I simultaneously love and hate UChicago! What should I do?

DavidTaleb
Wed, 16 Jul 2014 14:06:31 +0000

@phuriku thanks for the reply and I agree with you that there are very good real life applications. But I disagree with the argument that we should discount the arguments against freshwater economics just because it is an easy target. I think it is important to ask, why is it such an easy target? And I think it is because the line of reasoning seems flawed.

For example, Eugene Fama did a study which compared low P/E & P/B stocks to high P/E & P/B stocks and found that those that have lower multiples, tend to outperform the latter group. He tend decided that the reason why the former group outperform the latter group, is because the former group is more risky!

What kind of twisted logic is that? From that line of reasoning, the Coca-Cola company, arguably the most stable company in existence, is riskier than, Netflix or Facebook. Theory does not line up with reality, and if one uses that as the foundation for an entire school of economic thoughts, the situation becomes more untenable.