Financial darwinism has its source in the absence of democratization of information. Lack of this kind of democratization, in turn, has many causes. One of them is so-called 25th micron barrier – barrier of human perception. Human eye is able to see the order of 25 microns, which is compared to the pollen dust. Below this threshold, we rely on intuition and very often… the market luck.
This natural and anthropomorphic regularity has serious consequences for the (dys)functioning of the global mercantile systems and political regimes. One of these places are stock markets where trillions of dollars rotates daily – i.e. in 2013 NYSE has 7 trillion US dollars turnover, NASDAQ 5 trillion US dollars turnover and Tokyo Stock Exchange 3,5 trillion US dollars turnover.
For the record, it is worth noting that global Gross Domestic Product, according to World Bank data, was 75 trillion US dollars in 2013. Therefore, stock markets turnovers constitute its lion’s share. Why, then, some say that currently we live in darkness and illiteracy era, which has a crucial impact on the failure of global markets and theirs efficiency? Such question may seem strange in the XXI century – century of i.e. nano-, bio- and high-speed technology.
The main limitations are perceptual complexity and diversity of economic life, which is the matrix on which stock markets are mounted. This fact pointed out Eric Beinhocker in his book “The Origin of Wealth”, by calculating the number of so-called SKUs (ang. stock keeping units), which number, in New York, is approximately ten to the power of ten (10000000000). SKUs are commodities available to every consumer, in this case in NY. That’s more than the expected number of species on Earth. Therefore, New Yorker can not have a complete knowledge about SKU’s individual quality, in result i.e. the stock markets must be guided by some instinct, and not scientifically diagnosed reliability. This makes mercantile systems, which are part of the political systems, affected by installed defect.
In this context, it must be said that confounding hypothesis of efficient market, formulated by French mathematician, Louis Bachelier, is false and should end up in the trash of history. Bachelier’s theory inspired and pushed many minds to construct a variety of tools for processing and accumulating of information on the stock market. Theory says that the market possesses the ability for efficient and complete information gathering, so that the price of the stocks and securities always reflects the complete knowledge about them. Talking briefly and simply, times in which the royal messenger informed London brokers about outcome of Napoleonic War in the current Information Age – according to this hypothesis – is impossible. Markets immediately process the information. Bachelier said that players, in the valuation process, takes into account both: the public information, as well as those non-public, so the market can not be confused.
But how about 25th micron barrier? Belief in its key sense lays somewhere between clash of two sociological concepts – Gustav Le Bon’s crowd psychology and its stupidity and James Surowiecki ‘s wisdom of the crowd.
What is mentioned barrier? Look ahead. Are You able to count a number of nitrogen molecules, the main component of air, which currently are dancing on Your nose? Or dust content represented by particles: PM10 and PM2,5 causing i.e. lung cancer which leads to expenditure from state or Your private budget on health service? Going to the store, are You able to assess, whether in dairy products are hazardous allergens that got there during transport? All these bits of information are carriers of value, mercantile value. Unfortunately, using our sense organs the answer for all these questions is: NO.
Just as the sword is an extension of the arm, people need common extension of perception, which reaches beyond 25th micron barrier. Current huge deficit of knowledge generates huge losses and builds up ineffectiveness of global markets where unaware players spend its money. This unawareness multiplied by millions of individuals generates aforementioned darkness era and contemporary Tragedy of Commons, referring to the theory of Garret Hardin. To finally confirm doubts about the effectiveness of markets, let’s consider the case of an institutional body.
To illustrate the hardships, and even the impossibility of making rational decisions by market players following case assignment should also be considered – a pharmaceutical company which core business is the manufacturing of a drug for melanoma. The profit of the entity depends largely on demand, that is, the number of patients. Their number depends both: on the generations’ genetics and epigenetics and i.e. the Earth’s just-in-time ultraviolet radiation, which is one of the catalysts to the formation of this type skin cancer. But there is no instrument for everyday use as an extension of human perceptual abilities or updated just-in-time map, which gives necessary information from the world under 25th micron to the player of the stock exchange. This is crucial from the point of view of the construction real, not hypothetical, market efficiency. Therefore, the automatic question rises. Is humanity, which devotes one of the key parts of its wealth creating mechanism to the intuition, reasonable? Lack of knowledge is now pending cause of so called Invisible Chemical Wars, concept of Swedish chemist, Svante Oden – wars without a declaration of war between countries which can contaminate each other with substances from below 25th micron barrier. States can not rely on civil defense of its incapacitated citizens in this area. If someday that will change?
Source of photo: Dennis Skley (Flickr)