hypothesis offers a number of surprisingly concrete implications for portfolio management. Extending Simon's notion of 'satisficing' with evolutionary dynamics, the author argues that much of what behaviorists cite as counter-examples to economic rationality-loss aversion, overconfidence, overreaction, mental accounting, and other behavioral biases-is in fact consistent with an evolutionary model of individual adaptation to a changing environment via simple heuristics. An adaptive markets hypothesis that reconciles market efficiency with behavioral alternatives applies the principles of evolution-competition, adaptation, and natural selection-to financial interactions. Research in the cognitive neurosciences suggests these two perspectives are opposite sides of the same coin. The emerging discipline of behavioral economics and finance has challenged the EMH, arguing that markets are not rational, but rather driven by fear and greed.

One of the most influential ideas in the past 30 years is the efficient markets hypothesis, the idea that market prices incorporate all information rationally and instantaneously.

The basic laws of human stupidity by carlo cipolla