A friend trained in economics, let’s call her “Polly”, was over to the house for dinner last night. She asked if we knew anyone for a twentysomething friend of hers, let’s call him “Bunbury”, who worked a demanding software management job at a big software company. He was a “really nice guy” and she was perplexed that he couldn’t find someone. If someone at the table had said “there is a company traded on the NYSE that is really undervalued” she would have immediately hammered him with an explanation of the Efficient Market Hypothesis:
“An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.”
(see http://www.princeton.edu/~ceps/workingpapers/91malkiel.pdf and http://www.investorhome.com/emh.htm). Why then was Polly convinced that her friend was such a catch? Applied to romance, the Efficient Market Hypothesis says that if the guy were actually worth dating one of the millions of women who live within a 30-mile radius of his house would have figured it out.
It occurred to me that all of the really nice mature easygoing people that I know are married. If one looks carefully at a single person it is usually not hard to find an explanation for why they are not happily paired. One might be able to find an exception in an isolated fishing community in Alaska but in a major metro area within the Lower 48 it seems improbable.
What about Bunbury? Polly says that he is smart but presumably all of his intelligence and cleverness is expended at his 80-hour/week job, which in any case is best described as “sits at a desk and types at a computer”. What’s left over for a potential partner is part of a paycheck. If she wants to marry a paycheck, there are plenty of medical doctors and Wall Street guys who make a lot more than Bunbury.Full post, including comments