Chapter 11: If You Can't Beat 'Em. . . Summary and Analysis

In 2009, a year after the economic collapse, $8 million was traded every second when the Stock Exchange was open. By year's end, more than $46 trillion in stocks had been traded. In the 1950s, the average stock was held for six years before it was traded. By 2000, the average stock was sold after only six months. Basic economics teaches that trading is rational when it benefits both parties. Why so much trading is currently occurring is a mystery.

Bayesian statistics and free-market capitalism stem from the same intellectual tradition. Both Adam Smith and Thomas Bayes were contemporaries, educated in Scotland and admired philosopher David Hume. Both Bayes' and Smiths' processes are consensus-seeking and adhere to the wisdom of the crowd. The stock market is really a forecasting body that makes predictions about the...