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| Author: | |
| Title: | Does the Market Have a Mind of Its Own, and Does It Get Carried Away With Excess Cash? |
| Journal: | Journal of Psychology and Financial Markets
2002 : VOL. 3:2, p. 72-75 |
| Index terms: | CONSUMERS PRICES PRICING ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | It has become an article of faith that the "invisible hand" of the free market sets prices with the collective wisdom of the body of traders. The success of the free market in providing stable consumer prices has enhanced the confidence in this idea. Within a very abstract sense, the price theory of consumer goods is similar to that of financial assets. Both are set by supply and demand for the item. Yet there is a profound difference between the two in that financial assets are often bought with the sole purpose of selling at a higher price later, while consumers rarely buy for that reason. For the consumer, the market offers a local optimization problem. A consumer must exercise a relative preference for different items each of which provides some utility. |
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